Backlogs grow as Graco, Pentair deal with supply chain issues

Improving global economic activity fueled robust orders during the last three months of 2021, helping Minneapolis-based Graco Inc. during the fourth quarter. But logistical challenges increased the cost of components and also increased the company's order backlogs.

"While we still face supply chain, logistical and inflationary challenges, we are managing these headwinds and Graco is positioned well entering the new year," Mark Sheahan, Graco's chief executive, said in a news release.

The company normally makes price adjustments in January, and made larger than normal increases this year to help offset the higher costs of materials and transportation, officials said.

The company's sales and earnings results, reported after the markets closed Monday, exceeded analyst expectations for the quarter and the full fiscal year.

The maker of fluid handling equipment for industrial, process and contractor markets said earnings increased 5% to $120.3 million, or 69 cents, in the quarter. Revenue grew 15% to $539.6 million.

Adjusted earnings for the quarter grew more than 8% to $115.8 million, or 66 cents a share, and beat analyst expectations by 4.8%. Quarterly revenue — which grew across all three of the company's segments — beat expectations by 3.9%.

But gross margin during the quarter decreased 1% from the same period in 2020 as costs increased for materials, labor and freight. Graco was able to minimize those impacts through increased volumes and by selling more of its higher-margin products.

Graco typically books and ships orders to customers and does not carry a lot of backlog. But supply chain shortages meant Graco's backlog grew throughout 2021 from $151 million at the start of the year to $255 million at the end of the second quarter and $375 million at the end of the year.

Customers appear to be patient. During the earnings call Sheahan said Graco was not losing orders as a result of the backlog delays.

Sheahan did note on the call that the pricing actions taken in January would not start making the way through the system until the second quarter as they continue to work through the backlog of orders.

Sheahan predicted growth trends would continue in 2022, with full-year sales increasing in the high single digits on an organic, constant currency basis.

"Our pricing actions coupled with strong demand levels across all major end markets and product categories should set us up for another strong year." Sheahan said.

Pentair, which provides products to treat and manage water globally, also has order backlogs because of supply issues.

The company, which is headquartered in London but managed out of offices in Golden Valley, on Tuesday reported fourth-quarter income of $148.7 million, or 89 cents a share, up 46% from the same period a year ago. Sales increased 24% to $989 million.

But while results increased and beat analysts' expectation, the company ended the year with a near record backlog in orders because of supply chain issues, said CEO John Stauch.