GRACO INC
For the period ended Mar 28, 2025. Filed Apr 23, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 28, 2025 · Filed Apr 23, 2025
GGG$67.86-0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-27; filed 2024-10-23.
0000042888-24-000029
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-28; filed 2025-04-23.
0000042888-25-000014
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 52 previous paragraphs and 56 current paragraphs.
30 unchanged; 7 reworded; 19 added; 15 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 11 previous and 11 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
Global Trade Uncertainty
Current report
Our operations, supply chain and financial performance are directly impacted by evolving global trade policies and tariffs as well as associated geopolitical tensions. Our global operating footprint and worldwide sales reach expose us to risks associated with trade conflicts between the U.S. and its trading partners. In 2024, approximately 46 percent of our sales were generated by customers located outside the U.S., with 6 percent of our sales generated by customers in China. Additionally, our materials sourced from China and used in our U.S. manufacturing operations approximated 6 percent of our costs of products sold in 2024. Escalating global trade conflicts could result in inflationary costs to manufacture, assemble and export our products. We may be required to increase prices to our customers, which may reduce demand, or if we do not or are unable to increase prices without reducing demand, we will experience reduced profitability. Continued geopolitical issues may cause customers outside of the U.S. seeking to source products from local suppliers. We continue to analyze the impact of these global tariffs on our business and we are working to mitigate the impact of tariffs through pricing and sourcing strategies. We cannot be sure these strategies will effectively mitigate the impact of these costs and if we are unable to do so or if demand for our products otherwise decreases, we expect these new tariffs will have a material impact on our results of operations in fiscal year 2025.
Current report
Net sales for the first quarter increased 7 percent from the comparable period last year. The effect of changes in currency translation rates reduced sales growth for the quarter by 2 percentage points. Sales from acquired operations contributed 6 percentage points of growth.
Current report
Operating expense leverage offset a lower gross margin rate resulting in an 8 percent increase in operating earnings for the first quarter from the comparable period last year.
Current report
Net earnings for the first quarter increased 2 percent compared to last year, as increased operating earnings and other income more than offset lower excess tax benefits from stock option exercises.
Current report
The gross profit margin rate declined approximately 2 percentage points for the first quarter from the comparable period last year due to the unfavorable effects of lower margin rates from acquired operations and higher product costs.
Current report
Total operating expenses for the quarter were flat compared to last year, including approximately $10 million (7 percentage points) of incremental expenses from acquired operations, which were offset by lower product development spending and unallocated corporate expense (primarily driven by lower share-based compensation).
Current report
Other (Income) Expense
Current report
Other income for the first quarter included a $5 million gain from the sale of a former manufacturing and distribution facility in Switzerland. Excluding the facility sale, other income decreased $5 million for the quarter from the comparable period last year mostly due to $3 million of incremental exchange losses on net assets of foreign operations and lower interest income of $1 million.
Current report
The effective income tax rate was 18 percent for the first quarter, up approximately 5 percentage points from the comparable period last year. The increase was due primarily to a decrease in excess tax benefits related to stock option exercises.
Current report
(dollars in millions):
Current report
Contractor segment sales growth for the first quarter included $30 million from acquired operations. The operating margin rate for this segment decreased 5 percentage points compared to the same period last year, including 3 percentage points from the unfavorable effects of lower margin rates of acquired operations, 1 percentage point from adverse impacts of currency translation and 1 percentage point related to price-cost dynamics.
Current report
(dollars in millions):
Current report
Industrial segment sales increased in all regions for the first quarter compared to the same period last year. The operating margin rate increased 1 percentage point as improved sales volume and lower expenses offset the adverse impacts of currency translation.
Current report
Expansion Markets Segment
Current report
The following table presents net sales and operating earnings as a percentage of sales for the Expansion Markets segment (dollars in millions):
Current report
The following table presents the components of net sales change by geographic region for the Expansion Markets segment:
Current report
The semiconductor product application drove double-digit sales growth in the Expansion Markets segment for the first quarter compared to last year. The operating margin rate for this segment increased 6 percentage points for the quarter from the comparable period last year due to increased sales volume and lower expenses.
Current report
We are actively working to mitigate the impact of changes in tariff policies, particularly those affecting our business in China. We are maintaining our full year revenue guidance of low-single digit growth on an organic constant currency basis. Evolving trade policies and tariffs with China have created economic uncertainty that could negatively impact our full-year revenue guidance by approximately 1% to 2%. We are closely monitoring developments and will adjust our strategy if necessary. Despite these near-term challenges, the Company remains strongly positioned for long-term success as we continue to execute our proven growth strategies and invest in our business.
Removed paragraphs (15)
Previous report
Net sales for the third quarter decreased 4 percent from the comparable period last year. Regionally, net sales decreased in EMEA and Asia Pacific. Net sales in the Americas increased in the third quarter and were flat for the year to date. Changes in currency translation rates did not have a significant impact on worldwide net sales for the third quarter and decreased worldwide net sales by $4 million for the year to date.
Previous report
Operating earnings for the third quarter decreased 11 percent from the comparable period last year due to lower sales volume and higher operating expenses.
Previous report
Net earnings for the third quarter decreased 8 percent from the comparable period last year as increased interest income and lower interest expense partially offset the decrease in operating earnings. On an adjusted basis, net earnings decreased 7 percent.
Previous report
Gross profit margin rate improved approximately 1 percentage point for both the third quarter and year to date from the comparable periods last year due to favorable price-cost dynamics.
