PART I - FINANCIAL INFORMATION
Item 1A.Risk Factors
There have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2025 Annual Report on Form 10-K.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Contractor, Industrial and Expansion Markets. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channels and technologies.
The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes to the consolidated financial statements.
Tariffs
On February 20, 2026, the U.S. Supreme Court issued a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). The U.S. Court of International Trade subsequently issued orders directing the U.S. Customs and Border Protection to refund previously collected IEEPA tariffs. The situation continues to evolve, and further legislative, regulatory, or judicial developments may affect the ultimate outcome and the availability or timing of any refunds. Given the significant uncertainty involved, the Company determined to only recognize IEEPA tariff refunds upon receipt. The Company began receiving IEEPA tariff refunds during the second quarter of 2026. Through the three and six months ended June 26, 2026, the Company received $9 million in refunds, net of related surcharges.
Consolidated Results
A summary of financial results follows (in millions except per share amounts):
| Line item | Three Months EndedJun 26,2026 | Three Months EndedJun 27,2025 | Three Months Ended% Change | Six Months EndedJun 26,2026 | Six Months EndedJun 27,2025 | Six Months Ended% Change |
|---|---|---|---|---|---|---|
| Net Sales | $590.6 | $571.8 | 3% | $1,130.7 | $1,100.1 | 3% |
| Operating Earnings | 175.1 | 157.5 | 11% | 312.9 | 301.5 | 4% |
| Operating Earnings, adjusted (1) | 183.2 | 164.4 | 11% | 329.3 | 315.8 | 4% |
| Net Earnings | 144.9 | 127.6 | 14% | 263.4 | 251.7 | 5% |
| Net Earnings, adjusted (1) | 151.0 | 131.9 | 15% | 269.2 | 258.0 | 4% |
| Diluted Net Earnings per Common Share | $0.87 | $0.76 | 14% | $1.58 | $1.48 | 7% |
| Diluted Net Earnings per Common Share, adjusted (1) | $0.91 | $0.78 | 17% | $1.61 | $1.52 | 6% |
(1) Adjusted operating earnings, adjusted net earnings and adjusted diluted net earnings per common share reflect the Company's updated non-GAAP methodology. See below for additional information.
Net sales for the second quarter increased 3 percent, with 3 percentage points of sales growth from acquired operations and 1 percentage point of sales growth from the effects of favorable changes in currency translation rates. Sales growth for the quarter was partially offset by a 1 percentage point organic decline related to the timing of finishing system sales and other project activity in the Industrial segment.
Operating earnings increased 11 percent for the second quarter. Adjusted operating earnings increased 11 percent, due primarily to a higher gross margin rate driven by lower operating expenses and the receipt of $9 million in tariff refunds, net of related surcharges.
Net earnings increased 14 percent for the second quarter. Adjusted net earnings increased 15 percent, driven by higher operating earnings and $5 million in lower exchange losses on net assets of foreign operations.
Beginning in the second quarter of 2026, the Company updated its non-GAAP adjusted measurements to exclude acquisition costs and amortization of acquired intangible assets. The Company excludes acquisition costs and amortization of acquired intangible assets to provide a consistent comparison of operating results across reporting periods. While the Company has a history of acquisition activity, the Company's acquisitions do not occur on a predictable cycle, and transactions vary in complexity, timing, size and nature. Acquisition costs include third-party legal, valuation, consulting and other incremental costs incurred in connection with acquisition activities as well as purchase accounting adjustments. Management uses these adjusted measures to evaluate operating performance and, for acquisition costs, in determining incentive compensation. These excluded items to the non-GAAP adjusted measurements provide supplemental information useful in evaluating the Company's underlying operating performance. Prior-period amounts have been recast to conform to the current presentation.
