Graco Chief Executive Patrick McHale said business conditions were "OK" during the first quarter, but a misstep in new contractor products caused its results to miss the company's and Wall Street expectations.
The company makes sprayers for paints and coatings and mixers for the contractor market, sold in retail outlets such as Home Depot and Lowe's. The new generation of some products had quality issues — caught before they were out the door but postponing their launch until the end of March, McHale said on Thursday.
Revenue was down a bit to $404.9 million, missing investors' estimates by $10 million. Earnings were up 1% to $86.7 million, or 51 cents a share. Earnings, adjusted for one-time items, were 47 cents a share, missing Wall Street earnings estimates by 2 cents.
Now, the company is playing catch-up in the second quarter. "We definitely need it," McHale said in a conference call with analysts. If the company doesn't pick up the sales pace, "we're going to have some problems," he said.
While weather held up the start of the building season, the overall end market for the consumer products is good, he said. When there's a backlog, that's when contractors tend to buy new equipment, so while Graco lost sales by postponing the product launches, he said he's sure it can make it up.
The Minneapolis-based company did not adjust its year-end guidance, with executives saying they believe business will pick up. Some of the flatness in the industrial market was due to the timing of some contracts.
"We think these issues will moderate as we progress through the year," McHale said. "There will be no significant spending adjustments unless it continues through the second quarter."
However, currency translations and sluggishness in the Asia Pacific automotive market are affecting the company's industrial segment. Industrial sales were down 14% in the Asia Pacific market compared with the same quarter last year.
"The industrial demand across the globe is not great, but it's OK," he said.
He also said he did not anticipate acquisitions at this time because "everything's expensive right now."
The results were released after the markets closed on Wednesday, and the company conducted its conference call with analysts Thursday morning. Its stock closed on Thursday at $50.87, down 4%.
Catherine Roberts • 612-673-4292