Yesterday, Graco reported third-quarter sales of $543 million, an increase of 5% from the same quarter last year. Excluding acquisitions, which contributed 6% growth, and currency translation, which contributed another 1% growth, organic sales declined 2% in the quarter. Reported net earnings increased 13% to $138 million or $0.82 per diluted share. During the quarter, we recognized a $14 million non-cash gain from a reduction in the fair value of contingent consideration related to last year's acquisition of Corab.
Excluding the impact of excess tax benefits from stock option exercises and this contingent consideration fair value gain, adjusted non-GAAP net earnings was $0.73 per diluted share, an increase of 3%. The gross margin rate was flat compared to the same quarter last year. Tariffs affected product costs by $5 million in the quarter, resulting in a 100 basis point decline in the gross margin rate. Operating earnings as a percent of sales was 28% for the quarter and consistent with the same period last year.
The adjusted effective tax rate was 20%, which is consistent with our expected full-year tax rate of 19.5%-20.5% on an as-adjusted basis. Cash provided by operations totaled $487 million for the year, an increase of $51 million or 12%. Improved inventory management from consolidating operations under One Graco and lower sales and earnings-based incentive payments drove the increase. Cash provided by operations as a percentage of adjusted net earnings was 146% for the quarter and 132% for the year to date.
| Metric | Period | Current guidance |
|---|---|---|
| Organic revenue growth (full year, constant currency) | FY2025 | Low single-digit growth (likely low end) (Maintained) |
| Currency impact on net sales and net earnings | FY2025 | 1% favorable |
| Adjusted effective tax rate | FY2025 | 19.5%-20.5% |
| Unallocated corporate expenses | FY2025 | $35M-$38M |
| Capital expenditures | FY2025 | $50M-$60M |
| Metric | YoY | Note |
|---|---|---|
| Total sales | +5% | Acquisitions contributed 6% and currency 1%, offsetting a 2% organic decline |
| Reported net earnings | +13% | Included a $14 million non-cash gain from a reduction in fair value of contingent consideration related to the Corab acquisition |
| Adjusted non-GAAP EPS | +3% | $0.73 per diluted share, excluding excess tax benefits and the contingent consideration gain |
| Contractor segment sales | +8% | Acquisitions added 11%, more than offsetting a 3% organic decline from North American affordability concerns |
| Industrial segment sales | +1% | Acquisitions and currency offset a 2% organic decline; Americas grew 3% organically on vehicle service and automotive OEM, while EMEA powder coating fell on project timing |
| Expansion market sales | +3% | Good semiconductor activity partially offset by declines in the environmental business |
| Gross margin rate | Flat | Pricing offset higher product costs from lower factory volume, lower-margin acquired operations, and a 100 bp tariff drag |
| Operating expenses | -5% (-$6M) | Driven by the non-cash contingent consideration gain; excluding it, opex rose 6% on $10M of acquisition expenses |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Tariff cost recovery via pricing | Pricing actions underway | Targeted price increases announced in Q3 gaining traction; expect to fully offset tariffs by year end; Pro Paint and Home Center increases queued for January 2026 | Improving |
| North American contractor/housing weakness | Subdued construction and cautious consumers | Continued affordability headwinds; lowest housing sales since before 1995; remodeling growth forecast did not materialize; easier Q4 comps ahead | Persistent / stabilizing |
| One Graco reorganization | New organizational structure implemented | Early days but driving margin improvement, factory consolidation (Minneapolis into MN/SD/OH), cross-selling of product lines, and stronger cash conversion | Progressing |
| M&A pipeline and integration | Active funnel | Color Service acquisition announced in the quarter; Corab performing in line with deal model; pipeline remains strong with expected activity over next 6-12 months | Active |
| China / semiconductor demand | Multi-year declines | China held up better than expected; semiconductor recovering but below peak with licensing challenges | Recovering |
| Backlog normalization | Backlog unwinding from supply-chain-crisis peak of ~$500M | Stable at ~$225-$230M, near start-of-year levels; largely back to book-and-ship except project-based Gama powder | Normalized |