Core Insights - Graco Inc.'s second-quarter 2025 adjusted earnings of 75 cents per share missed the Zacks Consensus Estimate of 78 cents, reflecting a 3% year-over-year decrease [1][9] - The company's net sales reached $571.8 million, falling short of the consensus estimate of $585 million, but showing a 3% year-over-year increase due to contributions from acquired operations and sales growth in the EMEA and Asia Pacific regions [1][9] Sales Performance - Sales from the Americas decreased by 3% year over year, while sales in Europe, the Middle East, and Africa increased by 19%, and sales from the Asia Pacific rose by 12% year over year [2] - The Contractor segment generated net sales of $289 million, accounting for 50.5% of total sales, with a 7% year-over-year increase, although organic sales declined by 5% [3][9] - The Industrial segment reported net sales of $242.2 million, contributing 42.4% to total sales, remaining relatively flat year over year, with organic sales down by 1% [4] - The Expansion Markets segment had net sales of $40.6 million, representing 7.1% of total sales, decreasing by 3% year over year, with organic sales also down by 3% [5] Margin and Income Analysis - Graco's cost of sales increased by 7.9% year over year to $272.3 million, leading to a gross profit decrease of 0.5% to $299.5 million, with a two percentage point decline in margin due to lower rates from acquired operations and higher product costs [6] - Operating income fell by 2% year over year to $157.5 million, with the operating margin decreasing by 1.7 percentage points compared to the previous year [7] Financial Position - As of the end of the second quarter, Graco had cash and cash equivalents of $534.9 million, down from $675.3 million at the end of 2024 [8] - The company generated net cash of $308.1 million from operating activities in the first half of 2025, compared to $257.9 million in the same period last year [8] - Capital expenditures for property, plant, and equipment totaled $30.2 million, significantly lower than $73.4 million in the year-ago period [8] Shareholder Returns - Graco paid dividends totaling $92.2 million to shareholders, reflecting a 7.2% increase from the previous year, and repurchased shares worth $361 million during the same period [10] Future Outlook - The company anticipates organic net sales to increase in the low single digits on a constant-currency basis for 2025 [11]

Financial Performance Overview - Net sales for the second quarter of 2025 increased by 3% to $571 million compared to $553 million in 2024 [7] - Year-to-date net sales increased by 5% to $1.1 billion in 2025, compared to $1.0454 billion in 2024 [7] - Net earnings for the second quarter decreased by 4% to $127.6 million, compared to $133 million in 2024 [7] - Year-to-date net earnings decreased by 1% to $251.7 million, compared to $255.2 million in 2024 [7] Segment Performance - Contractor segment net sales increased by 7% to $289 million in the second quarter [28] and 9% year-to-date to $544 million [28] - Industrial segment net sales remained flat at $242 million in the second quarter [37], but increased by 2% year-to-date to $474 million [37] - Expansion Markets segment net sales decreased by 3% to $41 million in the second quarter [46], but increased by 4% year-to-date to $82 million [46] Factors Affecting Financial Results - Acquisitions contributed 6 percentage points to net sales growth in both the second quarter and year-to-date periods [21, 22] - Currency translation had no meaningful impact on second quarter net sales, but reduced year-to-date net sales by 1 percentage point [21, 22] - Higher product costs, including $4 million in increased tariff costs, negatively impacted gross margin [21, 22] Cash Flow and Capital Allocation - Net cash from operations was $308 million compared to $258 million in the comparable period in 2024 [26] - The company repurchased 4.4 million shares of stock for $361 million through the second quarter [26]

Core Insights - Graco Inc. reported revenue of $571.81 million for the quarter ended June 2025, a year-over-year increase of 3.4%, but fell short of the Zacks Consensus Estimate by 2.29% [1] - The company's EPS for the same period was $0.75, down from $0.77 a year ago, resulting in an EPS surprise of -3.85% compared to the consensus estimate of $0.78 [1] Financial Performance Metrics - Net sales in Expansion Markets were $40.57 million, below the average estimate of $44.58 million [4] - Contractor net sales reached $288.96 million, slightly below the average estimate of $293.15 million, but represented a year-over-year increase of 7.2% [4] - Industrial net sales were reported at $242.28 million, compared to the average estimate of $247.27 million, with a significant year-over-year increase of 55.6% [4] - Operating earnings for the Industrial segment were $82.37 million, slightly below the average estimate of $83.57 million [4] - Operating earnings for Expansion Markets were $8.83 million, compared to the average estimate of $9.07 million [4] - Unallocated corporate expenses showed an operating loss of $9.21 million, better than the estimated loss of $12.06 million [4] - Contractor operating earnings were reported at $75.49 million, below the average estimate of $80.24 million [4] Stock Performance - Graco's shares returned +1.9% over the past month, while the Zacks S&P 500 composite increased by +5.9% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Core Viewpoint - Graco Inc. reported quarterly earnings of $0.75 per share, missing the Zacks Consensus Estimate of $0.78 per share, representing an earnings surprise of -3.85% [1]. Financial Performance - The company posted revenues of $571.81 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 2.29%, compared to year-ago revenues of $553.24 million [2]. - Over the last four quarters, Graco has surpassed consensus EPS estimates only once [2]. Stock Performance - Graco shares have increased approximately 3.5% since the beginning of the year, while the S&P 500 has gained 7.3% [3]. - The current consensus EPS estimate for the upcoming quarter is $0.74 on revenues of $558.67 million, and for the current fiscal year, it is $2.96 on revenues of $2.25 billion [7]. Industry Outlook - The Manufacturing - General Industrial industry, to which Graco belongs, is currently in the top 14% of over 250 Zacks industries, indicating a favorable outlook [8]. - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Graco's stock performance [5]. Future Expectations - The estimate revisions trend for Graco was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, suggesting it is expected to perform in line with the market in the near future [6]. - The upcoming earnings call will be crucial for understanding management's commentary on future earnings expectations [3].