Excluding the impact of acquisition costs, amortization of acquired intangible assets, the related income tax effects of these items and excess tax benefits from stock option exercises presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP adjusted measurements of operating earnings, earnings before income taxes, income taxes, effective income tax rate, net earnings and diluted earnings per share follows (in millions except per share amounts):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Operating earnings | $175.1 | $157.5 | $312.9 | $301.5 |
| Acquisition costs | 2.5 | 0.3 | 3.1 | 1.0 |
| Amortization of acquired intangible assets | 5.6 | 6.6 | 13.3 | 13.3 |
| Operating earnings, adjusted | $183.2 | $164.4 | $329.3 | $315.8 |
| Earnings before income taxes, as reported | $181.5 | $158.2 | $321.5 | $309.7 |
| Acquisition costs | 2.5 | 0.3 | 3.1 | 1.0 |
| Amortization of acquired intangible assets | 5.6 | 6.6 | 13.3 | 13.3 |
| Earnings before income taxes, adjusted | $189.6 | $165.1 | $337.9 | $324.0 |
| Income taxes, as reported | $36.5 | $30.6 | $58.1 | $58.0 |
| Tax impact of acquisition costs | 0.5 | 0.1 | 0.7 | 0.2 |
| Tax impact of amortization of acquired intangible assets | 1.4 | 1.8 | 3.2 | 3.4 |
| Excess tax benefit from option exercises | 0.1 | 0.7 | 6.7 | 4.4 |
| Income taxes, adjusted | $38.5 | $33.2 | $68.7 | $66.0 |
| Effective income tax rate | ||||
| As reported | 20.1% | 19.3% | 18.1% | 18.7% |
| Adjusted | 20.4% | 20.1% | 20.3% | 20.4% |
| Net Earnings, as reported | $144.9 | $127.6 | $263.4 | $251.7 |
| Acquisition costs, net of tax | 2.0 | 0.2 | 2.4 | 0.8 |
| Amortization of acquired intangible assets, net of tax | 4.2 | 4.8 | 10.1 | 9.9 |
| Excess tax benefit from option exercises | (0.1) | (0.7) | (6.7) | (4.4) |
| Net Earnings, adjusted | $151.0 | $131.9 | $269.2 | $258.0 |
| Weighted Average Diluted Shares | 165.7 | 168.6 | 167.0 | 170.1 |
| Diluted Earnings per Share | ||||
| As reported | $0.87 | $0.76 | $1.58 | $1.48 |
| Adjusted | $0.91 | $0.78 | $1.61 | $1.52 |
The following table presents an overview of components of net earnings as a percentage of net sales:
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of products sold | 46.3 | 47.6 | 47.1 | 47.5 |
| Gross Profit | 53.7 | 52.4 | 52.9 | 52.5 |
| Product development | 3.4 | 3.6 | 3.5 | 3.6 |
| Selling, marketing and distribution | 11.6 | 12.0 | 12.3 | 12.3 |
| General and administrative | 9.1 | 9.3 | 9.4 | 9.2 |
| Operating Earnings | 29.6 | 27.5 | 27.7 | 27.4 |
| Interest expense | 0.1 | 0.1 | 0.1 | 0.1 |
| Other (income) expense, net | (1.2) | (0.2) | (0.9) | (0.9) |
| Earnings Before Income Taxes | 30.7 | 27.6 | 28.5 | 28.2 |
| Income taxes | 6.2 | 5.3 | 5.1 | 5.3 |
| Net Earnings | 24.5% | 22.3% | 23.4% | 22.9% |
Net Sales
The following table presents net sales by geographic region (in millions):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Americas(1) | $371.4 | $351.9 | $705.8 | $675.1 |
| EMEA(2) | 127.8 | 129.9 | 253.4 | 250.9 |
| Asia Pacific | 91.4 | 90.0 | 171.5 | 174.1 |
| Consolidated | $590.6 | $571.8 | $1,130.7 | $1,100.1 |
(1) North, South and Central America, including the United States
(2) Europe, Middle East and Africa
The following table presents the components of net sales change by geographic region:
| Line item | Three MonthsVolume and Price | Three MonthsAcquisitions | Three MonthsCurrency | Three MonthsTotal | Six MonthsVolume and Price | Six MonthsAcquisitions | Six MonthsCurrency | Six MonthsTotal |
|---|---|---|---|---|---|---|---|---|
| Americas | 1% | 5% | 0% | 6% | (1)% | 5% | 1% | 5% |
| EMEA | (4)% | 0% | 2% | (2)% | (9)% | 5% | 5% | 1% |
| Asia Pacific | (2)% | 2% | 2% | 2% | (5)% | 1% | 2% | (2)% |
| Consolidated | (1)% | 3% | 1% | 3% | (3)% | 4% | 2% | 3% |
Gross Profit
The gross profit margin rate increased approximately 1 percentage point for the second quarter and was flat for the year to date from the comparable periods last year. For the quarter, price realization and the receipt of $9 million in tariff refunds, net of related surcharges, more than offset the unfavorable effects of lower margin rates from acquired operations. For the year to date, price realization and $9 million in tariff refunds, net of related surcharges, more than offset $6 million of incremental tariff costs, unfavorable product and channel mix and lower margin rates of acquired operations.
