GRACO INC
For the period ended Jun 27, 2025. Filed Jul 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.
Jun 27, 2025 · Filed Jul 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 2025-03-28; filed 2025-04-23.
0000042888-25-000014
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-06-27; filed 2025-07-23.
0000042888-25-000025
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 56 previous paragraphs and 58 current paragraphs.
40 unchanged; 9 reworded; 9 added; 7 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 (9)
Current report
The gross profit margin rate declined approximately 2 percentage points for the second quarter due to higher product costs, including $4 million of increased tariff costs, and the unfavorable effects of lower margin rates from acquired operations.
Current report
Total operating expenses for the second quarter increased 2 percentage points but were flat as a percentage of sales.
Current report
Other non-operating income decreased $3 million for the second quarter, primarily due to $5 million of exchange losses on net liabilities of certain foreign operations and lower interest income.
Current report
Net earnings decreased 4 percent for the second quarter due to a lower gross margin rate and lower non-operating income.
Current report
Total operating expenses increased $3 million (2 percent) for the second quarter and $3 million (1 percent) for the year to date, respectively, compared to last year. Incremental expenses from acquired operations of $9 million for the quarter and $19 million for the year to date were partially offset by decreases in product development spending, sales and earnings- based incentives and share-based compensation. The second quarter and year to date periods last year included $3 million of expenses associated with the relocation to a new distribution center.
Current report
The effective income tax rate was 19 percent for both the second quarter and the year to date. Adjusted to exclude the impacts of excess tax benefits from stock option exercises (see Financial Results Adjusted for Comparability below), the adjusted effective income tax rate of 20 percent for both the quarter and year to date was comparable to the respective periods last year.
Current report
Incremental sales from acquired operations in the Contractor segment for the quarter and year to date were partially offset by weakness in worldwide construction markets, particularly in North America. The operating margin rate declined 5 percentage points for the quarter and year to date, including 3 percentage points from higher product costs, mainly due to increased tariffs, and 2 percentage points from the unfavorable effects of lower margin rates of acquired operations.
Current report
Industrial segment sales for the second quarter were flat and increased 2 percentage points for the year to date as favorable volumes in EMEA and Asia Pacific offset decreased sales in the Americas. The operating margin rate for this segment was flat for the quarter as realized pricing offset unfavorable product and channel mix and higher product costs. The year to date operating margin increased 1 percentage point as realized pricing and lower expenses more than offset higher product costs.
Current report
Pricing actions combined with upcoming new product launches and steady incoming order rates reaffirms the Company's 2025 revenue outlook of low single-digit sales growth on an organic constant-currency basis.
Removed paragraphs (7)
Previous 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.
Previous 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.
Previous 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).
Previous 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.
Previous 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.
Previous 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.
Previous 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.
Reworded paragraphs (9)
Previous wording
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 wording
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. 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.
Previous wording
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 wording
Net sales for the second quarter increased 3 percent from the comparable period last year. Incremental sales from acquired operations contributed 6 percentage points of sales growth. EMEA and Asia Pacific sales growth was partially offset by a decrease in the Americas.
Previous wording
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 wording
The gross profit margin rate declined approximately 2 percentage points for both the second quarter and year to date from the comparable periods last year due to higher product costs, including $4 million of increased tariff costs, and the unfavorable effects of lower margin rates from acquired operations.
Previous wording
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 wording
Other non-operating income decreased $3 million for both the second quarter and year to date from the comparable periods last year and included exchange losses on net liabilities of certain foreign operations of $5 million for the quarter and $8 million for the year to date. Favorable market valuation changes on investments held to fund certain retirement benefits partially offset these exchange losses. Other income for the year to date included a $5 million gain in the first quarter from the sale of a former manufacturing and distribution facility in Switzerland.
Previous wording
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 wording
Expansion Market net sales decreased for the second quarter as continued sales growth in the semiconductor product application was more than offset by decreased sales in the environmental product application. For the year to date, double-digit sales growth in the semiconductor product application more than offset softness in other applications. The operating margin rate for this segment increased for both the quarter and year to date driven by increased sales volume and lower expenses.
Previous 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.
Current wording
Net cash provided by operating activities of $308 million in the first six months of 2025 increased $50 million compared to the same period last year, mostly due to decreased inventory purchases and lower performance-based incentive payouts. Significant uses of cash in the first half of 2025 included share repurchases of $361 million (partially offset by $25 million of net proceeds from shares issued), dividend payments of $92 million and plant and equipment additions of $30 million.
Previous 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.
Current wording
For the first half of 2024, significant uses of cash included plant and equipment additions of $73 million and dividend payments of $86 million. Net proceeds from shares issued totaled $42 million, which were partially offset by share repurchases of $18 million.
Previous 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.
Current wording
As of June 27, 2025, the Company had available liquidity of $1,322 million, including cash and cash equivalents of $535 million, of which $223 million was held outside of the U.S., and available credit under existing committed credit facilities of $787 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, 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.
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, announced and potential future acquisitions and operating requirements. Capital expenditures for 2025 are expected to be approximately $60 to $70 million. The Company may make opportunistic share repurchases going forward.