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201%2E%20Financial%20Statements) This section presents unaudited consolidated financial statements, including earnings, comprehensive income, balance sheets, cash flows, and shareholders' equity, with detailed notes on accounting policies, segments, inventory, equity, share-based awards, EPS, retirement benefits, receivables, intangible assets, other liabilities, fair value, and recent acquisitions [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) For Q2 2025, Net Sales increased by 3% year-over-year to **$571.8 million**, but Net Earnings decreased by 4% to **$127.6 million** | Metric | Three Months Ended June 27, 2025 (in thousands) | Three Months Ended June 28, 2024 (in thousands) | Six Months Ended June 27, 2025 (in thousands) | Six Months Ended June 28, 2024 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Sales | $571,806 | $553,243 | $1,100,090 | $1,045,432 | | Gross Profit | $299,530 | $300,854 | $577,263 | $567,051 | | Operating Earnings | $157,484 | $161,359 | $301,497 | $294,355 | | Net Earnings | $127,623 | $132,978 | $251,724 | $255,177 | | Diluted EPS | $0.76 | $0.77 | $1.48 | $1.48 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income significantly increased for both the three and six months ended June 27, 2025, primarily driven by a positive cumulative translation adjustment | Metric | Three Months Ended June 27, 2025 (in thousands) | Three Months Ended June 28, 2024 (in thousands) | Six Months Ended June 27, 2025 (in thousands) | Six Months Ended June 28, 2024 (in thousands) | | :----- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Earnings | $127,623 | $132,978 | $251,724 | $255,177 | | Cumulative translation adjustment | $56,983 | $(811) | $76,886 | $(19,517) | | Other comprehensive income (loss) | $56,703 | $141 | $76,669 | $(17,884) | | Comprehensive Income | $184,326 | $133,119 | $328,393 | $237,293 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of June 27, 2025, total assets decreased to **$3,046.1 million** from **$3,139.2 million** at December 27, 2024, mainly due to a decrease in cash and cash equivalents | Metric | June 27, 2025 (in thousands) | December 27, 2024 (in thousands) | | :----- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $534,921 | $675,336 | | Total current assets | $1,380,642 | $1,497,441 | | Total Assets | $3,046,123 | $3,139,212 | | Total current liabilities | $388,580 | $405,808 | | Total shareholders' equity | $2,501,020 | $2,584,135 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased to **$308.1 million** for the six months ended June 27, 2025, but significant common stock repurchases led to a net decrease in cash and cash equivalents of **$140.4 million** | Metric | Six Months Ended June 27, 2025 (in thousands) | Six Months Ended June 28, 2024 (in thousands) | | :----- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $308,103 | $257,922 | | Net cash used in investing activities | $(30,682) | $(67,881) | | Net cash used in financing activities | $(428,592) | $(60,842) | | Common stock repurchased | $(360,952) | $(17,761) | | Net (decrease) increase in cash and cash equivalents | $(140,415) | $128,055 | | Cash and Cash Equivalents, End of period | $534,921 | $666,006 | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Total shareholders' equity decreased from **$2,584.1 million** to **$2,501.0 million** for the six months ended June 27, 2025, primarily due to **$361.0 million** in share repurchases and **$91.2 million** in dividends | Metric | Six Months Ended June 27, 2025 (in thousands) | Six Months Ended June 28, 2024 (in thousands) | | :----- | :-------------------------------------------- | :-------------------------------------------- | | Balance, December 27, 2024 (2023 for 2024 period) | $2,584,135 | $2,224,225 | | Shares repurchased | $(360,952) | $(17,761) | | Net earnings | $251,724 | $255,177 | | Dividends declared | $(91,178) | $(86,290) | | Other comprehensive income (loss) | $76,669 | $(17,884) | | Balance, June 27, 2025 (2024 for 2024 period) | $2,501,020 | $2,418,485 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on financial statement preparation, segment reporting changes, inventory, equity, share-based compensation, EPS, retirement benefits, receivables, intangible assets, other current liabilities, fair value, and recent acquisitions [Basis of Preparation](index=8&type=section&id=Basis%20of%20Preparation) The unaudited consolidated financial statements reflect normal recurring adjustments and should be read with the 2024 Annual Report on Form 10-K - Financial statements are **unaudited** and include only normal recurring adjustments[21](index=21&type=chunk)[22](index=22&type=chunk) - Statements should be read with the **2024 Annual Report on Form 10-K**[23](index=23&type=chunk) - Interim results are not necessarily indicative of full fiscal year results[24](index=24&type=chunk) [Segment Information](index=8&type=section&id=Segment%20Information) Effective January 1, 2025, the Company reclassified its business into three reportable segments: Contractor, Industrial, and Expansion Markets, with prior year information recast for comparability - **New Segment Structure (Effective Jan 1, 2025):** * Contractor (unchanged) * Industrial (newly formed Industrial Division + Powder Division) * Expansion Markets (new division for environmental, semiconductor, high-pressure valves, electric motors, and future ventures/acquisitions)[25](index=25&type=chunk) | Segment | Net Sales (3 Months Ended June 27, 2025, in thousands) | Operating Earnings (3 Months Ended June 27, 2025, in thousands) | Net Sales (6 Months Ended June 27, 2025, in thousands) | Operating Earnings (6 Months