Graco Q2 2025 Earnings Report

Graco EPS Results

• Actual EPS: $0.75
• Consensus EPS: $0.78
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: $0.77

Graco Revenue Results

• Actual Revenue: $571.81 million
• Expected Revenue: $590.57 million
• Beat/Miss: Missed by -$18.76 million
• YoY Revenue Growth: +3.40%

Graco Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 11:00AM ET

Graco (NYSE:GGG) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide. The Contractor segment offers sprayers to apply paint to walls and other structures; two-component proportioning systems that are used to spray polyurethane foam and polyurea coatings; and viscous coatings to roofs, as well as markings on roads, parking lots, athletic fields, and floors. The Industrial segment provides liquid finishing equipment, paint circulating and supply pumps, paint circulating advanced control systems, plural component coating proportioners, and accessories and spare parts; equipment that pumps, meters, mixes and dispenses sealant, adhesive, and composite materials; and gel-coat equipment, chop and wet-out systems, resin transfer molding systems and applicators, and precision dispensing solutions. It also offers powder finishing products to coat powder finishing on metals under the Gema and SAT brands. The Process segment provides pumps to move and dispense chemicals, water, wastewater, petroleum, food, lubricants, and other fluids; pressure valves used in the oil and natural gas industry, other industrial processes, and research facilities; and chemical injection pumping solutions for injection of chemicals into producing oil wells and pipelines. It also supplies pumps, hose reels, meters, valves, and accessories for fast oil change facilities, service garages, fleet service centers, automobile dealerships, auto parts stores, truck builders, and heavy equipment service centers; and systems, components, and accessories for the automatic lubrication of bearings, gears, and generators in industrial and commercial equipment, compressors, turbines, and on- and off-road vehicles. It sells its products through distributors, original equipment manufacturers, and home center channels, as well as to end-users. The company was incorporated in 1926 and is headquartered in Minneapolis, Minnesota.

Graco Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: In Q2, core sales declined 3% excluding acquisitions and adjusted net earnings fell 3% to $0.75 per share, as gross margins contracted 200 bps due to tariffs, lower factory volumes and unfavorable mix.
• Positive Sentiment: The company generated operating cash flow of $388 million (up 19%), achieved a 51% increase in cash flow after capex and 144% cash conversion in the quarter, and deployed $361 million to share repurchases plus $92 million in dividends.
• Positive Sentiment: Graco announced targeted low-single-digit price increases effective September to offset $4 million of Q2 tariff costs, complemented by product redesign and alternative vendor sourcing.
• Positive Sentiment: Graco agreed to acquire ColorService, an Italian precision dosing systems maker with €34 million of 2024 revenue, to enhance its industrial segment; the transaction is expected to close in Q3.
• Negative Sentiment: The Contractor segment saw a 5% organic sales decline and a five-point margin drop due to weak North American housing and DIY markets, though management anticipates a stronger second half on easier comparisons, pricing actions and new product releases.

Presentation

[Operator]

Good morning, and welcome to the second quarter conference call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company website at w.graco.com. Graco has additional information available in a PowerPoint slide presentation, which is available as part of the webcast player. At the request of the company, we will open the conference up for questions and answers after the opening remarks from management. During this call, various remarks may be made by management about their expectations, plans and prospects for the future.

[Operator]

These remarks constitute forward looking statements for the purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Actual results may differ materially from those indicated as a result of various risk factors, including those identified in item one a of the company's 2024 annual report on Form 10 k and in item one a of the company's most recent quarterly report on Form 10 q. These reports are available on the company's website at www.graco.com and the SEC's website at www.sec.gov. Forward looking statements reflect management's current views and speak only as of the time they are made. The company undertakes no obligation to update these statements in light of new information or future events.

[Operator]

I will now turn the conference over to Chris Knutson, Vice President, Controller and Chief Accounting Officer.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

Good morning, everyone, and thank you for joining our call. I'm here today with Mark Sheehan and David Lowe. I will provide a brief overview of our quarterly results before turning the call over to Mark for additional commentary. Yesterday, Graco reported second quarter sales of $572,000,000 an increase of 3% from the second quarter of last year. Excluding acquisitions, which contributed 6% growth, sales declined 3%.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

Currency translation had no effect in the quarter. Reported net earnings decreased 4% to $128,000,000 or $0.76 per diluted share. Excluding the impact of excess tax benefits from stock option exercises, adjusted non GAAP net earnings were $127,000,000 or $0.75 per diluted share, a decrease of 3%. The gross margin rate decreased 200 basis points in the quarter. The impact of acquisitions accounted for nearly 80 basis points of the decline, which will continue for the remainder of the year.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

In addition, tariffs increased $4,000,000 in the quarter, resulting in an additional 80 basis point decline. Price realization was not enough to offset higher product costs, resulting from lower factory volume, tariffs and unfavorable channel and product mix in the quarter. Operating expenses increased 2% in the quarter, driven by incremental expenses from acquisitions of $9,000,000 or 7%. Excluding expenses of acquired operations, operating expenses declined $7,000,000 or 5 percent on savings from the OneBreco initiative, lower sales and earnings based incentives and timing of stock based compensation expense. Operating earnings decreased $4,000,000 or 2% during the quarter due to decreased factory volume and the effect of tariffs.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

