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Graco Reports Record Sales and Earnings

  Graco Reports Record Sales and Earnings

            Earnings Up 47 Percent on Sales Increase of 15 Percent

Business Wire

MINNEAPOLIS -- April 24, 2013

Graco Inc. (NYSE: GGG) today announced results for the first quarter ended
March 29, 2013.

Summary                                
$ in millions except per share amounts
                                         Thirteen Weeks Ended
                                         Mar 29,  Mar 30,  %
                                         2013      2012      Change
                                                             
Net Sales                                $ 269.0   $ 234.1   15  %
Net Earnings                               52.1      35.4    47  %
Diluted Net Earnings per Common Share    $ 0.84    $ 0.58    45  %
                                                                 

  *Powder Finishing operations acquired in April 2012 contributed 14
    percentage points of sales growth.
  *Contractor segment operating earnings increased 31 percent, driven by
    double-digit percentage sales growth in the Americas.
  *Acquisition and divestiture costs included in operating expenses decreased
    by $4 million.
  *Other expense (income) includes dividend income of $4 million received
    from the Liquid Finishing businesses held as a cost-method investment.
  *Changes in currency translation rates did not have a significant effect on
    operating results.

"Sales in the first quarter achieved a new record for the Company, driven by
the 2012 acquisition of the Gema powder finishing business and strong
double-digit growth by our Contractor business in the Americas," said Patrick
J. McHale, Graco's President and Chief Executive Officer. "The Industrial
segment began the year slower than expected, with softness in the Americas and
the EMEA region. This was partially offset by Graco's Asia Pacific Industrial
business, which returned to growth. Lubrication segment sales were soft in
Asia Pacific, as demand in the mining sector remained weak, somewhat offset by
strength in EMEA. Gross margins Company-wide were solid, reflecting continued
performance by Graco's factories and further improvements in the Gema
business, significantly contributing to the Company's record earnings in the
first quarter."

Consolidated Results

Sales increased 15 percent, including increases of 10 percent in the Americas,
26 percent in EMEA and 16 percent in Asia Pacific.

Sales included $32 million from Powder Finishing operations acquired in April
2012, including $7 million in the Americas, $16 million in EMEA and $9 million
in Asia Pacific. Sales from legacy operations (excluding Powder Finishing)
were up 4 percent in the Americas, down 4 percent in EMEA and flat in Asia
Pacific.

Gross profit margin, expressed as a percentage of sales, was 56 percent, down
one-half percentage point from the first quarter last year. The unfavorable
effect of lower margin rates from acquired Powder Finishing operations was
offset somewhat by realized price increases and manufacturing cost
improvements.

Total operating expenses increased by $5 million, but included $9 million from
Powder Finishing operations. Acquisition and divestiture costs included in
operating expenses decreased by $4 million.

Other expense (income) included dividends of $4 million received from the
Liquid Finishing businesses that are required to be held separate from the
Company’s other businesses and accounted for as a cost-method investment.

The effective income tax rate of 27 percent was 8 percentage points lower than
first quarter last year. This year’s rate includes the impact of the federal
R&D credit that was renewed in the first quarter, effective retroactive to the
beginning of 2012. There was no R&D credit recognized in 2012. The effective
rate in 2013 also reflects the effects of the after-tax dividend income
received from the Liquid Finishing businesses held separate.

Segment Results

Certain measurements of segment operations are summarized below:

                                       Thirteen Weeks
                                         Industrial  Contractor  Lubrication
                                                                      
Net sales (in millions)                  $   164.2    $   77.6     $  27.2
Percentage change from last year
           Sales                             22  %        8   %       (3   )%
           Operating earnings                14  %        31  %       (16  )%
Operating earnings as a percentage of
sales
           2013                              34  %        21  %       19   %
           2012                              36  %        17  %       22   %
                                                                      

Industrial segment sales increased 22 percent, including $32 million from
Powder Finishing operations. Sales from legacy operations were down 2 percent,
mostly from an 8 percent decrease in EMEA, partially offset by a 3 percent
increase in Asia Pacific. Operating margin rate for this segment decreased due
to the lower rate earned in the Powder Finishing operations.