Operating Expenses
Total operating expenses decreased modestly for the second quarter and increased $9 million (3 percentage points) year to date compared to the same periods last year. Incremental expenses from acquired operations of $5 million for the quarter and $11 million for the year to date were partially offset by decreases in stock compensation, product development spending and selling, marketing and distribution expenses.
Other (Income) Expense
Other non-operating income increased by $6 million in the second quarter and $1 million for the year to date from the comparable periods last year, primarily due to lower foreign exchange losses on net assets of foreign operations of $5 million and $6 million, respectively. The year to date increase in other non-operating income was partially offset by a prior year gain of $5 million from the sale of a former manufacturing and distribution facility in Switzerland that did not repeat.
Income Taxes
The effective income tax rate was 20 percent for the second quarter and 18 percent for the year to date. Adjusted to exclude the impacts of certain non-recurring items (see Consolidated Results for Comparability), the adjusted effective income tax rate of 20 percent for both the quarter and year to date was comparable to the respective periods last year.
Segment Results
Certain measurements of segment operations compared to last year are summarized below:
Contractor Segment
The following table presents net sales and operating earnings as a percentage of sales for the Contractor segment
(dollars in millions):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Sales | ||||
| Americas | $215.0 | $201.4 | $395.9 | $377.3 |
| EMEA | 59.9 | 61.1 | 116.1 | 115.6 |
| Asia Pacific | 24.5 | 26.5 | 47.4 | 51.1 |
| Total | $299.4 | $289.0 | $559.4 | $544.0 |
| Operating earnings as a percentage of net sales | 30% | 26% | 27% | 25% |
The following table presents the components of net sales change by geographic region for the Contractor segment:
| Line item | Three MonthsVolume and Price | Three MonthsAcquisitions | Three MonthsCurrency | Three MonthsTotal | Six MonthsVolume and Price | Six MonthsAcquisitions | Six MonthsCurrency | Six MonthsTotal |
|---|---|---|---|---|---|---|---|---|
| Americas | 3% | 4% | 0% | 7% | 1% | 4% | 0% | 5% |
| EMEA | (4)% | 0% | 2% | (2)% | (5)% | 0% | 5% | 0% |
| Asia Pacific | (10)% | 0% | 2% | (8)% | (10)% | 0% | 3% | (7)% |
| Segment Total | 0% | 3% | 1% | 4% | (2)% | 3% | 2% | 3% |
Contractor segment net sales growth for the second quarter and year to date included $7 million and $14 million, respectively, from acquired operations. Organic sales growth in the Americas for the second quarter and year to date was broad-based, and included growth in protective coating and spray foam product categories as well as within the professional paint and home center channels. The operating margin rate for this segment increased 4 percentage points for the quarter and 2 percentage points for the year to date, primarily due to lower operating expenses and the net impact of tariff refunds and related surcharges of $5 million.
Industrial Segment
The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment
(dollars in millions):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Sales | ||||
| Americas | $131.6 | $126.8 | $263.0 | $248.0 |
| EMEA | 62.0 | 61.1 | 124.7 | 120.5 |
| Asia Pacific | 55.6 | 54.3 | 101.9 | 105.4 |
| Total | $249.2 | $242.2 | $489.6 | $473.9 |
| Operating earnings as a percentage of net sales | 34% | 34% | 33% | 34% |
The following table presents the components of net sales change by geographic region for the Industrial segment:
| Line item | Three MonthsVolume and Price | Three MonthsAcquisitions | Three MonthsCurrency | Three MonthsTotal | Six MonthsVolume and Price | Six MonthsAcquisitions | Six MonthsCurrency | Six MonthsTotal |
|---|---|---|---|---|---|---|---|---|
| Americas | (4)% | 7% | 1% | 4% | (2)% | 7% | 1% | 6% |
| EMEA | (2)% | 1% | 2% | 1% | (12)% | 9% | 6% | 3% |
| Asia Pacific | (2)% | 2% | 2% | 2% | (7)% | 2% | 2% | (3)% |
| Segment Total | (3)% | 5% | 1% | 3% | (5)% | 6% | 2% | 3% |
Industrial segment incremental sales from acquired operations of $11 million in the second quarter and $31 million for the year to date more than offset an organic sales decline, which was primarily attributable to the timing of finishing system sales and other project-related activity compared to the respective periods last year. The operating margin rate for this segment was flat for the second quarter compared to the same period last year as an improved gross margin rate, primarily due to the second quarter net impact of tariff refunds and related surcharges of $4 million, offset the unfavorable effects of lower margin rates of acquired operations. For the year to date, the operating margin rate decreased 1 percentage point as lower operating expenses and the net impact of tariff refunds and related surcharges were unable to offset the unfavorable effects of lower margin rates of acquired operations.
