Financial Data and Key Metrics Changes - Graco reported Q2 2022 sales of $549 million, an increase of 8% from the same quarter last year [7] - Reported net earnings were $117 million or $0.68 per diluted share, with currency translation rates negatively impacting sales by 4% or $15 million and net earnings by 8% or $7 million [7] - Gross margin rate decreased by 300 basis points year-over-year and 250 basis points from Q1 2022 due to rising material costs [8] - Operating expenses decreased by $10 million or 7% in the quarter [11] - Cash flows from operations were $135 million for the year, a decrease of $85 million from last year [12] Business Line Data and Key Metrics Changes - The Industrial segment achieved its sixth consecutive quarter of double-digit growth, with strong performance across all regions [23] - The Process segment grew sales by 27% for the quarter, resulting in record revenue and operating earnings [24] - The Contractor segment saw low single-digit growth, with challenges due to component shortages and declining order rates in EMEA and Asia Pacific [20][21] Market Data and Key Metrics Changes - Demand in the Americas remains firm across all segments, while EMEA shows caution due to economic conditions and geopolitical uncertainty [25] - Backlog reached $430 million, up $65 million from the end of last year and $190 million higher than the same period last year [16] Company Strategy and Development Direction - Graco plans to implement interim price increases across all segments and regions to offset rising input costs [9][19] - The company has invested $425 million since 2018 to expand global manufacturing capacity, increasing output by nearly 30% [18] - The company aims to confirm its 2022 revenue guidance of high single digits on an organic constant currency basis [26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges but noted improvements in material receipts from suppliers [16] - The company remains optimistic about demand in the Industrial segment despite potential economic slowdowns in Europe [46][51] - Management emphasized the importance of maintaining operational flexibility to adapt to changing market conditions [47] Other Important Information - The adjusted tax rate for the quarter was 20%, with expectations for the annual tax rate to be between 19% and 20% [11] - Graco repurchased 1.7 million shares for $120 million year-to-date, which will eliminate dilution in 2022 [13] Q&A Session Summary Question: Decision to implement intra-year price increase - Management noted that the decision was based on substantial increases in input costs and the need to be transparent with customers [30] Question: Free cash flow dynamics and buybacks - Management indicated that most buyback activity occurred in Q1, with some buybacks in Q2 totaling approximately $10 million [32] Question: Impact of gross margins and future pricing - Management acknowledged that gross margins were affected by cost pressures and currency translation rates, but pricing actions are expected to offset these pressures [35] Question: Segment performance and recession concerns - Management expressed confidence in the Industrial segment's performance despite potential economic challenges in Europe [46][51] Question: Demand in Contractor business - Management highlighted that professional contractors remain busy, but there are concerns about the DIY market due to lower consumer foot traffic [56] Question: Component shortages impact on sales - Management indicated that while component shortages have affected sales, improvements in supplier throughput are being observed [60]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Graco Inc.'s unaudited consolidated financial statements for the quarter ended July 1, 2022, highlighting an **8%** increase in H1 2022 net sales to **$1.04 billion**, alongside a significant decrease in operating cash flow [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) For Q2 2022, Net Sales grew **8%** to **$548.5 million** and Net Earnings rose to **$117.4 million**, with six-month Net Sales increasing to **$1.04 billion** and a slight rise in Net Earnings Consolidated Earnings Summary (In thousands) | Metric | Three Months Ended July 1, 2022 | Three Months Ended June 25, 2021 | Six Months Ended July 1, 2022 | Six Months Ended June 25, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $548,547 | $507,164 | $1,042,832 | $961,293 | | **Gross Profit** | $269,060 | $263,824 | $523,535 | $511,158 | | **Operating Earnings** | $148,680 | $133,843 | $277,043 | $262,129 | | **Net Earnings** | $117,378 | $110,118 | $218,221 | $215,805 | | **Diluted EPS** | $0.68 | $0.63 | $1.26 | $1.24 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased slightly to **$2.40 billion** as of July 1, 2022, driven by reduced cash and cash equivalents, partially offset by increased receivables and inventories, while total shareholders' equity rose Key Balance Sheet Items (In thousands) | Account | July 1, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,276,476 | $1,363,621 | | Cash and cash equivalents | $413,359 | $624,302 | | Inventories | $450,974 | $382,301 | | **Total Assets** | $2,404,278 | $2,443,198 | | **Total Current Liabilities** | $424,058 | $506,792 | | **Total Shareholders' Equity** | $1,757,274 | $1,709,343 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to **$135.0 million** for H1 2022 due to increased working capital, with substantial cash used in investing and financing for capital expenditures, stock repurchases, and dividends Cash Flow Summary - Six Months Ended (In thousands) | Cash Flow Activity | July 1, 2022 | June 25, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $134,985 | $220,047 | | **Net cash used in investing activities** | ($114,554) | ($74,193) | | **Net cash used in financing activities** | ($230,341) | ($40,972) | | **Net increase (decrease) in