Graco Inc.'s stock sunk 8.6 percent Thursday after reporting a double-digit drop in second-quarter profits and downgrading its outlook for the year.
The Minneapolis-based maker of industrial pumps and sprayers said the quarter that ended June 24 was impacted by the oil downturn, tough currency exchanges and higher corporate expenses related to pensions, acquisitions, product launches and facility consolidations.
Sales rose 4 percent to $348 million during the quarter amid rising demand from contractors who use Graco's spray and pump equipment to insulate walls, coat beams and build properties.
While sales increased, the uptick was not enough to impress analysts, who on average expected $352 million in quarterly revenue. Profits also disappointed, as analysts generally expected adjusted earnings of $1 per share.
Instead, Graco reported that adjusted earnings dropped 19 percent to $50.9 million, or 89 cents a share, compared with $62.9 million or $1.05 per share from the prior year. Prior year results exclude proceeds from the mandated divestiture of a liquid finishing business. Including the proceeds, year-ago earnings were $172 million, or $2.90 a share.
Excluding the divestiture, "Graco's second-quarter profitability was impacted by a number of factors, including sales mix, lower factory volume, facility moves and integration activities, new product launches in the contractor segment and unallocated corporate expenses," CEO Patrick McHale told analysts Thursday. "Although overall demand trends [vary] from region to region, and between product categories, we remain steadfast in our commitment to investing in long-term growth initiatives."
McHale noted that overall demand seemed to be slowing. "It's not that the pipeline is drying up. But there is much more caution and [customers are] taking more time to make decisions on capital expenditure decisions than they were a year ago," he said.
For the full year, McHale told analysts that the modest organic growth seen recently "has resulted in a reduction in our full-year outlook for 2016. We have revised our low-to-mid single-digit growth expectation down to a new outlook of low single-digit growth."
Graco's stock closed Thursday at $73.37, down $6.91 or 8.6 percent.
S&P Global Market Intelligence analyst Matt Miller lowered his target price for Graco's stock but maintained his "hold" rating. "Although we see strength in its contractor segment, we expect significant weakness in its process segment to persist in the second half of 2016," he said. "We think Graco shares are close to fully valued."