Operating earnings as a percent of sales were 28% for the quarter or one percentage point lower than the same period last year. Contractor segment operating margin rate for the quarter was 26% compared to 31% for the same quarter last year, a decline of five percentage points. The acquisition of Prav decreased the contractor operating margin rate by two percentage points, with the remaining decline due primarily to higher tariffs and lower factory volume. Interest and other decreased $3,000,000 in the quarter. The volatility of the U.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

S. Dollar, especially against European currencies, resulted in exchange losses on net liabilities of certain foreign operations of approximately $5,000,000 for the quarter, which we don't expect to continue. The adjusted effective tax rate was 20%, which is consistent with our expected full year tax rate of approximately 19.5% to 20.5% on an as adjusted basis. Cash provided by operations totaled $3.00 $8,000,000 for the year, an increase of $50,000,000 or 19%. Improved inventory management from consolidating operations under One Graco and lower sales and earnings based incentive payments drove the increase.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

Cash flow from operations less capital expenditures increased $93,000,000 or 51% for the year to date. Cash provided by operations as a percentage of adjusted net earnings was 144% for the quarter and 125% for the year to date. Significant year to date uses of cash include share repurchases of 4,400,000.0 shares totaling $361,000,000 dividends of $92,000,000 and capital expenditures of $30,000,000 These cash uses were offset by share issuances of $25,000,000 A few comments as we look forward to the rest of the year. Based on current exchange rates, assuming the same volumes, mix of products and mix of business by currency as in 2024, movement in foreign currencies would have a 1% favorable impact on net sales and no impact on net earnings for the full year. Unallocated corporate expenses are projected to be 37,000,000 to $40,000,000 for the full year.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

And finally, we expect capital expenditures to be approximately 60,000,000 to $70,000,000 in 2025. I'll now turn the call over to Mark for further segment and regional commentary.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Thank you, Chris. Good morning, everyone. All my comments will be on an organic constant currency basis. Overall, sales were up 3% in the second quarter, including 6% contribution from CoreB offsetting an organic revenue decline of 3%. Contractor accounted for more than 80% of the organic revenue decline in the quarter with The Americas being especially weak when compared to last year's strong second quarter.

[Mark Sheahan, President and Chief Executive Officer at Graco]

EMEA and Asia Pacific grew in all segments, including the semiconductor market and in China, which were depressed for most of last year. The current trade environment is still uncertain, causing many end users to delay project decisions and take a wait and see approach until trade negotiations and the tariff landscape is clear. During the quarter, incremental costs related to tariffs were about $4,000,000 affecting EPS by zero two dollars To offset the impact from tariffs, we have announced targeted price increases beginning in September. These pricing actions are focused on key markets and geographies most impacted by tariffs and are in addition to our normal beginning of the year price increases. We expect that these pricing adjustments, along with our mitigation efforts of product redesign and secondary vendor sourcing, will offset most of the full year impact from tariffs as they exist today.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Incoming order activity remained steady during the quarter compared to the full year and consistent with billing activity as backlogs are still at normal levels across all segments. The past six weeks rates have also been consistent with the full year run rate. The home center DIY channel has been our biggest challenge in the first half of the year, down low double digits. However, the current six week run rate has stabilized and exceeds the run rate of the second half of last year. Now turning to some commentary on our segments and regions.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Contractor segment sales declined 5% in the quarter. North America was soft in core markets as contractors delayed new investments due to ongoing housing affordability issues and a smaller project pipeline. The home center channel struggled from reduced foot traffic and reduced DIY demand in The Americas versus last year's second quarter and year to date and year end results year to date results. This quarter was the most challenging comparable for contractor as the 2024 had channel fill related to significant new product launches resulting from delays, which we discussed last year. We are expecting a stronger second half with easier comparisons, the effect of our pricing actions and our upcoming new product releases.

[Mark Sheahan, President and Chief Executive Officer at Graco]

The Industrial segment declined 1% with growth in EMEA and Asia Pacific not enough to offset a decline in The Americas. Powder finishing system sales were strong with increased quoting activity and improved performance in The Americas and Asia Pacific regions. This increase was not enough to offset to fully offset declines in the other industrial product categories in The Americas. In several markets, end users are cautious and waiting to see the result of ongoing trade negotiations. Quoting activity worldwide is still strong, but we expect end user caution will continue until greater clarity exists in the global trade environment.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Last week, we announced the acquisition of ColorService, a global manufacturer of specialized automatic precision dosing systems for powders and liquids. Known for their expertise in gravimetric dosing technology, the company delivers precise weight based material measurements that improve consistency and efficiency in production across various industries, including textiles, rubber, cosmetics, plastics, and food. Headquartered in Italy, Color Service employs approximately a 140 people worldwide and an annual revenue of €34,000,000 in 2024. We expect the transaction to close in the third quarter, and the business will be part of our Gama Powder division, which is part of the Industrial segment. Expansion markets were down 3% for the second quarter as the positive momentum in the semiconductor market, which we started seeing at the end of last year, continued in the quarter.

[Mark Sheahan, President and Chief Executive Officer at Graco]

However, this was offset by a decline in the environmental business. Moving on to our outlook. Despite headwinds from uncertain global trade environment and the soft North American construction market, which led to our organic revenue decline in the quarter, on a full year basis, our organic revenue was flat. Our consistent incoming order rates combined with pricing actions and an easier comparable on the contractor gives us confidence as we enter the back half of the year. Accordingly, we are keeping our 2025 revenue guidance of low single digit sales on an organic constant currency basis.