cash** | ($210,943) | $103,878 | - Significant uses of cash in the first six months of 2022 included **$120.0 million** for common stock repurchases, **$88.9 million** for property, plant and equipment additions, and **$71.3 million** for cash dividends[19](index=19&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail financial statements, including a segment realignment, strong Process segment sales growth, **$1.26** diluted EPS for H1, goodwill increase from an acquisition, and an **18%** rise in inventories to support demand - Effective January 1, 2022, high performance coatings and foam product offerings were realigned from the Industrial segment to the Contractor segment, with prior year segment information restated to conform[26](index=26&type=chunk) Net Sales by Segment - Six Months Ended (In thousands) | Segment | July 1, 2022 | June 25, 2021 | | :--- | :--- | :--- | | Industrial | $302,994 | $274,312 | | Process | $239,507 | $188,605 | | Contractor | $500,331 | $498,376 | | **Total** | **$1,042,832** | **$961,293** | Inventories (In thousands) | Date | Total Inventories | | :--- | :--- | | July 1, 2022 | $450,974 | | Dec 31, 2021 | $382,301 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses an **8%** sales increase for Q2 and H1 2022, driven by Industrial and Process segments, but highlights headwinds from supply chain constraints, inflation, unfavorable currency, and a **3 percentage point** gross profit margin compression [Overview](index=16&type=section&id=Overview) The company faces logistical and production constraints, including raw material availability, freight delays, and labor shortages, impacting profitability and demand fulfillment, and has suspended sales to Russia and Belarus, representing about **1.5%** of 2021 net sales - The company is facing ongoing logistical and production constraints due to raw material/component availability, freight capacity, shipping delays, and labor shortages, exacerbated by the COVID-19 pandemic and other disruptions[49](index=49&type=chunk) - In response to the invasion of Ukraine, the company suspended sales into Russia and Belarus in Q1 2022, with these sales representing approximately **1.5%** of 2021 net sales[50](index=50&type=chunk) [Consolidated Results](index=17&type=section&id=Consolidated%20Results) Consolidated net sales increased **8%** for both the quarter and year-to-date, driven by volume and price despite negative currency impacts, while gross profit margin decreased by **3 percentage points** due to rising costs outpacing price realization Consolidated Results Summary (In millions) | Metric | Q2 2022 | Q2 2021 | % Change | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $548.5 | $507.2 | 8% | $1,042.8 | $961.3 | 8% | | **Operating Earnings** | $148.7 | $133.8 | 11% | $277.0 | $262.1 | 6% | | **Net Earnings** | $117.4 | $110.1 | 7% | $218.2 | $215.8 | 1% | | **Diluted EPS** | $0.68 | $0.63 | 8% | $1.26 | $1.24 | 2% | - Changes in currency translation rates negatively impacted worldwide sales by **$15 million** (**4 percentage points**) for the quarter and **$23 million** (**3 percentage points**) for the year to date[54](index=54&type=chunk) - Gross profit margin rates decreased by **3 percentage points** for both the quarter and year-to-date, as realized pricing was insufficient to offset increased product costs from supply chain and inflationary pressures[55](index=55&type=chunk)[60](index=60&type=chunk) [Segment Results](index=20&type=section&id=Segment%20Results) The Industrial segment sales grew **10%** with a **35%** operating margin, the Process segment saw strong **28%** sales growth with a **25%** operating margin, while the Contractor segment's sales were flat, leading to a decreased operating margin - **Industrial Segment:** Sales increased **10%** for the quarter and year-to-date, with operating margin rate increasing due to strong pricing and expense leverage offsetting higher costs[64](index=64&type=chunk) - **Process Segment:** Sales grew **28%** for the quarter and **27%** year-to-date, with broad-based growth across all product applications, and operating margin increased as higher volume and expense leverage offset cost pressures[65](index=65&type=chunk) - **Contractor Segment:** Sales were flat for the quarter and year-to-date, with growth in the Americas offset by declines in Asia Pacific and EMEA, and operating margin decreased due to higher product costs and unfavorable currency rates[68](index=68&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Net cash from operations decreased by **$85 million** to **$135 million** year-over-year due to increased working capital, with significant cash uses including **$120 million** in share repurchases, and the company maintains strong liquidity of **$929 million** - Net cash provided by operating activities decreased to **$135 million** from **$220 million** in the prior year, mainly due to increased inventory purchases and higher accounts receivable[69](index=69&type=chunk) - As of July 1, 2022, the company had available liquidity of **$929 million**, comprising **$413 million** in cash and **$516 million** in available credit facilities[71](index=71&type=chunk) - Capital expenditures for 2022 are projected to be approximately **$215 million**, with **$140 million** allocated to facility expansion projects[72](index=72&type=chunk) [Outlook](index=22&type=section&id=Outlook) The company targets high single-digit organic, constant currency sales growth for full-year 2022, despite slowing EMEA markets, and is implementing a second round of global price increases to offset rising commodity and component costs - The company continues to target high single-digit sales growth for full-year 2022 on an organic, constant currency basis[73](index=73&type=chunk) - To offset rising commodity and component costs, a second round of global price increases is