Q4 2024 Summary
Published Feb 18, 2025, 8:00 PM UTC- Strong growth prospects in China and Asia-Pacific markets. Graco expects growth in China in 2025, with their legacy business having plateaued and positive signs emerging in previously soft areas like battery, solar, and automotive sectors. The team is confident as they move into 2025, and the acquisition of Corob expands their presence in India, leveraging their manufacturing footprint there.
- Resilient performance in challenging markets and positive outlook for key divisions. The Process division overperformed expectations, particularly in environmental, LED, and high-pressure valve businesses. Booking activity looks good heading into 2025. Additionally, the powder coatings division has a larger-than-normal backlog, with firming order rates that bode well for the year.
- Opportunities for margin expansion through strategic acquisitions and operating efficiencies. Graco focuses on acquiring companies where they can help grow the top line or expand margins, targeting double-digit rates of return for shareholders. They've experienced margin improvement opportunities when integrating acquisitions by leveraging their capital and operational expertise. Furthermore, the reorganization to a customer-centric structure is expected to result in annual savings of approximately $16 million.
- The Industrial segment experienced larger-than-expected declines, especially in Asia Pacific, with "pretty sharp" declines in the sealant and adhesive business compared to last year's Q4, indicating ongoing weakness in key markets like China.
- November and December orders were softer than earlier in the quarter, which "kind of surprised us," suggesting potential weakening demand as the company enters 2025.
- The company's ability to forecast "isn't real great" due to being a short-cycle business, increasing uncertainty around their low single-digit growth guidance, especially since key markets like China and the semiconductor space have only "flatlined" and may not improve.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –3.2% (from $566.65M to $548.7M) | The overall revenue decline is driven by a significant drop in the Industrial segment, which weighed heavily on total revenue despite a modest 3.4% increase in Contractor revenue and stability in the Process segment. This divergence contrasts with earlier periods when mixed segment performance partially balanced each other out ( ). |
Industrial Segment | –14.3% (from $192.01M to $165.7M) | The Industrial segment’s steep decline indicates that key end markets likely experienced severe headwinds in Q4 2024. This downturn contrasts with prior periods where softer performance was evident but not as drastic, suggesting that external market challenges or reduced demand became more pronounced in Q4 ( ). |
Contractor Revenue | +3.4% (from $238.83M to $247M) | The modest increase in Contractor revenue suggests improved performance in this channel, potentially due to favorable market demand or effective product strategies that succeeded this quarter compared to a previous slight softness. This improvement helped to partially offset declines in other segments ( ). |
Process Segment | Virtually unchanged (from $135.81M to $136.1M) | The near-flat performance in the Process segment indicates that opposing forces balanced each other out—weakness in some areas was offset by gains in others. This stability is notable compared to prior periods where this segment either grew or declined sharply, reflecting a more balanced outcome in Q4 2024 ( ). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Guidance | FY 2024 | Low single-digit decline | No current guidance | No current guidance |
Tax Rate | FY 2024 | 19.5% - 20.5% | No current guidance | No current guidance |
Capital Expenditures | FY 2024 | Remain unchanged | No current guidance | No current guidance |
Unallocated Corporate Expense | FY 2024 | Remain unchanged | No current guidance | No current guidance |
Sales Growth | FY 2025 | No prior guidance | Low single-digit sales growth | No prior guidance |
Foreign Currency Impact | FY 2025 | No prior guidance | ~1% impact on net sales, ~2% on net earnings | No prior guidance |
Unallocated Corporate Expense | FY 2025 | No prior guidance | $39M to $42M | No prior guidance |
Effective Tax Rate | FY 2025 | No prior guidance | 19.5% to 20.5% | No prior guidance |
Capital Expenditures | FY 2025 | No prior guidance | $50M to $60M | No prior guidance |
Annual Savings from Reorganization | FY 2025 | No prior guidance | $16M | No prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Full-Year Revenue | FY 2024 | Low single-digit decline on an organic constant currency basis | Q3+Q4 2023 totaled 1,106.35M (539.7+ 566.65) vs. Q3+Q4 2024 totaling 1,067.9M (519.2+ 548.7) → ~-3.5% YOY | Met |
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2025 Growth Outlook
Q: Are you expecting growth with current order rates?
