GGG - Graco

[Castanza]

Has anyone looked at Graco recently? I know this was a hot stock a decade ago but it's current market doesn't look super appealing at current prices.

 

They have missed earnings the past three quarters, have seen extreme slowdowns in their manufacturing/industrial (largest margin segment) segments due to Asia and EMEA (particularly auto). The conference call was extremely negative and they lowered their outlook. The trade wars are having decremental affects on industrials. The CEO fielded a lot of questions regarding potential layoffs due to the slow down. But made his case that layoffs were not in the plan (Didn't seem confident to me). They are actively researching ways to reduce costs and overhead.

 

Amazingly they are up 25% on the year. About the only positive segment was contractor/consumer due to the relatively strong housing market in the US and 21m shares available for strategic re-purchase (with approval).

 

What is holding this up under current macro conditions?

[stahleyp]

Are Mr and Mrs Castanza expecting? ;)

[Castanza]

Are Mr and Mrs Castanza expecting? ;)

 

Wrong Graco  :P

[BPCAP]

I’ve like this company for a long time. It’s one of those hidden moats or niche scale companies.  I think they are the John Deere of fluid applicators (like paint guns).

 

Good technology.  Someone is applying an expensive fluid to a very expensive investment.  You pay up for performance and reliability, and get a lower total cost of ownership over time (or lower risk).

 

How many capital goods companies can you find with the kinds of margins they have?  They and Rockwell Automation are off the charts. Evidence of a moat.

 

 

 

 

[Broeb22]

GGG and Nordson are two of those industrials I'd love to own but maybe never will because of price.

[Castanza]

I’ve like this company for a long time. It’s one of those hidden moats or niche scale companies.  I think they are the John Deere of fluid applicators (like paint guns).

 

Good technology.  Someone is applying an expensive fluid to a very expensive investment.  You pay up for performance and reliability, and get a lower total cost of ownership over time (or lower risk).

 

How many capital goods companies can you find with the kinds of margins they have?  They and Rockwell Automation are off the charts. Evidence of a moat.

 

It was assuring to hear in their recent conference call that they have not lost any market share resulting from current macro environment. I have had this on my watch list for quite some time, and I'm hoping that current macro trends bring this down and present a buying opportunity. As Broeb22 mentioned below it always seems to expensive. I guess you pay a premium for quality (Costco comes to mind). I probably said the same thing last year and here we are +25% yoy...

 

Thanks

[tede02]

This is one of my favorite companies and is a permanent holding in my portfolio. The company operates in a niche area (fluid handling) and is clearly the worldwide leader in this area. The company is headquartered in my figurative back yard so I've gotten to know some people on the inside which has been helpful. I know a number of people who have worked their for their entire career.

 

Management is top notch. I haven't looked recently, but a year or so ago, the CEO personally held well in excess of $100m of company stock. He's also been with the company for well over 20 years. Worked his way up from the bottom in essence. Great reputation locally as being a genuinly nice, low-key guy.

 

I actually sent him a letter within the past year encouraging the company to retain more earnings because they earn such a high ROIC. He replied with a nice hand written note indicating they would retain more but they literally don't have enough good ideas/places to put the money to work. He lamented that acquisition targets have been extremely expensive in recent years. Too expensive for their taste. This certainly implies the discipline that I want in a CEO.

 

I like the business because the nature of their products are essential for the modern world. The company will certainly be subject to the ups and downs of the business cycle, but if you look at the balance sheet, you can see how conservatively managed it is.

 

I personally don't find the company attractive at these prices. Earnings are going to be flat this year around $2. At over $50 per share, the math just doesn't look that great. Additionally, the company has not demonstrated that it can grow organically beyond mid-to upper single digits over the long haul.

[Spekulatius]

With these stocks, you just put them on your watchlist and wait...and wait. If you have a watchlist large and diverse enough, there will almost always be something on sale or at least available at a reasonable price.

 

Thanks for the discussion. I was not aware of this being a great business beforehand.