being implemented starting in August 2022[73](index=73&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes to the company's market risk disclosures since its 2021 Annual Report on Form 10-K - There have been no material changes in market risk disclosures since the 2021 Annual Report on Form 10-K[78](index=78&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the fiscal quarter-end, with no material changes to internal control over financial reporting - The President and CEO, along with the CFO and Treasurer, concluded that the company's disclosure controls and procedures are effective as of the end of the quarter[79](index=79&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[80](index=80&type=chunk) [PART II - OTHER INFORMATION](index=23&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the adverse business impact of Russia's invasion of Ukraine and related sanctions, leading to suspended sales in the region and exacerbating risks like cybersecurity threats, unfavorable exchange rates, and supply chain disruptions - A key risk factor is the Russian invasion of Ukraine and related sanctions, which have led the company to suspend sales into Russia and Belarus[82](index=82&type=chunk) - The conflict could escalate other risks such as increased cybersecurity threats, unfavorable currency exchange rates, further supply chain shortages and inflation, and widespread reductions in end-user demand[82](index=82&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details its stock repurchase activity, with **178,342** shares repurchased in Q2 2022 under a December 2018 authorization, leaving approximately **16.8 million** shares available for future purchases - The Board of Directors authorized the purchase of up to **18 million** shares in December 2018, with **16,822,292** shares remaining available for repurchase as of July 1, 2022[84](index=84&type=chunk)[86](index=86&type=chunk) Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2 - April 29, 2022 | 121,461 | $63.90 | | April 30 - May 27, 2022 | 56,881 | $62.50 | | May 28 - July 1, 2022 | 0 | $0.00 | [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications, the Q2 earnings press release, and interactive data files in iXBRL format - Key exhibits filed include CEO/CFO certifications, the Q2 earnings press release, and interactive data files (iXBRL)[88](index=88&type=chunk)

Graco Inc. (NYSE:GGG) Q1 2022 Earnings Conference Call April 28, 2022 11:00 AM ET Company Participants Kathy Schoenrock - Executive Vice President, Corporate Controller & Information Systems Mark Sheahan - President & Chief Executive Officer David Lowe - Chief Financial Officer Conference Call Participants Deane Dray - RBC Capital Markets Mike Halloran - Baird Matt Summerville - D.A. Davidson Jeff Hammond - KeyBanc Capital Market Andrew Buscaglia - Berenberg Thomas Johnson - Morgan Stanley Operator Good mor ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for Q1 2022 and 2021, including earnings, balance sheets, cash flows, and notes [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) Summarizes the company's financial performance, including net sales, gross profit, operating earnings, and net earnings for the three-month periods Consolidated Statements of Earnings (Three Months Ended, in thousands) | Metric | April 1, 2022 | March 26, 2021 | Change (%) | | :----------------------------- | :--------------------------- | :-------------------------- | :--------- | | Net Sales | $494,285 | $454,129 | 8.8% | | Cost of products sold | $239,810 | $206,795 | 16.0% | | Gross Profit | $254,475 | $247,334 | 2.9% | | Operating Earnings | $128,363 | $128,286 | 0.1% | | Earnings Before Income Taxes | $122,923 | $125,737 | (2.2)% | | Net Earnings | $100,843 | $105,687 | (4.6)% | | Basic Net Earnings per Common Share | $0.59 | $0.63 | (6.3)% | | Diluted Net Earnings per Common Share | $0.58 | $0.61 | (4.9)% | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Details the components of comprehensive income, including net earnings and other comprehensive income adjustments Consolidated Statements of Comprehensive Income (Three Months Ended, in thousands) | Metric | April 1, 2022 | March 26, 2021 | Change (in thousands) | | :------------------------------------ | :--------------------------- | :-------------------------- | :-------------------- | | Net Earnings | $100,843 | $105,687 | $(4,844) | | Cumulative translation adjustment | $(2,960) | $(10,470) | $7,510 | | Pension and postretirement medical liability adjustment | $894 | $3,308 | $(2,414) | | Income taxes - pension and postretirement medical liability adjustment | $(194) | $(672) | $478 | | Other comprehensive income (loss) | $(2,260) | $(7,834) | $5,574 | | Comprehensive Income | $98,583 | $97,853 | $730 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets (As of, in thousands) | Metric | April 1, 2022 | December 31, 2021 | Change (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents | $380,487 | $624,302 | $(243,815) | | Accounts receivable, net | $339,407 | $325,132 | $14,275 | | Inventories | $436,741 | $382,301 | $54,440 | | Total current assets | $1,197,220 | $1,363,621 | $(166,401) | | Total Assets | $2,319,445 | $2,443,198 | $(123,753) | | Total current liabilities | $402,313 | $506,792 | $(104,479) | | Long-term Debt | $75,000 | $75,000 | $0 | | Total Shareholders' Equity | $1,690,256 | $1,709,343 | $(19,087) | | Total Liabilities and Shareholders' Equity | $2,319,445 | $2,443,198 | $(123,753) | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Outlines the cash inflows and outflows from operating, investing, and financing activities for the reporting periods Consolidated Statements of Cash Flows (Three Months Ended, in thousands) | Metric | April 1, 2022 | March 26, 2021 | Change (in thousands) | | :-------------------------------- | :--------------------------- | :-------------------------- | :-------------------- | | Net