GGG Q2 Deep Dive: Tariffs, Acquisition, and North American Construction Headwinds Shape Results

Fluid and coating equipment company Graco (NYSE:GGG) fell short of the market’s revenue expectations in Q2 CY2025 as sales rose 3.4% year on year to $571.8 million. Its non-GAAP profit of $0.75 per share was 4.9% below analysts’ consensus estimates.

Is now the time to buy GGG? Find out in our full research report (it’s free).

StockStory’s Take

Graco’s second quarter results disappointed expectations, and the market responded negatively, as management pointed to muted organic sales and margin compression. The quarter was defined by weak demand in North American construction markets and the lingering impact of tariffs, which drove higher costs and pressured margins. CEO Mark Sheahan described the operating environment as "choppy or sluggish," noting that delays in end-user project decisions and persistent housing affordability issues weighed on the Contractor segment. Management also highlighted that recent acquisitions, while contributing to top-line growth, came with integration costs and further margin dilution.

Looking ahead, Graco’s leadership remains focused on offsetting tariff-driven cost pressures through targeted price increases starting in September and ongoing expense efficiencies from the One Graco initiative. Management expects easier sales comparisons and new product launches to support a stronger second half, but ongoing uncertainty in global trade and construction end markets remains a concern. Sheahan emphasized, "We feel reasonably confident that we can get to the guide by the end of the year," while cautioning that recovery in core markets likely hinges on improved housing affordability and greater clarity in the global trade landscape.

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to persistent weakness in North American construction, tariff-related cost inflation, and a challenging comparable period. New acquisitions and operational efficiency gains partly offset these pressures.

• North American construction drag: The Contractor segment experienced notable softness, with lower investments by contractors and a double-digit decline in the home center DIY channel. Sheahan cited ongoing housing affordability challenges as a key factor limiting demand for both professional and DIY products.

• Tariff impact and price response: Incremental tariff costs weighed on gross margin by approximately 80 basis points in the quarter. In response, Graco announced targeted price increases focused on geographies and products most affected by tariffs, aiming to recover most of the full-year impact if current trade conditions persist.

• Acquisition integration and margin effect: Recent acquisitions, including Corob and the newly announced Color Service, provided a 6% boost to reported sales but diluted operating margins, particularly in the Contractor segment. Management expects integration efforts to yield operational synergies over time.

• Industrial and geographic variation: While the Americas lagged, EMEA (Europe, Middle East, and Africa) and Asia Pacific regions posted growth across all segments. The semiconductor market and China, both previously subdued, showed signs of recovery, offsetting declines in environmental and other industrial categories.

• Expense management progress: The One Graco initiative delivered meaningful operating expense reductions, with year-to-date operating expenses down $7 million (excluding acquisitions). Management highlighted ongoing facility consolidation and streamlined operations as levers for improved efficiency and cash flow.

Drivers of Future Performance

Management expects a combination of price increases, easier year-over-year comparisons, and expense controls to drive second-half performance, but macro uncertainty and cost pressures persist.

• Targeted price increases: Graco will implement low single-digit price hikes in select markets and products impacted by tariffs beginning in September. Management believes these adjustments, along with product redesign and alternative sourcing, should offset most tariff-related headwinds if trade conditions remain unchanged.

• Operational efficiencies from One Graco: Consolidation of facilities, streamlined supply chain management, and unified commercial processes are expected to deliver further cost savings. Management anticipates approximately $16 million in reduced expenses for the year, supporting profitability even in a flat revenue environment.

• Market recovery depends on affordability: A rebound in North American construction and DIY activity is seen as contingent on improvements in housing affordability and turnover. Management cautioned that pent-up demand exists but will only be unleashed when economic and policy conditions enable consumers to move and invest in home projects.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the effectiveness and customer acceptance of September’s price increases in offsetting tariff pressures, (2) evidence of a sustained recovery in North American construction and DIY channels linked to housing market developments, and (3) progress on integration and synergy realization from recent acquisitions, particularly Color Service. Execution of facility consolidation and efficiency gains from One Graco will also be key markers to watch.

Graco currently trades at $86.42, in line with $87.19 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

Stocks That Trumped Tariffs

When Trump unveiled his aggressive tariff plan in April 2024, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.