Ended June 27, 2025, in thousands) | | :------ | :--------------------------------------- | :------------------------------------------------ | :--------------------------------------- | :------------------------------------------------ | | Contractor | $288,959 | $75,489 | $543,991 | $137,419 | | Industrial | $242,277 | $82,372 | $473,930 | $161,967 | | Expansion Markets | $40,570 | $8,829 | $82,169 | $18,894 | | Total Reportable Segment Operating Earnings | $166,690 | N/A | $318,280 | N/A | - **Geographic Net Sales (6 Months Ended June 27, 2025):** * United States: **$587,584 thousand** * Other countries: **$512,506 thousand** * Total: **$1,100,090 thousand**[27](index=27&type=chunk) [Inventories](index=9&type=section&id=Inventories) Total inventories as of June 27, 2025, were **$403.2 million**, a slight decrease from **$404.7 million** at December 27, 2024 | Component | June 27, 2025 (in thousands) | December 27, 2024 (in thousands) | | :-------- | :----------------------------- | :------------------------------- | | Finished products and components | $203,946 | $197,242 | | Products and components in various stages of completion | $109,998 | $114,647 | | Raw materials and purchased components | $210,244 | $214,902 | | Total Inventories | $403,156 | $404,676 | [Shareholders' Equity](index=10&type=section&id=Shareholders%27%20Equity) Accumulated other comprehensive income (loss) shifted from a **$(49.6) million** loss at December 27, 2024, to **$27.1 million** income at June 27, 2025, primarily due to a **$76.9 million** positive cumulative translation adjustment | Component | Balance, December 27, 2024 (in thousands) | Other comprehensive income (loss) before reclassifications (6 Months Ended June 27, 2025, in thousands) | Balance, June 27, 2025 (in thousands) | | :-------- | :---------------------------------------- | :---------------------------------------------------------------------------------------- | :------------------------------------ | | Pension and Post-retirement Medical | $(13,145) | $(217) (reclassified) | $(13,362) | | Cumulative Translation Adjustment | $(36,429) | $76,886 | $40,457 | | Total Accumulated Other Comprehensive Income (Loss) | $(49,574) | $76,669 | $27,095 | [Share-Based Awards](index=10&type=section&id=Share-Based%20Awards) The Company recognized **$17 million** in share-based compensation for the six months ended June 27, 2025, with **$29 million** in unrecognized compensation cost expected to be recognized over 2.8 years - Share-based compensation recognized: **$17 million** (2025 YTD) vs. **$20 million** (2024 YTD)[30](index=30&type=chunk) - Unrecognized compensation cost: **$29 million**, to be recognized over **2.8 years**[30](index=30&type=chunk) | Metric | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :----- | :----------------------------- | :----------------------------- | | Weighted average fair value per share (option grants) | $26.80 | $28.03 | | Weighted average fair value per share (ESPP) | $19.65 | $23.16 | [Earnings per Share](index=11&type=section&id=Earnings%20per%20Share) Diluted EPS for the six months ended June 27, 2025, remained flat at **$1.48** compared to the prior year, despite a slight decrease in net earnings, due to a reduction in weighted average diluted shares outstanding | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net earnings available to common shareholders | $127,623 | $132,978 | $251,724 | $255,177 | | Weighted average shares outstanding for basic EPS | 165,785 | 169,100 | 167,173 | 168,795 | | Weighted average shares outstanding for diluted EPS | 168,561 | 172,486 | 170,072 | 172,466 | | Basic earnings per share | $0.77 | $0.79 | $1.51 | $1.51 | | Diluted earnings per share | $0.76 | $0.77 | $1.48 | $1.48 | [Retirement Benefits](index=12&type=section&id=Retirement%20Benefits) Net periodic benefit cost for pension benefits significantly decreased to **$1.6 million** for the six months ended June 27, 2025, primarily due to higher expected return on assets | Metric | Six Months Ended June 27, 2025 (in thousands) | Six Months Ended June 28, 2024 (in thousands) | | :----- | :-------------------------------------------- | :-------------------------------------------- | | Pension Benefits - Net periodic benefit cost | $1,562 | $3,930 | | Postretirement Medical - Net periodic benefit cost | $586 | $670 | [Receivables and Credit Losses](index=12&type=section&id=Receivables%20and%20Credit%20Losses) Accounts receivable increased to **$387.2 million** as of June 27, 2025, while the allowance for credit losses remained stable at **$5.3 million** - Accounts receivable (June 27, 2025): **$387.2 million** ($371 million trade, $16 million other)[34](index=34&type=chunk) - Allowance for credit losses (June 27, 2025): **$5.3 million**[35](index=35&type=chunk) - Net (reversals) additions charged to costs and expenses (3 months ended June 27, 2025): **$(138) thousand**[35](index=35&type=chunk) [Intangible Assets](index=13&type=section&id=Intangible%20Assets) Other intangible assets, net, increased to **$241.5 million** as of June 27, 2025, and goodwill increased to **$516.9 million**, primarily due to foreign currency translation adjustments and business acquisitions | Intangible Asset Type | Book Value (June 27, 2025, in thousands) | Book Value (December 27, 2024, in thousands) | Weighted Average Life (years) | | :-------------------- | :--------------------------------------- | :------------------------------------------- | :---------------------------- | | Customer Relationships | $115,077 | $115,119 | 14 | | Patents and Proprietary Technology | $23,754 | $23,015 | 10 | | Trademarks, Trade Names and Other (Finite Life) | $730 | $2,199 | 3 | | Trade Names (Indefinite Life) | $101,963 | $92,973 | N/A | | Total Other Intangible Assets, net | $241,524 | $233,306 | N/A | | Segment | Goodwill (December 27, 2024, in thousands) | Adjustments from business acquisitions (in thousands) | Foreign currency translation (in thousands) | Goodwill (June 27, 2025, in thousands) | | :------ | :----------------------------------------- | :---------------------------------------------------- | :------------------------------------------ | :--------------------------------------- | | Contractor | $198,038 | $1,164 | $16,568 | $215,770 | | Industrial | $217,698 | — | $11,988 | $229,686 | | Expansion Markets | $71,732 | $(266) | — | $71,466 | | Total Goodwill | $487,468 | $898 | $28,556 | $516,922 | [Other Current Liabilities](index=14&type=section&id=Other%20Current%20Liabilities) Total other current liabilities decreased to **$177.1 million** as of June 27, 2025, from **$211.7 million** at December 27, 2024, mainly due to lower payable for employee stock purchases and other general liabilities | Component | June 27, 2025 (in thousands) | December 27, 2024 (in thousands) | | :-------- | :----------------------------- | :------------------------------- | | Accrued warranty and service liabilities | $19,937 | $18,712 | | Payable for employee stock purchases | $7,814 | $16,767 | | Customer advances and deferred revenue | $59,980 | $52,522 | | Acquisition-related consideration payable | — | $10,339 | | Other | $32,406 | $48,008 | | Total Other Current Liabilities | $177,141 | $211,728 | - Revenue recognized from deferred revenue (6 months ended June 27, 2025): **$46 million**[39](index=39&type=chunk) [Fair Value](index=14&type=section&id=Fair%20Value) Total assets measured at fair value increased to **$26.3 million** as of June 27, 2025, primarily due to an increase in the cash surrender value of life insurance, while liabilities also increased to **$24.1 million** due to higher contingent consideration | Item | Level | June 27, 2025 (in thousands) | December 27, 2024 (in thousands) | | :--- | :---- | :----------------------------- | :------------------------------- | | Assets: Cash surrender value of life insurance | 2 | $26,283 | $24,411 | | Assets: Forward exchange contracts | 2 | — | $116 | | Liabilities: Contingent consideration | 3 | $16,281 | $14,647 | | Liabilities: Deferred compensation | 2 | $7,562 | $8,196 | | Liabilities: Forward exchange contracts | 2 | $207 | — | - Contingent consideration liabilities are estimated using a probability-weighted expected return approach based on future revenues[42](index=42&type=chunk) [Acquisitions](index=15&type=section&id=Acquisitions) The Company acquired Corob S.p.A. on November 4, 2024, for **€230 million** in cash plus up to **€30 million** in contingent consideration, recognizing **$127.3 million** in goodwill - **Corob S.p.A. Acquisition (Nov 4, 2024):** * Total purchase consideration: **$290.7 million** (cash paid **$276.2 million**, contingent consideration **$14.5 million**) * Goodwill recognized: **$127.3 million** (not tax deductible) * Identifiable intangible assets: Trade name (**$32.5 million**, indefinite life), Customer relationship (**$76.2 million**, 15 years), Developed technology (**$20.6 million**, 10 years), Backlog (**$2.1 million**, 0.5 years)[45](index=45&type=chunk)[46](index=46&type=chunk) - **Pro Forma Financials (6 Months Ended June 27, 2025, as if acquired Jan 2023):** * Net sales: **$1,100.1 million** * Net earnings: **$253.3 million** * Diluted EPS: **$1.49**[47](index=47&type=chunk) [Subsequent Event](index=16&type=section&id=Subsequent%20Event) On July 17, 2025, the Company agreed to acquire Color Service s.r.l. for **€63 million**, expected to close in Q3 2025 and be part of the Industrial Segment's Powder Division - **Color Service s.r.l. Acquisition (announced July 17, 2025):** * Purchase price: **€63 million** * Expected completion: **Q3 2025** * Segment: **Industrial Segment (Powder Division)** * Funding: **Cash on hand**[49](index=49&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the Company's business, discusses global trade uncertainty, and analyzes consolidated and segment-specific financial results, highlighting a decline in gross profit margin and outlining liquidity [Overview](index=17&type=section&id=Overview) Graco Inc. supplies technology and expertise for fluid and coating management, operating in Contractor, Industrial, and Expansion Markets segments, with strategies focused on new product development, market expansion, global distribution, and strategic acquisitions - Company provides technology and expertise for fluid and coating management[51](index=51&type=chunk) - Business segments: **Contractor, Industrial, and Expansion Markets**[51](index=51&type=chunk) - Key strategies: new product development, market expansion, global distribution, strategic acquisitions[51](index=51&type=chunk) [Global Trade Uncertainty](index=17&type=section&id=Global%20Trade%20Uncertainty) The Company's operations are exposed to risks from evolving global trade policies, tariffs, and geopolitical tensions, which could lead to increased costs, reduced demand, and decreased profitability, with uncertain mitigation effectiveness - Operations, supply chain, and financial performance are impacted by global trade policies, tariffs, and geopolitical tensions[53](index=53&type=chunk) - Risks include inflationary costs, potential price increases, reduced demand, and decreased profitability[53](index=53&type=chunk) - Mitigation strategies (pricing and sourcing) may not fully offset impacts[53](index=53&type=chunk) [Consolidated Results](index=17&type=section&id=Consolidated%20Results) For Q2 2025, net sales increased 3% year-over-year, but