Graco Inc: Form 10-Q for the period ended Mar 27, 2026
Filed with the SEC on Apr 22, 2026 and accepted by EDGAR at Apr 22, 2026, 16:14 ET.
Management's discussion and analysis
As filed, 15,223 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Contractor, Industrial and Expansion Markets. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channels and technologies.
The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of operations and financial condition. This discussion should be read in conjunction with the financial statements and the accompanying notes to the financial statements.
Consolidated Results
A summary of financial results follows (in millions except per share amounts):
| Three Months Ended Mar 27, 2026 | Mar 28, 2025 | % Change | |
|---|---|---|---|
| Net Sales | $540.1 | $528.3 | 2% |
| Operating Earnings | 137.8 | 144.0 | (4)% |
| Net Earnings | 118.5 | 124.1 | (5)% |
| Net Earnings, adjusted (1) | 111.8 | 120.5 | (7)% |
| Diluted Net Earnings per Common Share | $0.70 | $0.72 | (3)% |
| Diluted Net Earnings per Common Share, adjusted (1) | $0.66 | $0.70 | (6)% |
(1) See below for a reconciliation of adjusted non-GAAP financial measures to GAAP.
Net sales for the first quarter increased 2 percent, with 5 percentage points of sales growth from acquired operations and 3 percentage points of sales growth from the effects of changes in currency translation rates. Sales growth for the quarter was partially offset by a 6 percentage point organic decline.
The gross margin rate was lower than the first quarter last year, primarily due to unfavorable product and channel mix and lower margin rates of acquired operations. Price realization was able to mostly offset the impact of incremental tariffs of $7 million.
Operating expenses increased 7 percent, including 4 percentage points from acquired operations and 3 percentage points from the effects of currency translation.
Operating earnings decreased 4 percent, due to a lower gross margin rate and increased expenses.
Net earnings decreased 5 percent for the first quarter. Adjusted net earnings decreased 7 percent, driven by lower operating earnings and a prior year gain from the sale of a former manufacturing and distribution facility in Switzerland that did not repeat.
Excluding the impact of excess tax benefits from stock option exercises presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP adjusted measurements of earnings before income taxes, income taxes, effective income tax rate, net earnings and diluted earnings per share follows (in millions except per share amounts):
| Three Months Ended March 27, 2026 | March 28, 2025 | |
|---|---|---|
| Earnings before income taxes | $140.1 | $151.5 |
| Income taxes, as reported | $21.6 | $27.4 |
| Excess tax benefit from option exercises | 6.7 | 3.6 |
| Income taxes, adjusted | $28.3 | $31.0 |
| Effective income tax rate | ||
| As reported | 15.4% | 18.1% |
| Adjusted | 20.2% | 20.5% |
| Net Earnings, as reported | $118.5 | $124.1 |
| Excess tax benefit from option exercises | (6.7) | (3.6) |
| Net Earnings, adjusted | $111.8 | $120.5 |
| Weighted Average Diluted Shares | 168.3 | 171.6 |
| Diluted Earnings per Share | ||
| As reported | $0.70 | $0.72 |
| Adjusted | $0.66 | $0.70 |
15
The following table presents an overview of components of net earnings as a percentage of net sales:
| Three Months Ended March 27, 2026 | March 28, 2025 | |
|---|---|---|
| Net Sales | 100.0% | 100.0% |
| Cost of products sold | 48.0 | 47.4 |
| Gross Profit | 52.0 | 52.6 |
| Product development | 3.7 | 3.7 |
| Selling, marketing and distribution | 13.0 | 12.7 |
| General and administrative | 9.8 | 8.9 |
| Operating Earnings | 25.5 | 27.3 |
| Interest expense | 0.2 | 0.1 |
| Other (income) expense, net | (0.6) | (1.5) |
| Earnings Before Income Taxes | 25.9 | 28.7 |
| Income taxes | 4.0 | 5.2 |
| Net Earnings | 21.9% | 23.5% |
Net Sales
The following table presents net sales by geographic region (in millions):
| Three Months Ended March 27, 2026 | March 28, 2025 | |
|---|---|---|
| Americas(1) | $334.4 | $323.2 |
| EMEA(2) | 125.6 | 121.0 |
| Asia Pacific | 80.1 | 84.1 |
| Consolidated | $540.1 | $528.3 |
(1) North, South and Central America, including the United States
(2) Europe, Middle East and Africa
The following table presents the components of net sales change by geographic region:
| Three Months Volume and Price | Acquisitions | Currency | Total | |
|---|---|---|---|---|
| Americas | (1)% | 4% | 0% | 3% |
| EMEA | (14)% | 9% | 9% | 4% |
| Asia Pacific | (8)% | 0% | 3% | (5)% |
| Consolidated | (6)% | 5% | 3% | 2% |
Gross Profit
The first quarter gross margin rate was lower than the first quarter last year, primarily due to unfavorable product and channel mix and lower margin rates of acquired operations. Price realization was able to mostly offset the impact of incremental tariffs of $7 million.
