Yesterday, Graco reported second quarter sales of $572 million, an increase of 3% from the second quarter of last year. Reported net earnings decreased 4% to $128 million, or $0.76 per diluted share. Excluding the impact of excess tax benefits from stock option exercises, adjusted non-GAAP net earnings were $127 million, or $0.75 per diluted share, a decrease of 3%. The impact of acquisitions accounted for nearly 80 basis points of the decline, which will continue for the remainder of the year.
Excluding expenses of acquired operations, operating expenses declined $7 million, or 5%, on savings from the One Graco initiative, lower sales and earnings-based incentives, and timing of stock-based compensation expense. Operating earnings decreased $4 million, or 2%, during the quarter due to decreased factory volume and the effect of tariffs. Operating earnings as a percent of sales were 28% for the quarter, or one percentage point lower than the same period last year. Contractor segment operating margin rate for the quarter was 26% compared to 31% for the same quarter last year, a decline of five percentage points.
The acquisition of COROB decreased the contractor operating margin rate by two percentage points, with the remaining decline due primarily to higher tariffs and lower factory volume. The adjusted effective tax rate was 20%, which is consistent with our expected full-year tax rate of approximately 19.5%-20.5% on an as-adjusted basis. Cash provided by operations totaled $308 million for the year, an increase of $50 million, or 19%. Improved inventory management from consolidating operations under One Graco and lower sales and earnings-based incentive payments drove the increase.
| Metric | Period | Current guidance |
|---|---|---|
| Organic constant-currency net sales | FY2025 | Low single-digit growth (full-year organic flat described) (Maintained) |
| Unallocated corporate expenses | FY2025 | $37 million–$40 million |
| Capital expenditures | FY2025 | $60 million–$70 million |
| Adjusted effective tax rate | FY2025 | ~19.5%–20.5% |
| Foreign currency impact on net sales | FY2025 | ~1% favorable (no impact on net earnings) |
| One Graco expense reduction | FY2025 | ~$16 million, on track |
| Metric | YoY | Note |
|---|---|---|
| Total net sales | +3% to $572M | COROB acquisition added 6%, offsetting a 3% organic decline; currency neutral |
| Reported net earnings | -4% to $128M ($0.76/diluted share) | Lower factory volume and tariff impact |
| Adjusted non-GAAP net earnings | -3% to $127M ($0.75/share) | Excludes excess tax benefits from stock option exercises |
| Gross margin rate | -200 bps | ~80 bps from acquisitions and ~80 bps from tariffs; insufficient price realization vs higher product costs |
| Operating earnings | -2% (-$4M) | Decreased factory volume and tariff effects; operating margin 28%, down 1 point |
| Contractor segment sales | -5% | Soft North American core markets, weak home center DIY, and tough comp vs prior-year channel fill from new product launches |
| Industrial segment sales | -1% | AMEA/Asia-Pacific growth not enough to offset Americas decline; powder finishing strong |
| Expansion markets sales | -3% | Semiconductor momentum offset by environmental business decline |
| Operating cash flow (YTD) | +19% (+$50M) to $308M | Improved inventory management under One Graco and lower incentive payments |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Tariffs and pricing actions | Patient/wait-and-see on tariff response | Targeted low-single-digit price increases beginning September to offset most of full-year tariff impact, plus product redesign and secondary vendor sourcing | Escalating |
| Trade-environment uncertainty | — | End users delaying project decisions, taking a wait-and-see approach pending trade/tariff clarity | Ongoing headwind |
| Housing affordability / construction softness | — | Affordability and high mortgage rates suppress new construction and DIY/remodeling; pent-up demand awaiting rate relief | Persistent headwind |
| M&A program build-out | Pipeline built from scratch since 2021 | Over $300M committed across two deals in nine months (COROB, Color Service); disciplined pipeline with active deals in works | Accelerating |
| One Graco initiative | Cost/efficiency program underway | Driving inventory reductions, cash flow gains, distributor satisfaction; Minneapolis facility closure to consolidate production | Progressing |
| Semiconductor recovery | Recovery began late last year | Continued momentum with reasonable backlogs and incoming orders; tough Q4 comp expected | Improving |