[Mark Sheahan, President and Chief Executive Officer at Graco]

That concludes our prepared remarks. Shannon, we're ready for questions.

[Operator]

Thank you. The question and answer session will begin at this time. Your questions will be taken in the order that it is received. Please stand by for your first question. Our first question comes from Deane Dray with RBC Capital Markets. Please state your question.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Hi, Dean.

[Deane Dray, Managing Director at RBC Capital Markets]

Good morning.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

Good morning, Dean.

[Deane Dray, Managing Director at RBC Capital Markets]

Hey, can we start with the price increase announcement? And this is far from being as seismic as it was back in 2022 when you did the first time ever intra year price increase. And this one seems certainly warranted given the tariff pressures. Can you just how is this price increase different? Can you size it?

[Deane Dray, Managing Director at RBC Capital Markets]

And anything about the implementation? And is this all price? Any surcharges? And any color there would be great. Thanks.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. Great. Thanks for the question. I think when we spoke last, we said we wanted to be patient when it came to what we wanted to do with respect to the tariffs. And as, you know, things played out, I think that patience was smart because the overall impact got, you know, less and less as, facts came out and things got clarified.

[Mark Sheahan, President and Chief Executive Officer at Graco]

So nonetheless, we did start to see some of the impact hitting us, and we were also watching what was happening participate in and seeing what was happening with a number of the competitors, who are also raising prices. So that gave us, the opportunity and the confidence to know that, we could also do the same thing. We are not doing anything other than trying to offset the pressure that we've got in our p and l. I characterize the increases as targeted, and, you know, targeted at the geographies and the areas where we're seeing the most, input cost pain. And also, I characterize them as sort of, you know, low single digit type increases in in a few select areas within the business that will offset the tariff pressure that we see for the rest of the year provided that the landscape stays the way that it is.

[Deane Dray, Managing Director at RBC Capital Markets]

That's real helpful. And then for David, free cash flow was one of the bright spots in the quarter just in terms of conversion. Was there anything, any one timers in there at all? Or just yeah. What do you attribute the the strength of the conversion this quarter?

[David Lowe, CFO & Treasurer at Graco]

Well well, thank you. Yeah. We we we called that out because we thought it was a pretty solid sign as to the cash generation capacity of the company. So thanks for asking the question. I would say our attention to inventory continues to contribute to what you really started to see last year with a focus on, you know, improving turns, which are, you know, less than world class in in the industrial sphere, and it was another good quarter there.

[David Lowe, CFO & Treasurer at Graco]

And, of course, you know, certain aspects of our, One Graco initiative, contributes a greater efficiency, focus on expanding centers of excellence, which will make our manufacturing operation over time more efficient. Also, in in in small steps are helping our cash conversion. So I'd like to think that what we what we saw here is not one time. Of course, our business does have a seasonal component, the the contractor side of it. So we haven't done anything about that.

[David Lowe, CFO & Treasurer at Graco]

But, you know, we feel very good about the future cash generation capacity of the company.

[Deane Dray, Managing Director at RBC Capital Markets]

That's great. Just to clarify, when you say, better progress in inventory, what's interesting this quarter, we've seen a number of companies actually adding inventory through a prebuy or some buffer inventory to kinda smooth out with all the tariff noise, but you're actually making progress in reducing inventory?

[David Lowe, CFO & Treasurer at Graco]

Yeah. I mean, we took I mean, again, there are some things that we absolutely need to have, and we've been aggressive where we've needed to be aggressive on the sourcing side. But but overall, to some degree, we sort of significantly expanded the the the raw material that we were carrying from the, you know, the whole sourcing, escapade of a couple years ago. And, for the most part, we've been comfortable, working that down to what would probably you would you would say is is more normalized levels because we've got more confidence in our supply chain.

[Deane Dray, Managing Director at RBC Capital Markets]

Great color. Thank you.

[Operator]

Thank you. Our next question comes from Mike Halloran with Baird. Please state your question.

[Analyst]

Hi, good morning everyone. This is Pez on for Mike. Wanted to follow-up on the Color Service acquisition. Could you maybe tell us a little bit about how the acquisition came about? You mentioned in the press release that it opened up new opportunities.

[Analyst]

Can you maybe discuss opportunity and how you see it fitting into the portfolio with a little more color, please?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yes, Pez. Thanks for the question. So actually, a few years ago when we started to think more about external growth in addition to our organic initiatives, we really challenged our teams to take a look not only at their existing portfolios, but other adjacent technologies that might be interesting to them. And our powder team led by Claudia Maringo, the Gama the Gama Group, they really did a nice job of of looking at some opportunities that, you know, aren't necessarily powder paint, but the technologies that they understand. And they really surface this area as a potential target area for us.

[Mark Sheahan, President and Chief Executive Officer at Graco]

So that led to some discussions with the ownership and, ultimately resulted in the acquisition. What we like about it is, the growth rates have been pretty good of this business. You know, maybe slightly better than what we've seen in the legacy Graco businesses at least over the last five years. It's technology that we understand. It's dosing.

[Mark Sheahan, President and Chief Executive Officer at Graco]

It's measuring. It's gravimetric measuring, which we we understand and we we know about. The location is good for us because it's closely located to our SAT business in Italy. And the leadership team of SAT will actually be working very closely with Color Services leadership team to make sure that we capitalize on any integration possibilities, opportunities to help them with operations, production, be more efficient. So it was really a combination of a lot of different things that caused us to get excited about this.

