Business Context and Reporting Period
Company: Graco Inc. (NYSE: GGG)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 26, 2025
Business Overview: Graco is a multinational manufacturer of fluid and powder management systems and equipment for industrial and commercial applications. Effective January 1, 2025, the company reorganized into three reportable segments: Contractor, Industrial, and Expansion Markets. The company operates globally with significant manufacturing in the U.S., Switzerland, Italy, China, India, Belgium, and Romania.
Key Financial Metrics
| Metric (in millions, except per share) | 2025 | 2024 |
|---|---|---|
| Net Sales | $2,236.6 | $2,113.3 |
| Operating Earnings | $624.8 | $570.1 |
| Net Earnings | $521.8 | $486.1 |
| Diluted EPS | $3.08 | $2.82 |
| Operating Cash Flow | $683.6 | $621.7 |
| Free Cash Flow (approx.) | $638.0 | $515.0 |
| Ending Cash & Equivalents | $624.1 | $675.3 |
| Total Debt | $24.7 | $28.5 |
| Shareholders' Equity | $2,653.9 | $2,584.1 |
Margins: Gross profit margin was 52.5% in 2025 (down from 53.1% in 2024). Operating margin was 27.9% in 2025 (up from 27.0% in 2024). Net earnings margin was 23.3% in 2025.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 6% year-over-year, driven primarily by acquisitions (5% contribution) and favorable currency translation (1% contribution), offset by flat volume/price growth.
- Segment Performance:
- Contractor: Sales up 8% to $1,071.9M; operating earnings flat at $270.3M. Growth driven by acquisitions ($100M), offset by softness in residential construction and lower margins due to tariffs.
- Industrial: Sales up 4% to $996.8M; operating earnings up 7% to $334.6M. Margin improved 1 percentage point due to price realization and expense leverage.
- Expansion Markets: Sales up 1% to $167.9M; operating earnings up 32% to $41.5M. Margin expansion driven by upfront license fees in electric motor applications.
- Acquisitions: Completed two significant acquisitions in 2025: Corob S.p.A. (Industrial segment, ~$291M total consideration) and Red Devil Equipment Company/Radia (Contractor segment, ~$74M). Also acquired Color Service s.r.l. (~$77M).
- Cost Pressures: Gross margin declined due to higher product costs, including $14M in increased tariff costs, and the lower margin rates of acquired operations.
- Shareholder Returns: The company repurchased 5.2 million shares for $423 million in 2025. The quarterly dividend was increased by 7% to $0.295 per share.
Guidance, Outlook, and Risks
2026 Outlook: Management expects low single-digit organic sales growth on a constant-currency basis and mid-single-digit sales growth including acquisitions. Currency movements are expected to have a favorable impact of approximately 1 percentage point on net sales and earnings.
Key Risks and Contingencies:
- Geopolitical & Trade: Exposure to tariffs, trade policy changes, and geopolitical instability (e.g., Russia-Ukraine, Israel-Hamas, China-Taiwan tensions) affecting supply chains and demand.
- Currency: Significant exposure to foreign currency fluctuations, particularly the Euro, Swiss Franc, and Chinese Renminbi.
- Supply Chain: Risks related to global sourcing, raw material availability, and counterfeit components.
- Cybersecurity: Increasing sophistication of cyber threats; the company does not currently maintain specific cyber insurance coverage.
- Legal: Routine litigation and product liability claims; increased self-insured retentions may increase risk exposure.
Investor Verification Checklist
- Acquisition Integration: Verify the realization of synergies and margin accretion from the Corob and Radia acquisitions, given the initial drag on gross margins.
- Tariff Impact: Monitor the $14M tariff cost increase and the company's ability to pass these costs to customers without volume erosion.
- Construction Cycle: Assess the resilience of the Contractor segment against continued softness in residential and non-residential construction markets.
- Capital Allocation: Review the sustainability of the $423M share repurchase program alongside the $100M capital expenditure plan and dividend growth.
- Goodwill Valuation: Note the increase in goodwill to $585M due to acquisitions; monitor future impairment testing given the cyclical nature of end markets.