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.
| Metric | Period | Current guidance |
|---|---|---|
| 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%-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 |
| Metric | YoY | Note |
|---|---|---|
| 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. |
| 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 |