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Text: I will provide a brief overview of our quarterly results before turning the call over to Mark for additional discussion.
Our conference call slide and our second quarter Form 10-Q are on our website and provide additional information on our quarter.
Yesterday, Graco reported second quarter sales of $507 million, an increase of 38% from the second quarter of last year.
The effects of currency translation added 4 percentage points of growth or approximately $12 million in the second quarter.
Reported net earnings were $110 million for the quarter or $0.63 per diluted share.
After adjusting for the impact of excess tax benefits from stock option exercises, net earnings were $108 million or $0.62 per diluted share.
Gross margin rates were up 220 basis points from the second quarter of last year as a favorable effect from realized pricing, increased factory volume, product and channel mix and currency translation offset the unfavorable impact of higher product costs.
Mix was favorable in the quarter due to the strong sales in the higher margin Industrial segment.
Supply chain constraints such as logistics capacity and component availability had an unfavorable impact in the quarter and will likely persist for the rest of the year.
On a sequential basis, gross margin rates were down 250 basis points as we saw cost pressures such as material, labor, freight and volume-based costs increased throughout the quarter.
The majority of these cost increase impact the Contractor segment as that is our highest volume business.
We also saw unfavorable mix on a sequential basis due to projects in Asia-Pacific in the Industrial segment.
At current cost and volume, we are estimating that realized price, strong factory performance and current production activity will offset the higher product costs on a full year basis.
Our operating teams are working diligently to minimize the disruptions and have been effective at keeping pace with our incoming order rates.
Operating expenses increased $27 million or 26% in the quarter.
Sales and volume-based expenses increased $18 million against a very low comparable in the prior year.
New product development and currency translation rates each increased operating expenses by $3 million.
The adjusted tax rate for the quarter was 18%.
Cash flows from operations are at $220 million for the year compared to $143 million last year.
This increase is due to the improvement in earnings in the quarter, partially offset by increases in accounts receivable and inventories that reflect the growth in business activities.
Significant uses of cash are dividend payments of $63 million and capital expenditures of $55 million, including $21 million for facility expansion projects.
A few comments as we look forward to the rest of the year.
Based on current exchange rates, the full-year favorable effect of currency translation is estimated to be 2% on sales and 5% on earnings, with the most significant impact having occurred in the first half of the year.
We expect unallocated corporate expense to be approximately $30 million and can vary by quarter.
Our full-year adjusted tax rate is expected to be approximately 18% to 19%.
Capital expenditures are estimated to be $150 million, including $90 million for facility expansion projects.
Finally, 2021 will be a 53-week year with the extra week occurring in the fourth quarter.
Sales in the second quarter grew by double-digits in every segment and every region.
Broad-based growth for the quarter and for the year continued in all major product categories, resulting in record quarterly sales and operating earnings.
Growth in Contractor continues.
This is its fourth consecutive quarter with near 30% sales growth.
The residential construction and home improvement markets have been strong in North America.
Demand in EMEA and Asia-Pacific has accelerated, resulting in sales exceeding pre-pandemic levels.
We are optimistic that incoming order rates will remain good in all regions during the second half of the year.
However, from a growth rate perspective, our comparisons become much more difficult due to the large increases experienced in the second half of last year.
The Industrial segment grew substantially during the quarter and for the year with sales volume either near or exceeding pre-pandemic levels in all regions.
Quoting activity increased throughout the quarter as many of our key end markets continue to recover.
Incoming order rates remain elevated as the pace of business accelerates worldwide.
Process segment sales grew 29% for the quarter and 17% for the year.
Similar to Industrial, sales volumes were also either near or exceeding pre-pandemic levels in all regions.
End market growth remains broad-based with key product categories up for the quarter.
The strong recovery in both our lubrication and process pump businesses drove sales and earnings growth for the quarter in the segment.
Moving on to our outlook.
We have reinitiated our revenue guidance for the full year 2021 and are projecting mid- to high-teens revenue growth on an organic constant currency basis.
Incoming orders continue to be robust in all regions with the Industrial and Process segments now on a solid footing and should finish the year strong.
Favorable operating conditions remain in Contractor.
However, second half comparisons are challenging.

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quarterly earnings per common share $ 0.63.
quarterly earnings per common share, adjusted $ 0.62.

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