Expansion Markets Segment
The following table presents net sales and operating earnings as a percentage of sales for the Expansion Markets segment (dollars in millions):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Sales | ||||
| Americas | $24.8 | $23.8 | $46.9 | $49.8 |
| EMEA | 5.8 | 7.6 | 12.6 | 14.7 |
| Asia Pacific | 11.4 | 9.2 | 22.2 | 17.7 |
| Total | $42.0 | $40.6 | $81.7 | $82.2 |
| Operating earnings as a percentage of net sales | 23% | 22% | 23% | 23% |
The following table presents the components of net sales change by geographic region for the Expansion Markets segment:
| Line item | Three MonthsVolume and Price | Three MonthsAcquisitions | Three MonthsCurrency | Three MonthsTotal | Six MonthsVolume and Price | Six MonthsAcquisitions | Six MonthsCurrency | Six MonthsTotal |
|---|---|---|---|---|---|---|---|---|
| Americas | 4% | 0% | 0% | 4% | (6)% | 0% | 0% | (6)% |
| EMEA | (24)% | 0% | 0% | (24)% | (15)% | 0% | 1% | (14)% |
| Asia Pacific | 23% | 0% | 0% | 23% | 25% | 0% | 0% | 25% |
| Segment Total | 3% | 0% | 0% | 3% | (1)% | 0% | 0% | (1)% |
Expansion Markets net sales increased 3% for the second quarter and decreased 1% year to date compared to the same periods last year. Improved order rates in the semiconductor product application drove most of the second quarter sales growth. The segment's operating margin rate increased 1 percentage point for the quarter due primarily to lower expenses. The year to date operating margin rate was flat, as lower expenses offset the impact of lower sales volume.
Liquidity and Capital Resources
Net cash provided by operating activities of $298 million in the first six months of 2026 decreased by $10 million compared to the same period last year. Increases in accounts receivable and accounts payable reflect growth in business activity in the second quarter of 2026. Significant uses of cash in the first half of 2026 included share repurchases of $331 million (partially offset by $43 million of net proceeds from shares issued), dividend payments of $98 million and plant and equipment additions of $29 million.
For the first half of 2025, significant uses of cash included share repurchases of $361 million (partially offset by $25 million from shares issued) and dividend payments of $92 million and plant and equipment additions of $30 million.
As of June 26, 2026, the Company had available liquidity of $1,279 million, including cash and cash equivalents of $508 million, of which $174 million was held outside of the U.S., and available credit under existing committed credit facilities of $771 million.
Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs for the next 12 months and beyond, including its capital expenditure plan, planned dividends, share repurchases, potential future acquisitions and operating requirements. Capital expenditures for 2026 are expected to be approximately $100 million. The Company may make opportunistic share repurchases going forward.
Outlook
Incoming order activity and end market demand trends support the Company's 2026 outlook of low single-digit sales growth on an organic constant-currency basis and mid-single-digit growth including the expected incremental sales from acquisitions. The Company estimates third quarter total company sales of $580 million to $600 million, excluding the impact of the Company's announced acquisition of Valco Melton, which is expected to close in the third quarter.
conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.
Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to, risks relating to the demand for our 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 our ability to raise prices without decreasing demand for our products; interruptions of or intrusions into our information systems; intellectual property rights; the use of generative artificial intelligence and other emerging technologies; conducting business internationally; catastrophic events; our ability to attract, develop and retain qualified personnel; public health crises; our growth strategies and acquisitions; potential goodwill impairment; our ability to compete effectively; our dependence on a few large customers; our 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; and costs associated with legal proceedings. Please refer to Item 1A of our 2025 Annual Report on Form 10-K and Item 1A of this Form 10-Q for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at www.sec.gov. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.
Investors should realize that factors other than those identified above and in Item 1A might prove important to the Company’s future results. It is not possible for management to identify each and every factor that may have an impact on the Company’s operations in the future as new factors can develop from time to time.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes related to market risk from the disclosures made in the 2025 Annual Report on Form 10-K.
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the fiscal quarter covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was done under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer. Based upon that evaluation, the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the Company’s disclosure controls and procedures are effective.
Changes in internal controls
During the quarter, there was no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
PART IIOTHER INFORMATION
Item 1A.Risk Factors
There have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2025 Annual Report on Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On December 7, 2018, the Board of Directors authorized the purchase of up to 18 million shares of common stock, primarily through open market transactions. On December 5, 2025, the Board of Directors authorized the Company to purchase up to an additional 15 million shares of its outstanding stock, primarily through open-market transactions. The authorization is for an indefinite period of time or until terminated by the Board.
