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    GGG
    Earnings call· Jun 2026(Q2 FY26)

    GRACO INC GGG

    Jul 23, 2026 Source

    Executive summary

    Graco Q2 FY26 — Record Sales & Earnings Driven by Broad-Based Growth and Strategic Acquisition

    Graco delivered record second-quarter results, driven by broad-based growth across all segments and significant margin expansion. The company is encouraged by improving trends, particularly in the Contractor segment and strong semiconductor demand, leading to a maintained full-year outlook and the initiation of quarterly revenue guidance for Q3. Strategic capital allocation, including a significant acquisition and opportunistic share repurchases, underscores confidence in long-term value creation.

    Highlights

    5

    • Achieved record second quarter sales of $591 million.

    • Reported record second quarter earnings with adjusted EPS up 17% year-over-year to $0.91.

    • Organic orders increased 5% during the quarter, with the most recent 6-week booking average up 14% versus last year.

    • Backlog, excluding acquisitions, was up $57 million or 28% from the beginning of the year as of July 17.

    • Announced the acquisition of Velco Melton, a strategic fit in the high-growth packaging dispense market.

    Concerns

    3

    • Organic sales saw a 1% unfavorable change, primarily due to timing of finishing systems revenue within the Industrial segment.

    • Organic counter finishing systems were lower due to timing of order acceptance.

    • Activity in Asia, particularly China, was slower due to prior year pull-forward ahead of tariff-related pricing actions and softer automotive demand.

    Guidance & targets

    7
    CategoryTargetConfidence
    Q3 Revenue
    $580 million to $600 million
    high materiality
    High
    Full-year Revenue Outlook
    Maintained
    high materiality
    High
    Full-year Currency Impact on Sales
    Approximately 1% favorable impact
    medium materiality
    High
    Full-year Currency Impact on Earnings
    Approximately 1% favorable impact
    medium materiality
    High
    Full-year Unallocated Corporate Expenses
    $39 million to $42 million
    medium materiality
    High
    Full-year Capital Expenditures
    $90 million to $100 million
    medium materiality
    High
    Full-year Adjusted Effective Tax Rate
    20% to 21%
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Contractor
    Delivered record sales and earnings. Saw greater stability across core markets, supported by improved North America activity in residential repaint and remodel projects. Strong demand in protective coatings and foam, benefiting from commercial construction, infrastructure, and data center investments.
    Organic sales: higher in Americas (paint and home center)Organic bookings growth: 4%
    		—4%—Expanded margins
    Industrial
    Sales increased reflecting better activity across process manufacturing, machinery manufacturing, general industrial applications, and semiconductor-related investment. Anticipated headwinds from lower organic finishing systems due to order acceptance timing and slower activity in Asia/China.
    Organic sales: lower due to timing of finishing systems revenueBookings growth YTD (through July 17): 3%Bookings growth most recent 6-week period: 11%
    		—3%—Maintained profitability
    Expansion Markets
    Grew with growth across all key businesses. Semiconductor continues to have a strong year, particularly in Asia Pacific, supported by ongoing investment in manufacturing capacity. Backlogs remain strong.
    Bookings growth (quarter): 58%Bookings growth YTD: 33%Bookings growth most recent 6-week average: 36%
    		—3%—Expanded margins

    Operational metrics

    12
    Adjusted EPS
    $0.91up 17% YoY
    Q2 FY26

    Reported on an adjusted basis.

    Gross margin
    increased 130 bpsYoY
    Q2 FY26

    Improvement reflects fundamental operating model and disciplined cost management.

    Operating expenses
    essentially flat
    Q2 FY26

    Despite inflationary pressures and addition of acquired businesses, reflecting continued cost management.

    Operating earnings
    increased 11%YoY
    Q2 FY26

    Driven by disciplined cost management.

    Operating margin rate
    30%vs 26% prior year
    Q2 FY26

    Strong performance across the portfolio.

    Share repurchases
    $331 million
    first half of FY26

    Part of balanced capital allocation framework.

    Dividends paid
    $98 million
    first half of FY26

    Part of balanced capital allocation framework.

    Capital expenditure
    $29 million
    first half of FY26

    Part of balanced capital allocation framework.

    Organic sales growth
    -1%YoY
    Q2 FY26

    Partially offset by acquisitions and currency translation.

    Acquisitions contribution to sales growth
    3%
    Q2 FY26

    Contribution to overall sales growth.

    Currency translation impact on sales growth
    1%
    Q2 FY26

    Contribution to overall sales growth.

    Price realization
    1.5% to 2%
    FY26 YTD

    Consistent with historical performance.