Contractor segment sales increased 8 percent, mostly in the Americas, where
sales were strong in both the paint store and home center channels. Higher
sales volume, improved gross margin rate and expense leverage led to a higher
operating margin rate in the Contractor segment.

Lubrication segment sales decreased 3 percent. Increases in the Americas and
EMEA were more than offset by a decrease in Asia Pacific, where several large
industrial lubrication transactions in 2012 were not repeated in 2013. Lower
volume led to a decrease in operating earnings in the Lubrication segment.

Acquisition in 2012

On April 2, 2012, the Company completed the purchase of the finishing
businesses of Illinois Tool Works Inc. The acquisition included Powder
Finishing and Liquid Finishing equipment operations, technologies and brands.
Results of the Powder Finishing business have been included in the Industrial
segment since the date of acquisition.

Pursuant to a March 2012 order, the Liquid Finishing businesses were to be
held separate from the rest of Graco’s businesses while the United States
Federal Trade Commission (“FTC”) considered a settlement with Graco and
determined which portions of the Liquid Finishing business Graco must divest.

In May 2012, the FTC issued a proposed decision and order which requires Graco
to sell the Liquid Finishing business assets, including business activities
related to the development, manufacture, and sale of products under the
Binks®, DeVilbiss®, Ransburg® and BGK® brand names, no later than 180 days
from the date the order becomes final. The FTC has not yet issued its final
decision and order.

The Company has retained the services of an investment bank to help it market
the Liquid Finishing businesses and identify potential buyers. While it seeks
a buyer, Graco must continue to hold the Liquid Finishing business assets
separate from its other businesses and maintain them as viable and
competitive.

The Company does not control the Liquid Finishing businesses, nor is it able
to exert influence over those businesses. Consequently, the Company’s
investment in the shares of the Liquid Finishing businesses has been reflected
as a cost-method investment, and its financial results have not been
consolidated with those of the Company. Income is recognized based on
dividends received from current earnings and is included in other income.

The Liquid Finishing businesses generated sales of $63 million and EBITDA of
$14 million in the first quarter.

Outlook

"We remain focused on achieving year-over-year sales growth in every region of
the world in 2013," stated McHale. "We believe the recovery in the U.S.
housing market should result in double-digit growth in our Contractor Americas
business for the year. The general industrial environment in the Americas is
stable, despite a disappointing first quarter for our Industrial segment, and
should result in low-to-mid single-digit growth for 2013. Challenging
macroeconomic conditions in Western Europe and Asia Pacific continue to be a
headwind, but our new product development, channel expansion and sales
initiatives are expected to drive modest growth in EMEA and Asia Pacific in
2013."

Cautionary Statement Regarding Forward-Looking Statements

The Company desires to take advantage of the “safe harbor” provisions
regarding forward-looking statements of the Private Securities Litigation
Reform Act of 1995 and is filing this Cautionary Statement in order to do so.
From time to time various forms filed by our Company with the Securities and
Exchange Commission, including our Form 10-K, our Form 10-Qs and Form 8-Ks,
and other disclosures, including our 2012 Overview report, press releases,
earnings releases, analyst briefings, conference calls and other written
documents or oral statements released by our Company, may contain
forward-looking statements. Forward-looking statements generally use words
such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,”
“estimate,” “will,” and similar expressions, and reflect our Company’s
expectations concerning the future. All forecasts and projections are
forward-looking statements. Forward-looking statements are based upon
currently available information, but various risks and uncertainties may cause
our Company’s actual results to differ materially from those expressed in
these statements. The Company undertakes no obligation to update these
statements in light of new information or future events.

Future results could differ materially from those expressed, due to the impact
of changes in various factors. These risk factors include, but are not limited
to: changes in laws and regulations; economic conditions in the United States
and other major world economies; whether we are able to locate, complete and
effectively integrate acquisitions; whether we are able to effectively and
timely complete a divestiture of the acquired Liquid Finishing businesses,
which has not been completed and remains subject to FTC approval; risks
incident to conducting business internationally, including currency
fluctuations and political instability; supply interruptions or delays; the
ability to meet our customers’ needs, and changes in product demand; new
entrants who copy our products or infringe on our intellectual property;
results of and costs associated with, litigation, administrative proceedings
and regulatory reviews incident to our business; compliance with
anti-corruption laws; the possibility of decline in purchases from few large
customers of the Contractor segment; fluctuations in new construction and
remodeling activity; natural disasters; and security breaches. Please refer to
Item 1A of our Annual Report on Form 10-K for fiscal year 2012 (and most
recent Form 10-Q) for a more comprehensive discussion of these and other risk
factors. These reports are available on the Company’s website at
www.graco.com/ir and the Securities and Exchange Commission’s website at
www.sec.gov. Shareholders, potential investors and other readers are urged to
consider these factors in evaluating forward-looking statements and are
cautioned not to place undue reliance on such forward-looking statements.