A: Yes, current order rates with normal seasonality and pricing actions should lead to low single-digit growth in 2025. Incoming orders have been consistent in the back half of the year, and negatives like China and semiconductor have flatlined. -
Reorganization Savings
Q: Will reorganization savings start in Q1; how are they allocated?
A: Yes, savings start in the first quarter. The heaviest savings are in the industrial segment, but Contractor and Expansion markets also contribute. Charges recorded in each segment are a good proxy for expected savings next year. -
Litigation Costs Impact
Q: Did $16 million litigation charges hit Contractor segment?
A: Yes, $16 million in litigation costs hit the Contractor segment in 2024. This was not adjusted out and will not recur in 2025. -
M&A Strategy and ROIC
Q: How do you approach M&A and protect returns?
A: We maintain a buyer's discipline, seeking double-digit returns and good businesses where we can grow top line or expand margins. We're optimistic about acquisition opportunities and have flexibility to act quickly. -
China Outlook
Q: What's your outlook for China sales?
A: We believe we've reached equilibrium in China and expect growth in 2025 due to market improvements and pricing actions. Easier comps also help. Corob provides more exposure, especially in India. -
Contractor Margins and Market
Q: How are Contractor margins and market conditions?
A: Excluding onetime charges, Contractor margins are around 25% to 26% this quarter. The market is stable to potentially improving, with housing starts projected to be flat and new home sales expected to rise slightly in 2025. -
Expansion Markets Outlook
Q: Will Expansion markets outgrow the rest of portfolio?
A: Semiconductor is the wildcard; it caused reductions in 2024 but is expected to improve in 2025, leading to growth. Environmental and high-pressure valve businesses are steady performers with anticipated continued growth. -
Impact of Tariffs and Tax Rates
Q: How might tariffs and tax rates affect you?
A: We didn't factor tariffs into the January price increase but can adjust pricing if needed. Potential preferential corporate tax rates for U.S. manufacturers could benefit us due to our North American footprint. -
Powder Coating Business
Q: Is there a shift in Powder Coating business timing?
A: No significant shift from Q4 to Q1. Tough comps in Q4 due to prior year's project activity. Current backlog is higher than normal, indicating positive trends for 2025. -
Corob Acquisition Impact
Q: What's the outlook for Corob's contribution?
A: Corob is expected to add 4% to 5% to growth in 2025. We anticipate it to be slightly accretive to EPS in 2025 and fully accretive in 2026 after absorbing onetime costs. -
Housing Market Effect on Contractor
Q: How does housing market affect Contractor segment?
A: The market is stable to improving. Existing home sales trending up is favorable as it drives painting activity. Interest rates appear stable to slightly favorable, supporting a positive outlook. -
Process Division Performance
Q: Any updates on Process division strength?
A: Strength is across the board, particularly in lubrication businesses, which had a strong finish to the year. No specific factors relating to Quantum electric pumps. -
Step-up Charges from Corob
Q: Will step-up charges from Corob continue?
A: There will be some carryover of step-up charges in Q1 2025, but they will be completed after the first quarter. -
Further M&A Opportunities
Q: Are you signaling more M&A ahead?
A: Yes, we're optimistic about acquisition opportunities due to potential sell-side activity. We're interested in good businesses where we can improve margins or enter adjacent markets, maintaining our discipline on returns. -
Reorganization and M&A Focus
Q: How are you changing M&A focus after reorganization?
A: We're leveraging customers and channels better, eliminating overlaps, and focusing on a global organization. The Expansion markets group is evaluating assets and exploring new markets beyond our historical areas. -
Recent Order Trends
Q: Did orders slow down post-October?
A: Yes, November and December orders were softer than earlier in the quarter, which surprised us. Recent order trends support the low single-digit guidance for the year. -
Segment Outlooks
Q: How are you viewing industrial and expansion markets?
A: We expect growth in both groups on a full-year basis but recognize there will be challenges. -
Contractor New Products
Q: How does new product timing affect Contractor segment?
A: Last year's new products launched in Q2 rather than Q1, possibly creating easier comps in the first quarter of 2025. Overall market conditions are at least as favorable as recent years. -
Customer Trials and Quantum Pumps
Q: Any updates on Quantum electric pumps customer trials?
A: No specific updates. Strength in the Process division is general across the board, notably in lubrication businesses. -
One-timers and Step-up Charges
Q: Is the $3 million acquisition step-up charge done?
A: There will be some carryover through the first quarter, but all step-up charges will be completed after Q1 2025.