Key Takeaways
- Graco shares fell 15% on Thursday after its third-quarter adjusted EPS and revenue missed estimates and its fourth-quarter revenue outlook came in below consensus.
- Half of Graco’s 8% sales growth came from acquisitions, and adjusted operating earnings rose just 1% because higher product costs used up its price increases.
- TTM Technologies, Lam Research and Nokia also fell sharply on Thursday despite beating estimates, while Snap-on fell far less than Graco on bigger misses.
- Incoming organic orders rose 7% in the quarter, and the fourth-quarter report will show whether costs or demand matter more.
Graco (GGG) shares sank 15% on Thursday. Its third-quarter results came out after Wednesday’s close, missed estimates, and came with a light fourth-quarter outlook.
That’s a rough reception for record third-quarter sales. “Graco delivered a solid quarter, with broad-based performance across our businesses and geographies,” said President and CEO Mark Sheahan.
Wall Street wanted more than solid.
The numbers came up short
- Adjusted EPS: $0.81, up 5% from a year ago but below the $0.84 consensus
- Revenue: $586.4 million, up 8%, against $590.6 million expected
- Fourth-quarter revenue guidance: $610 million to $640 million, against a $642.4 million consensus
The third-quarter misses were small. But even the top of that guide falls short of the consensus, and its midpoint is about 3% light.
Price did the heavy lifting
Only half of that 8% sales growth was organic. Acquisitions added the other 4 points. And adjusted operating earnings rose just 1%, to $160.9 million, as Graco’s price increases did little more than cover higher product costs.
That’s unusual for Graco. Its operating margin stayed between 26.1% and 27.5% every year from fiscal 2021 to fiscal 2025.
Graco wasn’t alone
It was a rough day for reports that didn’t clear a high bar:
- TTM Technologies (TTMI) closed down 27.7% despite beating estimates on record revenue. The midpoint of its fourth-quarter EPS guidance matched consensus, while its revenue midpoint came in slightly below.
- Lam Research (LRCX) closed down 11.8% after a record quarter, with supply constraints holding its guidance to roughly in line with expectations.
- Nokia (NOK) closed down 14.8% after keeping its full-year operating-profit outlook and cutting its free-cash-flow conversion assumption to 35% to 55%, from 55% to 75%.
- Snap-on (SNA) closed down 3.4% after missing revenue and EPS estimates, with organic sales down 2.8%.
Graco’s day looks more like Snap-on’s than the rest. TTM, Lam and Nokia beat quarterly expectations and fell on their outlooks, while Graco and Snap-on missed. Snap-on’s misses were bigger, though, and its stock fell just 3.4%. Graco’s below-consensus fourth-quarter guidance may help explain its larger decline.
TIKR Tracks 10 Analysts on Graco. How Many Say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Graco, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Graco’s Analyst Ratings
Graco stock is cheaper than it’s been in five years
Going into the report, Graco traded at 23x forward earnings. That was below its 26x five-year average and not far above its 21x low from June 2022…
After Thursday’s drop, it’s just under 20x, below even that low (on estimates that may yet fall).
A 15% drop for an outlook about 3% light is more than this quarter deserves, especially with incoming organic orders up 7% in the quarter. I think the sell-off has gone too far.
Of course, if product costs keep outrunning price, those estimates will come down and the multiple won’t look so cheap. The fourth-quarter report, likely in late January, is the one to watch.
So what is Graco stock actually worth?
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