[Mark Sheahan, President and Chief Executive Officer at Graco]

They have some big customers too, which is nice. You know, they're involved with all the tire manufacturers. They get involved in the textile industry, cosmetics. So it does broaden out our portfolio a little bit beyond what we have seen in the past.

[Analyst]

Great. No. That's helpful. And then if we switch gears a little bit, you know, if we look at your core kinda construction markets, you know, what what are you looking for to to feel like your customers are gaining more confidence, you know, particularly in the DIY and home center area where maybe US consumers have been a little bit stressed and housing market's been tight? You know, at this point, what do you think is the green shoot that that is necessary to get some of these these projects moving?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Well, it's gotta be affordability. Right? Obviously, a rate reduction would help quite a bit as long as the prices don't go up when the rates go down. Unfortunately, when the rates went up, the prices really didn't go down as you would have expected them. So affordability is still the biggest challenge I see in the in the new construction market, that we have.

[Mark Sheahan, President and Chief Executive Officer at Graco]

And that that impacts, you know, activity, obviously. It also impacts our spray foam business to a certain extent because a lot of the new builds are using that technology in there. So I think, any major shift in affordability would be very much appreciative. I know it's on the radar. We've read a lot of different reports, and we've been listening to some of the commentary coming out of Washington.

[Mark Sheahan, President and Chief Executive Officer at Graco]

So I I think that they know that this is an issue. There are still a number of people that are locked in at low mortgage rates and they just can't move even though they would like to move. So if you look at the number of homes being sold this year and last year, it's extremely low compared to what you would expect in a normal economic environment, in a country the size of of The United States. So there's there's quite a bit of pent up demand, I would say, that is yet to be unleashed, hopefully hopefully, once once the affordability gets a little bit in better shape.

[Analyst]

Thanks for the color. I'll pass it on.

[Operator]

Thank you. Our next question comes from Sarah Boroditsky with Jefferies. Please state your question.

[Saree Boroditsky, SVP - Multi-Industrials at Jefferies & Company Inc]

Hi. Thanks for taking the question. Maybe just first building on the price increase. I believe the last time you did a midyear price increase, you took less price in the following year. So would you think about something similar as we think about 2026?

[Saree Boroditsky, SVP - Multi-Industrials at Jefferies & Company Inc]

And then do you take any more pricing on the industrial side versus contractor given the more consumer focus?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. I think that we would expect that we'll have a normal price increase, at the beginning of next year to answer the first question. And in terms of where we targeted, how we targeted, you know, groups participated in in the price increase at different levels, both contractor and industrial and expansion markets, I should add. This was something that we did across all of our business units.

[Saree Boroditsky, SVP - Multi-Industrials at Jefferies & Company Inc]

And then maybe, going on about the uncertainty that you're seeing, but some other other markets, could you provide some more detail on what you're seeing from customer spending by end market in the industrial segment? And do you expect any changes from some of the incentives with the one big beautiful bill?

[David Lowe, CFO & Treasurer at Graco]

I think the latter question is big picture long term clarity on clarity on tax rates, favorable treatment on investments, and and and related things in manufacturing will, over time, be a real positive for Graco. Reshoring, onshoring, relocation is good for our business. You know, I would say that if you're the first part of your question, we could we could talk at length. But just to give you a flavor that our teams I'll touch on a couple of specific markets, but pipelines are good. Quotation's active.

[David Lowe, CFO & Treasurer at Graco]

Some end users are more willing to pull the trigger when there is this cloud of uncertainty that Mark talked about than others. If I had to generalize on a global basis, I'll name certainly markets that at the moment have some positive momentum and then some that are a little bit softer. The automotive, OEM market is, positive, especially, the area around EV, where battery activity has improved, at least recently. They tend to be large orders, so the business is lumpy. Also, the automotive component supplier market is strong, especially in the Asia Pacific market.

[David Lowe, CFO & Treasurer at Graco]

Our vehicle service business, the dealer, lubrication business has been strong. And, Mark touched on the strength of powder equipment. That shows up in the architectural profile market, agricultural equipment, and also other automotive components. So we we we see markets being active and and people pulling the pin. I would say the slower areas reflecting what we know about the business.

[David Lowe, CFO & Treasurer at Graco]

There are regional differences, but solar here in North America is quite soft. The transportation market, especially the truck OEMs, really have been significantly slower than we have seen. Mining, which affects our lubrication product line, we've seen a slowdown with the large large customers that sell equipment to the big mine the big mines. Aerospace has sort of entered a soft patch, and no surprise, in light of the contractor discussion we had, markets like window and door and wood products are soft.

[Mark Sheahan, President and Chief Executive Officer at Graco]

So, yeah, I would just say that with all that good color that David provided, got some ups, you got some downs. But in net net terms, it's it's a pretty flat environment, and there's still a lot of caution out there amongst our end users that, you know, wanting a little bit more clarity around what the trade landscape is going to look like. And I think once that gets cleaned up, there is a potential that there's some projects that get released and there's some pent up demand in in the in the pipeline is what our teams are telling us.

[Saree Boroditsky, SVP - Multi-Industrials at Jefferies & Company Inc]

Appreciate all the color. Thank you.

