Good morning, and welcome to the First Quarter Conference Call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company's website at www.graco.com. Graco has additional information available in a PowerPoint slide presentation, which is available as part of the webcast player. During this call, various remarks may be made by management about their expectations, plans and prospects for the future. These remarks constitute forward-looking statements for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. Actual results may differ materially from those indicated as a result of various risk factors, including those identified in Item 1A of the company's 2025 annual report on Form 10-K and in Item 1A of the company's most recent quarterly report on Form 10-Q. These reports are available on the company's website at www.graco.com, and the SEC's website at www.sec.gov. Forward-looking statements reflect management's current views and speak only as of the time they are made. The company undertakes no obligation to update these statements in light of new information or future events. I will now turn the conference over to Chris Knutson, Vice President, Controller and Chief Accounting Officer.

Good morning, everyone, and thank you for joining the call. I'm here today with Mark Sheahan, David Lowe and Sanjiv Gupta. I'll begin with a brief overview of our first quarter results and then turn the call over to Mark for additional commentary. Yesterday, Graco reported first quarter sales of $540 million, up 2% from the same quarter last year. Acquisitions contributed 5% growth and currency translation added 3% growth, partially offset by a 6% decline in organic sales. Reported net earnings were $119 million, down 5%, or $0.70 per diluted share. Excluding excess tax benefits from stock option exercises, adjusted non-GAAP net earnings were $0.66 per diluted share, down 6%. Gross margin decreased 60 basis points versus the first quarter last year. The benefit from our pricing actions helped offset higher product costs from lower factory volume, lower margin rates from acquired operations and incremental tariffs. Tariffs increased product costs by $7 million in the quarter. Operating expenses increased $9 million or 7% in the quarter. Excluding $5 million in incremental expenses from acquired operations and the effects of currency translation, expenses were flat. In the quarter, the operating margin rate in both our Contractor and Expansion Markets segments was 24%, consistent with the same period last year. Industrial segment operating margin was 32%, down from 34% in the prior year quarter. The decline is due primarily to unfavorable volume and tariffs that were not offset by price realization. Total company operating earnings decreased $6 million or 4% in the quarter. Operating earnings as a percentage of sales were 26% compared to 27% in the same period last year. The adjusted effective tax rate was 20%, in line with our expected full-year adjusted tax rate of 20% to 21%. Cash provided by operations totaled $120 million for the year, down $5 million or 4%. Cash provided by operations as a percentage of adjusted net earnings was 107% for the quarter. Year-to-date uses of cash include share repurchases of 189,000 shares totaling $16 million, dividends of $49 million and capital expenditures of $12 million. These uses were partially offset by share issuances of $40 million. A few comments as we look forward to the rest of the year. Based on current exchange rates and assuming similar volume, product mix and business mix as in 2025, currency is expected to have a 1% favorable impact on net sales and a 2% favorable impact on net earnings for the full year 2026. For the full year, we continue to expect unallocated corporate expenses of $40 million to $43 million and capital expenditures of $90 million to $100 million, including approximately $50 million for facility expansion projects. 2027 will be a 53-week year with an extra week occurring in the fourth quarter. And finally, in the attached materials, we updated our outlook slide to highlight performance by segment and region, with the size of each color dot indicating its relative size versus the others. With that, I'll turn the call over to Mark for more details on our segment and regional performance.

