stockrowLatest quarter
Graco reported third-quarter revenue of $586.4 million, below the consensus of $589.8 million. Adjusted earnings per share of $0.81 also missed the $0.82 consensus. Revenue rose from $543.4 million a year earlier, while reported diluted earnings per share fell to $0.75 from $0.82.
CEO Mark Sheahan said all three segments and every reportable region contributed to growth. Contractor sales rose 5% including acquisitions, with 2% organic growth, while Industrial sales increased 11%, helped by project activity and acquisitions. Expansion Markets sales rose 8%, with semiconductor customers investing in manufacturing capacity.
Graco reported a gross margin of 50.5%, down from 53.2% a year earlier, and an operating margin of 25.3%, down from 30.3%. CFO Sanjiv Gupta said the adjusted operating margin declined primarily because of product and channel mix, including a greater share of powder finishing systems. Graco reported free cash flow of $146.3 million, compared with $176.0 million a year earlier.
| Q3 FY2026 | Q3 FY2025 | Change | |
|---|---|---|---|
| Revenue | $586.4 million | $543.4 million | 7.92% |
| Diluted EPS | $0.75 | $0.82 | −8.54% |
| Gross margin | 50.5% | 53.2% | −2.7 percentage points |
| Operating margin | 25.3% | 30.3% | −5.1 percentage points |
| Free cash flow | $146.3 million | $176.0 million | −16.9% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $0.81 | $0.82 | Missed by 1.22% |
| Revenue | $586.4 million | $589.8 million | Missed by 0.58% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
What management said on the call
CEO Mark Sheahan said organic incoming orders increased 7% in the third quarter and 4% year to date. Backlog excluding acquisitions had increased $51 million from the beginning of the year as of October 16, which he said gave Graco more visibility entering the fourth quarter.
Sheahan said Contractor growth was led by professional paint in the Americas, where adoption of new products contributed to sales through key channels. He also pointed to infrastructure spending and commercial construction. Contractor bookings rose 7% in the quarter, while Expansion Markets bookings rose 62%, according to Sheahan.
Industrial demand was steadier but uneven across types of spending. Sheahan said project activity and powder finishing systems led sales growth, and maintenance and repair spending remained firm. He added that “customers continue to take a measured approach to certain larger capital projects,” resulting in longer decision cycles. CFO Sanjiv Gupta said comparable third-quarter revenue finished slightly below the company’s earlier range, primarily because of industrial project timing and delays.
Asked about the outlook, Sheahan described the headline forecast as softer than before the announcement, although he saw no deterioration in underlying demand. Gupta said the forecast assumed continued delays in capital activity and order trends at their prior level. Sheahan said sales through third-party channels made it difficult to provide a detailed breakdown of industrial demand by product category or geography.
On profitability, Gupta said realized pricing offset higher net input costs, but product and channel mix weighed on adjusted operating margin. He said expenses fell approximately $3 million after specified acquisition-related and other items were excluded.
Sheahan said Graco completed the Elko Meltan acquisition and plans to integrate it through cross-selling and procurement and manufacturing improvements. He also said Graco’s ETM business agreed to license motor technology to ABB for data center cooling applications, with first installations targeted by the end of 2029.
Guidance
Graco expects fourth-quarter revenue of $610.0 million to $640.0 million, based on current orders and backlog. Sheahan said the headline outlook was softer than before the announcement and that the company was being cautious given the short-cycle nature of the business. Gupta said the outlook assumes continued delays in capital activity and no acceleration in demand.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Operating expenses, Unallocated Corporate | FY2027 | Graco expects no significant increase in unallocated corporate costs in FY2027. | — | — |
| EBITDA, Elko Meltan Ebitda Margin | Q3 FY2029 | Graco targets Elko Meltan’s EBITDA margin reaching the mid-20% range within three years of its Q3 FY2026 closing. | — | — |
| Revenue, Contractor | Q4 FY2026 | Graco expects contractor revenue to grow in Q4 FY2026. | — | — |
| Bookings, Industrial | Q4 FY2026 | Graco expects industrial bookings volume to be roughly flat to slightly higher in Q4 FY2026. | — | — |
| Revenue | Q4 FY2026 | $610.0 million–$640.0 million | — | New |
| Revenue, Organic Constant Currency | FY2026 | Graco expects low single-digit organic sales growth on a constant-currency basis in FY2026. | — | — |