10-Q: Graco Inc. Q1 Sales Up 2% Driven by Acquisitions, Organic Decline Continues

Graco Inc. reported a 2% increase in first-quarter net sales, primarily driven by acquisitions, while organic sales experienced a 6% decline.

Summary

• Graco Inc. reported first-quarter net sales of $540.1 million, a 2% increase compared to the prior year's $528.3 million.
• Sales growth was significantly influenced by acquisitions, contributing 5 percentage points, and currency translation effects, adding 3 percentage points.
• However, organic sales declined by 6% during the quarter.
• Operating earnings decreased by 4% to $137.8 million from $144.0 million.
• Net earnings fell by 5% to $118.5 million, with diluted earnings per share at $0.70, down 3% from $0.72.
• Adjusted net earnings decreased by 7% to $111.8 million.
• The gross margin rate declined due to unfavorable product and channel mix and lower margins from acquired operations, though price realization offset $7 million in tariffs.
• Operating expenses rose by 7%, with 4 percentage points attributed to acquisitions and 3 percentage points to currency translation.
• The Contractor segment saw a 2% sales increase, supported by acquisitions and currency, but faced weakness in construction markets.
• The Industrial segment's sales grew by 4%, largely due to $20 million in sales from acquisitions, which offset project timing impacts.
• Expansion Markets segment sales decreased by 4%, primarily due to lower semiconductor application sales in the Americas.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative sentiment due to declining organic sales, reduced earnings, and margin pressures, despite reported sales growth driven by acquisitions.

Positives

• Net sales increased by 2% to $540.1 million, driven by contributions from acquired operations and favorable currency translation.
• Acquired operations contributed $26 million to sales growth in the first quarter.
• Favorable currency translation rates increased net sales by approximately $17 million.
• The Contractor segment experienced a 2% net sales increase, with strong demand in infrastructure-related markets.
• The Industrial segment saw a 4% sales growth, with acquisitions contributing $20 million.
• Incoming order rates improved throughout the quarter, and the organic order backlog increased by 13% from the end of 2025.
• Price realization largely offset the impact of incremental tariffs totaling $7 million.
• The effective income tax rate decreased to 15% due to increased excess tax benefits from stock option exercises.

Negatives

• Organic sales declined by 6% in the first quarter.
• Operating earnings decreased by 4% to $137.8 million.
• Net earnings decreased by 5% to $118.5 million.
• Diluted net earnings per common share decreased by 3% to $0.70.
• Adjusted net earnings decreased by 7% to $111.8 million.
• The gross margin rate was lower due to unfavorable product and channel mix and lower margin rates of acquired operations.
• Operating expenses increased by 7%, impacting profitability.
• The Industrial segment's operating margin rate declined by 2 percentage points due to higher product costs and unfavorable mix.
• Expansion Markets segment net sales decreased by 4%, primarily due to lower semiconductor application sales in the Americas.

Risks

• Risks related to the demand for products and the level of commercial, industrial, and construction activity worldwide.
• Changes in currency translation rates.
• International and domestic instability.
• Interest rate fluctuations and changes in credit markets.
• Global sourcing of materials.
• Inflationary cost pressures and the ability to raise prices without decreasing demand.
• Interruptions of or intrusions into information systems.
• Intellectual property rights.
• The use of generative artificial intelligence and other emerging technologies.
• Conducting business internationally.
• Catastrophic events.
• The ability to attract, develop, and retain qualified personnel.
• Public health crises.
• Growth strategies and acquisitions.
• Potential goodwill impairment.
• The ability to compete effectively.
• Dependence on a few large customers.
• Dependence on cyclical industries.
• Changes in laws and regulations.
• Climate-related laws, regulations, and accords.
• Environmental, social, and governance-related expectations and requirements.
• Compliance with anti-corruption and trade laws.
• Changes in tax or tariff rates or the adoption of new tax or tariff legislation.
• Costs associated with legal proceedings.

Future Outlook

Graco is maintaining its 2026 revenue guidance of low single-digit organic growth on a constant-currency basis and mid-single-digit growth including expected sales from acquisitions. The company anticipates continued challenges in housing-related markets but sees pockets of growth in industrial applications. Despite a slower start, improved order rates exiting the quarter reinforce confidence in the full-year outlook.

Management Comments

• "Sales increased 2 percent in the quarter, with contributions from acquired businesses offsetting organic revenue declines," said Mark Sheahan, Graco's President and Chief Executive Officer.
• "In the Contractor segment, demand in infrastructure-related markets continued to be strong and resilient while residential construction activity remained soft."
• "Industrial segment results were impacted by the timing of completion of powder finishing systems and other project activity."
• "Despite a slower start to the year, incoming order rates improved as we progressed throughout the quarter."

Industry Context

StockSavvy.ai notes that Graco's reliance on acquisitions for sales growth, while common in the industrial sector, highlights a potential vulnerability if organic demand does not recover. The mixed performance across segments, with strength in infrastructure but weakness in residential construction, reflects broader economic trends impacting the industrial and construction markets.

Comparison to Industry Standards

• The filing does not provide specific comparisons to industry benchmarks or named competitors.
• The company's performance is discussed in the context of its own historical results and segment performance.

Stakeholder Impact

• Shareholders may be concerned about the declining organic sales and profitability, despite acquisition-driven growth.
• Employees may be impacted by increased operating expenses and potential cost pressures.
• Customers in the construction market may face continued softness, while those in infrastructure and certain industrial applications may see continued demand.
• Suppliers may be affected by increased product costs and tariffs.

Next Steps

• Management will hold a conference call with analysts and institutional investors on Thursday, April 23, 2026, to discuss first-quarter results.
• Capital expenditures for 2026 are expected to be approximately $100 million.
• The company may make opportunistic share repurchases going forward.

Key Dates

Recommendation

While acquisitions are driving top-line growth, the significant decline in organic sales and pressure on earnings and margins suggest caution. The company's ability to integrate acquisitions and improve organic performance will be key. Maintaining a 'hold' position allows for further observation of these trends.

Keywords

Graco Inc., Q1 Earnings, Net Sales, Acquisitions, Organic Growth, Industrial Equipment, Contractor Segment, Operating Earnings, Diluted EPS, Currency Translation