Thank you, Chris. Good morning, everybody. Overall sales increased 2% in the quarter with acquisitions contributing 5% and foreign currency adding another 3%. That growth was partially offset by a 6% decline in organic revenue. Organic revenue started the year slower than expected, particularly in January. The business activity improved steadily as the quarter progressed, with bookings up 3% at actual currency rates, driving nearly a $26 million increase in backlog, primarily in our Industrial segment. If those orders had been converted to revenue at the end of the quarter, organic revenue at actual currency rates would have increased 2% and total sales, including acquisitions, would have been up 7%. The Middle East region represents about $35 million of sales on a full year basis for Graco. To date, we've not seen any significant impact on demand or operations, though the environment remains uncertain. We are staying close to our customers and channel partners and are monitoring order patterns and logistics carefully. From an exposure standpoint, the Contractor segment will be the most impacted primarily related to our protective coating product application. Let me provide some additional color on our segments and regions. In the Contractor segment, sales increased 2% in the quarter, with acquisitions and currency translation each contributing 3%, partially offsetting a 4% decline in organic revenue. Within the segment, our polyurea and protective coatings businesses continued to be bright spots, supported by strong global demand tied to infrastructure, border wall and data center projects. That said, construction demand remains softer than we would like, particularly in the Americas. Housing starts are expected to be relatively flat year-over-year with fewer new home sales and only modest improvement in existing home sales. Overall, the market has shown limited growth over the past four years, and we expect those conditions to persist this year. Turning to the Industrial segment. Sales increased 4% in the quarter, with acquisitions contributing 8% and currency translation adding another 4%. This growth was partially offset by an 8% decline in organic revenue. Despite the organic decline, bookings were up 5% at actual currency rates, driving a $23 million increase in backlog. If those orders had been converted to revenue within the quarter, organic revenue at actual currency rates would have increased 6%. Industrial Americas performed well delivering revenue growth despite lower project-based activity in our Powder group. Bookings in the region were up double digits, supported by broad-based strength across multiple end markets. EMEA and Asia Pacific were more heavily impacted by the timing of completion and acceptance of project-based activity, which drove the decline in the quarter. That said, both regions saw activity improve as the quarter progressed, with quoting levels moving higher. In our Expansion Markets segment, organic revenue declined 5% in the quarter, driven primarily by our semiconductor business, which was coming off an exceptionally strong prior year comparison. Semiconductor delivered its largest quarter of the year in 2025, growing 51%. Despite the tough comparison, semiconductor demand remained solid with first quarter bookings up at least 20% in each region. We're also seeing improvement in our environmental business. While the year started slowly, activity has picked up meaningfully with a strong start to the second quarter and bookings are trending positive year-to-date. Moving on to the outlook. Despite the slow start to the year, we're encouraged by demand trends across our broader end markets. We saw a meaningful pickup in both ordering and quoting activity in our industrial and semiconductor businesses throughout the quarter. And based on current order rates, strength in these areas should help offset continued softness in the Contractor segment. As a result, we're maintaining our 2026 revenue guidance of low single-digit organic growth on a constant currency basis and mid-single-digit growth, including contributions from acquisitions. Looking ahead, second half comparisons are more favorable, reflecting an easier contractor comparison in the third quarter and the expected timing of project activity in the industrial businesses towards the end of the year. Finally, I'd like to take a moment to welcome Sanjiv Gupta to Graco. Sanjiv comes from General Motors, where he spent more than 20 years in finance and operating roles across the globe, most recently as CFO of GM International. He brings deep experience across corporate finance, operations, manufacturing and supply chain and a strong track record of leading global teams. In addition, I want to recognize and thank David Lowe for his more than 30 years of dedicated service as he prepares for retirement. David's leadership, deep financial expertise and steady guidance have played an important role in shaping our company and supporting our long-term success. On behalf of the entire organization, I want to thank David for his many contributions and wish him the best in his next chapter. In closing, I want to take a moment to recognize an important milestone for our company. On April 26, we will celebrate our centennial. This milestone reflects the strength of our people, the durability of our business model and the deep relationships we've built with customers and partners around the world. While we're proud of our history, this anniversary is really about the future, continuing to invest in innovation, supporting our customers and building on the foundation that has sustained the company for a century. That concludes the prepared remarks. Operator, we'll open it up for questions.

Our first question comes from Deane Dray of RBC Capital Markets.

Thank you. Good morning, everyone. Can I add my welcome to Sanjiv and to wish David all the best. Since we're in kind of an uncertain macro here, Mark, maybe you can just take us through the major verticals and what surprised you versus expectations? I know housing remains tough, but semiconductor looks like that's a positive side. And then just the same thing on the geographies. And if you could elaborate a bit more on the Middle East exposure for contractor.

