Graco Inc. (NYSE: GGG), a leading manufacturer and distributor of industrial and commercial liquids (not the baby stroller company), is still struggling to develop a growth strategy that will help the company overcome a slowdown in the commercial painting sector of the U.S. economy. Until both retail and commercial construction return to normal levels, Graco will continue to face slow or no growth in sales and profits in its U.S. market. The stock has gone nowhere recently, opening the year trading at $40.28, and closing on July 13 at $39.68, up .30. It pays a quarterly dividend of $.165 per share, not enough to attract favorable attention.

A quick look at its 1Q 2007 results confirms that Graco has taken a few hits in the past few months, but CEO David Roberts remains optimistic that Graco's numbers will shortly turn favorable as its completes the acquisition and integration of Gusmer and Lubriquip, and opens a new manufacturing facility in its home state of Minnesota. In 1Q 2007, total sales increased 3% to $197.5 million, but net earnings declined, led by a 9% decline, to $120.5 million, in its U.S. market. EPS declined 2% to $.50. This decline is nothing to get alarmed about, except that the next few quarters don't look that good for the construction sector in the U.S., despite CEO Roberts forecast, so Graco will continue to post low numbers.

Graco is concentrating on growth opportunities in both Europe and Asia. European sales increased 25% to just under $50 million, but a big chunk of that gain was due to currency exchange rates, not organic growth. Sales in Asia increased 35% to $27.6 million, but again, organic growth accounted for only a portion of the increase. Overall operating profit decreased slightly, from 28.4% to 26.4% mainly due to higher product development spending and marketing costs for a new line of paint sprayers. Graco repurchased $24 million of its stock during 1Q 2007 and still has cash on hand to pursue selective acquisitions and expand both its market and distribution channels.

Graco still working on a growth strategy originally appeared on BloggingStocks on Sun, 15 Jul 2007 12:10:00 EST. Please see our terms for use of feeds.