[Operator]

Thank you. Our next question comes from Jeff Hammond of KeyBanc Capital Markets. Please state your question.

[Jeffrey Hammond, Managing Director at KeyBanc Capital Markets]

Hey, good morning, everyone.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

Good morning, Jeff.

[Jeffrey Hammond, Managing Director at KeyBanc Capital Markets]

Just on the guide, holding the low single digit growth, you were kind of flat in the first half. So I'm just wondering what informs kind of the better second half? Is it comps? Is it this next bite of the apple on price? Is it you know, order trends getting better? Just what gives you confidence you see the uptick?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. I think it's all those things. I think we probably said some of them or at least I did in my script, but we do have the price that'll kick in in September. That'll be helpful. When we look at the run rates, they've been fairly consistent for a short cycle business.

[Mark Sheahan, President and Chief Executive Officer at Graco]

You know, you always get some volatility that pops in and out. But generally speaking, we feel pretty good about the incoming order rates. And then comparing those to what we saw in the back half of last year. That's how we really got to the numbers that that we are comfortable with. Again, do I like a low single digit?

[Mark Sheahan, President and Chief Executive Officer at Graco]

No. I mean, I'd like to see a lot more. But given the fact that we're flat and we've had some of this turbulence in the first half of the year, I think that we feel, you know, reasonably confident that we can get to get to the guide by the end of the year.

[Jeffrey Hammond, Managing Director at KeyBanc Capital Markets]

Okay. And then along with the strong free cash flow, you guys have really stepped up buyback. Just a little more color on, you know, how you're thinking big picture about capital allocation and and maybe taking a more aggressive approach both, you know, buybacks and and deals here going forward?

[David Lowe, CFO & Treasurer at Graco]

Okay. Well, I think okay. I'll I'll I'll take a shot at that. I I think you make a good point that it's really with with the cash flow that we have from operations, our business model is an and, not an or. And our first choice continues to be investing in the business, investing in new technology because that's how we think in these business to business niche markets that we participate in.

[David Lowe, CFO & Treasurer at Graco]

That's how you win. We've been you know, we like our operations. We invest aggressively in state of the art automation, machine tools, and such. And we in my in my thirty years here, that that's not an aspect of our business model that we have ever stinted on. As far as as far as transactions, m and a goes, I think the last year has been instructive that we started the process three years ago, a disciplined process step by step.

[David Lowe, CFO & Treasurer at Graco]

Sometimes slow to get off the ground, but over the last, you know, nine months, we've committed to well over $300,000,000, to to deals. And, as you know, we have the dry powder, to do more, and there there continue to be transactions in the works that, we are excited about. And yes, we talk about our stock repurchase activity as being opportunistic. That's the approach that we've taken over the long, long cycle and we think it's been successful and put over $360,000,000 to work. I think that what will determine the the the future level of that activity is what we see in the market.

[David Lowe, CFO & Treasurer at Graco]

We really do like buying when the market is less enchanted with the prospect of companies that serve cyclical markets. And from 08/00/2009 to 2015 to 2020 to 2022, we've stepped up when we've had that opportunity.

[Jeffrey Hammond, Managing Director at KeyBanc Capital Markets]

Okay. Perfect. Thanks, guys.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Thanks, Jeff.

[Operator]

Our next question comes from Brad Hewitt of Wolfe Research. Please state your question.

[Brad Hewitt, VP - Equity Research at Wolfe Research LLC]

Good morning. Thanks for taking my questions. So one of your significant customers and contractors pointed to an outlook for a low single digit decline in paint storage volume in 2025. I know it's not entirely apples to apples, but curious how that compares to your contractor market volume expectations for the year. And how much visibility do you have to a return to positive organic growth in contract in the second half of the year?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. I'd have to probably peel the onion back a little bit to give you a a good answer to the first question, not having all the details in front of me. But what we did with our business is we really tried to look at it globally and holistically, and we look at the different product categories. And propane is one of them, but we also have a DIY base. We also have a spray foam product line.

[Mark Sheahan, President and Chief Executive Officer at Graco]

We have protective coatings equipment. And these are global businesses. So, looking at the order rates and looking at the activity in the end users in the markets, you know, we put our forecast together for the remainder of the year. Also knowing that the back half of our year last year wasn't, robust, so we may have had an easier comparison than the company that that you're referencing. For us, targeting and projecting and predicting the future is always is always a big challenge given the short cycle nature of our business.

[Mark Sheahan, President and Chief Executive Officer at Graco]

But the markets are, you know, they're not in they're not in bad shape. There's still activity out there. Painters are still buying equipment. Equipment breaks all the time. There's there's decent activity.

[Mark Sheahan, President and Chief Executive Officer at Graco]

It's just not robust activity. And I think the earlier question that I got on, you know, what we're looking for in terms of a green shoot, it it's really, you know, once the affordability gets a little bit better, there will be more project activity. More people are gonna be moving out of their homes into new homes. That creates a lot of remodeling activity. It's really trying to pinpoint exactly when that's gonna happen.

[Mark Sheahan, President and Chief Executive Officer at Graco]

We're probably not the best at being able to do that. But all in all, I mean, feel pretty confident in the in the guide that we're giving.