In addition to shares purchased under the Board authorization, the Company purchases shares of common stock held by employees who wish to tender owned shares to satisfy the exercise price or tax due upon exercise of options or vesting of restricted stock.
Information on issuer purchases of equity securities follows:
| Period | Total Numberof Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(at end of period) |
|---|---|---|---|---|
| March 28, 2026 - April 24, 2026 | 420,728 | $82.96 | 420,728 | 22,386,790 |
| April 25, 2026 - May 22, 2026 | 3,369,632 | $78.25 | 3,369,632 | 19,017,158 |
| May 23, 2026 - June 26, 2026 | 223,269 | $74.36 | 223,269 | 18,793,889 |
Item 5.Other Information
During the three months ended June 26, 2026, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
Item 6.Exhibits
| | |
3.1 Restated Articles of Incorporation as amended December 8, 2017. (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed December 8, 2017.) 3.2 Restated Bylaws as amended February 17, 2023. (Incorporated by reference to Exhibit 3.2 to the Company’s 2024 Annual Report on Form 10-K.) 10.1 Form of Executive Officer Restricted Stock Until Agreement. (Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K filed March 2, 2026.) 31.1 Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a). 31.2 Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a). (32) Certification of President and Chief Executive Officer and Chief Financial Officer and Treasurer pursuant to Section 1350 of Title 18, U.S.C. 99.1 Press Release Reporting Second Quarter Earnings dated July 22, 2026. (101) Interactive data files pursuant to Rule 405 of Regulation S-T formatted in iXBRL (Inline eXtensible Business Reporting Language). (104) Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
Item 1. Financial Statements
PART I Item 1.
CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited) (In thousands except per share amounts
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Sales | ||||
| Cost of products sold | ||||
| Gross Profit | ||||
| Product development | ||||
| Selling, marketing and distribution | ||||
| General and administrative | ||||
| Operating Earnings | ||||
| Interest expense | ||||
| Other (income) expense, net | () | () | () | () |
| Earnings Before Income Taxes | ||||
| Income taxes | ||||
| Net Earnings | ||||
| Net Earnings per Common Share | ||||
| Basic | ||||
| Diluted |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited) (In thousands
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Earnings | ||||
| Components of other comprehensive (loss) income | ||||
| Cumulative translation adjustment | () | () | ||
| Pension and postretirement medical liability adjustment | () | () | () | |
| Income taxes - pension and postretirementmedical liability adjustment | () | |||
| Other comprehensive (loss) income | () | () | ||
| Comprehensive Income |
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Unaudited) (In thousands
| Line item | June 26,2026 | December 26,2025 |
|---|---|---|
| ASSETS | ||
| Current Assets | ||
| Cash and cash equivalents | ||
| Accounts receivable, less allowances of and | ||
| Inventories | ||
| Other current assets | ||
| Total current assets | ||
| Property, Plant and Equipment, net | ||
| Goodwill | ||
| Other Intangible Assets, net | ||
| Operating Lease Assets | ||
| Deferred Income Taxes | ||
| Other Assets | ||
| Total Assets | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Current Liabilities | ||
| Notes payable to banks | ||
| Current portion of long-term debt | ||
| Trade accounts payable | ||
| Salaries and incentives | ||
| Dividends payable | ||
| Other current liabilities | ||
| Total current liabilities | ||
| Retirement Benefits and Deferred Compensation | ||
| Operating Lease Liabilities | ||
| Deferred Income Taxes | ||
| Other Non-current Liabilities | ||
| Shareholders’ Equity | ||
| Common stock | ||
| Additional paid-in-capital | ||
| Retained earnings | ||
| Accumulated other comprehensive income | ||
| Total shareholders’ equity | ||
| Total Liabilities and Shareholders’ Equity |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited) (In thousands
| Line item | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|
| Cash Flows From Operating Activities | ||
| Net Earnings | ||
| Adjustments to reconcile net earnings to net cashprovided by operating activities | ||
| Depreciation and amortization | ||
| Deferred income taxes | ||