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. But in terms of how that mid-single-digit booking growth took place, it was really across multiple product categories, like finishing process, our lubrication businesses, both automatic lubrication as well as our vehicle service business, and a little bit of pressure in our sealant and adhesive business offset some of that. But overall, I was pretty happy with the growth in industrial in the quarter. The powder business again was influenced mostly by some project activity on the bookings front that booked right at the end of the quarter that we just couldn't convert. Now those projects usually take time between booking and billing. And the overall game of the powder business in aggregate was in line with our long-term expectation for the full year of low single-digit organic growth on a constant currency basis. Obviously, the home center and the paint channel continue to be a little bit of a headwind for us. I wouldn't characterize them as down significantly, but they were down in the quarter. We did see nice growth in the areas that I mentioned in my prepared remarks on the high-performance coatings and foam business that wasn't quite enough to offset all of the headwinds that we had in the traditional paint and home center channels. But overall, bookings for the quarter were only down 1%, which is okay in an environment where we're still experiencing some pain. When it came to the environmental business, the bookings and semiconductor were fantastic. We're starting to see a little bit of a pickup on our environmental business. And I would say that the high-pressure business that's in there as well is also experiencing growth within the line of what we're expecting for the full year. Geographically, you've seen the numbers, but Europe is doing okay. Asia is somewhat influenced by the adhesive business that I referenced previously; on the industrial side, we're off to a bit of a slower start, but the team is pretty optimistic that we'll be able to make that up as we finish out the next three quarters of the year. And North America has been okay here so far this year, where booking rates are up kind of in our low single to mid-single-digit guidance. So all in all, I wish we would have been able to convert more of the bookings into billings. It's only 13 weeks, and we do feel like we've got, given the order momentum that we've got, a good chance to be able to get to our low single-digit guide for the full year.

Great. And then just if you could follow up with any specifics around the Middle East exposure, you called out contractor. And then I'll give you my follow-up question. Just you said tariffs were a $7 million headwind for the quarter. Can you talk about pricing? How much price action have you taken? And is this a potential year of a second price increase? What's your crystal ball say?

Yes. So I'll handle the Middle East and give just a quick thing on the tariffs, but I welcome my colleagues here to chime in as well. Middle East has not been a problem for us so far. As I said, we're monitoring the situation. We don't have any hung up orders or anything that we're really concerned about. Maybe the bigger concern would be that if this situation extends for a longer period, it will create some pressure with respect to the materials that we move. So you think about paints, adhesives, those are materials that require quite a bit of petroleum-based products. And to the extent there is pressure there and those products increase in cost to consumers, that may eventually make its way into our business. Right now, we're not that worried about it. My personal belief is that things will get cleaned up and we'll be able to move forward. But that's probably the bigger unknown risk for Graco and every other company that's out there moving those kinds of materials, at least in the short term. On the tariff front, I would say, overall, we're doing a good job. I think we've really offset the cost pressures that we've seen in the P&L from input costs so far year-to-date. And really, the pressure that we saw in the gross margin line in the quarter was in a couple of areas. One, obviously, volume running a little bit below what we were planning for, really due to the cadence of the orders coming in at a softer pace at the beginning of the quarter versus what we saw at the end of the quarter. Our pricing actions are really offsetting a lot of that activity that we've had. I also point out that the mix in the quarter, the mix of the products that came in was a little bit unfavorable for us as well. So I really have no concerns on the gross margin line for the rest of the year. I think the teams are doing a great job managing operating expenses, which are actually flat to down slightly in the quarter. So we're managing the P&L appropriately given the level of business that we had in Q1.

Well, on the pricing side, the way we are looking at it, we have covered tariff costs, and there have been some volume-related dynamics that made that a little less effective. But beginning last year, we have been pursuing around the world our annual pricing adjustment drumbeat. In fact, we started a little earlier in some regions than we would ordinarily. Here in North America, we have a handful of key channel partners that we have agreed to pricing adjustments that are going to begin to become live sometime in Q2. So we're feeling really good about the implications of what those can also help us with as we get through the balance of the year.

Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

This is Mitch Moore on for Jeff. Just on the low single-digit organic guide, with the slower start of the year, it implies mid-single digit-ish growth through the remainder of the year. Could you help us frame the segment-level building blocks to get you there? And what's giving you confidence in that outlook?

Yes. If I had to point to one thing, I'd say we're up low single digit on our bookings for the first quarter. So I think our bookings rate lines up with what the guide was, and that gives us the confidence that we're going to be able to get within that guided range when we look out through the whole year. I don't know if you guys have any other comments you want to make.

I'll also say that, as Mark mentioned, the backlog build in the quarter was significant, and also subsequent to the end of the quarter into April we've seen another $21 million build in the backlog. So the order rates are there to support it. It might be a little lumpier on a quarter-by-quarter basis, but we have confidence we'll get there by the end of the year.

Okay. Great. And then just for my follow-up: Is there any update you can provide with the updates to the Section 232 tariffs and if that changes your expectations for price costs for the year?

I will say that the change with the 232, where they're moving from a direct aluminum and steel tariff to the full component, we're still working on assessing how much that's going to impact us. We do have some highly manufactured equipment, so when you switch to a full value of the imported goods, it would imply a higher tariff. But for us, a lot of our stuff is already manufactured here. A lot of the import of the aluminum and steel is typically in its raw form. We're assessing the potential impact and will communicate it as we have more clarity.

Our next question comes from Bryan Blair of Oppenheimer.

Thank you. Good morning, everyone. Welcome, Sanjiv. And congratulations, David. I would like to follow up on the backlog expansion in Q1 and then Q2 to date. To level set, how much of the total build has been your Gema business? Have there been project deferrals? Or is this strictly a matter of order timing—and is this type of backlog build or the magnitude of it significantly out of the ordinary for the early part of the year?

I think they’re pretty similar. Across the legacy Graco Industrial businesses and the backlog that we've built there as well as the backlog we've built in the Gema business, including projects, I didn't see anything that jumped off the page to me that says they were heavily weighted toward the powder business. I think it's generally pretty consistent across both those segments.

And I would add, especially the orders that we've seen since the close of the quarter, it's been quite balanced in our Industrial division, which is the legacy Graco plus the Gema business. As part of this exercise, we ran some stress tests. Being an old sales guy, I kicked the tires pretty hard on not just the industrial side but also on the contractor side. I kept coming to the same place that given the level of activity we're seeing in industrial and not really relying on a meaningful uptick in contractor, low single digit is achievable.

Okay. I appreciate the color. And following up on the revised tariff framework again, just to level set, is there a meaningful assumed change in net cost impact for your operations? And perhaps more importantly, as a largely domestic manufacturer, do you see any incremental competitive advantages or opportunities under the new structure?

I don't think there's any obvious competitive advantages. The way I'm thinking about the tariffs here short term and long term: the big question is whether the tariffs that are in place today will stick. When you look at the absolute level of tariff that this company is incurring under the new structure, it's pretty similar to what we experienced before the change. We will be applying for our tariff refunds like every other company, and as those come in, our intention would be to highlight those in results so that you know what they are as they come in. At this point, until we actually see the refunds, we're not going to talk about the levels or the amounts. From a modeling perspective, it would probably make sense to leave them out, and when they come in, we'll break them out.

Our next question comes from Matt Summerville of D.A. Davidson.

Maybe just a minute on Contractor. Can you talk about what kind of sell-in, sell-through trends you're seeing in both the home center and paint channel? And then can you also talk about how we should be thinking about the new product load-in this year relative to last? Then I have a follow-up.

In terms of sell-in, sell-through, there's not a big difference. Most of the channel partners we do business with have been careful with their inventory and continue to be careful. So I would characterize our sales and our bookings as pretty similar to what they're experiencing out the door, which makes sense given the environment. We do have, as every year, products that we're launching and are planning to launch in Q2. I would not bake in any large incremental increase compared to last year. I think it's a fairly stable, similar new product launch year for the Contractor business compared to 2025. We've got a couple of things we're excited about that we can talk about after they're actually launched, but I think it will be a similar year to what we saw in 2025.

