Graco Inc. Q4 FY2025 earnings call

• Quarterly sales were $593 million, up 8% from the same quarter last year. Reported net earnings increased 22% to $133 million. Adjusted non-GAAP net earnings were $0.77 per diluted share, up 10%. • Gross margin rate increased 80 basis points. Tariffs affected product costs by $4 million in the quarter. • Operating expenses decreased $1 million in the quarter, driven by non-recurring costs from prior years offset by incremental expenses from acquired operations. • Acquisitions of COROB, Radia, and Color Service contributed to revenue growth, with COROB growing 25% in the fourth quarter. • One Graco initiative led to inventory reductions and efficiency improvements, expected to provide tailwind in 2026. • Upfront licensing fees from ETM technology licensing to non-competitive OEMs and motor manufacturers, a lumpy revenue stream.

Contractor segment sales increased 8% in the fourth quarter, with acquisitions contributing 5%, currency translation 2%, and organic sales 1%. COROB grew 25% in the quarter. Industrial segment sales were up 11% in the fourth quarter, driven by organic performance and Color Service acquisitions, with organic growth of 5% and incremental margins of 76% for the quarter and 117% for the full year. Expansion markets segment declined 6% in the quarter but grew full year with high single-digit sales growth in the semiconductor business. Upfront electric motor license fees were $5 million in the quarter and $7 million for the full year, increasing the operating margin rate for the quarter by 9 percentage points and 3 percentage points for the full year.

• 2026 revenue guidance: low single-digit organic growth on constant currency basis and mid-single-digit growth after factoring in acquisitions. • Effective tax rate expected to be 20% to 21%. • Projected unallocated corporate expenses $40 million to $43 million and capital expenditures $90 million to $100 million, excluding approximately $50 million for facility expansion projects.

• Tariffs previously had an unfavorable impact on gross margin, though mid-course price adjustments were made. • Uncertain trade environment, including potential armed conflict in the Middle East with unknown repercussions on business operations.

Q: Clarification on upfront licensing fees associated with electric pumps, whether it's a onetimer and lumpy revenue stream A: Mark Sheahan explained that the technology was acquired from ETM, and the team is licensing it to non-competitive OEMs and motor manufacturers, which is likely lumpy. David Lowe added it's for specific applications Q: Geographic conditions and inbound orders for 2026 A: David Lowe said order rates in yellowish markets have been steady, and Mark Sheahan characterized overall outlook as cautious with low single-digit growth expected Q: Pricing assumption in low single-digit organic growth, volume vs price assumption A: Mark Sheahan said hoping for 1-1.5% on pricing, with some price adjustments accelerated in late 2025 Q: Update on One Graco initiative and benefit to sales/margin A: Mark Sheahan mentioned inventory reductions and efficiency improvements from One Graco, expected to provide tailwind in 2026, with $15M+ cost savings in 2025 Q: Upfront licensing agreements markets/applications outside Graco exposures A: Mark Sheahan said licensing to motor manufacturers and OEMs for various applications like process industries, ag industry, robotics Q: M&A pipeline actionability and composition A: Mark Sheahan said there are well over 100 names in the pipeline, confident in identifying strategic companies, with momentum building for M&A Q: Home center inventory, demand, price increase A: Mark Sheahan said foot traffic still light, David Lowe added mortgage rates are down but still high Q: CapEx growth plans, new corporate headquarters construction A: David Lowe said construction of new corporate headquarters in France is about $50M, to be spent in 2026; Mark Sheahan mentioned vacating Minneapolis campus Q: Industrial end markets, region contrast A: David Lowe discussed various end markets like automotive, dealer service, semiconductor, with some positive and negative trends by region Q: Phasing of organic growth in 2026 A: David Lowe said seasonality likely holds, stronger second and third quarters expected for contractor side, project completion realization in fourth quarter Q: Delta of revenue and profit from acquisitions in 2026 A: Mark Sheahan said COROB is fully banked, Radia and Color Service margins in line with overall profitability; David Lowe mentioned acquisitions contribute ~$190M revenue Q: Positives and negatives for 2026 A: David Lowe mentioned lower mortgage rates, new product launches as positives; uncertain trade environment, potential tariff impact as negatives