| Share-based compensation | ||
| Gain on sale of building | () | |
| Change in | ||
| Accounts receivable | () | () |
| Inventories | ||
| Trade accounts payable | ||
| Salaries and incentives | () | () |
| Retirement benefits and deferred compensation | () | () |
| Other accrued liabilities | () | () |
| Other | () | |
| Net cash provided by operating activities | ||
| Cash Flows From Investing Activities | ||
| Property, plant and equipment additions | () | () |
| Proceeds from sale of building | ||
| Acquisition of businesses, net of cash acquired | () | |
| Other | () | () |
| Net cash used in investing activities | () | () |
| Cash Flows From Financing Activities | ||
| Borrowings (payments) on short-term lines of credit, net | () | |
| Payments on long-term debt and lines of credit | () | |
| Common stock issued | ||
| Common stock repurchased | () | () |
| Taxes paid related to net share settlement of equity awards | () | () |
| Cash dividends paid | () | () |
| Net cash used in financing activities | () | () |
| Effect of exchange rate changes on cash | (4,331) | 10,756 |
| Net decrease in cash and cash equivalents | () | () |
| Cash and Cash Equivalents | ||
| Beginning of year | ||
| End of period |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Unaudited) (In thousands
| Three Months Ended June 26, 2026 | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total |
|---|---|---|---|---|---|
| Balance, March 27, 2026 | $165,907 | $1,039,336 | $1,511,649 | $25,506 | |
| Shares issued | 55 | 4,859 | — | — | |
| Shares repurchased | (4,014) | (24,171) | (286,994) | — | () |
| Stock compensation cost | — | 7,762 | — | — | |
| Restricted stock issued | — | (1,410) | — | — | () |
| Net earnings | — | — | 144,926 | — | |
| Dividends declared ( per share) | — | — | (47,836) | — | () |
| Other comprehensive loss | — | — | — | (12,887) | () |
| Balance, June 26, 2026 | $161,948 | $1,026,376 | $1,321,745 | $12,619 | |
| Six Months Ended June 26, 2026 | |||||
| Balance, December 26, 2025 | $165,150 | $994,566 | $1,456,710 | $37,505 | |
| Shares issued | 1,001 | 44,314 | — | — | |
| Shares repurchased | (4,203) | (25,312) | (301,619) | — | () |
| Stock compensation cost | — | 14,761 | — | — | |
| Restricted stock issued | — | (1,953) | — | — | () |
| Net earnings | — | — | 263,433 | — | |
| Dividends declared ( per share) | — | — | (96,779) | — | () |
| Other comprehensive loss | — | — | — | (24,886) | () |
| Balance, June 26, 2026 | $161,948 | $1,026,376 | $1,321,745 | $12,619 | |
| Three Months Ended June 27, 2025 | |||||
| Balance, March 28, 2025 | $167,218 | $972,655 | $1,367,455 | $(29,608) | |
| Shares issued | 5 | (2,187) | — | — | () |
| Shares repurchased | (1,586) | (8,940) | (112,337) | — | () |
| Stock compensation cost | — | 8,804 | — | — | |
| Net earnings | — | — | 127,623 | — | |
| Dividends declared ( per share) | — | — | (44,785) | — | () |
| Other comprehensive income | — | — | — | 56,703 | |
| Balance, June 27, 2025 | $165,637 | $970,332 | $1,337,956 | $27,095 | |
| Six Months Ended June 27, 2025 | |||||
| Balance, December 27, 2024 | $169,394 | $955,051 | $1,509,264 | $(49,574) | |
| Shares issued | 627 | 24,858 | — | — | |
| Shares repurchased | (4,384) | (24,714) | (331,854) | — | () |
| Stock compensation cost | — | 15,137 | — | — | |
| Net earnings | — | — | 251,724 | — | |
| Dividends declared ( per share) | — | — | (91,178) | — | () |
| Other comprehensive income | — | — | — | 76,669 | |
| Balance, June 27, 2025 | $165,637 | $970,332 | $1,337,956 | $27,095 |
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- Basis of Preparation
The consolidated balance sheet of Graco Inc. and subsidiaries (the “Company”) as of June 26, 2026 and the related statements of earnings, comprehensive income and shareholders' equity for the three and six months ended June 26, 2026 and June 27, 2025, and cash flows for the six months ended June 26, 2026 and June 27, 2025 have been prepared by the Company and have not been audited.
In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 26, 2026, and the results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2025 (the "2025 Annual Report").
The results of operations for interim periods are not necessarily indicative of results that will be realized for the full fiscal year.
- Segment Information
The Company classifies its business into reportable segments: Contractor, Industrial and Expansion Markets.