Just to underline two of Mark's points: on the home center side, the positive is foot traffic has not deteriorated year-over-year. Although it still remains off the record levels we saw in 2020 and 2021, there is opportunity for recovery there. Those channel partners do a very good job managing working capital, and we feel pretty good the inventory level there is satisfactory. On the paint store side, our commercial team indicates that sell-through has been satisfactory. So in this important space for us, retail demand is pretty close to wholesale, which is important especially as we get some of these new products launched to that channel. So we feel our partners are ready to order when they see retail demand increase.

Got it. And then as a follow-up, can you comment on how you're thinking about the M&A outlook, funnel actionability to the funnel depth, and where you may be seeing most activity?

I'd characterize the market as still pretty favorable. Our pipelines are well populated and we're having discussions with a lot of different companies. There's been a renewed appetite on the part of sellers to realize value and many are looking at strategic buyers. We'll remain active. We like businesses where we can add value. I see a fair amount of opportunities within the Industrial segment in particular. Contractor also has a couple of opportunities, but there's probably more activity on the industrial side right now. Historically, about 30% of Graco's revenue at the end of 2025 came from acquired businesses, and we've had a good track record of acquiring businesses, integrating them, and maintaining or improving profitability. Our long-term target is 10% top-line growth with roughly one-third from M&A, and historically we've been able to do that. We're proud of what the teams have done and hope to see more opportunities as the year progresses.

Our next question comes from Brad Hewitt of Wolfe Research.

At the gross margin line, it looks like incrementals were about 25% in the quarter. Should we think about that year-over-year margin pressure as largely driven by price and cost? Or are there other factors you would highlight?

I think it's mostly mix and a little bit on the volume side. Chris can give more color on that.

It was mixed volume and acquired businesses that really impacted the quarter. Price cost was not a headwind outside of having lower factory volume to absorb overhead.

Okay. Great. And then on the backlog, can you elaborate a little more on visibility of expected backlog conversion for the rest of the year? Do you see any risk of project cancellations or slippage of backlog conversion into next year?

I don't think we see any risk at this point. It's always possible, but nothing we're concerned about for things already booked and in our backlog. We expect most of that will convert in the second half of the year. It's hard sometimes to know the exact timing, but this is not something we expect to keep on the books for more than that period.

Mark is right. The risk of cancellation, whether in our legacy business or in the Gema systems business, is quite low. In the legacy business, our equipment is often among the last items ordered in a project, for example an expansion of a paint line. We're literally being dropped in a month or two before it's commissioned. So orders in that business are quite tangible and rarely canceled. On the Gema powder equipment side, that organization is even more sophisticated in direct system sales and accepting an order typically requires a down payment, a very meaningful down payment approaching half the project cost. Buyers are very committed. In my experience over the years, we had one project canceled across an extended period.

Our next question comes from the line of Joe Ritchie of Goldman Sachs.

David, thank you for all the help throughout the years. Wish you the best in retirement and Sanjiv, welcome. I want to make sure I fully understand the backlog conversion on the powder finishing systems. Was this simply that the orders you were expecting to come through in the first quarter came through later than you expected, or was there anything related to supply chain or manufacturing that impacted the conversion?

No, I don't think there was any supply chain constraint. We did get a couple of nice orders right at the end of the quarter, and we were also converting on the backlog that we had built in February. They kind of offset one another. We're not constrained in our operations or supply chain; it's really just the cadence of these orders coming in, and we will get them out the door. We just didn't get them out by the end of March.

Okay. Helpful. You touched on the margin headwind in the first quarter being largely driven by lower volumes. With the acquisitions also in the Industrial segment, how much impact did the acquisitions have on margin degradation in 1Q?

On a total company basis, it's about 50 basis points related to acquired revenue. The impacts going through industrial represented the majority of that.

Okay. And last: last quarter we talked about upfront licensing revenues from some OEM customers. I didn't hear it called out today. Any progress there would be helpful.

We have a couple of potential deals we're working on, but we didn't book anything in Q1, which is why we were silent on it. We still like the prospects for potential license agreements with customers for our motor technology. Every time we meet with customers or an OEM, they're excited about the compact size of these motors, the fact that they take less material, and that they're high torque. We're hopeful we'll do more in that area, but nothing in Q1.