[David Lowe, CFO & Treasurer at Graco]

Yeah. I I would just add that, I think that I think that channel partner that you're talking about, a couple of times described their their business environment is choppy, and I think that's exactly how, we would define it. They do a good job of splitting out key markets, including their consumer DYI space, which they cited as being particularly slow. Also, auto refinish market and the wood products markets. Where they talk about things being slow, we would we would tend to agree.

[David Lowe, CFO & Treasurer at Graco]

Where they talk about seeing some pockets of strength, for example, in the protective coatings market, equipment market, in in our particular space, we would also agree. It's one of the challenges when when you serve as many markets as we do to try to roll it all up when, as you've seen for the first six months of the year, right, you're right at the waterline. But I would agree with everything that's been said about, from from the current order rate all the way through to the things that we are doing in the second half of the year, and let's hope for some increasingly increasing clarity on trade related uncertainty should help us should help us achieve our projected outlook.

[Brad Hewitt, VP - Equity Research at Wolfe Research LLC]

Okay. That's helpful. And then as it relates to the one to 2% revenue hedge for the year related to China, I noticed you guys picked out of the slides, but it's still in the 10 Q. Is it fair to think the base case expectation there is for closer to a 1% headwind or maybe even less given the year to date results and the rollback in the China tariffs?

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

I would say that for us, the China market has come back. This is Chris, by the way. And we took out the hedge as part of our outlook. I think it's still in the 10 Q as part of one of our risk factors to let everybody know that, hey, this is kind of our exposure that we have there. But we have seen activity within the China market pick up, particularly in the powder coating space.

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

And despite the tariffs, we are optimistic that coming off of a pretty low year that we're going to have growth there.

[Brad Hewitt, VP - Equity Research at Wolfe Research LLC]

Great. Thank you.

[Operator]

Thank you. Our next question comes from Matt Summerville with D. A. Davidson. Please state your question.

[Matt Summerville, MD & Senior Research Analyst at D.A. Davidson]

Thanks. I wanted to just talk a little bit more about m and a. You know, you're talking about your second deal, in the last, you know, call it, nine months or so for you guys. Is this, Mark, do you feel like you've finally been able to establish Graco as a company that has an m and a pipeline and funnel and team in place that you can really become more of a compounder of of of an inorganic compounder of capital. And to that point, can you maybe speak to the actionability you see looking ahead, average deal size, things like that?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. Thanks for the question, Matt. As I've been pretty transparent on this for quite a while, we really felt as a management team that we needed to create an infrastructure and an awareness that or while our organic growth is great, we have this we have a nice opportunity to add to that with good strategic acquisitions. And we really had to build the pipeline up, from scratch. I think I've said this, you know, if I if I'm repeating myself to you, I apologize.

[Mark Sheahan, President and Chief Executive Officer at Graco]

But I could have asked any of our leaders for their m and a target list when I got this job, and they would have given me a list, but there would have been no detail behind it. So now we've got really good pipelines with companies that we believe would be good strategic fits for Graco. We've talked to the owners. We understand why they fit. We have opportunities in terms of being able to make them better organizationally.

[Mark Sheahan, President and Chief Executive Officer at Graco]

And I think that with respect to, what's happening in the market right now, I think that the pricing has gotten a little bit better compared to what it would have been, you know, back in '21, when I became a CEO. So the other thing that's happened here is we've gained some really, confident people within our organization that feel like we can drive value in these businesses beyond, you know, just operational synergy value. We think that there's customers that we share in common where we can get some leverage. We also believe that our footprint, our global footprint gives us some opportunities to maybe make some of these businesses bigger and more profitable than what they are. And I think we've built up some real competency within the Graco organization to be able to not only identify, but to integrate these acquisitions fairly seamlessly.

[Mark Sheahan, President and Chief Executive Officer at Graco]

And the owners, I think, are, you know, pleased with what they've seen at least in the short term here. So I like what I see. The pipeline looks great. There are activities happening even as we speak. You never know what's gonna happen, but I feel like our chances to be able to add on inorganic growth to the organic, growth machine that we have in Graco, are really pretty good.

[Matt Summerville, MD & Senior Research Analyst at D.A. Davidson]

Thanks. And then just as a follow-up, in realizing with expansion markets, doesn't take all that much in absolute revenue dollars to move the organic pendulum one way or the other. But I guess I'm a little bit surprised that I I would have thought the environmental business would be maybe be a bit more steady for Graco. So can you talk about, what maybe drove the rollover there and if you're seeing any wavering on the semiconductor side of the business. Sounds like you're not, but I just wanna put a finer point on that. Thank you.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. I mean, when you're looking at thirteen weeks, it's always a little bit dangerous. So, you know, we did hear that there may have been some federal money that got tied up after, you know, the first quarter with respect to some of the environmental policies that are being, talked about in Washington compared to what may have been talked about previously. I'm not that well educated on that particular topic, but I think that could have been a factor there. And we really don't think that long term anything is gonna change in that category.

[Mark Sheahan, President and Chief Executive Officer at Graco]

It is a thirteen week time period, so there's always a little bit of volatility, that's going on there. Semi, we feel pretty good about. I think they might have a tough comp in the fourth quarter, but other than that, activity is good. As you know, there's all kinds of labs being talked about globally, whether you're in Europe or here in The US. So we think we got a good chance of getting some of that business.

[Mark Sheahan, President and Chief Executive Officer at Graco]

So it feels much better than it did, eighteen months ago when we had big backlogs, but not much orders. Now we've got reasonable backlogs and orders are coming in. So I feel I feel good about that for the rest of the year.