Segment information follows (in thousands):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Contractor | ||||
| Net Sales | ||||
| Cost of products sold | ||||
| Gross Profit | ||||
| Operating expenses | ||||
| Contractor Operating Earnings | ||||
| Industrial | ||||
| Net Sales | ||||
| Cost of products sold | ||||
| Gross Profit | ||||
| Operating expenses | ||||
| Industrial Operating Earnings |
| Expansion Markets | ||||||||
|---|---|---|---|---|---|---|---|---|
| Net Sales | ||||||||
| Cost of products sold | ||||||||
| Gross Profit | ||||||||
| Operating expenses | ||||||||
| Expansion Markets Operating Earnings | ||||||||
| Reportable Segment Operating Earnings Total | $184,995 | $166,690 | $332,680 | $318,280 | ||||
| Unallocated corporate expense | 9,902 | 9,206 | 19,811 | 16,783 | ||||
| Operating Earnings | ||||||||
| Interest expense | ||||||||
| Other (income) expense, net | () | () | () | () | ||||
| Earnings Before Income Taxes |
Geographic information follows (in thousands):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net Sales (based on customer location) | ||||
| United States | ||||
| Other countries | ||||
| Total |
| Line item | June 26,2026 | December 26,2025 |
|---|---|---|
| Long-lived Assets | ||
| United States | ||
| Other countries | ||
| Total |
- Inventories
Major components of inventories were as follows (in thousands):
| Line item | June 26,2026 | December 26,2025 |
|---|---|---|
| Finished products and components | ||
| Products and components in various stages of completion | ||
| Raw materials and purchased components | ||
| Subtotal | ||
| Reduction to LIFO cost | () | () |
| Total |
- Share-Based Awards
Options on common shares granted and outstanding, as well as the weighted average exercise price, are shown below (in thousands, except exercise prices):
| Line item | Option Shares | Weighted Average Exercise Price | Options Exercisable | Weighted Average Exercise Price |
|---|---|---|---|---|
| Outstanding, December 26, 2025 | ||||
| Granted | ||||
| Exercised | () | |||
| Canceled | () | |||
| Outstanding, June 26, 2026 |
The Company recognized year-to-date share-based compensation of million in 2026 and million in 2025. As of June 26, 2026, there was million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 2.8 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results:
| Line item | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|
| Expected life in years | 6.7 | 6.6 |
| Interest rate | 3.9% | 4.4% |
| Volatility | 24.9% | 26.2% |
| Dividend yield | 1.3% | 1.3% |
| Weighted average fair value per share | $27.17 | $26.80 |
Under the Company’s Employee Stock Purchase Plan, the Company issued 235,000 shares in 2026 and 246,000 shares in 2025. The fair value of the employees’ purchase rights under this plan was estimated on the date of grant. The benefit of the 15 percent discount from the lesser of the fair market value per common share on the first day and the last day of the plan year was added to the fair value of the employees’ purchase rights determined using the Black-Scholes option pricing model with the following assumptions and results:
| Line item | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|
| Expected life in years | 1.0 | 1.0 |
| Interest rate | 3.5% | 4.1% |
| Volatility | 20.6% | 19.6% |
| Dividend yield | 1.2% | 1.3% |
| Weighted average fair value per share | $25.69 | $19.65 |
- Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Net earnings available to common shareholders | ||||
| Weighted average shares outstanding for basic earnings per share | ||||
| Dilutive effect of stock options computed using the treasury stock method and the average market price | ||||
| Weighted average shares outstanding for diluted earnings per share | ||||
| Basic earnings per share | ||||
| Diluted earnings per share | ||||
| Anti-dilutive shares not included in diluted earnings per share computation |
- Retirement Benefits
The components of net periodic benefit cost for retirement benefit plans were as follows (in thousands):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Pension Benefits | ||||
| Service cost | $1,166 | $1,039 | $2,332 | $2,292 |
| Interest cost | 2,647 | 2,568 | 5,295 | 4,711 |
| Expected return on assets | (3,273) | (2,904) | (6,548) | (5,807) |
| Amortization and other | (74) | 202 | (152) | 366 |
| Net periodic benefit cost | $466 | $905 | $927 | $1,562 |
| Postretirement Medical | ||||
| Service cost | $75 | $78 | $150 | $153 |
| Interest cost | 225 | 369 | 450 | 569 |
| Amortization | — | (136) | — | (136) |
| Net periodic benefit cost | $300 | $311 | $600 | $586 |
- Receivables and Credit Losses
Accounts receivable includes trade receivables of million and other receivables of million as of June 26, 2026 and million and million of trade receivables and other receivables, respectively, as of December 26, 2025.