cash provided by operating activities | $31,325 | $101,669 | $(70,344) | | Net cash used in investing activities | $(72,243) | $(21,449) | $(50,794) | | Net cash used in financing activities | $(202,852) | $3,081 | $(205,933) | | Effect of exchange rate changes on cash | $(45) | $(1,594) | $1,549 | | Net increase (decrease) in cash and cash equivalents | $(243,815) | $81,707 | $(325,522) | | Cash and Cash Equivalents, End of period | $380,487 | $460,616 | $(79,129) | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Details changes in shareholders' equity components, including common stock, retained earnings, and comprehensive income Consolidated Statements of Shareholders' Equity (Three Months Ended April 1, 2022, in thousands) | Metric | Common Stock (in thousands) | Additional Paid-In Capital (in thousands) | Retained Earnings (in thousands) | Accumulated Other Comprehensive Income (Loss) (in thousands) | Total (in thousands) | | :-------------------------------- | :-------------------------- | :---------------------------------------- | :------------------------------- | :------------------------------------------------------- | :------------------- | | Balance, December 31, 2021 | $170,308 | $742,288 | $876,916 | $(80,169) | $1,709,343 | | Shares issued | $437 | $19,638 | — | — | $20,075 | | Shares repurchased | $(1,522) | $(6,636) | $(100,548) | — | $(108,706) | | Stock compensation cost | — | $6,670 | — | — | $6,670 | | Net earnings | — | — | $100,843 | — | $100,843 | | Dividends declared ($0.210 per share) | — | — | $(35,708) | — | $(35,708) | | Other comprehensive income (loss) | — | — | — | $(2,260) | $(2,260) | | Balance, April 1, 2022 | $169,223 | $761,959 | $841,503 | $(82,429) | $1,690,256 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the consolidated financial statements [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) Explains the accounting principles and assumptions used in preparing the financial statements - The consolidated financial statements are unaudited and include all normal recurring adjustments necessary for fair presentation[26](index=26&type=chunk)[27](index=27&type=chunk) - They should be read in conjunction with the 2021 Annual Report on Form 10-K, and interim results are not indicative of full fiscal year results[28](index=28&type=chunk) [2. Segment Information](index=8&type=section&id=2.%20Segment%20Information) Details financial performance by the company's operating segments - Effective January 1, 2022, high performance coatings and foam product offerings were realigned from the Industrial segment's Applied Fluid Technologies division to the Contractor segment, with prior year segment information restated to reflect this change[29](index=29&type=chunk) Net Sales by Segment (Three Months Ended, in thousands) | Segment | April 1, 2022 | March 26, 2021 | Change (%) | | :-------- | :--------------------------- | :-------------------------- | :--------- | | Industrial | $144,669 | $129,864 | 11.4% | | Process | $115,024 | $91,373 | 25.9% | | Contractor | $234,592 | $232,892 | 0.7% | | Total | $494,285 | $454,129 | 8.8% | Operating Earnings by Segment (Three Months Ended, in thousands) | Segment | April 1, 2022 | March 26, 2021 | Change (%) | | :---------------------- | :--------------------------- | :-------------------------- | :--------- | | Industrial | $52,630 | $42,358 | 24.2% | | Process | $27,488 | $21,733 | 26.5% | | Contractor | $58,947 | $71,051 | (17.0)% | | Unallocated corporate (expense) | $(10,702) | $(6,856) | 56.1% | | Total | $128,363 | $128,286 | 0.1% | [3. Earnings per Share](index=9&type=section&id=3.%20Earnings%20per%20Share) Provides calculations for basic and diluted earnings per common share Earnings per Share (Three Months Ended) | Metric | April 1, 2022 | March 26, 2021 | Change (%) | | :------------------------------------------ | :------------ | :------------- | :--------- | | Net earnings available to common shareholders | $100,843 | $105,687 | (4.6)% | | Weighted average shares outstanding for basic EPS | 169,809 | 168,948 | 0.5% | | Weighted average shares outstanding for diluted EPS | 174,678 | 173,848 | 0.5% | | Basic earnings per share | $0.59 | $0.63 | (6.3)% | | Diluted earnings per share | $0.58 | $0.61 | (4.9)% | - Stock options to purchase **1,250,000 shares (2022)** and **700,000 shares (2021)** were anti-dilutive and excluded from diluted EPS calculations[32](index=32&type=chunk) [4. Share-Based Awards](index=10&type=section&id=4.%20Share-Based%20Awards) Describes the company's share-based compensation plans and related activity Stock Option Activity (in thousands, except exercise prices) | Metric | Outstanding, Dec 31, 2021 | Granted | Exercised | Canceled | Outstanding, Apr 1, 2022 | | :-------------------------- | :------------------------ | :------ | :-------- | :------- | :----------------------- | | Option Shares | 9,575 | 831 | (162) | (19) | 10,225 | | Weighted Average Exercise Price | $39.31 | $71.73 | $22.90 | $43.06 | $42.20 | - The Company recognized **$7.1 million** in share-based compensation in 2022, up from **$6.6 million** in 2021[33](index=33&type=chunk) - Unrecognized compensation cost related to unvested options was **$18.4 million** as of April 1, 2022, to be recognized over **3.3 years**[33](index=33&type=chunk) Black-Scholes Option-Pricing Model Assumptions (Weighted Average) | Assumption | April 1, 2022 | March 26, 2021 | | :------------------------ | :------------ | :------------- | | Expected life in years | 7.3 | 7.5 | | Interest rate | 1.9 % | 0.9 % | | Volatility | 25.5 % | 25.2 % | | Dividend yield | 1.2 % | 1.0 % | | Weighted average fair value per share | $19.06 | $17.66 | [5. Retirement Benefits](index=11&type=section&id=5.