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Graco: Graco's Earnings Report: A Mixed Bag

Graco reported second-quarter sales of $572 million, a 3% increase from the same period last year, but excluding acquisitions, sales declined 3%. The company's gross margin rate decreased 200 basis points, and operating earnings decreased $4 million or 2%. Adjusted non-GAAP net earnings were $127 million or $0.75 per diluted share, a decrease of 3% from the previous year's $0.78 estimate. The actual EPS came in below estimates, indicating a challenging quarter for the company.

GGG

USD 76.92

0.39%

A-Score: 5.4/10

Publication date: July 24, 2025

Author: Analystock.ai

πŸ“‹ Highlights
  • Sales Growth Q2 sales rose 3% to $572 million, but organic sales declined 3% excluding acquisitions.
  • Net Earnings Decline Reported net earnings dropped 4% to $128 million, with adjusted net earnings decreasing 3% to $127 million.
  • Gross Margin Compression Gross margin rate fell 200 basis points, impacting profitability.
  • Cash Flow Strength Cash from operations increased 19% year-to-date, reaching $308 million.
  • Targeted Price Increases September price hikes planned to offset tariffs, with additional increases expected in 2026 if needed.

Segment Performance

The Contractor segment sales declined 5%, with the home center DIY channel experiencing a low double-digit decline. The industrial segment declined 1%, although growth was seen in EMEA and Asia Pacific. Mark W. Sheahan noted that "affordability is the key challenge in the new construction market," which has led to pent-up demand that could be unleashed once affordability improves.

Cash Flow and Investments

Cash provided by operations totaled $308 million for the year, a 19% increase. The company has been actively repurchasing shares, with 4.4 million shares totaling $361 million bought back year-to-date. David M. Lowe highlighted that the strength in free cash flow conversion is due to improved inventory management and the One Graco initiative.

Guidance and Outlook

Graco maintained its 2025 revenue guidance of low single-digit sales on an organic constant currency basis. The company expects a normal price increase at the beginning of next year across all business units. Analysts estimate next year's revenue growth at 4.3%. With a P/E Ratio of 29.41 and an EV/EBITDA of 21.02, the market appears to be pricing in a certain level of growth.

Valuation and Profitability

Graco's ROE stands at 19.16%, indicating strong profitability. The company's ROIC is 17.48%, demonstrating efficient capital allocation. With a Dividend Yield of 1.28% and a Free Cash Flow Yield of 4.37%, the stock offers a relatively attractive return profile.

Graco's A-Score