Graco Inc. GGG has failed to impress investors with its recent operational performance due to persistent weakness in the Industrial segment. Also, given the company’s extensive international presence, foreign currency headwind is an added uncertainty.

Graco engages in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. The company offers equipment solutions for tough-to-handle materials with high viscosities, abrasive or corrosive properties and for multiple component materials that demand precise ratio control. 

GGG currently carries a Zacks Rank #4 (Sell). In the past year, the stock has gained 1.4% compared with the industry’s 11.8% growth.

Image Source: Zacks Investment Research

Business Weakness: Softness in the Industrial segment, due to a decline in finishing system sales in the Asia-Pacific region, is concerning for GGG. A decrease in demand for the company’s semiconductor, industrial lubrication and process transfer equipment products, owing to a weakness in the industrial sector, is also hampering the Process segment’s performance. The company expects organic net sales to decline in the low single-digits on a constant-currency basis for 2024.

Rising Costs: High costs pose a threat to the company’s bottom line. In 2023, Graco’s selling, marketing and distribution costs increased 3.9% from the year-ago period. General and administrative expenses jumped 11.5% in the same period. Graco’s operating expenses increased 6% in 2023 due to incremental share-based compensation and increased spending on product development. The trend continued in the first nine months of 2024, with selling, marketing and distribution costs, and general and administrative expenses increasing 3.4% and 6.3%, respectively, year over year. The metrics, as a percentage of net sales, increased 90 basis points each, year over year, respectively.

Forex Woes: Graco has operations in multiple nations. International expansion exposes it to risks arising from unfavorable movement in foreign currencies, geopolitical issues and other headwinds. In the first nine months of 2024, foreign currency translation had a negative impact of 1% on the Asia Pacific region’s revenues.

Some better-ranked companies from the same space are discussed below.

Graham Corporation GHM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GHM delivered a trailing four-quarter average earnings surprise of 101.9%. In the past 60 days, the Zacks Consensus Estimate for Graham’s fiscal 2025 earnings has increased 8.4%.

Applied Industrial Technologies, Inc. AIT currently carries a Zacks Rank #2 (Buy). AIT delivered a trailing four-quarter average earnings surprise of 8.2%.

In the past 60 days, the Zacks Consensus Estimate for Applied Industrial’s fiscal 2025 earnings has increased 0.2%.

Kadant Inc. KAI presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 17.2%. 

The Zacks Consensus Estimate for KAI’s 2024 earnings has increased 1.8% in the past 60 days.