Snapshot
Graco Inc reported $593M of revenue in Q4 2025, up 8.1% year over year, with diluted EPS of $0.79 and an operating margin of 26.7%.
- Revenue
- $593M
- YoY growth
- +8.1%
- Diluted EPS
- $0.79
- Operating margin
- 26.7%
What management said
- •Yesterday, Graco reported fourth quarter sales of $593 million, an increase of 8% from the same quarter last year.
- •Acquisitions contributed 4%, currency translation, 2%, and organic sales, another 2% to growth in the quarter.
- •Reported net earnings increased 22% to $133 million, or $0.79 per diluted share.
- •The gross margin rate increased 80 basis points compared to the same quarter last year.
- •The effects of our targeted interim pricing actions more than offset higher product costs, resulting from lower factory volumes, unfavorable effects of lower margin rates from acquired operations, and incremental tariffs.
- •Tariffs affected product costs by $4 million in the quarter, resulting in a 70 basis point decline in the gross margin rate.
- •For the full year, tariffs of $14 million had an unfavorable impact of 60 basis points on the gross margin rate.
- •Offsetting these costs were incremental expenses of acquired operations of $7 million and higher incentive-based costs.
- •Contractor segment operating margin rate for the quarter was 24% and was consistent for the same period last year, excluding business reorganization charges and litigation spending.
- •Expansion Markets segment operating margin, operating margin was 28%, compared to 20% for the same quarter last year.
- •Expansion Markets had upfront electric motor license fee revenue of $5 million in the quarter and $7 million for the full year.
- •These upfront license fees increased the operating margin rate for the quarter by 9 percentage points and 3 percentage points for the full year.
What went well
- •Graco reported record sales in both the fourth quarter and the full year, with Q4 sales of $593 million up 8% from the prior-year quarter (acquisitions 4%, currency 2%, organic 2%).
- •Reported net earnings rose 22% to $133 million, or $0.79 per diluted share, with adjusted non-GAAP earnings of $0.77 per diluted share up 20%.
- •The Industrial segment grew 11% in the quarter, with 5% organic growth led by powder finishing project completions and good growth in the Americas and EMEA, and incremental margins were exceptionally strong at 76% for the quarter and 117% for the full year, reflecting the One Graco operating model.
- •Contractor achieved organic growth in every region, driven by improved Home Center channel performance and 25% growth in the COROB business, its largest fourth quarter in three years.
- •Operating cash flow reached $684 million for the year, up 10%, equal to 137% of adjusted net earnings, and inventory fell to its lowest level since June 2021, leaving Graco in a net cash position of $600 million.
- •The company returned over $600 million to shareholders through dividends and buybacks while investing $135 million in acquisitions (COROB, Radia, Color Service) expected to generate nearly $190 million in full-year revenue.
What went wrong
- •Core construction markets remained sluggish and the overall contractor equipment market was flat, with affordability concerns and light Home Center foot traffic keeping activity subdued.
- •Expansion Markets sales declined 6% in the quarter, with declines in the semiconductor, high-pressure valve, and environmental businesses versus a strong prior-year period.
- •Tariffs reduced product costs by $4 million in the quarter (a 70 basis point gross margin drag) and $14 million for the full year (a 60 basis point drag).
