Yesterday, Graco reported third quarter sales of $487 million, an increase of 11% from the third quarter of last year.
The effect of currency translation added two percentage points of growth or approximately $6 million in the quarter.
Reported net earnings were $104 million for the third quarter or $0.59 per diluted share.
After adjusting for the impact of excess tax benefits from stock option exercises and certain nonrecurring tax adjustments, net earnings were $100 million or $0.57 per diluted share.
Gross margin was down 110 basis points from the third quarter of last year as the favorable effect from realized pricing, increased factory volume and currency translation were not enough to offset the unfavorable gross margin rate impact of higher product costs.
These higher product costs, such as material, labor and freight, decreased our gross profit by $14 million in the quarter with $10 million of this impacting the Contractor segment.
Operating expenses increased $20 million or 19% in the quarter.
Sales and volume-based expenses increased $9 million, new product spending increased $2 million and changes in currency translation rates increased operating expense by $1 million in the third quarter.
The adjusted tax rate for the quarter was 18%.
Cash flows from operations are $357 million for the year compared to $263 million last year.
Significant uses of cash are dividend payments of $95 million and capital expenditures of $83 million, including $33 million for facility expansion projects.
Subsequent to the end of the third quarter, Graco entered into an agreement, in which approximately $63 million of pension obligations were transferred to an insurance company through the purchase of an annuity contract.
We expect to recognize a noncash pre-tax pension settlement charge of approximately $12 million in other nonoperating expense in the fourth quarter.
Based on current exchange rates, the full year favorable effect of currency translation is estimated to be 2% on sales and 4% on earnings, with the most significant impact having occurred in the first half of the year.
Also for the remainder of 2021, we expect unallocated corporate expense to be approximately $26 million to $28 million.
Our full year adjusted tax rate is expected to be 18% to 19%.
Capital expenditures are estimated to be $150 million, including $80 million for facility expansion projects.
At the end of the third quarter, our consolidated backlog was approximately $280 million, which is $25 million higher than what it was at the end of the second quarter, and $121 million higher than our backlog at the end of last year.
Contractor backlogs are elevated at $46 million, which is up $6 million from June and up $22 million from the same time last year.
Process segment sales grew 21% for the quarter, with year-to-date sales exceeding previous high set in 2019.
With demand persisting, we confirm our full year outlook of mid- to high-teen organic revenue growth on a constant currency basis for the full year 2021.

Summary:
Reported net earnings were $104 million for the third quarter or $0.59 per diluted share.
After adjusting for the impact of excess tax benefits from stock option exercises and certain nonrecurring tax adjustments, net earnings were $100 million or $0.57 per diluted share.
With demand persisting, we confirm our full year outlook of mid- to high-teen organic revenue growth on a constant currency basis for the full year 2021.