Financial Data and Key Metrics Changes - Graco reported third quarter sales of $543 million, a 5% increase from the same quarter last year, with acquisitions contributing 6% growth and currency translation adding another 1%, while organic sales declined by 2% [4][10] - Net earnings increased by 13% to $138 million or $0.82 per diluted share, with adjusted non-GAAP net earnings at $0.73 per diluted share, a 3% increase [5][6] - Gross margin rate remained flat compared to the same quarter last year, affected by tariffs that added $5 million in costs, resulting in a 100 basis point decline in the gross margin rate [5][6] - Cash provided by operations totaled $487 million for the year, an increase of 12% [7] Business Line Data and Key Metrics Changes - The Contractor segment saw an 8% sales increase, with acquisitions contributing 11%, offsetting a 3% decline in organic sales [10][13] - The Industrial segment delivered a 1% sales increase, supported by acquisitions and favorable exchange rates, despite a 2% organic revenue decline [10][14] - Expansion markets experienced a 3% sales increase, driven by strong activity in semiconductor products [16] Market Data and Key Metrics Changes - North America faced headwinds from subdued construction activity and cautious consumer sentiment, impacting the Contractor segment [10][13] - The Americas saw a 3% organic growth in the Industrial segment, driven by demand in vehicle service and automotive OEM projects [14] - China showed resilience, particularly in the mining industry, which helped offset declines in solar and EV investments [15][25] Company Strategy and Development Direction - Graco is focused on maintaining low single-digit organic growth guidance for the full year, with expectations of improved order rates and pricing actions [17] - The company is implementing targeted price increases to offset tariff impacts, with expectations that these will fully cover costs by year-end [12][35] - The "One Graco" initiative aims to enhance operational efficiency and improve margins through consolidation and better resource management [56][78] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the North American market, hoping for stabilization as interest rates trend downwards [23][30] - The company noted that while the environment is not robust, there are still opportunities for growth, particularly in the vehicle service market [22][71] - Management highlighted strong cash flow and profitability, indicating readiness for future volume growth when market conditions improve [27][76] Other Important Information - Significant year-to-date cash uses included share repurchases totaling $361 million and dividends of $138 million [8] - The company is actively pursuing M&A opportunities, with a focus on technology-based businesses that can add value [61] Q&A Session Summary Question: Can you provide insights on end markets and regions? - Management noted that demand is not robust but there are targeted opportunities in vehicle service and process pump segments, with North America showing more caution due to tariffs [22][23] Question: What is the outlook for the fourth quarter? - The company expects to be on the low end of guidance, with stable order rates and an easier comparison in the Contractor segment [40][41] Question: When will price-cost dynamics normalize? - Management anticipates improvements in Q4 as pricing actions take effect, with gross margins expected to recover [44] Question: How is the vehicle service market performing? - The vehicle service segment is performing well due to a focus on fluid management systems, which are in demand among larger fleets and auto dealerships [71][72] Question: What is the outlook for free cash flow? - Management emphasized a focus on cash flow and operational efficiency, with expectations for continued strong conversion rates [74][76] Question: Can you elaborate on backlog disclosures? - The company provided backlog information to signal stability, with current backlog levels around $225 million, indicating a return to a more normal business model [87][88]

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Financial Performance - Third Quarter 2025 - Sales increased by 5% to $543.4 million compared to $519.2 million in the third quarter of 2024[7] - Net profit increased by 5% to $289.2 million compared to $276.1 million in the third quarter of 2024[7] - Operating earnings increased by 13% to $164.7 million compared to $145.7 million in the third quarter of 2024[7] - Earnings per share (diluted) increased by 15% to $0.82 compared to $0.71 in the third quarter of 2024[7] Financial Performance - Year to Date September 2025 - Sales increased by 5% to $1,643.4 million compared to $1,564.6 million in the same period of 2024[7] - Net profit increased by 3% to $866.5 million compared to $843.2 million in the same period of 2024[7] - Operating earnings increased by 6% to $466.2 million compared to $440.1 million in the same period of 2024[7] - Earnings per share (diluted) increased by 5% to $2.30 compared to $2.19 in the same period of 2024[7] Net Sales Change Components - Third Quarter 2025 - Acquisitions contributed 6% to the increase in net sales[9, 20] - Currency translation increased net sales by 1%[9, 20] Net Sales by Region - Third Quarter 2025 - Americas net sales were $341 million, a 2% increase[16] - EMEA net sales were $118 million, a 12% increase[16] - Asia Pacific net sales were $84 million, a 7% increase[16]

