Graco (NYSE:GGG) Reports Sales Below Analyst Estimates In Q3 Earnings

Fluid and coating equipment company Graco (NYSE:GGG) fell short of the market’s revenue expectations in Q3 CY2025 as sales rose 4.7% year on year to $543.4 million. Its non-GAAP profit of $0.73 per share was in line with analysts’ consensus estimates.

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"Sales increased by 5% in the third quarter, with a strong 6% contribution from recent acquisitions. Organic revenue declined 2% reflecting ongoing softness in global construction markets, particularly in North America," said Mark Sheahan, Graco’s President and Chief Executive Officer.

Company Overview

Founded in 1926, Graco (NYSE:GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Graco’s 6.6% annualized revenue growth over the last five years was mediocre. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Graco’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Contractor and Process, which are 48.3% and 43.9% of revenue. Over the last two years, Graco’s Contractor revenue averaged 3.7% year-on-year growth while its Process revenue (pumps, valves, hoses) averaged 10.2% growth.

This quarter, Graco’s revenue grew by 4.7% year on year to $543.4 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Graco’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 27.7% over the last five years. This profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Graco’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Graco generated an operating margin profit margin of 30.3%, up 2.2 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Graco’s EPS grew at a decent 9.2% compounded annual growth rate over the last five years, higher than its 6.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Graco’s earnings quality to better understand the drivers of its performance. A five-year view shows that Graco has repurchased its stock, shrinking its share count by 1.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Graco, its two-year annual EPS declines of 2.7% mark a reversal from its five-year trend. We hope Graco can return to earnings growth in the future.

In Q3, Graco reported adjusted EPS of $0.73, up from $0.71 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Graco’s full-year EPS of $2.82 to grow 10.2%.

Key Takeaways from Graco’s Q3 Results

Revenue fell short of Wall Street’s estimates but EPS met expectations. The company continues to expect low single-digit sales growth on an organic, constant currency basis for the full year. Overall, this quarter was mixed. The stock remained flat at $81.62 immediately after reporting.

Graco’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.