[Matt Summerville, MD & Senior Research Analyst at D.A. Davidson]

Thanks, Mark.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yep.

[Operator]

Our next question comes from Andrew Buscaglia with BNP Paribas Exane. Please state your question.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

Hey, good morning, everyone.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Good morning.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

I just want to get your thoughts on incremental margins this year. Just given you had that reorganization realignment, you have pricing coming through. So I guess what's a incremental margin for you guys look like on even just like sounds like one to 2% volume growth is is the bogey here into the back half?

[Christopher Knutson, Vice President, Controller and Chief Accounting Officer at Graco]

I think, Andrew, when we think about our incremental margins, if we can get growth across all of our groups, it always varies with the highest incrementals coming out of the industrial group. So if more growth comes out of there, we're gonna get a little bit better. But I would think probably in that mid to low thirties is really where our where we typically average from an incremental margin.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

Yeah. Okay. Okay.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

And then I wanted to, you know, get a little bit more color on the comment you made in contractor around home centers. You know, obviously, that probably affects your DIY area. But what you know, how how do you see that playing out? I I would imagine that's something that wouldn't wouldn't change overnight.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. I don't think it's gonna change overnight. The only data point that we wanted to share with you guys was that, yeah, it's been tough year to date. But if we look at the last six weeks of incoming orders, they've actually, you know, stabilized, and they're actually maybe a little bit better than what we saw during the same period last year in the second half. So maybe we've seen the worst of it.

[Mark Sheahan, President and Chief Executive Officer at Graco]

It has been difficult, I would say, for the last couple of years. We referenced foot traffic just because I know that the large home centers have been talking about that for, you know, quite some time. And I think, you know, I believe that a lot of the DIY activity that that goes through those channels on the paint side is tied to remodeling activity and new houses that are being acquired by people where they have to do some cleanup or fix up before they sell the house. The new owner comes in and they wanna change the color of the paint or whatever they do. So I really do believe, again, going back to the earlier comments, if we can get some traction on housing, affordability, turnover, sales, and purchases of new homes, I think the DIY market is going to come back.

[Mark Sheahan, President and Chief Executive Officer at Graco]

There hasn't been any, you know, real changes competitively or anything like that that we're concerned about.

[David Lowe, CFO & Treasurer at Graco]

And what I would just add is when that business comes back as our, you know, most, you know, most experienced, most focused merchandisers in terms of our in terms of our channel lineup. They're not famous for carrying a lot of extra inventory. And so the uptick that Mark is talking about that will eventually come should flow through to us pretty quickly.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

You know, David, if I could ask one more. I I know we're in a you guys are embarking on more of a acquisitive period, which is great. But how do you balance that with your very high return invested capital? You know, I think some investors, may worry, you know, being more acquisitive could bring that number down. So what are your return hurdles you're focused on, and how do you think about that?

[David Lowe, CFO & Treasurer at Graco]

Well, our starting point is we, you know, we look for businesses even if they're in, you know, adjacent markets that have the characteristics that that we like in our businesses. And I mean, even the even the most recent one that we announced a couple of weeks ago, is a good example. This is a this is a niche market. This is a niche market that serves, some some major, industrial spaces. The business has a a significant amount of recurring revenue like most of our businesses.

[David Lowe, CFO & Treasurer at Graco]

The the the applications that our products are used for, are pretty essential in the process of these different, these different manufacturing environments. All of that says that, in a in a business to business world, if you're developing the right products with the right technology and getting them to the market, and they create value for your customers, it will, you know, it will it will translate well with the way we like to go to market and drive a value proposition that we can make money on. And I think that, we keep those things, we keep those things in mind that those are the characteristics that cover most of our markets and help us generate a pretty healthy return. Mark also touched on valuations. You know, that's the other thing, to this whole process.

[David Lowe, CFO & Treasurer at Graco]

The one thing that a buyer can control is the price they're willing to pay. And when we see valuations, for businesses that have slipped a little bit in in in the recent years, and we can do the kinds of things that we think we can do, invest in the business, expand their manufacturing capacity, help them expand their global footprint, and so forth. The right price with the right niche market, we think, can create value for the shareholders.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please state your question.

[Joe Ritchie, Managing Director at Goldman Sachs]

Thank you. Good morning, guys. So I wanna go back to, just the timing of the pricing announcement. I'm curious. Are you, you know, did you decide to wait till September, to wait for the moratorium to potentially become permanent?

[Joe Ritchie, Managing Director at Goldman Sachs]

And then just maybe just any any color you can give on the initial discussion that you've had with your customers on being able to affect the pricing increase.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yeah. Well, obviously I mean, I think we wanted to wait right out of the gates just to see what might happen in the first thirty to sixty days. I think that was a smart move. We didn't put a surcharge on. We did a price increase, and we think it's fair for our channel partners to get enough of a heads up to be able to communicate what that's gonna be with their customers.

[Mark Sheahan, President and Chief Executive Officer at Graco]

And that's really why we, you know, gave them enough time and have this hitting in the September time frame, versus doing something immediately and causing maybe some disruption in the market.

[Joe Ritchie, Managing Director at Goldman Sachs]

Okay. So it sounds like the receptivity has been pretty good from your channel partners.