operating earnings decreased 2% and net earnings decreased 4% due to a lower gross margin rate and reduced non-operating income | Metric | Three Months Ended June 27, 2025 (in millions) | Three Months Ended June 28, 2024 (in millions) | % Change | Six Months Ended June 27, 2025 (in millions) | Six Months Ended June 28, 2024 (in millions) | % Change | | :----- | :--------------------------------------------- | :--------------------------------------------- | :------- | :------------------------------------------- | :------------------------------------------- | :------- | | Net Sales | $571.8 | $553.2 | 3% | $1,100.1 | $1,045.4 | 5% | | Operating Earnings | $157.5 | $161.4 | (2)% | $301.5 | $294.4 | 2% | | Net Earnings | $127.6 | $133.0 | (4)% | $251.7 | $255.2 | (1)% | | Diluted Net Earnings per Common Share | $0.76 | $0.77 | (1)% | $1.48 | $1.48 | —% | - Gross profit margin rate declined **~2 percentage points** in Q2 due to higher product costs (**$4 million** increased tariff costs) and lower margins from acquired operations[56](index=56&type=chunk)[61](index=61&type=chunk) - Other non-operating income decreased **$3 million** in Q2, primarily due to **$5 million** in exchange losses on foreign operations' net liabilities[57](index=57&type=chunk) | Metric | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | Six Months Ended June 27, 2025 | Six Months Ended June 28, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross Profit % | 52.4 % | 54.4 % | 52.5 % | 54.2 % | | Operating Earnings % | 27.5 % | 29.2 % | 27.4 % | 28.2 % | | Net Earnings % | 22.3 % | 24.0 % | 22.9 % | 24.4 % | [Net Sales](index=19&type=section&id=Net%20Sales) Consolidated net sales increased 3% for Q2 and 5% for the six months ended June 27, 2025, with acquired operations contributing 6 percentage points to sales growth, and EMEA and Asia Pacific showing growth | Region | Net Sales (3 Months Ended June 27, 2025, in millions) | Net Sales (3 Months Ended June 28, 2024, in millions) | Net Sales (6 Months Ended June 27, 2025, in millions) | Net Sales (6 Months Ended June 28, 2024, in millions) | | :----- | :---------------------------------------------------- | :---------------------------------------------------- | :---------------------------------------------------- | :---------------------------------------------------- | | Americas | $351.9 | $364.3 | $675.1 | $670.8 | | EMEA | $129.9 | $108.7 | $250.9 | $219.8 | | Asia Pacific | $90.0 | $80.2 | $174.1 | $154.8 | | Consolidated | $571.8 | $553.2 | $1,100.1 | $1,045.4 | | Region | Volume Acquisitions and Price (3 Months) | Currency (3 Months) | Total Change (3 Months) | Volume Acquisitions and Price (6 Months) | Currency (6 Months) | Total Change (6 Months) | | :----- | :------------------------------------- | :------------------ | :---------------------- | :------------------------------------- | :------------------ | :---------------------- | | Americas | (6)% | 0% | (3)% | (2)% | 0% | 1% | | EMEA | 2% | 5% | 19% | 1% | 1% | 14% | | Asia Pacific | 8% | (1)% | 12% | 9% | (2)% | 12% | | Consolidated | 6% | 0% | 3% | 6% | (1)% | 5% | [Gross Profit](index=19&type=section&id=Gross%20Profit) The gross profit margin rate decreased by approximately **2 percentage points** for both the second quarter and year-to-date periods, primarily due to higher product costs, including **$4 million** in increased tariff costs, and lower margins from acquired operations - Gross profit margin rate declined **~2 percentage points** for Q2 and YTD[61](index=61&type=chunk) - Reasons: higher product costs (including **$4 million** increased tariff costs) and unfavorable effects of lower margin rates from acquired operations[61](index=61&type=chunk) [Operating Expenses](index=19&type=section&id=Operating%20Expenses) Total operating expenses increased by **$3 million** (2%) for Q2 and **$3 million** (1%) for the year-to-date, driven by incremental expenses from acquired operations, partially offset by reduced spending in product development, incentives, and share-based compensation - Total operating expenses increased **$3 million** (2%) for Q2 and **$3 million** (1%) for YTD[62](index=62&type=chunk) - Incremental expenses from acquired operations: **$9 million** (Q2), **$19 million** (YTD)[62](index=62&type=chunk) - Offset by decreases in product development, incentives, and share-based compensation[62](index=62&type=chunk) - Prior year periods included **$3 million** in expenses for distribution center relocation[63](index=63&type=chunk) [Other (Income) Expense](index=20&type=section&id=Other%20%28Income%29%20Expense) Other non-operating income decreased by **$3 million** for both Q2 and year-to-date, primarily due to exchange losses on foreign operations' net liabilities, partially offset by favorable market valuation changes on investments and a building sale gain - Other non-operating income decreased **$3 million** for Q2 and YTD[64](index=64&type=chunk) - Primary driver: exchange losses on foreign operations' net liabilities (**$5 million** for Q2, **$8 million** for YTD)[64](index=64&type=chunk) - Partially offset by favorable market valuation changes on retirement benefit investments and a **$5 million** gain from a Q1 building sale[64](index=64&type=chunk) [Income Taxes](index=20&type=section&id=Income%20Taxes) The effective income tax rate was **19%** for both Q2 and year-to-date, with the adjusted effective rate (excluding excess tax benefits from stock option exercises) at **20%**, comparable to the prior year - Effective income tax rate: **19%** for Q2 and YTD[65](index=65&type=chunk) - Adjusted effective income tax rate (excluding excess tax benefits from stock options): **20%** for Q2 and YTD, comparable