Operating Expenses
Total operating expenses for the first quarter increased $9 million (7 percent) compared to the same period last year, including approximately $5 million (4 percentage points) from acquired operations and $4 million (3 percentage points) from the effects of currency translation.
Other (Income) Expense
Other non-operating income for the first quarter decreased $5 million compared to the same period last year due to a prior year gain from the sale of a former manufacturing and distribution facility in Switzerland that did not repeat.
Income Taxes
The effective income tax rate was 15 percent for the quarter, down approximately 3 percentage points from the first quarter last year. The decrease was due primarily to an increase in excess tax benefits related to stock option exercises.
Segment Results
Certain measurements of segment operations compared to last year are summarized below:
Contractor Segment
The following table presents net sales and operating earnings as a percentage of sales for the Contractor segment
(dollars in millions):
| Net Sales | Three Months Ended March 27, 2026 | March 28, 2025 |
|---|---|---|
| Americas | $180.9 | $175.9 |
| EMEA | 56.2 | 54.5 |
| Asia Pacific | 22.9 | 24.6 |
| Total | $260.0 | $255.0 |
| Operating earnings as a percentage of net sales | 24% | 24% |
The following table presents the components of net sales change by geographic region for the Contractor segment:
| Three Months Volume and Price | Acquisitions | Currency | Total | |
|---|---|---|---|---|
| Americas | (2)% | 4% | 1% | 3% |
| EMEA | (6)% | 0% | 9% | 3% |
| Asia Pacific | (12)% | 0% | 5% | (7)% |
| Segment Total | (4)% | 3% | 3% | 2% |
Contractor segment net sales increased 2 percent for the first quarter compared to the same period last year. Incremental sales from acquired operations and favorable changes in currency translation rates were partially offset by continued weakness in the worldwide construction markets. The operating margin rate was flat as price realization offset higher product costs, including increased tariff costs of $4 million.
Industrial Segment
The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment
(dollars in millions):
| Net Sales | Three Months Ended March 27, 2026 | March 28, 2025 |
|---|---|---|
| Americas | $131.4 | $121.2 |
| EMEA | 62.7 | 59.4 |
| Asia Pacific | 46.3 | 51.1 |
| Total | $240.4 | $231.7 |
| Operating earnings as a percentage of net sales | 32% | 34% |
The following table presents the components of net sales change by geographic region for the Industrial segment:
| Three Months Volume and Price | Acquisitions | Currency | Total | |
|---|---|---|---|---|
| Americas | 1% | 6% | 1% | 8% |
| EMEA | (22)% | 18% | 10% | 6% |
| Asia Pacific | (12)% | 1% | 2% | (9)% |
| Segment Total | (8)% | 8% | 4% | 4% |
Industrial segment sales growth for the first quarter included $20 million (8 percentage points) from acquired operations, which more than offset the impact of the timing of finishing system sales and other project activity compared to the first quarter last year. Higher product costs, including increased tariff costs of $3 million, and unfavorable product and channel mix drove a 2 percentage point decline in the operating margin rate for the quarter.
Expansion Markets Segment
The following table presents net sales and operating earnings as a percentage of sales for the Expansion Markets segment (dollars in millions):
| Net Sales | Three Months Ended March 27, 2026 | March 28, 2025 |
|---|---|---|
| Americas | $22.1 | $26.0 |
| EMEA | 6.8 | 7.1 |
| Asia Pacific | 10.8 | 8.5 |
| Total | $39.7 | $41.6 |
| Operating earnings as a percentage of net sales | 24% | 24% |
The following table presents the components of net sales change by geographic region for the Expansion Markets segment:
| Three Months Volume and Price | Acquisitions | Currency | Total | |
|---|---|---|---|---|
| Americas | (15)% | 0% | 0% | (15)% |
| EMEA | (6)% | 0% | 2% | (4)% |
| Asia Pacific | 28% | 0% | 0% | 28% |
| Segment Total | (5)% | 0% | 1% | (4)% |
18
Net sales for the first quarter in the Expansion Markets segment decreased 4 percent, primarily due to lower semiconductor application sales in the Americas. The decline in sales volume was offset by lower expenses and an improved gross margin rate, resulting in an operating margin rate that was comparable to the same period last year.