[Mark Sheahan, President and Chief Executive Officer at Graco]

No surprises whatsoever.

[Joe Ritchie, Managing Director at Goldman Sachs]

Okay. Great. And then, and then specifically as it relates to contractor, know, it's interesting. Like, this is the this is the area that you've gotten you've had the most impact from a product cost standpoint, and maybe being off sides on on the on the pricing and the tariffs. So a three point impact this quarter, I mean, is it fair to assume that as we head into the fourth quarter, you're able to recoup a lot of that three points?

[Joe Ritchie, Managing Director at Goldman Sachs]

I'm just trying to get a sense for where margins can go from here on the contractor side.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Well, if you tell me what the volume is gonna be, I'll tell you what the margin is gonna be. I I think that there's some some potential, you know, some potential for a bit of a rebound here. It really depends on, you know, how the business holds up. What we did say during the, prepared remarks was that last year's q two was really strong for Contractor. And so when you look at the comparisons and what happened a year ago versus now and the declines, I mean, I think you need to factor that in.

[Mark Sheahan, President and Chief Executive Officer at Graco]

And then, of course, we have the Corrab acquisition, which is also, part of the equation as well. All in all, I'm pretty happy with, the performance from a profitability standpoint of the company overall and our business units. I think we all get it. We all understand. We all are operating in an environment that is, I would call, choppy or sluggish, and we're not doing anything to damage the business.

[Mark Sheahan, President and Chief Executive Officer at Graco]

But we're also being very careful with our spending as we go through the rest of the year here. We spent time on cash flow. You can see in the end, I'm a big believer that, you know, cash is king and you gotta make sure you're generating it, and that's something that our teams are focused on as well. You know, all in all, I think given the environment that we're playing in, you know, this isn't this isn't a bad year for us.

[Joe Ritchie, Managing Director at Goldman Sachs]

Yep. Makes sense. Okay. Great. Thanks, guys.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Yep.

[Operator]

Thank you. Our next question comes from Walter Liptak of Seaport Research. Please state your question.

[Walter Liptak, Industry Analyst at Seaport Research Partners]

Hi. Thanks. Hi, everyone. Yeah. Just kind of a follow on to the last one.

[Walter Liptak, Industry Analyst at Seaport Research Partners]

As you guys are are working on the one great go, and it sounds like a theme is lowering expenses. I wonder if you could talk a little bit more about on the cost side, I think you said costs were down 7,000,000, which is down 5% compared to the organic sales decline of 3%. That looks pretty good to me. And so I wonder if you could help us understand. Is that is there a mix going on here, or are there some benefits happening from One Graco consolidation?

[Walter Liptak, Industry Analyst at Seaport Research Partners]

Or are these, you know, more like continuous improvement benefits that might be more sustainable?

[Mark Sheahan, President and Chief Executive Officer at Graco]

Well, I'll start and I'll let the guys chime in if I misspeak. But I think we had said that we're looking for about $16,000,000 of reduced expenses for the full year, and I think we're on track to hit that for the full year as well. And we're tracking, you know, half the year into it. So I think you could probably just assume that we're halfway through it. I wanted just to clarify though that we didn't do one breakout to cut costs.

[Mark Sheahan, President and Chief Executive Officer at Graco]

We really did to improve efficiencies and to make our business easier to deal with with our customers. And I've spent quite a bit of time here in the first half of the year meeting with distributors, and the feedback has been extremely positive. They are very appreciative of the fact that we've knocked down some of the silos and the barriers that we created ourselves by having separate business units. They like the fact that we're opening up our product lines. They like the fact that we have coordinated our pricing efforts across business units that were not coordinated in the past, and they like having a single point of contact within our industrial businesses that they really didn't have before.

[Mark Sheahan, President and Chief Executive Officer at Graco]

So you combine that with what we're doing on the operations side where we're looking at the factories, and we created some complexities there as well. We announced that we're closing our Minneapolis facility, and we're gonna be able to move all the production into existing facilities that we already have at Graigault. That should create efficiencies that haven't shown up yet in the p and l, but once we start doing that, they will. And I think having the centralized operations team managing all aspects of production has led to the inventory reductions that we highlighted earlier and led to improved cash flow as well. So it's a multifaceted approach that we're taking with One Graco.

[Mark Sheahan, President and Chief Executive Officer at Graco]

It's early days. We feel really good about it, but the signs are positive.

[Operator]

Thank you. If there are no further questions, I will now turn the conference over to Mark Sheehan.

[Mark Sheahan, President and Chief Executive Officer at Graco]

Okay. Well, I appreciate everyone's participation in the call. Thank you for your time today. Have a great rest of your day.

[Operator]

This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.

Participants

Executives

• Christopher Knutson, Vice President, Controller and Chief Accounting Officer
• Mark Sheahan, President and Chief Executive Officer
• David Lowe, CFO & Treasurer

Analysts

• Deane Dray, Managing Director at RBC Capital Markets
• Analyst
• Saree Boroditsky, SVP - Multi-Industrials at Jefferies & Company Inc
• Jeffrey Hammond, Managing Director at KeyBanc Capital Markets
• Brad Hewitt, VP - Equity Research at Wolfe Research LLC
• Matt Summerville, MD & Senior Research Analyst at D.A. Davidson
• Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas
• Joe Ritchie, Managing Director at Goldman Sachs
• Walter Liptak, Industry Analyst at Seaport Research Partners