to prior year[65](index=65&type=chunk) [Segment Results](index=20&type=section&id=Segment%20Results) The Contractor segment experienced sales growth but a decline in operating margin, while the Industrial segment saw flat sales in Q2 but a year-to-date increase with stable margins, and Expansion Markets sales decreased in Q2 but grew year-to-date with improved margins [Contractor Segment](index=20&type=section&id=Contractor%20Segment) Contractor segment net sales increased 7% for Q2 and 9% for the six months ended June 27, 2025, driven by acquisitions, but operating earnings as a percentage of net sales declined by **5 percentage points** due to higher product costs and lower margins from acquired operations | Metric | Net Sales (3 Months Ended June 27, 2025, in millions) | Operating Earnings as % of Net Sales (3 Months Ended June 27, 2025) | Net Sales (6 Months Ended June 27, 2025, in millions) | Operating Earnings as % of Net Sales (6 Months Ended June 27, 2025) | | :----- | :---------------------------------------------------- | :------------------------------------------------------------------ | :---------------------------------------------------- | :------------------------------------------------------------------ | | Total Net Sales | $289.0 | N/A | $544.0 | N/A | | Operating earnings as a percentage of net sales | N/A | 26 % | N/A | 25 % | - Net sales change (3 months): Volume/Acquisitions/Price **(5)%** (negative volume offset by acquisitions), Currency **0%**, Total **7%**[66](index=66&type=chunk) - Operating margin rate declined **5 percentage points** (3 points from higher product costs/tariffs, 2 points from acquired operations' lower margins)[66](index=66&type=chunk) [Industrial Segment](index=20&type=section&id=Industrial%20Segment) Industrial segment net sales were flat for Q2 and increased 2% for the six months ended June 27, 2025, with favorable volumes in EMEA and Asia Pacific offsetting declines in the Americas, and the operating margin rate remained flat for Q2 | Metric | Net Sales (3 Months Ended June 27, 2025, in millions) | Operating Earnings as % of Net Sales (3 Months Ended June 27, 2025) | Net Sales (6 Months Ended June 27, 2025, in millions) | Operating Earnings as % of Net Sales (6 Months Ended June 27, 2025) | | :----- | :---------------------------------------------------- | :------------------------------------------------------------------ | :---------------------------------------------------- | :------------------------------------------------------------------ | | Total Net Sales | $242.2 | N/A | $473.9 | N/A | | Operating earnings as a percentage of net sales | N/A | 34 % | N/A | 34 % | - Net sales change (3 months): Volume/Acquisitions/Price **(1)%**, Currency **1%**, Total **0%**[68](index=68&type=chunk) - Operating margin rate: **flat** for Q2, increased **1 percentage point** YTD[68](index=68&type=chunk) [Expansion Markets Segment](index=21&type=section&id=Expansion%20Markets%20Segment) Expansion Markets net sales decreased for Q2 but increased 4% for the six months ended June 27, 2025, driven by double-digit growth in semiconductor products, with operating margin rates increasing due to higher sales volume and lower expenses | Metric | Net Sales (3 Months Ended June 27, 2025, in millions) | Operating Earnings as % of Net Sales (3 Months Ended June 27, 2025) | Net Sales (6 Months Ended June 27, 2025, in millions) | Operating Earnings as % of Net Sales (6 Months Ended June 27, 2025) | | :----- | :---------------------------------------------------- | :------------------------------------------------------------------ | :---------------------------------------------------- | :------------------------------------------------------------------ | | Total Net Sales | $40.6 | N/A | $82.2 | N/A | | Operating earnings as a percentage of net sales | N/A | 22 % | N/A | 23 % | - Net sales change (3 months): Volume/Acquisitions/Price **(3)%**, Currency **0%**, Total **(3)%**[69](index=69&type=chunk) - Sales growth in semiconductor product application offset decreases in environmental product application[70](index=70&type=chunk) - Operating margin rate increased for both Q2 and YTD due to increased sales volume and lower expenses[70](index=70&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Net cash from operating activities increased by **$50 million** to **$308 million** for the first six months of 2025, with significant cash uses including **$361 million** in share repurchases and **$92 million** in dividends, while maintaining strong liquidity - Net cash provided by operating activities (6 months 2025): **$308 million** (up **$50 million** year-over-year)[71](index=71&type=chunk) - Significant cash uses (6 months 2025): Share repurchases (**$361 million**), dividend payments (**$92 million**), plant and equipment additions (**$30 million**)[71](index=71&type=chunk) - Available liquidity (June 27, 2025): **$1,322 million** (including **$535 million** cash and **$787 million** credit facilities)[73](index=73&type=chunk) - 2025 Capital expenditures expected: **$60 to $70 million**[74](index=74&type=chunk) [Outlook](index=22&type=section&id=Outlook) The Company reaffirms its 2025 revenue outlook of low single-digit sales growth on an organic constant-currency basis, supported by pricing actions, upcoming new product launches, and steady incoming order rates - 2025 revenue outlook: **low single-digit sales growth** on an organic constant-currency basis[75](index=75&type=chunk) - Outlook supported by: pricing actions, new product launches, steady order rates[75](index=75&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=22&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially, including