%20Retirement%20Benefits) Details the net periodic benefit cost for pension and postretirement medical plans Net Periodic Benefit Cost for Retirement Plans (Three Months Ended, in thousands) | Component | April 1, 2022 | March 26, 2021 | | :------------------------ | :------------ | :------------- | | **Pension Benefits** | | | | Service cost | $2,170 | $2,721 | | Interest cost | $2,738 | $2,981 | | Expected return on assets | $(4,802) | $(5,130) | | Amortization and other | $1,076 | $2,551 | | Net periodic benefit cost | $1,182 | $3,123 | | **Postretirement Medical** | | | | Service cost | $175 | $175 | | Interest cost | $225 | $250 | | Amortization | $175 | $250 | | Net periodic benefit cost | $575 | $675 | [6. Shareholders' Equity (Notes)](index=11&type=section&id=6.%20Shareholders'%20Equity%20(Notes)) Provides additional information on changes in accumulated other comprehensive income (loss) Changes in Accumulated Other Comprehensive Income (Loss), Net of Tax (Three Months Ended April 1, 2022, in thousands) | Component | Pension and Postretirement Medical | Cumulative Translation Adjustment | Total | | :------------------------------------------ | :--------------------------------- | :------------------------------ | :------ | | Balance, December 31, 2021 | $(60,107) | $(20,062) | $(80,169) | | Other comprehensive income (loss) before reclassifications | — | $(2,960) | $(2,960) | | Reclassified to pension cost and deferred tax | $700 | — | $700 | | Balance, April 1, 2022 | $(59,407) | $(23,022) | $(82,429) | [7. Receivables and Credit Losses](index=12&type=section&id=7.%20Receivables%20and%20Credit%20Losses) Details the composition of accounts receivable and activity in the allowance for credit losses Accounts Receivable (in thousands) | Type | April 1, 2022 | December 31, 2021 | | :--------------- | :------------ | :---------------- | | Trade receivables | $330,000 | $315,000 | | Other receivables | $9,000 | $10,000 | Allowance for Credit Losses Activity (Year to Date, in thousands) | Metric | April 1, 2022 | March 26, 2021 | | :-------------------------------------- | :------------ | :------------- | | Balance, beginning | $3,254 | $3,745 | | Additions (reversals) charged to costs and expenses | $3,220 | $158 | | Deductions from reserves | $(33) | $(104) | | Other additions (deductions) | $33 | $(75) | | Balance, ending | $6,474 | $3,724 | [8. Inventories](index=12&type=section&id=8.%20Inventories) Provides a breakdown of inventory components and valuation adjustments Major Components of Inventories (in thousands) | Component | April 1, 2022 | December 31, 2021 | | :-------------------------------------- | :------------ | :---------------- | | Finished products and components | $194,563 | $166,922 | | Products and components in various stages of completion | $126,214 | $117,063 | | Raw materials and purchased components | $205,893 | $185,291 | | Subtotal | $526,670 | $469,276 | | Reduction to LIFO cost | $(89,929) | $(86,975) | | Total | $436,741 | $382,301 | [9. Intangible Assets](index=13&type=section&id=9.%20Intangible%20Assets) Details the company's intangible assets, including their cost, accumulated amortization, and book value Other Intangible Assets (As of April 1, 2022, in thousands) | Type | Customer Relationships | Patents and Proprietary Technology | Trademarks, Trade Names and Other (Finite Life) | Trade Names (Indefinite Life) | Total | | :------------------------ | :--------------------- | :--------------------------------- | :-------------------------------------------- | :---------------------------- | :------ | | Cost | $202,903 | $26,974 | $1,700 | $62,633 | $294,210 | | Accumulated amortization | $(112,499) | $(16,454) | $(503) | — | $(129,456) | | Foreign currency translation | $(8,410) | $(761) | — | $(1,577) | $(10,748) | | Book value | $81,994 | $9,759 | $1,197 | $61,056 | $154,006 | | Weighted average life in years | 13 | 10 | 5 | N/A | | - Amortization of intangibles for the quarter was **$4.6 million** in 2022, up from **$4.3 million** in 2021[41](index=41&type=chunk) - Estimated annual amortization expense for the remainder of 2022 is **$14.5 million**[41](index=41&type=chunk) Goodwill by Segment (in thousands) | Segment | Balance, Dec 31, 2021 | Additions from acquisitions | Foreign currency translation | Balance, Apr 1, 2022 | | :-------- | :-------------------- | :-------------------------- | :--------------------------- | :------------------- | | Industrial | $185,733 | — | $(1,246) | $184,487 | | Process | $141,304 | $16,862 | $(470) | $157,696 | | Contractor | $29,218 | — | — | $29,218 | | Total | $356,255 | $16,862 | $(1,716) | $371,401 | [10. Other Current Liabilities](index=14&type=section&id=10.%20Other%20Current%20Liabilities) Lists the various components of current liabilities not separately presented on the balance sheet Components of Other Current Liabilities (in thousands) | Component | April 1, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Accrued self-insurance retentions | $11,576 | $9,303 | | Accrued warranty and service liabilities | $14,560 | $14,463 | | Accrued trade promotions | $10,141 | $15,872 | | Payable for employee stock purchases | $3,921 | $15,746 | | Customer advances and deferred revenue | $66,668 | $60,554 | | Income taxes payable | $12,481 | $5,200 | | Right of return refund liability | $18,713 | $18,614 | | Operating lease liabilities, current | $9,449 | $9,096 | | Other | $43,049 | $42,311 | | Total | $190,558 | $191,159 | - Deferred revenue and customer advances increased to **$66.7 million** as of April 1, 2022, from **$60.6 million** at December 31, 2021[44](index=44&type=chunk) - Net sales for the year-to-date included **$22.5 million (2022)** and **$40.9 million (2021)** related to deferred revenue from the beginning of each period[44](index=44&type=chunk) [11. Fair Value](index=14&type=section&id=11.