Graco's Data-Center Tailwind Meets a New Quarterly Guide

A Guide to Visibility

In its fiscal 2026 second-quarter call, Graco delivered record sales and earnings, but the more notable news was the decision to initiate quarterly revenue guidance — a first for the company. Mark Sheahan explained the move as a response to better visibility: “We do have pretty good visibility particularly over a 13-week time period.” — Mark W. Sheahan, President and Chief Executive Officer · 2026-07-23 This is a meaningful change from the company's historical stance of providing only an annual organic growth guide, and it comes amid a clear improvement in order momentum: organic orders rose 5% in the quarter, with the most recent six-week booking average up 14% year-over-year. Backlog grew $57 million (28%) from the start of the year, giving management confidence in a stronger back half.

A Data-Center Bridge

The transcript is peppered with references to data centers, a keyword that has surged in the company's own trajectory and across the broader market. Sheahan noted that data center construction is lifting the contractor segment through protective coatings, foam, and flooring, while industrial is benefiting from thermal interface materials used in cabinets and chips. He said,

Our channel partners, our distributors are really starting to see some activity around there where we are taking Graco applications and really using our thermal interface dispense materials, in areas like you know, the cabinets that are put into data centers.

VELCRO Meltan and the M&A Machine

The announcement of the VELCRO Meltan acquisition — one of Graco's largest in over a decade — reinforces the company's intent to source a third of long-term revenue growth from M&A. Sheahan highlighted the strategic fit: “The gross margins of that business are, you know, 50% or more.” — Mark W. Sheahan, President and Chief Executive Officer · 2026-07-23 This follows the COROB, Color Service, and Radia deals, which have been integrated under a disciplined playbook. The move also aligns with the company's broader theme of VELCRO expansion into high-growth packaging dispense markets.

Margins, Cash, and the Contrast with Prior Quarters

Management reported a 130 bp gross margin improvement, aided by $9 million in net tariff refunds, and operating expenses flat despite inflation and acquisitions. Adjusted EPS rose 17% year-over-year. The fundamentals confirm the trajectory: Operating margin, which was 25.9% in the latest filed quarter (Q1), is projected to reach 30% in Q2 per management, continuing a multi-year upward trend. Strong cash generation also supports a balanced capital allocation framework, with $298 million of operating cash flow in the first half and aggressive share repurchases at what management views as an attractive valuation. As Sheahan candidly noted, “we do view the current environment as a buying opportunity.” — Mark W. Sheahan, President and Chief Executive Officer · 2026-07-23 This quarter's confidence stands in contrast to earlier calls. In April 2026, Sheahan spoke of industrial bookings up mid-single digits but expressed frustration at weak conversion: “Yes. I guess I'd start at a high level and just say that our industrial bookings in the quarter were actually up mid-single digits, which was good. And unfortunately, we weren't able to convert that into revenue that you all saw.” — Mark Sheahan, President and CEO · 2026-04-23 And in July 2025, the focus was on affordability constraints and tariff patience, with Sheahan emphasizing that "it's got to be affordability, right?" “Obviously, a rate reduction would help quite a bit...” — Mark W. Sheahan, Executive Vice President and COO · 2025-07-24 The current call marks a distinct shift toward execution and visibility.