    Industry KPIs

    6
    MetricValueDetails
    Capacity expansion$29 millionUSD
    Tariff cost impact$9 millionUSD
    Parts aftermarket businessMore than half%
    Data center prime power demand—
    Incremental margin operating leverage130 bpsbps
    Order backlog order intake by segmentup $57 million or 28%USD

    Orderbook & backlog

    10
    Total backlog (excluding acquisitions)up $57 million or 28%July 17, 2026

    from beginning of the year

    Organic ordersincreased 5%Q2 FY26

    YoY

    Most recent 6-week booking averageup 14%July 23, 2026

    vs last year

    Contractor organic bookings growth4%Q2 FY26
    Contractor most recent 6-week order trends14% growthJuly 23, 2026

    over last year

    Industrial bookings growth YTD3%July 17, 2026
    Industrial most recent 6-week order trends11% growthJuly 23, 2026

    over prior year

    Expansion Markets bookings growth58%Q2 FY26
    Expansion Markets bookings growth YTD33%July 23, 2026
    Expansion Markets most recent 6-week average bookingsup 36%July 23, 2026

    Product announcements

    3
    ProductTypeDetails
    Next generation of Quick Shotlaunch
    Pro Reach extension systemlaunch
    Autonomous and semi-autonomous striping solutionslaunch

    Deals & partnerships

    1
    Velco MeltonAcquisition of a company adding complementary technology, products, and customer relationships in the high-growth packaging dispense market.

    Announced in May, this is one of Graco's largest acquisitions in over a decade. More than half of Velco Melton's business is parts and accessories. It is considered a nice hand-in-glove acquisition that will help both companies sell more products.

    Risks & headwinds

    3
    Timing of order acceptance for finishing systemsQ2 FY26, expected to improve in H2 FY26

    Contributed to 1% unfavorable change in organic sales for Q2 FY26.

    Mitigation: Orders are expected to be accepted in the second half of the year, supporting stronger performance.

    Slower activity in Asia, particularly ChinaQ2 FY26

    Impacted Industrial segment performance.

    Mitigation: Attributed to prior year pull-forward activity ahead of tariff-related pricing actions and softer automotive demand; comps are expected to ease in H2.

    Inflationary pressuresQ2 FY26

    Operating expenses were essentially flat despite these pressures.

    Mitigation: Continued cost management across the organization helped to offset these pressures.

    What to watch in Q3 FY26

    5

    Q3 Revenue Performance

    next quarter
    CurrentQ3 revenue guide of $580M-$600M (excluding Velco Melton)
    TargetAchieve or exceed guidance range

    Why it matters

    This is the first time Graco has provided quarterly revenue guidance, making its achievement a key indicator of management's improved visibility and execution.

    We're maintaining our full year outlook and initiating a third quarter revenue guide of $580 million to $600 million, excluding Velco Melton, which is expected to close during the third quarter.

    Q&A highlights

    7

    Why did Graco decide to provide quarterly sales guidance now, and should this be expected on a go-forward basis?

    Management stated that improved visibility, particularly over a 13-week period, and strong backlogs led to the decision. They aim to provide more insightful information to analysts and are committed to providing this guidance going forward, viewing it as a way to increase accountability internally.

    “I think this is a change that we're committing to make going forward. So it's not just a 1 quarter thing that we're going to do. And I think it's the right approach for the company at this time.”

    asked by Deane Dray · answered by Mark Sheahan

    2 min read5 chapters

    Detailed Narrative

    01

    Record Performance and Margin Expansion

    Graco delivered record second-quarter sales of $591 million and record earnings, with adjusted EPS increasing 17% year-over-year to $0.91. Gross margin expanded by 130 basis points, driven by effective price realization, improved manufacturing performance, and a $9 million benefit from tariff refunds. Operating expenses remained largely flat despite inflationary pressures, contributing to an 11% increase in operating earnings and an operating margin rate of 30% of sales.

    02

    Strategic Capital Allocation and Velco Melton Acquisition

    The company maintains a balanced capital allocation framework, investing $29 million in capital expenditures, including strategic facility expansion projects, during the first half of the year. Graco also repurchased 4.2 million shares totaling $331 million and paid $98 million in dividends. A significant strategic move was the announced acquisition of Velco Melton in May, a company with over 50% parts and accessories revenue and gross margins exceeding 50%, expected to close in Q3 and enhance Graco's position in the packaging dispense market.

    03

    Contractor Segment Rebound and Diversification

    The Contractor segment achieved record sales and earnings, with revenue increasing 4%. Organic sales were higher across both paint and home center markets in the Americas for the first time in nearly two years, supported by improved North America residential repaint and remodel activity. Strong demand in protective coatings and foam, driven by commercial construction, infrastructure, and data center investments, highlights the segment's diversified application base beyond traditional residential paint.

    04

    Industrial and Expansion Markets Momentum

    Industrial segment sales grew 3%, reflecting better activity in process and machinery manufacturing, general industrial applications, and semiconductor-related investments. Expansion Markets grew 3%, with semiconductor demand being particularly strong, especially in Asia Pacific, leading to 58% bookings growth in the quarter. These trends, combined with a healthy backlog, support expectations for stronger performance in the second half of the year.

    05

    New Quarterly Guidance and Outlook

    Graco initiated quarterly sales guidance for Q3 FY26, projecting $580 million to $600 million, excluding Velco Melton. This decision reflects improved visibility, strong backlog growth, and confidence in the underlying health of the business. Management reiterated its full-year outlook, anticipating a more back-half loaded⚖️ performance, and committed to providing quarterly guidance going forward⏳ to enhance transparency for analysts and investors.

    AI-generated summary of the company’s earnings call. Not investment advice.