%20Fair%20Value) Discloses the fair value measurements of certain assets and liabilities Assets and Liabilities Measured at Fair Value (in thousands) | Item | Level | April 1, 2022 | December 31, 2021 | | :------------------------------ | :---- | :------------ | :---------------- | | **Assets** | | | | | Cash surrender value of life insurance | 2 | $22,052 | $23,147 | | **Liabilities** | | | | | Contingent consideration | 3 | $15,924 | $12,274 | | Deferred compensation | 2 | $5,795 | $5,962 | | Forward exchange contracts | 2 | $173 | $111 | | Total liabilities at fair value | | $21,892 | $18,347 | - Long-term notes payable with fixed interest rates had a carrying amount of **$75 million** and an estimated fair value of **$80 million** as of April 1, 2022[47](index=47&type=chunk) - The fair value of variable rate borrowings approximates carrying value[47](index=47&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes Graco Inc.'s financial performance, liquidity, and capital resources, addressing global event impacts [Overview](index=16&type=section&id=Overview) Introduces Graco Inc.'s business model, strategic priorities, and the current operating environment challenges - Graco Inc. supplies technology and expertise for fluid and coating management, operating in Industrial, Process, and Contractor segments[50](index=50&type=chunk) - Key strategies include new product development, market expansion, global distribution, and strategic acquisitions[50](index=50&type=chunk) - The company continues to face operational challenges from the COVID-19 pandemic, including logistical and production constraints due to raw material shortages, reduced freight capacity, shipping delays, and labor shortages[51](index=51&type=chunk) - Price inflation for raw materials, components, and freight has adversely impacted profitability and limited the ability to meet customer demand, particularly in the Contractor segment, with these challenges expected to continue into at least the first half of 2022[52](index=52&type=chunk) - In response to Russia's invasion of Ukraine and subsequent sanctions, Graco has suspended sales into Russia and Belarus[53](index=53&type=chunk) - Sales to these countries accounted for approximately **1.5% of 2021 net sales** and were not material for Q1 2022[53](index=53&type=chunk) [Consolidated Results](index=16&type=section&id=Consolidated%20Results) Presents a summary of the company's overall financial performance for the quarter Consolidated Financial Results (Three Months Ended, in millions except per share amounts) | Metric | Apr 1, 2022 | Mar 26, 2021 | % Change | | :------------------------------------ | :---------- | :----------- | :------- | | Net Sales | $494.3 | $454.1 | 9 % | | Operating Earnings | $128.4 | $128.3 | — % | | Net Earnings | $100.8 | $105.7 | (5)% | | Diluted Net Earnings per Common Share | $0.58 | $0.61 | (5)% | | Net Earnings, adjusted (non-GAAP) | $99.3 | $101.6 | (2)% | | Diluted Net Earnings per Common Share, adjusted (non-GAAP) | $0.57 | $0.58 | (2)% | - Sales increased **9%** year-over-year, driven by double-digit growth in the Industrial and Process segments[56](index=56&type=chunk) - Currency translation rates reduced worldwide sales by **$7 million (2 percentage points)**, while acquired operations contributed approximately **$2 million (1 percentage point)**[56](index=56&type=chunk) - Gross profit margin rate weakened due to higher product costs[57](index=57&type=chunk) - Total operating expenses increased by **$7 million (6%)**, but decreased by approximately one percentage point as a percentage of sales[57](index=57&type=chunk) Components of Net Earnings as a Percentage of Net Sales (Three Months Ended) | Metric | April 1, 2022 | March 26, 2021 | | :-------------------------- | :------------ | :------------- | | Net Sales | 100.0 % | 100.0 % | | Cost of products sold | 48.5 % | 45.5 % | | Gross Profit | 51.5 % | 54.5 % | | Operating Earnings | 26.0 % | 28.2 % | | Net Earnings | 20.4 % | 23.3 % | [Net Sales](index=18&type=section&id=Net%20Sales) Analyzes net sales performance by geographic region and the factors contributing to changes Net Sales by Geographic Region (Three Months Ended, in millions) | Region | April 1, 2022 | March 26, 2021 | | :----------- | :------------ | :------------- | | Americas | $293.2 | $264.9 | | EMEA | $106.2 | $110.2 | | Asia Pacific | $94.9 | $79.0 | | Consolidated | $494.3 | $454.1 | Components of Net Sales Change by Geographic Region (Three Months) | Region | Volume and Price | Acquisitions | Currency | Total | | :----------- | :--------------- | :----------- | :------- | :---- | | Americas | 11% | 0% | 0% | 11% | | EMEA | 0% | 2% | (6)% | (4)% | | Asia Pacific | 22% | 0% | (2)% | 20% | | Consolidated | 10% | 1% | (2)% | 9% | [Gross Profit](index=18&type=section&id=Gross%20Profit) Discusses the factors influencing the company's gross profit margin - Gross profit margin rate decreased by **3 percentage points** year-over-year, primarily due to higher product costs from ongoing supply chain and inflationary challenges, and adverse impacts from currency translation rates[60](index=60&type=chunk) - The full effect of Q1 price changes is expected to be realized later in the year[60](index=60&type=chunk) [Operating Expenses](index=18&type=section&id=Operating%20Expenses) Examines changes in operating expenses and their impact on profitability - Total operating expenses increased by **$7 million (6%)** compared to the prior year, including a **$3 million (3 percentage points)** increase due to allowances for credit losses on customer receivables in Russia and Belarus[61](index=61&type=chunk) - As a percentage of sales, operating expenses decreased by approximately one percentage point[61](index=61&type=chunk) [Other Expense](index=18&type=section&id=Other%20Expense) Analyzes non-operating expenses, including interest and other financial costs - Other non-operating expenses increased by **$3 million** for the quarter, primarily due to interest expense, which