Allowance for Credit Losses
Following is a summary of activity for credit losses (in thousands):
| Line item | Three Months EndedJune 26,2026 | Three Months EndedJune 27,2025 | Six Months EndedJune 26,2026 | Six Months EndedJune 27,2025 |
|---|---|---|---|---|
| Balance, beginning | ||||
| Additions (reversals) charged to costs and expenses | () | |||
| Deductions from reserves (1) | (22) | (3) | (319) | (5) |
| Other (deductions) additions (2) | () | () | ||
| Balance, ending |
(1) Represents amounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves.
(2) Includes effects of foreign currency translation.
- Intangible Assets
Components of other intangible assets were as follows (dollars in thousands):
| As of June 26, 2026 | Finite LifeCustomer Relationships | Finite LifePatents and Proprietary Technology | Finite LifeTrademarks,Trade Namesand Other | Indefinite LifeTrade Names | Total |
|---|---|---|---|---|---|
| Cost | $201,562 | $40,271 | $4,786 | $107,034 | |
| Accumulated amortization | (64,181) | (9,202) | (3,295) | — | () |
| Foreign currency translation | 326 | 994 | 5 | 5,156 | |
| Book value | $137,707 | $32,063 | $1,496 | $112,190 | |
| Weighted average life in years | 14 | 10 | 3 | N/A |
| As of December 26, 2025 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cost | $316,962 | $44,304 | $4,786 | $107,034 | ||||||
| Accumulated amortization | (165,150) | (10,649) | (2,027) | — | () | |||||
| Foreign currency translation | (877) | 1,464 | 54 | 7,950 | ||||||
| Book value | $150,935 | $35,119 | $2,813 | $114,984 | ||||||
| Weighted average life in years | 13 | 10 | 2 | N/A |
Amortization of acquired and other intangible assets for the year to date was million in 2026 and million in 2025. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):
| 2026 (Remainder) | 2027 | 2028 | 2029 | 2030 | Thereafter | |
| Estimated Amortization Expense |
Changes in the carrying amount of goodwill for each reportable segment were as follows (in thousands):
| Line item | Contractor | Industrial | Expansion Markets | Total |
|---|---|---|---|---|
| Balance, December 26, 2025 | ||||
| Adjustments from business acquisitions | () | () | ||
| Foreign currency translation | () | () | () | |
| Balance, June 26, 2026 |
On May 20, 2026, the Company entered into a definitive agreement to acquire Valco Melton for $447 million, subject to customary adjustments. Valco Melton is a global provider of adhesive application and quality assurance systems. The acquisition is expected to be completed during the third quarter of fiscal 2026 and funded with cash on hand.
- Other Current Liabilities
Components of other current liabilities were as follows (in thousands):
| Line item | June 26,2026 | December 26,2025 |
|---|---|---|
| Accrued self-insurance retentions | ||
| Accrued warranty and service liabilities | ||
| Accrued trade promotions | ||
| Payable for employee stock purchases | ||
| Customer advances and deferred revenue | ||
| Income taxes payable | ||
| Tax payable, other | ||
| Right of return refund liability | ||
| Operating lease liabilities, current | ||
| Other | ||
| Total |
A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors, including evaluating specific product warranty issues. Following is a summary of activity in accrued warranty and service liabilities (in thousands):
| Balance, December 26, 2025 | |
| Charged to expense | |
| Margin on parts sales reversed | |
| Reductions for claims settled | () |
| Balance, June 26, 2026 |
Customer Advances and Deferred Revenue
Revenue is deferred when cash payments are received or due in advance of performance, including amounts which are refundable. This is also the case for services associated with certain product sales. During the three and six months ended June 26, 2026, The Company recognized million and million, respectively, that was included in deferred revenue at December 26, 2025. During the three and six months ended June 27, 2025, the Company recognized million and million, respectively, that was included in deferred revenue at December 27, 2024.
- Fair Value
Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):
| Line item | Level | June 26,2026 | December 26,2025 |
|---|---|---|---|
| Assets | |||
| Cash surrender value of life insurance | 2 | $31,076 | $28,893 |
| Forward exchange contracts | 2 | 16 | — |
| Total assets at fair value | |||
| Liabilities | |||
| Contingent consideration | 3 | $1,591 | $1,649 |
| Deferred compensation | 2 | 8,840 | 8,336 |
| Forward exchange contracts | 2 | — | 268 |
| Total liabilities at fair value |
Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.
Contingent consideration liabilities represent the estimated value (using a probability-weighted expected return approach) of future payments to be made to previous owners of certain acquired businesses based on future revenues.
The fair value of variable rate borrowings approximates carrying value. The Company uses significant other observable inputs to estimate fair value (level 2 of the fair value hierarchy) based on the present value of future cash flows and rates that would be available for issuance of debt with similar terms and remaining maturities.