GGG Q3 Deep Dive: Acquisitions and Pricing Actions Offset Sluggish Organic Growth

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.

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

StockStory’s Take

Graco’s third quarter results showed a modest increase in overall sales, though the company missed Wall Street’s revenue expectations. Management attributed the growth primarily to recent acquisitions, which compensated for continued softness in core organic sales, especially in the Contractor segment. CEO Mark Sheahan described North American construction activity as subdued, citing persistent home affordability issues and cautious customer sentiment. Despite these challenges, Sheahan noted that "expansion markets performed well, led by momentum in the semiconductor space," and highlighted ongoing success in targeted pricing actions to help counter rising tariff costs.

Looking ahead, Graco’s outlook is shaped by a combination of incremental pricing actions, anticipated stabilization in order rates, and improving product mix from recent acquisitions. Management expects that price increases, especially those set to take effect in January, will gradually offset ongoing tariff pressures. Sheahan emphasized that, "with our incremental pricing actions and stable order rates, we are positioned to meet our low single-digit growth objectives," but cautioned that meaningful demand improvement will likely depend on a recovery in construction and remodeling activity. The company is also counting on continued efficiency gains from its One Graco initiative and further integration of recent acquisitions to drive margin improvement.

Key Insights from Management’s Remarks

Management pointed to acquisitions, strategic pricing, and steady demand in certain niches as key factors shaping results, while acknowledging persistent challenges in Contractor and Industrial segments.

• Acquisition-driven growth: Sales growth in the quarter was mainly supported by acquisitions, which contributed 6% and helped offset a 2% decline in organic revenue. Management highlighted the successful integration of Corob and the early momentum from the Color Service acquisition, especially in expanding Graco’s reach into new markets like textiles and tires.
• Contractor segment headwinds: The Contractor segment continued to face headwinds from weak construction activity and consumer caution in North America, with organic sales down despite acquisition contributions. Sheahan noted, “affordability concerns have continued to affect the North American construction market with declines in both the Pro Paint and the Home Center channels.”
• Pricing actions to offset tariffs: Targeted interim pricing increases began to take effect late in the third quarter, particularly in industrial categories, while further increases are scheduled for Contractor channels in January. These actions are intended to fully offset incremental product costs from tariffs, which added $5 million in costs this quarter.
• Order stability and backlog normalization: Order activity improved to mid-single digits across all segments, with backlog levels stabilizing to pre-pandemic norms. Management explained that “backlog is about where it was at the beginning of the year,” supporting a return to a book-and-ship business model.
• Operational efficiency initiatives: The ongoing One Graco reorganization, which consolidates operations and product lines, delivered early improvements in margins and cash flow. Management cited the elimination of duplicate activities and the establishment of centers of excellence as drivers of operational gains.

Drivers of Future Performance

Graco’s near-term outlook is shaped by pricing actions, acquisition integration, and the potential for macroeconomic improvements in construction-related end markets.

• Pricing to offset cost pressures: Management expects that incremental price increases—especially those targeting the Contractor segment in early 2026—will fully offset ongoing tariff and input cost inflation. The timing and effectiveness of these actions are critical for maintaining margin stability.
• One Graco efficiencies: The company anticipates further gains in operational efficiency and margin expansion as the One Graco initiative matures. Streamlining manufacturing, consolidating facilities, and cross-selling through broader distribution channels are expected to drive both cost savings and incremental growth.
• End market recovery as catalyst: Management indicated that a meaningful acceleration in revenue and margin growth will depend on a rebound in North American construction and remodeling activity. Improvements in home affordability and increased housing turnover would directly benefit the Contractor segment, while continued strength in areas like vehicle service and semiconductors could provide additional support.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will be watching (1) the impact of January price increases on margin recovery and tariff cost coverage, (2) the integration progress and market expansion from recent acquisitions such as Color Service, and (3) signs of an uptick in North American construction and remodeling activity. Execution on the One Graco operational strategy and sustained cash flow generation will also be important markers of progress.

Graco currently trades at $81.79, in line with $81.63 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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