Graco NYSE: GGG reported first-quarter sales of $540 million, up 2% from the prior-year period, as contributions from acquisitions and currency more than offset an organic decline. Management said demand improved as the quarter progressed, lifting bookings and backlog, but the timing of order conversion weighed on reported organic revenue and margins.
Quarterly results: acquisitions and currency offset organic decline
Chris Knutson, vice president, controller, and chief accounting officer, said acquisitions contributed 5% sales growth and currency translation added 3%, while organic sales declined 6%. Reported net earnings were $119 million, down 5%, or 70 cents per diluted share. Excluding excess tax benefits from stock option exercises, adjusted non-GAAP earnings were 66 cents per diluted share, down 6%.
Gross margin decreased 60 basis points year over year. Knutson said the company’s pricing actions helped offset higher product costs tied to lower factory volume, lower margin rates from acquired operations, and incremental tariffs. Tariffs increased product costs by $7 million in the quarter.
Operating expenses rose $9 million, or 7%. Knutson said that excluding $5 million of incremental expenses from acquired operations and currency translation effects, operating expenses were flat. Total company operating earnings fell $6 million, or 4%, with operating margin at 26% compared with 27% a year earlier.
Bookings improved and backlog grew, led by industrial
President and CEO Mark W. Sheahan said organic revenue “started the year slower than expected, particularly in January,” but activity “improved steadily as the quarter progressed.” He said bookings rose 3% at actual currency rates, which contributed to nearly a $26 million increase in backlog, primarily in the industrial segment.
Sheahan emphasized the impact of timing: if the quarter’s orders had been converted to revenue within the period, he said organic revenue at actual currency rates would have increased 2% and total reported sales (including acquisitions) would have risen 7%.
Executives also addressed backlog conversion and cancellation risk. Sheahan said the company did not see meaningful risk of cancellations in the backlog. David M. Lowe, CFO and treasurer, added that in Graco’s legacy industrial businesses, equipment often gets ordered late in the project cycle, and cancellation “is quite low.” For Gema powder systems, Lowe said orders typically require a “very meaningful down payment,” and in his experience working with the Gema team for years, “over all that time, one project was canceled.”
Segment performance: contractor steady, industrial timing issues, semiconductors normalize
In the contractor segment, Sheahan said sales increased 2%, with acquisitions and currency each adding 3% and organic revenue down 4%. He cited continued strength in “foam, polyurea, and protective coatings,” which he said has been supported by demand tied to infrastructure, border wall, and data center projects. However, Sheahan said construction demand remained “softer than we would like,” especially in the Americas, and he expects subdued market conditions to persist this year, noting that housing starts are expected to be “relatively flat” year over year.
In the industrial segment, sales rose 4%, with acquisitions contributing 8% and currency adding 4%, offset by an 8% organic decline. Despite the organic decline, Sheahan said bookings increased 5% at actual currency rates, driving a $23 million backlog increase. He said the quarter’s revenue was affected by the timing of completion and acceptance of project-based activity, particularly in EMEA and Asia Pacific, while Industrial Americas delivered revenue growth despite lower project-based activity in the powder group.
For expansion markets, Sheahan said organic revenue declined 5%, primarily due to the semiconductor business cycling an “exceptionally strong prior year comparison.” He said semiconductors delivered their largest quarter of 2025 with 51% growth. Even with the tougher comparison, Sheahan said semiconductor demand remained solid, with first-quarter bookings “up at least 20% in each region.” He also noted improvement in the environmental business, saying activity picked up meaningfully with a strong start to the second quarter and bookings were trending positive year to date.
Tariffs, pricing actions, and margin drivers
Management repeatedly pointed to volume and mix as key margin drivers in the quarter. In response to questions about gross margin and pricing versus cost, Knutson said the quarter’s margin pressure came from “mix volume and acquired businesses,” adding that “price cost was not a headwind outside of having lower factory volume to absorb the overhead.”
Sheahan said he had “no concerns on the gross margin line for the rest of the year,” citing pricing actions and expense discipline, though he acknowledged unfavorable mix in the quarter.
On pricing, Lowe said Graco has been pursuing its “annual pricing adjustment drum beat” globally, starting “a little earlier in the regions than we would ordinarily.” He said pricing adjustments with certain North American channel partners were expected to become “live early or sometime in Q2.”
Executives also discussed changes to Section 232 tariffs. Dale Johnson, president of the Worldwide Contractor Equipment Division, said the company was still assessing the impact of shifting from tariffs on direct aluminum and steel to tariffs on the “full component,” which could imply a higher tariff on imported goods. He added that much of Graco’s equipment is manufactured in the U.S., and imports of aluminum and steel are typically in raw form.
Separately, Sheahan said Graco intended to apply for tariff refunds “like every other company,” and that the company would highlight refunds in results as they are received, but would not discuss expected levels “until we actually see the refunds.”
Guidance, capital allocation, and leadership updates
Despite the slower start, Sheahan said the company is maintaining its 2026 revenue guidance of low single-digit organic growth on a constant-currency basis and mid-single digit growth including acquisitions. He said second-half comparisons are more favorable, citing an “easier contractor comparison in the third quarter” and expected timing of industrial project activity later in the year. Johnson added that backlog increased further after quarter-end, saying Graco saw another $21 million backlog build into April.
Knutson said that based on current exchange rates—and assuming similar volume, product mix, and business mix as in 2025—currency is expected to have a 1% favorable impact on 2026 net sales and a 2% favorable impact on net earnings. He reaffirmed expectations for unallocated corporate expenses of $40 million to $43 million and capital expenditures of $90 million to $100 million, including about $50 million for facility expansion projects. He also noted that 2027 will be a 53-week year with an extra week in the fourth quarter.
On cash flow and capital returns, Knutson said cash provided by operations totaled $120 million for the quarter, down $5 million year over year. Year-to-date uses of cash included $16 million of share repurchases (189,000 shares), $49 million in dividends, and $12 million in capital expenditures, partially offset by $40 million in share issuances.
New CFO and treasurer Sanjiv Gupta said Graco will remain disciplined in capital allocation, prioritizing internal investments that meet return thresholds, then “disciplined M&A,” and returning excess cash through dividends and opportunistic share repurchases while maintaining balance sheet flexibility.
Sheahan also introduced Gupta, noting he previously spent more than 20 years at General Motors and most recently served as CFO of GM International. Sheahan additionally recognized Lowe, who is preparing for retirement after more than 30 years with the company.
In closing remarks, Sheahan noted Graco will celebrate its centennial on April 26, describing the milestone as reflecting “the durability of our business model” and saying the company remains focused on investing in innovation and supporting customers.
About Graco NYSE: GGG
Graco Inc is a leading manufacturer of fluid handling systems and components, headquartered in Minneapolis, Minnesota. Founded in 1926, the company has built a reputation for innovation in spray finishing, lubrication, and fluid management technologies. Graco's solutions are designed to address the needs of paint and coatings applicators, general industry, and process fluids in a variety of end markets.
The company's product portfolio includes airless and air-assisted spray equipment, pumps for oil and gas applications, industrial lubrication systems, and automated dispensing equipment.
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