global demand, currency rates, geopolitical instability, and supply chain issues - Forward-looking statements are subject to risks and uncertainties[76](index=76&type=chunk) - Risk factors include: demand, currency rates, international/domestic instability, interest rates, global sourcing, information systems, intellectual property, generative AI, international business, catastrophic events, personnel, growth strategies/acquisitions, goodwill impairment, competition, customer/industry dependence, laws/regulations, climate, ESG, anti-corruption/trade laws, tax/tariff rates, legal costs[77](index=77&type=chunk) - Investors should refer to Form 10-K and Form 10-Q for a comprehensive discussion of risk factors[77](index=77&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes to the Company's market risk disclosures since the 2024 Annual Report on Form 10-K - No material changes to market risk disclosures since the 2024 Annual Report on Form 10-K[79](index=79&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204%2E%20Controls%20and%20Procedures) The Company's President and CEO, along with the CFO and Treasurer, evaluated the effectiveness of disclosure controls and procedures as of the end of the fiscal quarter and concluded they are effective, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of the end of the fiscal quarter[80](index=80&type=chunk) - No material changes in internal control over financial reporting during the quarter[81](index=81&type=chunk) PART II - OTHER INFORMATION [Item 1A. Risk Factors](index=25&type=section&id=Item%201A%2E%20Risk%20Factors) There have been no material changes to the Company's risk factors from those disclosed in its 2024 Annual Report on Form 10-K - No material changes to risk factors from the 2024 Annual Report on Form 10-K[82](index=82&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board of Directors authorized the repurchase of up to **18 million shares** of common stock, with **8,767,558 shares** remaining under this authorization as of June 27, 2025, and **1,585,715 shares** were repurchased during the period March 29, 2025 - April 25, 2025 - Board authorized repurchase of up to **18 million common shares** (indefinite period)[83](index=83&type=chunk) - Shares remaining under authorization (as of June 27, 2025): **8,767,558**[85](index=85&type=chunk) - Shares purchased (March 29, 2025 - April 25, 2025): **1,585,715** at **$77.37 average price** (not part of publicly announced plans)[85](index=85&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205%2E%20Other%20Information) No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 27, 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements adopted, terminated, or modified by directors or officers during the quarter[87](index=87&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206%2E%20Exhibits) This section lists the exhibits filed with the 10-Q report, including restated articles of incorporation and bylaws, certifications from executive officers, a press release for Q2 earnings, and interactive data files in iXBRL format - Exhibits include: Restated Articles of Incorporation, Restated Bylaws, Certifications of CEO, CFO, and Chief Accounting Officer, Q2 Earnings Press Release, and Interactive Data Files (iXBRL)[89](index=89&type=chunk) SIGNATURES [Signatures](index=29&type=section&id=Signatures) The report is duly signed on behalf of Graco Inc. by Mark W. Sheahan (President and CEO), David M. Lowe (CFO and Treasurer), and Christopher D. Knutson (VP, Controller and Chief Accounting Officer) on July 23, 2025 - Report signed by Mark W. Sheahan (President and CEO), David M. Lowe (CFO and Treasurer), and Christopher D. Knutson (VP, Controller and Chief Accounting Officer)[93](index=93&type=chunk) - Date of signing: **July 23, 2025**[93](index=93&type=chunk)

Core Viewpoint - Graco Inc. is experiencing growth driven by strong performance in its Industrial and Expansion Markets segments, improved order rates, product innovations, and strategic acquisitions, alongside a commitment to rewarding shareholders [1][9]. Business Strength - The Industrial segment is seeing solid momentum, particularly in powder and liquid finishing systems, with a year-over-year sales increase of 3% in Q1 2025 [4]. - The Expansion Markets segment is benefiting from robust activity in groundwater testing and gas analyzers, with a year-over-year sales increase of 12% in Q1 2025 [5]. Product Innovation - Graco is enhancing its performance through new product launches, including the QUANTM electric double diaphragm pump line, which is more energy-efficient and safer for modern factories. The company invested $19.4 million in product development in Q1 2025 and $87.2 million in 2024 [6]. Expansion Efforts - Graco is focused on expanding its market presence through acquisitions, which contributed 6% to sales in Q1 2025. Notable acquisitions include Corob S.p.A. and PCT System, which have strengthened its product offerings in the paint and coating machinery and semiconductor markets [7][8]. Rewards to Shareholders - The company is committed to rewarding shareholders, having distributed $46.6 million in dividends (up 8.7% year-over-year) and repurchased shares worth $238.1 million in Q1 2025. In 2024, total dividend payments were $172.1 million, with a quarterly dividend rate increase of 7.8% in December 2024 [9]. Near-Term Concerns - The Contractor segment is facing challenges due to reduced activity in the professional paint channel, with core sales declining by 1% year-over-year in Q1 2025 [10]. - Graco is also dealing with high operating costs, with the cost of sales increasing by 10.9% year-over-year in Q1 2025, impacting overall profitability [11].