It's a strategic sales process. Frequently we're cultivating very large companies with large decision-making bodies. One organization can be responsive and quick; another can be equally enthusiastic but move at a different pace. So while we're excited, the visible results over time are not going to have the same degree of predictability as our standard products business.

Our next question comes from Andrew Buscaglia of BNP Paribas.

Good morning, everyone. Two years ago we had a similar scenario where all end markets were down and you struggled to overcome it. Two years later in a similar setup, is there something structural that's changed? Does Graco need to think about a change in approach for growth, pricing, or something else? At this point it's been a few years and the top line seems stuck. Are there discussions around anything structural that's changed in the last three years?

We have grown the top line over time. Every day we work to grow the business. When you're reporting every 13 weeks, sometimes some quarters look different than the overall business trend. We've faced substantial headwinds with half of our revenue tied to contractor and construction. If you look at macro data over the last four to five years, that has been a tough market. I'm proud our teams have driven the results they have given the environment. We continue to launch products, incentivize teams around growth, and redeploy cash through share buybacks and M&A. There's nothing structurally wrong with the company. It's extremely profitable, generates strong cash flow, and we're doing the things we've always done to drive growth.

With the reorganization a year ago, there was some enthusiasm that there might be incremental growth from that. Where are we seeing that, and will we see a more pronounced impact going forward from that change?

We did guide to low single-digit organic growth, constant currency for the full year. For the quarter, our industrial business was up mid-single digit growth and our Expansion Markets group is up high single digits. Those gains were offset by the Contractor business being down 1%. We're happy with the momentum and pushing the team hard. We feel confident we'll get to the guidance we provided.

Our next question comes from Walter Liptak of Seaport Research.

I wanted to get a better understanding of monthly trends. You talked about January being weak. Can you attribute that to anything? In February we had the war heating up, but you said order trends weren't impacted much. What are you hearing from customers in North America and other parts of the world, and as we get more of this behind us, are you getting more confidence customers can work through these macro uncertainties?

In our businesses there are different decision makers. On Contractor, decisions can be quicker because buyers are often smaller organizations or entrepreneurs. Despite global noise, the Contractor business, which is about 50% of our revenue broadly defined, hasn't shown a change in momentum in the last couple of months because the fundamental issues remain affordability and mortgage rates. I was encouraged when the 30-year mortgage rate briefly got below 6% in late February, but it's currently higher. On the Industrial side, big manufacturers understand the world is noisy, but if they're committed to certain directions they'll make those investments. For example, in auto, even in markets like China where combustion conversion requires additional investments, we're seeing greater inquiries and an expanded pipeline. Big manufacturers are making investment decisions despite the noise.

Okay. Great. Then thinking about the second quarter and possible delays for powder orders, should we expect a normal seasonal bump in Q2 plus some of the orders that should have shipped in Q1? Is that how we should think about it?

For the Contractor business, historically Q2 is the top quarter, and I don't see changes to that cadence. For the powder business, orders we received recently are probably going to ship more in the back half of the year. For our legacy Industrial business, we should be able to move some orders a little quicker.

Okay. Great. One last one: on buybacks, you weren't too aggressive in the first quarter. How are you thinking about buybacks versus M&A? Can you do both?

This is Sanjiv Gupta. I'll take a shot at it. We're disciplined with our capital allocation framework. The goal is to drive shareholder return while maintaining financial flexibility. We'll preserve a strong balance sheet. Operating cash flow will fund our growth—internal investments that meet return thresholds and disciplined M&A that meets our return and integration thresholds. You've seen recent acquisitions like COROB, Color Service and Radia. We'll continue dividends and return excess cash to shareholders opportunistically. In summary, very consistent with our capital allocation framework which we will continue to deploy.

If there are no further questions, I will now turn the conference back to Mark Sheahan.

Okay. Thank you very much for participating today. I look forward to seeing you some time down the road here, and thanks again for your interest in Graco.

This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.