GRACO INC. 10-Q Summary: Q1 2026
Business Context and Reporting Period
This filing covers the quarterly period ended March 27, 2026. Graco Inc. designs, manufactures, and markets fluid and coating management systems across three reportable segments: Contractor, Industrial, and Expansion Markets. The company operates globally with significant exposure to construction, industrial, and emerging technology sectors.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $540.1 million | $528.3 million |
| Gross Profit | $280.6 million (52.0% margin) | $277.7 million (52.6% margin) |
| Operating Earnings | $137.8 million (25.5% margin) | $144.0 million (27.3% margin) |
| Net Earnings | $118.5 million | $124.1 million |
| Diluted EPS | $0.70 | $0.72 |
| Operating Cash Flow | $120.2 million | $125.4 million |
| Cash & Equivalents | $712.2 million | $536.1 million (end of period) |
| Total Debt (Current + Long-term) | $27.3 million | Filing text does not provide clear total debt for Q1 2025 |
| Liquidity (Cash + Credit Facilities) | $1,485 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 2% year-over-year. This growth was driven by a 5% contribution from acquisitions and a 3% positive impact from currency translation, which offset a 6% organic decline in volume and price.
- Margin Compression: Gross margin decreased 60 basis points to 52.0%, attributed to unfavorable product/channel mix and lower margins from acquired operations. Price realization offset approximately $7 million in incremental tariff costs.
- Operating Expenses: Increased 7% to $142.9 million, driven by acquired operations (4 percentage points) and currency effects (3 percentage points).
- Non-Recurring Items: Net earnings were impacted by the absence of a prior-year gain from the sale of a Swiss manufacturing facility. Adjusted net earnings (excluding excess tax benefits from stock options) decreased 7% to $111.8 million.
- Segment Performance:
- Contractor: Sales up 2%; operating margin flat at 24%.
- Industrial: Sales up 4%; operating margin declined 2 percentage points to 32% due to higher costs and mix.
- Expansion Markets: Sales down 4% due to lower semiconductor sales in the Americas; operating margin flat at 24%.
Guidance, Outlook, and Risks
- 2026 Outlook: Management forecasts low single-digit organic sales growth on a constant-currency basis. Including expected incremental sales from acquisitions, total growth is projected at mid-single digits.
- Capital Allocation: Capital expenditures for 2026 are expected to be approximately $100 million. The company plans to continue opportunistic share repurchases and dividend payments.
- Risks: Key risks include global construction and industrial demand weakness, currency translation volatility, inflationary cost pressures, tariff impacts, and supply chain disruptions. The filing notes no material changes to risk factors from the 2025 10-K.
Investor Verification Checklist
- Verify the sustainability of the 6% organic sales decline and the specific drivers within the Contractor and Industrial segments.
- Confirm the impact of the $7 million in incremental tariffs on future pricing strategies and margin recovery.
- Review the integration progress and margin performance of recent acquisitions contributing 5% to sales growth.
- Assess the company's ability to maintain liquidity given the reduction in share repurchases compared to the prior year ($12 million vs. $238 million).
- Monitor the semiconductor market recovery for the Expansion Markets segment, which saw a 15% sales drop in the Americas.