- •Industrial growth in Asia-Pacific declined, particularly China in the quarter, and end markets such as mining, solar CapEx, Tier 1 automotive, and North American construction-related industrial markets (furniture, cabinetry, white goods, window and door) were soft or depressed.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Organic revenue growth (constant currency) | FY2026 | — | Low single-digit | — |
| Total revenue growth (incl. acquisitions) | FY2026 | — | Mid-single-digit | — |
| Pricing contribution | FY2026 | — | 1.0%-1.5% | — |
| Foreign currency impact on net sales and earnings | FY2026 | — | 1% favorable | — |
| Effective tax rate | FY2026 | 20.5% (FY2025 adjusted) | 20%-21% | Roughly steady |
| Unallocated corporate expenses | FY2026 | — | $40M-$43M | — |
| Capital expenditures | FY2026 | — | $90M-$100M, plus ~$50M for facility expansion | — |
| Acquisition revenue (COROB, Color Service, Radia) | FY2026 | — | ~$190M full-year | — |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total company sales | +8% | Acquisitions contributed 4%, currency 2%, and organic sales 2%, with growth in both industrial and contractor segments. |
| Gross margin rate | +80 bps | Targeted interim pricing actions more than offset higher product costs from lower factory volumes, lower-margin acquired operations, and incremental tariffs. |
| Contractor segment sales | +8% | Acquisitions added 5%, currency 2%, and organic 1%; COROB grew 25% and Home Center improved while core construction stayed flat. |
| Industrial segment sales | +11% | Organic growth of 5% from powder finishing project completions and Americas/EMEA strength, plus the Color Service acquisition, offsetting Asia-Pacific declines. |
| Expansion Markets segment sales | -6% | Declines in semiconductor, high-pressure valve, and environmental businesses against a strong prior-year quarter, despite sequential revenue growth. |
| Expansion Markets operating margin | 28% vs 20% | Upfront electric motor license fee revenue of $5 million added 9 percentage points to the quarterly operating margin rate. |
| Total company adjusted operating earnings | +15% | Operating earnings rose $21 million, with adjusted operating margin of 27% versus 25% a year ago. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Electric motor (ETM) technology licensing to OEMs and motor manufacturers | — | Recognized $5M upfront license fees in Q4 and $7M for the year; described as lumpy and excluded from 2026 organic outlook, with back-end royalties to come. | rising |
| One Graco operating model | ~$15M benefit cited a year earlier | Realized around $15 million or slightly more in full-year benefit, drove significant inventory reductions and strong incremental margins; no ongoing restructuring planned. | steady |
| M&A pipeline and disciplined acquisitions | — | Well over 100 names in the pipeline; three deals completed in roughly 15 months; management increasingly confident and committed to one-third of long-term growth from acquisitions. | rising |
| Home Center channel recovery | Multi-quarter headwind | Channel grew in the quarter after three depressed years, though foot traffic remains light and management is cautious about sustainability. | rising |
| Tariffs and pricing offsets | — | Tariffs were a $14M full-year headwind, offset by interim price adjustments; management expects no net tariff headwind in 2026. | steady |
| Residential housing and affordability | — | Flattish residential outlook held back by affordability, but lower mortgage rates (~6%-6.10%) and pent-up demand could support residential repaint over time. | steady |
Q&A summary
Is the upfront electric motor licensing fee a one-time item or a recurring revenue stream, and will it be lumpy?
Management explained the fees stem from licensing ETM motor technology (from a prior acquisition) to non-competitive OEMs and motor manufacturers. It will likely be lumpy, with back-end royalties to follow, and no upfront fees were factored into the 2026 organic outlook; the motors are already proven in Graco products today.
What geographic and market conditions and recent order trends underpin the low single-digit 2026 organic guide?
Management said order rates in the cautious (yellow) markets have been steady, with no deterioration but no clear upward catalyst yet; the outlook matches what was presented in Q4, and recent order trends support the low single-digit guide.
What is the price assumption embedded in the low single-digit guide and when was pricing implemented?
Management expects about 1.0%-1.5% from pricing in 2026, mix and timing dependent. Some 2026 price adjustments were accelerated into Q3 and Q4 2025, and larger customer increases typically occur mid-year, which is the normal cadence.
Can you update on the One Graco initiative and its benefit to sales or margins this year?
Management cited significant factory inventory reductions and around $15 million (or slightly more) in full-year cost benefit. There is no ongoing restructuring; the model drove efficiencies and gives sales teams access to more product lines, expected to provide tailwind into 2026.
What drove the Home Center channel growth, and was it inventory restocking, pre-buying, or improving demand?
Management said foot traffic remained light and there were no new product launches; the uptick likely reflected channel partners improving inventory positions. It was a meaningful bounce after three depressed years, but management was cautious about reading it as a major change.
How should margins in the Industrial and Expansion Markets segments play out given mix headwinds and lower top-line confidence?
Management expressed no concern about Industrial margins, calling it a volume story with upside if volumes rise above low single digits. Expansion Markets businesses (semiconductor, high-pressure, QED) all carry attractive margins, and higher volumes would yield strong incremental margins.