For those Fools who fondly recall Peter Lynch's mythical Cajun Cleansers, Graco (NYSE:GGG) might be your kind of stock. It does jobs that can sound pretty boring (products that apply paints, coatings, and finishings) and sometimes a little dirty (equipment for vehicle lubrication). More importantly, it makes a lot of money doing it.
No need to sugarcoat fourth-quarter results; revenues were up 15% as reported (though about 4% on an organic basis) and would have been even better if not for the extra week in the year-ago period. Based on management's comments from the call, it looks like overall organic growth was actually up on a double-digit basis when adjusted to factor out that extra week.
While gross and operating margins took a little hit from lower-margin acquisitions, the company still managed to post a year-over-year improvement at the operating margin level. That led to reported per-share net income rising about 18% from last year's level. Free cash flow was also no slouch either, coming in 28% higher.
Reported growth was strongest in the industrial/automotive business, but it looks like lubrication equipment and contractor sales both surpassed that in terms of organic growth. Nevertheless, each unit posted double-digit operating income improvements. Industrial/automotive led the way in absolute amounts, while lubrication showed the strongest growth.
Though there are plenty of competitors -- Nordson (NASDAQ:NDSN) and Illinois Tool Works (NYSE:ITW) compete in some areas, among dozens of others -- Graco is well-diversified. Its customers range from auto service companies to aerospace to food/beverage concerns. What's more, the company puts a fair bit of money back into R&D. It also seems interested in building both its industrial distribution channel and its commercial channel, the latter through places like Motley Fool Inside Value pick Home Depot (NYSE:HD) and Sherwin-Williams (NYSE:SHW).
I only wish the stock were dirt cheap. It lies just outside of my normal margin-of-safety discount for a company with this sort of return on capital and overall quality. But that's not to say that it can't or won't go higher, nor that it might not be right for you.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