Core Insights - Graco Inc. reported revenue of $543.36 million for Q3 2025, a year-over-year increase of 4.7%, but fell short of the Zacks Consensus Estimate by 3.27% [1] - The company's EPS for the quarter was $0.73, compared to $0.71 a year ago, but also missed the consensus estimate of $0.75 by 2.67% [1] Financial Performance Metrics - Net sales in Expansion Markets reached $42.34 million, slightly above the estimated $42.2 million [4] - Contractor segment net sales were $262.43 million, compared to the estimated $279.44 million, reflecting an 8.3% increase year-over-year [4] - Industrial segment net sales were $238.59 million, slightly below the estimated $240.35 million, but showed a significant year-over-year increase of 52.7% [4] - Operating earnings for the Industrial segment were $80.73 million, close to the average estimate of $80.82 million [4] - Operating earnings for Expansion Markets were $10.39 million, exceeding the estimated $8.48 million [4] - Unallocated corporate expenses were reported at -$8.34 million, better than the average estimate of -$11.18 million [4] - Contractor segment operating earnings were $67.87 million, below the average estimate of $78.47 million [4] Stock Performance - Graco's shares have returned -1.3% over the past month, while the Zacks S&P 500 composite has increased by 1.1% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Core Insights - Graco Inc. reported quarterly earnings of $0.73 per share, missing the Zacks Consensus Estimate of $0.75 per share, representing an earnings surprise of -2.67% [1] - The company posted revenues of $543.36 million for the quarter ended September 2025, missing the Zacks Consensus Estimate by 3.27% [2] - Graco has surpassed consensus EPS estimates only once in the last four quarters and has underperformed the market with a 0.5% loss since the beginning of the year compared to the S&P 500's gain of 14.5% [3][2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.76 on revenues of $579.03 million, and for the current fiscal year, it is $2.97 on revenues of $2.24 billion [7] - The estimate revisions trend for Graco was favorable ahead of the earnings release, resulting in a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6] Industry Context - The Manufacturing - General Industrial industry, to which Graco belongs, is currently in the bottom 42% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Graco's stock performance [5]

Financial Performance - Net sales for the third quarter of 2025 increased by 5% to $543.4 million, compared to $519.2 million in the same period of 2024[53] - Operating earnings rose by 13% to $164.7 million, while net earnings increased by 13% to $137.6 million for the third quarter[53] - The gross profit margin rate remained flat at 53.2% for the third quarter, despite higher product costs and lower margin rates from acquired operations[54][60] - Operating expenses decreased by 5% to $150.6 million, including a non-cash gain of $14 million from the reduction in fair value of acquisition-related contingent consideration[62] - The effective income tax rate was reported at 18.3% for the third quarter, with an adjusted effective tax rate of 20.4%[64] Sales by Region and Segment - Net sales in the Americas region were $341.0 million for the third quarter, with a 2% total growth driven by a 3% contribution from acquisitions[59] - The Contractor segment reported net sales of $262.4 million for the third quarter, with an operating margin rate of 26%[65] - Incremental sales from acquired operations contributed 6 percentage points to overall sales growth for the third quarter[54] - Industrial segment net sales increased by 1% for both the third quarter and year to date, with total sales of $238.6 million for the quarter and $712.5 million year to date[66] - Expansion Markets segment net sales rose by 3% for the third quarter and 4% year to date, totaling $42.4 million for the quarter and $124.5 million year to date[68] Operating Efficiency - Operating earnings as a percentage of net sales for the Industrial segment improved to 34% for the third quarter and year to date, up from 33% in the previous year[66] - Operating earnings as a percentage of net sales for the Expansion Markets segment increased to 25% for the third quarter, compared to 18% in the previous year[68] Cash Flow and Liquidity - Net cash provided by operating activities was $487 million in the first nine months of 2025, an increase of $51 million compared to the same period last year[69] - Significant cash uses included share repurchases of $361 million and dividend payments of $138 million in the first nine months of 2025[69] - As of September 26, 2025, the company had available liquidity of $1,399 million, including cash and cash equivalents of $619 million[71] Future Outlook and Risks - Capital expenditures for 2025 are expected to be approximately $50 to $60 million, with potential opportunistic share repurchases planned[72] - The company reaffirms its 2025 outlook of low single-digit sales growth on an organic constant-currency basis, supported by pricing actions and steady incoming order rates[73] - The company emphasizes the importance of considering various risk factors that may impact future results, including demand fluctuations and changes in currency rates[76] - The company anticipates that new tariffs will materially impact results in fiscal year 2025 if demand decreases or pricing strategies fail[52] - Higher product costs included increased tariff costs of $5 million for the quarter and $9 million year to date[60]

