Core Insights - The company reported a 22% increase in net earnings to $133 million, or $0.79 per diluted share, with adjusted earnings up 20% to $0.77 per diluted share [3][8] - Operating expenses decreased by $1 million, or 1%, primarily due to the absence of prior year reorganization and litigation costs [1] - The company achieved record sales of $593 million in Q4, an 8% increase from the previous year, driven by acquisitions and organic growth [4][5] Financial Performance - Adjusted operating earnings rose by $21 million, or 15%, with an adjusted operating margin of 27% compared to 25% a year earlier [1] - Gross margin improved by 80 basis points year over year, despite tariffs increasing product costs by $4 million in the quarter [2][8] - Operating cash flow for the year was $684 million, up 10%, with the company repurchasing $423 million of stock and paying $183 million in dividends [6][14] Segment Performance - The industrial segment saw the strongest growth with sales up 11% in the quarter, driven by completions in powder finishing systems [10] - The contractor segment reported an operating margin rate of 24%, with sales increasing 8%, including contributions from acquisitions and currency translation [9] - Expansion markets sales declined 6% in the quarter but showed high single-digit growth for the full year in the semiconductor business [11] 2026 Outlook - The company anticipates low single-digit organic growth for 2026, with pricing expected to contribute about 1% to 1.5% [7][16] - Management described the outlook as cautious but supported by recent order trends, with a focus on disciplined M&A to drive growth [19] - Capital expenditures are projected at $90 million to $100 million, with an additional $50 million planned for facility expansion [17][15]

Financial Data and Key Metrics Changes - Graco reported fourth quarter sales of $593 million, an increase of 8% from the same quarter last year, with acquisitions contributing 4%, currency translation 2%, and organic sales another 2% to growth [3] - Reported net earnings increased 22% to $133 million, or 79 cents per diluted share, while adjusted non-GAAP net earnings were 77 cents per diluted share, an increase of 20% [3] - The gross margin rate increased by 80 basis points compared to the same quarter last year, despite higher product costs due to tariffs and lower factory volumes [4] - Operating expenses decreased by $1 million, or 1%, primarily due to the absence of prior year business reorganization and litigation costs [4][5] Business Line Data and Key Metrics Changes - Contractor segment sales increased 8% in the fourth quarter, with acquisitions contributing 5%, currency translation 2%, and organic sales another 1% [13] - The industrial segment saw an 11% growth in sales, driven by strong organic performance and contributions from acquisitions [14] - Expansion markets declined 6% in the quarter but achieved high single-digit full-year sales growth in the semiconductor business [15] Market Data and Key Metrics Changes - Organic sales at constant currency were up 2%, with growth in both the industrial and contractor segments [11] - The industrial business had strong organic performance in the Americas and EMEA, while Asia-Pacific experienced declines, particularly in China [14] - The overall market for contractor equipment remained flat, with affordability concerns keeping activity subdued [13] Company Strategy and Development Direction - Graco aims to generate one-third of its long-term revenue growth through strategic acquisitions, with a strong acquisition pipeline [12] - The company is focused on product innovation and advancing the One Graco operating model, which has led to significant inventory reductions and cost efficiencies [60] - Graco is optimistic about growth opportunities in 2026, projecting low single-digit organic growth on a constant currency basis and mid-single-digit growth factoring in expected incremental sales from acquisitions [16] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the operating environment, noting steady order rates and potential for growth in the contractor segment [33] - The company highlighted the importance of new product launches and the impact of lower mortgage rates on the residential market as potential positive developments [125] - Management acknowledged the unpredictable nature of the global trade environment and its potential impact on operations [126] Other Important Information - Cash provided by operations totaled $684 million for the year, an increase of $62 million, or 10% [7] - Significant cash uses included share repurchases of 5.1 million shares totaling $423 million and dividends of $183 million [8] - The effective tax rate is expected to be 20%-21% for the upcoming year, excluding any one-time items [8] Q&A Session Summary Question: Clarification on upfront licensing fees associated with electric pumps - Management explained that the upfront licensing fees are likely to be lumpy and not factored into the full-year outlook for organic growth [22][25] Question: Geographic conditions for 2026 - Management characterized the geographic conditions as low single-digit growth, with steady order rates but cautious optimism for improvement [29][33] Question: Signs of pull-forward demand in the contractor side - Management indicated that there was no significant pull-forward demand, but noted a slight pickup in the home center channel [40][42] Question: Pricing assumptions in organic growth guidance - Management expects to realize about 1.5% on the pricing front this year, with price adjustments implemented in late 2025 [51][52] Question: Update on One Graco initiative - Management reported significant inventory reductions and cost efficiencies as a result of the One Graco initiative, with expectations for continued benefits in 2026 [58][60] Question: Backlog trends in the quarter - Management stated that backlogs are at a decent level and that they did a good job in manufacturing to meet customer demands [110][111]

Financial Data and Key Metrics Changes - Graco reported third-quarter sales of $543 million, a 5% increase from the same quarter last year, with organic sales declining 2% after excluding acquisitions and currency effects [3][4] - Reported net earnings increased 13% to $138 million or $0.82 per diluted share, while adjusted non-GAAP net earnings rose 3% to $0.73 per diluted share [3][4] - Gross margin rate remained flat compared to the same quarter last year, impacted by tariffs that added $5 million in costs, resulting in a 100 basis point decline in the gross margin rate [4][5] - Cash provided by operations totaled $487 million for the year, an increase of $51 million or 12% [5][6] Business Line Data and Key Metrics Changes - The contractor segment saw an 8% sales increase, with acquisitions contributing 11%, offsetting a 3% decline in organic sales [7][8] - The industrial segment delivered a 1% sales increase, supported by acquisitions and favorable exchange rates, despite a 2% organic revenue decline [9][10] - Expansion market sales increased by 3%, driven by strong activity in semiconductor products, although challenges remain in the environmental business [10] Market Data and Key Metrics Changes - North American construction activity remains subdued, affecting the contractor segment, while the industrial segment experienced growth in vehicle service and automotive OEM projects [7][9] - In Asia Pacific, solid demand in mining was noted, but lower investments in solar and EV sectors impacted overall performance [9][10] - Backlog levels are stable, with no significant challenges expected for the rest of the year, and order activity increased mid-single digits across all segments [8][9] Company Strategy and Development Direction - Graco is focused on targeted pricing actions to offset tariff impacts and improve margins, with expectations for pricing to fully cover tariff costs by year-end [8][10] - The company maintains its full-year revenue guidance of low single-digit growth on an organic constant currency basis, with a focus on improving operational efficiencies through the One Graco initiative [10][11] - M&A strategy remains a priority, with ongoing discussions and interest in technology-based businesses that can add value [45][46] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the North American market, highlighting affordability issues affecting the contractor segment [17][19] - The company noted that while demand is not robust, there are still targeted opportunities in certain areas, particularly in vehicle service and process pumps [16][17] - Management anticipates that improvements in housing affordability and mortgage rates could positively impact the contractor business in the future [20][19] Other Important Information - Significant year-to-date cash uses include share repurchases totaling $361 million, dividends of $138 million, and capital expenditures of $34 million [6] - The company recognized a $14 million non-cash gain from a reduction in the fair value of contingent consideration related to last year's acquisition of Corab [3][4] Q&A Session Summary Question: Can you discuss the performance of end markets and regions? - Management noted that demand in industrial end markets is not robust but there are still orders being placed, particularly in vehicle service and process pumps [16][17] Question: What is the outlook for pricing and demand in the contractor segment? - Management expects pricing actions to take effect in January and anticipates that these will help offset tariff costs [25][30] Question: How is the integration of recent acquisitions progressing? - The integration of Corab is on track, and early-stage integration of Color Service is also showing promise [48][49] Question: What is the company's view on free cash flow conversion? - Management emphasized the importance of cash flow and noted improvements due to the One Graco initiative, which has streamlined operations [57][58] Question: How does the company view the backlog and its implications? - Management indicated that the current backlog is stable and at a healthy level, with no significant headwinds expected [65][66]