included a **$3.5 million** fee related to the prepayment of private placement debt[62](index=62&type=chunk) [Income Taxes](index=18&type=section&id=Income%20Taxes) Discusses the effective income tax rate and factors influencing it - The effective income tax rate for the quarter was **18%**, a **2 percentage point** increase from the prior year, mainly due to decreases in excess tax benefits from stock option exercises[63](index=63&type=chunk) [Segment Results](index=19&type=section&id=Segment%20Results) Provides a detailed analysis of the financial performance of each operating segment [Industrial Segment](index=19&type=section&id=Industrial%20Segment) Analyzes the net sales and operating earnings performance of the Industrial segment Industrial Segment Net Sales and Operating Earnings % of Sales (Three Months Ended, in millions) | Metric | April 1, 2022 | March 26, 2021 | | :------------------------------------ | :------------ | :------------- | | Net Sales | $144.7 | $129.9 | | Operating earnings as a percentage of net sales | 36 % | 33 % | Industrial Segment Net Sales Change by Geographic Region (Three Months) | Region | Volume and Price | Acquisitions | Currency | Total | | :----------- | :--------------- | :----------- | :------- | :---- | | Americas | 17% | 0% | 0% | 17% | | EMEA | 13% | 0% | (7)% | 6% | | Asia Pacific | 11% | 0% | 0% | 11% | | Segment Total | 14% | 0% | (3)% | 11% | - Industrial segment sales increased due to economic strength in the Americas, project activity in EMEA, and increased economic activity in Asia Pacific[64](index=64&type=chunk) - The operating margin rate improved by **3 percentage points**, as realized pricing and expense leverage offset higher product costs and adverse currency impacts[64](index=64&type=chunk) [Process Segment](index=19&type=section&id=Process%20Segment) Analyzes the net sales and operating earnings performance of the Process segment Process Segment Net Sales and Operating Earnings % of Sales (Three Months Ended, in millions) | Metric | April 1, 2022 | March 26, 2021 | | :------------------------------------ | :------------ | :------------- | | Net Sales | $115.0 | $91.4 | | Operating earnings as a percentage of net sales | 24 % | 24 % | Process Segment Net Sales Change by Geographic Region (Three Months) | Region | Volume and Price | Acquisitions | Currency | Total | | :----------- | :--------------- | :----------- | :------- | :---- | | Americas | 20% | 0% | 0% | 20% | | EMEA | 19% | 0% | (3)% | 16% | | Asia Pacific | 51% | 0% | (2)% | 49% | | Segment Total | 26% | 0% | 0% | 26% | - The Process segment experienced sales growth across all product applications[65](index=65&type=chunk) - The operating margin rate remained flat, as expense leverage compensated for higher product costs, unfavorable product and channel mix, and adverse currency translation impacts[66](index=66&type=chunk) [Contractor Segment](index=20&type=section&id=Contractor%20Segment) Analyzes the net sales and operating earnings performance of the Contractor segment Contractor Segment Net Sales and Operating Earnings % of Sales (Three Months Ended, in millions) | Metric | April 1, 2022 | March 26, 2021 | | :------------------------------------ | :------------ | :------------- | | Net Sales | $234.6 | $232.8 | | Operating earnings as a percentage of net sales | 25 % | 31 % | Contractor Segment Net Sales Change by Geographic Region (Three Months) | Region | Volume and Price | Acquisitions | Currency | Total | | :----------- | :--------------- | :----------- | :------- | :---- | | Americas | 5% | 0% | 0% | 5% | | EMEA | (17)% | 4% | (5)% | (18)% | | Asia Pacific | 14% | 0% | (3)% | 11% | | Segment Total | 1% | 1% | (1)% | 1% | - Contractor segment sales saw modest growth, driven by stable North American construction markets and improved demand in Asia Pacific, offsetting weakness in EMEA due to product availability[67](index=67&type=chunk) - The operating margin rate decreased by **6 percentage points** due to higher product costs, unfavorable product and channel mix, and adverse currency translation impacts[67](index=67&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash flow, available liquidity, and capital allocation strategies - Net cash provided by operating activities decreased by **$70 million** year-over-year to **$31 million**, primarily due to increased salary and incentive payments and inventory purchases[68](index=68&type=chunk) - Significant cash uses in 2022 included **$109 million** for share repurchases, **$75 million** for long-term debt payments, **$47 million** for property, plant, and equipment additions, **$36 million** for dividends, and **$25 million** for business acquisitions[68](index=68&type=chunk) - As of April 1, 2022, the Company had **$908 million** in available liquidity, comprising **$380 million** in cash and cash equivalents (with **$152 million** held outside the U.S.) and **$528 million** in available credit facilities[70](index=70&type=chunk) - The Company expects current liquidity to meet 2022 needs, including **$190 million** in capital expenditures (with **$140 million** for facility expansion), planned dividends, share repurchases, acquisitions, and operating requirements[71](index=71&type=chunk) - Opportunistic share repurchases may continue[71](index=71&type=chunk) [Outlook](index=21&type=section&id=Outlook) Provides the company's forward-looking expectations for sales growth and key influencing factors - For the full-year 2022, Graco targets high single-digit sales growth on an organic, constant currency basis, supported by solid underlying demand in key markets[72](index=72&type=chunk) - The outlook is contingent on economic and geopolitical conditions, successful new product launches, expanded distribution, realized price increases, and stable foreign currency exchange