Financial Data and Key Metrics Changes - Graco reported first-quarter sales of $528 million, a 7% increase from the previous year, with 6% growth attributed to acquisitions and 3% organic growth, while currency translation reduced sales by 2% [6][7] - Net earnings increased by 2% to $124 million or $0.72 per diluted share, with adjusted non-GAAP net earnings rising 8% to $120 million or $0.70 per diluted share [7][11] - The gross margin rate decreased by 150 basis points, primarily due to acquisitions and higher product costs from lower factory volume [7][8] - Operating earnings increased by 8% to $11 million, maintaining an operating margin of 27% [9] Business Line Data and Key Metrics Changes - The Contractor segment experienced a 1% sales decline due to softness in the home center business and challenging EMEA construction markets, despite strong performance in the North America propane channel [22][24] - The Industrial segment saw a 5% sales increase across all regions, with strong activity in powder finishing systems and vehicle services [24][25] - Expansion markets segment sales increased by 12%, driven by positive momentum in the semiconductor market and growth in environmental businesses [25][26] Market Data and Key Metrics Changes - Contractor segment sales in Asia Pacific increased by 35%, primarily driven by strong business in Australia and New Zealand, offsetting sluggish performance in China [116] - China accounted for nearly 6% of global revenue and cost of goods sold, with ongoing plans to mitigate tariff impacts through sourcing and manufacturing adjustments [18][19][85] Company Strategy and Development Direction - Graco maintains full-year revenue guidance of low single-digit growth on an organic constant currency basis, with potential revenue impact from evolving trade policies and tariffs estimated at 1% to 2% [27] - The company is focused on integrating Corab and leveraging its US manufacturing footprint to gain a competitive advantage [15][24] - Strategic initiatives include qualifying additional suppliers, moving component manufacturing to US factories, and redesigning products to mitigate tariff impacts [19][43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term success despite near-term challenges, emphasizing the importance of patience and understanding market dynamics before making pricing decisions [50][56] - The company is closely monitoring economic conditions and customer confidence, particularly in the industrial sector, which is not typically characterized by short-cycle buying [127][128] Other Important Information - Cash provided by operations totaled $125 million, with significant cash uses including share repurchases of $238 million and dividends of $47 million [11][12] - The company has about three months of finished goods inventory in China, which will help limit exposure to tariff impacts in the second quarter [20] Q&A Session Summary Question: Clarification on tariff impacts and inventory positioning - Management noted that while there was some pre-positioning of inventory ahead of tariffs, the exact quantification of this impact is challenging [30][34] Question: Impact of tariffs on revenue and cost of goods sold - Management estimated a 1% to 2% revenue headwind from China, with ongoing efforts to mitigate costs through alternative sourcing and product redesign [40][43] Question: Margin management and pricing strategy - Management emphasized a balanced approach to managing margins and customer service, with the ability to adjust pricing if necessary [50][56] Question: Order trends pre and post-tariff implementation - Order intake in Q1 was consistent with revenue, with no significant degradation in order trends observed in April [74] Question: Update on Corab integration and M&A activity - Management reported positive early integration efforts with Corab and a strong pipeline for potential acquisitions [78][138]

2025.04.24 FIRST QUARTER EARNINGS CALL SAFE HARBOR Today's presentation includes forward-looking statements that reflect management's current expectations about the Company's future business and financial performance. These statements are subject to certain risks and uncertainties that could cause actual results to differ from anticipated results. Factors that could cause actual results to differ from anticipated results are identified in Item 1A of the Company's Form 10-K, and Item 1A of the most recent Qu ...

Graco Inc.’s (GGG) first-quarter 2025 adjusted earnings of 70 cents per share beat the Zacks Consensus Estimate of 68 cents. The bottom line increased 8% year over year.The company’s net sales of $528.3 million beat the consensus estimate of $525 million. The top line increased 7% year over year due to higher demand in all the segments.On a regional basis, quarterly sales generated from the Americas increased 5% year over year. In Europe, the Middle East and Africa, sales increased 9% year over year. Sales ...

Core Insights - Graco Inc. reported revenue of $528.28 million for the quarter ended March 2025, reflecting a year-over-year increase of 7.3% and exceeding the Zacks Consensus Estimate by 0.66% [1] - The company's EPS for the quarter was $0.70, up from $0.65 in the same quarter last year, also surpassing the consensus estimate of $0.68 by 2.94% [1] Financial Performance Metrics - Contractor net sales reached $255.03 million, a 10.9% increase year-over-year, but fell short of the average estimate of $259.10 million [4] - Expansion Markets net sales were reported at $41.60 million, exceeding the average estimate of $38.83 million [4] - Industrial net sales amounted to $231.65 million, representing a significant year-over-year increase of 63.2%, surpassing the estimated $227.10 million [4] - Operating earnings for Contractor were $61.93 million, below the average estimate of $70.37 million [4] - Unallocated corporate expenses were reported at -$7.58 million, better than the average estimate of -$9.18 million [4] - Operating earnings for Expansion Markets were $10.07 million, exceeding the average estimate of $7.88 million [4] - Industrial operating earnings were $79.60 million, above the estimated $74.93 million [4] Stock Performance - Graco's shares have returned -6.3% over the past month, slightly outperforming the Zacks S&P 500 composite's -6.6% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]