Liquidity and Capital Resources
Net cash provided by operating activities of $120 million in the first quarter of 2026 decreased $5 million compared to the same period last year, mostly due to higher performance-based incentive payouts. Significant uses of cash in the first three months of 2026 included dividend payments of $49 million and plant and equipment additions of $12 million. Net proceeds from shares issued in 2026 totaled $40 million, which was partially offset by share repurchases of $12 million.
For the first three months of 2025, significant uses of cash included share repurchases of $238 million (partially offset by $28 million from shares issued) and dividend payments of $47 million.
As of March 27, 2026, the Company had available liquidity of $1,485 million, including cash and cash equivalents of $712 million, of which $223 million was held outside of the U.S., and available credit under existing committed credit facilities of $773 million.
Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs for the next 12 months and beyond, including its capital expenditure plan, planned dividends, share repurchases, potential future acquisitions and operating requirements. Capital expenditures for 2026 are expected to be approximately $100 million. The Company may make opportunistic share repurchases going forward.
Outlook
Incoming order activity and end market demand trends support the Company's 2026 outlook of low single-digit sales growth on an organic constant-currency basis and mid-single-digit growth including the expected incremental sales from acquisitions.
Cautionary Statement Regarding Forward-Looking Statements
The Company desires to take advantage of the “safe harbor” provisions regarding forward-looking statements of the Private Securities Litigation Reform Act of 1995 and is filing this Cautionary Statement in order to do so. From time to time various forms filed by our Company with the Securities and Exchange Commission, including our Form 10-K, Form 10-Qs and Form 8-Ks, and other disclosures, including our 2025 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.
Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to, risks relating to the demand for our products and the level of commercial, industrial and construction activity worldwide; changes in currency translation rates; international and domestic instability; interest rate fluctuations and changes in credit markets; global sourcing of materials; inflationary cost pressures and our ability to raise prices without decreasing demand for our products; interruptions of or intrusions into our information systems; intellectual property rights; the use of generative artificial intelligence and other emerging technologies; conducting business internationally; catastrophic events; our ability to attract, develop and retain qualified personnel; public health crises; our growth strategies and acquisitions; potential goodwill impairment; our ability to compete effectively; our dependence on a few large customers; our dependence on cyclical industries; changes in laws and regulations; climate-related laws, regulations and accords; environmental, social and governance-related expectations and requirements; compliance with anti-corruption and trade laws; changes in tax or tariff rates or the adoption of new tax or tariff legislation; and costs associated with legal proceedings. Please refer to Item 1A of our 2025 Annual Report on Form 10-K and Item 1A of this Form 10-Q for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com (http://www.graco.com) and the Securities and Exchange Commission’s website at www.sec.gov (http://www.sec.gov). Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.
Investors should realize that factors other than those identified above and in Item 1A might prove important to the Company’s future results. It is not possible for management to identify each and every factor that may have an impact on the Company’s operations in the future as new factors can develop from time to time.
Market risk
As filed, 124 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There have been no material changes related to market risk from the disclosures made in the 2025 Annual Report on Form 10-K.
Controls and procedures
As filed, 913 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of disclosure controls and procedures
As of the end of the fiscal quarter covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was done under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer. Based upon that evaluation, the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the Company’s disclosure controls and procedures are effective.
Changes in internal controls
During the quarter, there was no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
PART IIOTHER INFORMATION
Risk factors
As filed, 136 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2025 Annual Report on Form 10-K.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2026-03-27. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2025-12-27 to 2026-03-27 | $540.1m | us-gaap:Revenues |
| Cost of revenue | 3 months2025-12-27 to 2026-03-27 | $259.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months2025-12-27 to 2026-03-27 | $280.6m | us-gaap:GrossProfit |
| Research and development | 3 months2025-12-27 to 2026-03-27 | $20.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2025-12-27 to 2026-03-27 | $137.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2025-12-27 to 2026-03-27 | $836.0k | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months2025-12-27 to 2026-03-27 | $21.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2025-12-27 to 2026-03-27 | $118.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2025-12-27 to 2026-03-27 | $0.70 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2025-12-27 to 2026-03-27 | $0.72 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2025-12-27 to 2026-03-27 | 168,334,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months2025-12-27 to 2026-03-27 | $120.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months2025-12-27 to 2026-03-27 | $12.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months2025-12-27 to 2026-03-27 | $48.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months2025-12-27 to 2026-03-27 | $11.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2026-03-27 | $712.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2026-03-27 | $1.57bn | us-gaap:AssetsCurrent |
| Total assets | At period end2026-03-27 | $3.33bn | us-gaap:Assets |
| Current liabilities | At period end2026-03-27 | $440.6m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | At period end2026-03-27 | $2.74bn | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000042888-26-000098. Last ingested by Listed: Nov 11, 2026, 03:24 ET. Listed shows no prices and gives no investment advice.