rates[72](index=72&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=21&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) Warns investors about the inherent risks and uncertainties associated with forward-looking statements - The company's forward-looking statements are subject to various risks and uncertainties, including the impact of the COVID-19 pandemic, the Russia-Ukraine conflict and sanctions, economic conditions, growth strategies, currency rates, supply chain disruptions, security breaches, intellectual property infringement, international business risks, and changes in laws and regulations[73](index=73&type=chunk)[74](index=74&type=chunk) - Investors are cautioned not to place undue reliance on these statements[74](index=74&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) States that there have been no material changes to the company's market risk disclosures since its 2021 Annual Report - No material changes related to market risk from the disclosures made in the Company's 2021 Annual Report on Form 10-K[76](index=76&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the evaluation of disclosure controls and procedures and any changes in internal controls over financial reporting [Evaluation of disclosure controls and procedures](index=23&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) Reports on the effectiveness of the company's disclosure controls and procedures - The Company's President and CEO, and CFO and Treasurer, concluded that the disclosure controls and procedures were effective as of the end of the fiscal quarter[77](index=77&type=chunk) [Changes in internal controls](index=23&type=section&id=Changes%20in%20internal%20controls) Reports on any changes in internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the quarter that materially affected or are reasonably likely to materially affect it[78](index=78&type=chunk) PART II - OTHER INFORMATION [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) Updates the company's risk factors, specifically addressing new risks from the Russian invasion of Ukraine [Russian Invasion of Ukraine](index=23&type=section&id=Russian%20Invasion%20of%20Ukraine) Highlights the business impacts and potential exacerbation of risks due to the conflict and sanctions - The Russian invasion of Ukraine and associated sanctions have significantly depressed demand and restricted sales in Russia and Belarus, leading the company to suspend sales in these regions[80](index=80&type=chunk) - While sales to these countries were not material (**1.5% of 2021 net sales**), an escalation of the conflict could materially adversely affect the business, exacerbating risks like cybersecurity threats, unfavorable exchange rates, supply chain disruptions, reduced demand, and logistical challenges[80](index=80&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Provides information on the company's share repurchase programs and other equity transactions - The Board of Directors authorized the purchase of up to **18 million shares** of common stock on April 24, 2015, and an additional **18 million shares** on December 7, 2018[82](index=82&type=chunk)[84](index=84&type=chunk) - Approximately **17 million shares** remained under authorization as of April 1, 2022[84](index=84&type=chunk) Issuer Purchases of Equity Securities (January 1, 2022 - April 1, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | January 1, 2022 - January 28, 2022 | 17,200 | $69.69 | | January 29, 2022 - February 25, 2022 | 1,117,639 | $71.44 | | February 26, 2022 - April 1, 2022 | 382,361 | $71.37 | [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) Lists all documents filed as exhibits to the Form 10-Q - Exhibits include Restated Articles of Incorporation, Restated Bylaws, Certifications of CEO, CFO, and Corporate Controller, Press Release Reporting First Quarter Earnings, and Interactive Data Files (iXBRL)[86](index=86&type=chunk) SIGNATURES - The report is duly signed on April 27, 2022, by Mark W. Sheahan (President and Chief Executive Officer), David M. Lowe (Chief Financial Officer and Treasurer), and Kathryn L. Schoenrock (Executive Vice President, Corporate Controller and Information Systems)[90](index=90&type=chunk)

《 GRACO® 1 / / / / / / / / / / / / / / / / / / Company Overview Investor Presentation Fourth Quarter and Full Year 2021 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 di ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2021, or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . Commission File No. 001-09249 Graco Inc. (Exact name of Registrant as specified in its charter) Minnesota 41-0285640 (State or other jurisdiction of incorporation or or ...

Graco Inc. (NYSE:GGG) Q4 2021 Earnings Conference Call February 1, 2022 11:00 AM ET Company Participants Kathy Schoenrock - Executive Vice President and Corporate Controller Mark Sheahan - President and Chief Executive Officer David Lowe - Chief Financial Officer Conference Call Participants Deane Dray - RBC Capital Markets Mike Halloran - Robert W. Baird Joe Ritchie - Goldman Sachs Bryan Blair - Oppenheimer Matt Summerville - D.A. Davidson Jeff Hammond - KeyBanc Capital Markets Connor Lynagh - Morgan Stanl ...

() GRACO® / / / / / / / / / / / / / / / / / / 4th Quarter 2021 Earnings Conference Call February 1, 2022 Safe Harbor Factors that could cause actual results to differ from anticipated 2 ////////////////// 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. | --- | ...

() GRACO® / / / / / / / / / / / / / / / / / / 3rd Quarter 2021 Earnings Conference Call October 21, 2021 Safe Harbor Factors that could cause actual results to differ from anticipated 2 ////////////////// 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. | --- | ...

Commission File Number: 001-09249 GRACO INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended September 24, 2021 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to 8 ...