Investors should realize that factors other than those identified above and in
Item 1A might prove important to the Company’s future results. It is not
possible for management to identify each and every factor that may have an
impact on the Company’s operations in the future as new factors can develop
from time to time.

Conference Call

Graco management will hold a conference call, including slides via webcast,
with analysts and institutional investors on Thursday, April 25, 2013, at
11:00 a.m. ET, to discuss Graco’s first quarter results.

A real-time webcast of the conference call will be broadcast live over the
Internet. Individuals wanting to listen and view slides can access the call at
the Company’s website at www.graco.com/ir. Listeners should go to the website
at least 15 minutes prior to the live conference call to install any necessary
audio software.

For those unable to listen to the live event, a replay will be available soon
after the conference call at Graco’s website, or by telephone beginning at
approximately 2:00 p.m. ET on April 25, 2013, by dialing 800-406-7325,
Conference ID #4612085, if calling within the U.S. or Canada. The dial-in
number for international participants is 303-590-3030, with the same
Conference ID #. The replay by telephone will be available through April 28,
2013.

Graco Inc. supplies technology and expertise for the management of fluids and
coatings in both industrial and commercial applications. It designs,
manufactures and markets systems and equipment to move, measure, control,
dispense and spray fluid and coating materials. A recognized leader in its
specialties, Minneapolis-based Graco serves customers around the world in the
manufacturing, processing, construction and maintenance industries. For
additional information about Graco Inc., please visit us at www.graco.com/ir.


GRACO INC. AND SUBSIDIARIES
Consolidated Statement of Earnings (Unaudited)
                                                           
                                              Thirteen Weeks Ended
(in thousands, except per share amounts)      Mar 29,           Mar 30,
                                              2013              2012
Net Sales                                     $  269,046        $  234,122
     Cost of products sold                      118,402         101,943  
Gross Profit                                     150,644           132,179
     Product development                         12,421            11,638
     Selling, marketing and distribution         43,354            38,026
     General and administrative                 23,372          24,546   
Operating Earnings                               71,497            57,969
     Interest expense                            4,762             3,689
     Other expense (income), net                (4,395   )       299      
Earnings Before Income Taxes                     71,130            53,981
     Income taxes                               19,000          18,600   
Net Earnings                                  $  52,130        $  35,381   
                                                                   
Net Earnings per Common Share
     Basic                                    $  0.86           $  0.59
     Diluted                                  $  0.84           $  0.58
                                                                   
Weighted Average Number of Shares
     Basic                                       60,961            60,052
     Diluted                                     62,408            61,338
                                                                   
Segment Information (Unaudited)
                                                                   
                                              Thirteen Weeks Ended
                                              Mar 29,           Mar 30,
                                              2013              2012
Net Sales
     Industrial                               $  164,175        $  134,103
     Contractor                                  77,628            71,986
     Lubrication                                27,243          28,033   
Total                                         $  269,046       $  234,122  
                                                                   
Operating Earnings
     Industrial                               $  55,219         $  48,313
     Contractor                                  16,432            12,539
     Lubrication                                 5,141             6,089
     Unallocated corporate (expense)            (5,295   )       (8,972   )
Total                                         $  71,497        $  57,969   
                                                                   
All figures are subject to audit and adjustment at the end of the fiscal year.


The consolidated Balance Sheets, Consolidated Statements of Cash Flows and
Management's Discussion and Analysis are available in our Quarterly Report on
Form 10-Q on our website at www.graco.com/ir.

Contact:

Graco Inc.
Financial Contact:
James A. Graner, 612-623-6635
or
Media Contact:
Bryce Hallowell, 612-623-6679
 
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