On Friday, Goldman Sachs (NYSE:GS) maintained its Neutral stance on Graco Inc . (NYSE:GGG), with a steady price target of $83.00. The firm's analysis followed Graco's reported sales and segment earnings before interest and taxes (EBIT), which fell short of consensus expectations from FactSet. The company's sales and segment EBIT came in at $519 million and $156 million, respectively, marking a decline of 4% and 10% against projections.
The shortfall was attributed to underperformance in both Contractor and Process segments, with Segment EBIT dropping 13% and 20% compared to consensus. Geographically, the Americas saw a 2% decrease and EMEA a 4% decrease in Contractor segment performance, while the Asia Pacific region experienced a significant 27% decline in the Process segment.
Despite these challenges, Graco reported a 50 basis point increase in gross margins for the quarter, as the company's pricing strategy successfully compensated for the lower volumes.
From an end-market perspective, conditions in Europe were described as muted, while North American Industrial sales showed an 18% organic increase, driven by major projects in powder finishing. However, it was noted that without these projects, sales would have aligned more closely with the EMEA Industrial's 3% growth.
In the Asia Pacific region, China's markets, including Autos, Mining, Battery production, and Solar, were highlighted as areas of concern, while Korea and India exhibited positive growth trends.
Despite the mixed results, Graco has maintained its full-year 2024 organic growth guidance at a low single-digit decline. In light of the company's performance and market outlook, Goldman Sachs has slightly lowered its earnings per share (EPS) estimates for Graco from 2024 to 2026 due to anticipated weaker growth.
The firm concluded that while maintaining a Neutral rating on Graco, it sees a better risk/reward balance in other areas within its coverage. The $83 price target suggests a 4% free cash flow yield expectation for 2025.
InvestingPro Insights
Graco Inc.'s recent performance, as analyzed by Goldman Sachs, can be further contextualized with real-time data from InvestingPro. Despite the reported sales and EBIT declines, Graco maintains a strong financial position. The company's market capitalization stands at $13.9 billion, reflecting its significant presence in the industrial machinery sector.
InvestingPro data reveals that Graco has an impressive gross profit margin of 53.64% for the last twelve months as of Q3 2024, aligning with Goldman Sachs' observation of increased gross margins. This is supported by an InvestingPro Tip highlighting Graco's "impressive gross profit margins," which demonstrates the company's pricing power and operational efficiency even in challenging market conditions.
Another relevant InvestingPro Tip notes that Graco "has raised its dividend for 19 consecutive years." This consistent dividend growth, coupled with a current dividend yield of 1.24%, underscores the company's commitment to shareholder returns despite the recent underperformance in some segments.
While Goldman Sachs maintains a Neutral stance, investors might find it valuable to know that Graco "holds more cash than debt on its balance sheet," according to an InvestingPro Tip. This strong financial position could provide Graco with flexibility to navigate current market challenges and potentially capitalize on growth opportunities as they arise.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for Graco, providing a deeper understanding of the company's financial health and market position.
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