Previous report
Total operating expenses increased $9 million (7 percent) for the third quarter and $19 million (5 percent) for the year to date, respectively, compared to last year. More than half of the increase for the quarter and year to date was from investments in new product development and other growth initiatives, including the relocation to a new distribution center. Reductions in volume and earnings-based expenses of $3 million for the quarter and $8 million for the year to date partially offset the increase in operating expenses.
Previous report
Interest and Other (Income) Expense
Previous report
Interest expense was $1 million lower for the third quarter and $3 million lower for the year to date compared to the same periods last year as private placement debt was repaid in the third quarter of 2023. Other income increased $4 million for the quarter and $10 million for the year to date from the comparable periods last year largely due to increased interest income.
Previous report
The effective income tax rate was 19 percent for the third quarter and 17 percent for the year to date. Adjusted to exclude the impacts of excess tax benefits from stock option exercises, the adjusted effective income tax rate of 19 percent for the quarter and 20 percent for the year to date was comparable to last year.
Previous report
Contractor segment net sales decreased 1 percent for both the third quarter and year to date as favorable response to new product offerings was unable to offset softness in worldwide construction markets. For the quarter, price realization was unable to offset higher expenses, which resulted in a 1 percentage point decrease in the operating margin rate. The operating margin rate for the year to date increased 1 percentage point as price realization and lower product costs combined to more than offset higher expenses.
Previous report
Industrial segment net sales decreased 1 percent for the third quarter as timing of finishing system sales in the Americas largely offset declines in Asia Pacific. For the year to date, net sales declined 4 percent as sales growth in the Americas was unable to offset decreases in both EMEA and Asia Pacific. The operating margin rate decreased 1 percentage point for the quarter and 2 percentage points for the year to date as price realization was unable to offset the unfavorable effects of lower volume, product and channel mix, and higher expenses.
Previous report
Process Segment
Previous report
The following table presents net sales and operating earnings as a percentage of sales for the Process segment
Previous report
The following table presents the components of net sales change by geographic region for the Process segment:
Previous report
Continued weakness in the Process segment's semiconductor product application drove a double-digit decrease in net sales for both the third quarter and year to date. Operating margin rates for the quarter and year to date declined, driven by lower sales volume and higher expenses.
Previous report
The Company's end markets and regions continue to face demand challenges. The Company reaffirms its full-year 2024 revenue guidance of a low single-digit decline on an organic, constant currency basis.
Reworded paragraphs (7)
Previous wording
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 Process. 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.
Current wording
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.
Previous wording
Excluding the impacts of excess tax benefits from stock option exercises, contingent consideration fair value adjustments and impairment charges presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP adjusted measurements of operating earnings, earnings before income taxes, income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):
Current wording
Excluding the impacts 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 income taxes, effective income tax rate, net earnings and diluted earnings per share follows (in millions except per share amounts):
Previous wording
Net cash provided by operating activities totaled $436 million in the first nine months of 2024 compared to $491 million in the same period last year. Lower net earnings, increased inventory purchases, and the timing of estimated income tax payments in 2024 drove most of the decrease. Inventory levels increased in 2024 primarily due to the effect of new product offerings. Significant uses of cash in the first nine months of 2024 included plant and equipment additions of $93 million and dividend payments of $129 million. Net proceeds from shares issued totaled $45 million, which were partially offset by share repurchases of $31 million.
Current wording
Net cash provided by operating activities of $125 million in the first quarter of 2025 increased $6 million compared to the first three months of last year, driven by lower performance-based incentive payouts in 2025. Increases in accounts receivable, inventories and accounts payable reflect acquired operations and growth in business activity in the first quarter of 2025. Significant uses of cash in the first quarter of 2025 included share repurchases of $238 million (partially offset by $28 million of net proceeds from shares issued) and dividend payments of $47 million.
Previous wording
For the first nine months of 2023, significant uses of cash included plant and equipment additions of $146 million, dividend payments of $119 million, and long-term debt payments of $75 million. Net proceeds from shares issued totaled $54 million, which was partially offset by share repurchases of $27 million.
Current wording
For the first three months of 2024, significant uses of cash included plant and equipment additions of $37 million and dividend payments of $43 million. Net proceeds from shares issued totaled $41 million.
Previous wording
As of September 27, 2024, the Company had available liquidity of $1,539 million, including cash and cash equivalents of $764 million, of which $226 million was held outside of the U.S., and available credit under existing committed credit facilities of $775 million.
Current wording
As of March 28, 2025, the Company had available liquidity of $1,322 million, including cash and cash equivalents of $536 million, of which $178 million was held outside of the U.S., and available credit under existing committed credit facilities of $786 million.
Previous wording
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, announced and potential future acquisitions, and operating requirements. Capital expenditures for 2024 are expected to be approximately $120 million, including $70 million in facility expansion projects. The Company may make opportunistic share repurchases going forward.
Current wording
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, acquisitions and operating requirements. Capital expenditures for 2025 are expected to be approximately $50 to $60 million. The Company may make opportunistic share repurchases going forward.
Previous wording
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 and industrial activity worldwide; changes in currency translation rates; international and domestic political instability; interest rate fluctuations and changes in credit markets; global sourcing of materials; interruptions of or intrusions into our information systems; intellectual property rights; the use of generative artificial intelligence; 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 rates or the adoption of new tax legislation; and costs associated with legal proceedings. Please refer to Item 1A of the 2023 Annual Report 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 atwww.graco.com and the Securities and Exchange Commission’s website atwww.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.
Current wording
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 and industrial activity worldwide; changes in currency translation rates; international and domestic instability; interest rate fluctuations and changes in credit markets; global sourcing of materials; interruptions of or intrusions into our information systems; intellectual property rights; the use of generative artificial intelligence; 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 2024 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 atwww.graco.com and the Securities and Exchange Commission’s website atwww.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.