Core Points - Graco Inc. will release its Third Quarter 2025 earnings on October 22, 2025, after the NYSE closes [1] - A conference call to discuss the earnings will be held on October 23, 2025, at 11 a.m. EDT [1] - The earnings announcement will be available on the company's investor website [1][2] Company Overview - Graco Inc. specializes in technology and expertise for fluid management in industrial and commercial applications [3] - The company designs, manufactures, and markets systems and equipment for moving, measuring, controlling, dispensing, and spraying fluid and powder materials [3] - Graco is recognized as a leader in its field and serves customers globally in manufacturing, processing, construction, and maintenance industries [3]

Core Insights - Graco Inc. (NYSE: GGG) is experiencing a soft patch despite being a premium player in the fluid and coating management sector, leading to a failure in meeting market expectations for sales growth [1]. Group 1: Company Performance - Graco Inc. has commanded premium valuations but has not delivered on these expectations due to modest sales performance [1]. Group 2: Investment Opportunities - The investing group "Value In Corporate Events" focuses on identifying opportunities in major corporate events such as IPOs, mergers & acquisitions, and earnings reports, providing coverage of 10 significant events monthly [1].

Group 1 - Graco Inc. (GGG) is experiencing strong momentum in its Industrial and Expansion Markets segments, driven by robust demand for powder finishing and lubrication products, as well as increased vehicle service demand [1] - The semiconductor business is benefiting from a rising order rate, contributing positively to the Expansion Markets segment [1] - Graco has expanded its market share and product offerings through acquisitions, including Color Service S.r.l. and Corob S.p.A., enhancing its capabilities in the Industrial and Contractor segments [2][3] Group 2 - Graco's commitment to shareholders is evident through dividend payments totaling $92.2 million in the first half of 2025, a 7.2% increase year over year, and share repurchases amounting to $361 million [4] - The company increased its quarterly dividend by 7.8% to 27.5 cents per share in December 2024 [4] - Acquisitions contributed 6% to Graco's sales in Q2 2025, indicating a positive impact on revenue growth [3][8] Group 3 - The Contractor segment is facing challenges due to high housing costs and a decline in construction projects in North America, leading to reduced demand in the home center channel [5] - Graco is experiencing increased general and administrative expenses, which rose by 7.3% year over year in the first half of 2025, alongside a 9.3% increase in the cost of sales [6] - The company's cost of sales as a percentage of net sales increased by 170 basis points year over year [6] Group 4 - Graco operates in the Manufacturing - General Industrial industry, facing competition from companies like Flowserve Corporation, Graham Corporation, and Ingersoll Rand Inc. [7] - The company's product offerings include equipment and systems for measuring, moving, controlling, spraying, and dispensing fluid and powder materials [7]

Core Thesis - Graco Inc. is viewed positively due to its strong market position, premium product offerings, and resilient revenue streams, particularly from parts and accessories, which contribute to stable demand and high margins [2][3][4] Company Overview - Graco Inc. specializes in fluid handling equipment, focusing on challenging materials with high viscosities, abrasiveness, and corrosive properties [2] - Approximately 40% of Graco's revenue is derived from parts and accessories, providing a more stable revenue base [2] Financial Performance - Graco enjoys significant pricing power, leading to gross margins exceeding 50% and EBIT margins approaching 30% [3] - The stock was trading at $85.95 as of September 8th, with trailing and forward P/E ratios of 30.48 and 26.95 respectively [1] Market Position - The company has a disciplined management team and a durable position within its niche market, reinforcing its long-term prospects [3][4] - Graco's combination of premium products and high-margin operations positions it as a solid industrial leader capable of delivering consistent cash flow [4] Investment Opportunity - Recent stock underperformance has created an attractive valuation, presenting a compelling entry point for long-term investors seeking durable industrial growth [3][4] - The bullish thesis on Graco remains consistent, emphasizing its strong cash flow and defensible business model [6]