Graco Inc. Q3 FY2025 earnings call

• Quarterly results: Third quarter sales of $543 million, up 5% y-o-y. Reported net earnings increased 13% to $138 million. Excluding acquisitions and currency, organic sales declined 2%. Adjusted non-GAAP net earnings $0.73 per diluted share, up 3%.
• Margin and expenses: Gross margin rate flat. Tariffs affected product costs by $5 million. Operating expenses decreased $6 million, driven by noncash gain, but excluding gain, operating expenses increased. Adjusted operating earnings increased 3%.
• Segment commentary: Contractor faced headwinds from construction activity; Industrial had 1% sales increase; Expansion markets up 3% with semiconductor momentum. Targeted price increases gaining traction to offset tariffs.

Contractor segment: Sales increased 8% for the quarter, with acquisitions contributing 11%, offsetting a 3% decline in organic sales. Protective coatings equipment had best performance of the year, pavement products saw increased demand. Incoming orders grew low single digits. Industrial segment: Sales increased 1% in the quarter, with acquisitions and currency offsetting a 2% organic revenue decline. Americas grew 3% organically, EMEA had process manufacturing gains but powder coating systems drop, Asia Pacific had solid mining demand but lower solar and EV investments. Expansion markets: Sales were up 3% with good activity in semiconductor products, partially offset by declines in the environmental business. Revenue contribution percentages weren't explicitly stated in detail but each segment's performance was described in terms of growth and organic vs. acquired contributions.

• Full year revenue guidance of low single-digit growth on an organic constant currency basis. Heading into Q4, order rates are satisfactory and Contractor segment comparisons are easier.

• Macroeconomic factors affecting end markets, especially North America construction due to affordability and tariff concerns. Challenges in China for semiconductor business. Tariffs impacting product costs by $5 million in the quarter.

Q: Can you zip through end markets and regions performance versus expectations?

A: Industrial demand hit or miss, North America cautious, China held up well, Contractor affected by housing affordability.

Q: When does price cost turn positive?

A: Will see it in Q4, Q3 margins were okay when excluding Corob acquisition impact.

Q: How has the new organizational structure helped navigate volatility?

A: Margin improvement from cost initiatives, commercial teams gelling, better distributor access to products.

Q: Thoughts on backlog disclosure?

A: Backlog is at $225-230 million, unwound from prior high due to supply chain changes.

Q: Early read on Contractor new product pipeline 2026?

A: Pipeline similar to recent years, normal additions in paint, line striping, texture categories.

Q: Incremental margins for Contractor going forward?

A: Not much volume needed, pricing will help offset tariff costs, efficiencies with slight volume increase will boost margins.