Company: GGG
Filing Date: 2025-02-18
Form Type: 10-K
Source: 0000042888-25-000011
Chunk: 62

Company: GRACO INC
Filing Date: 2025-02-18
Form: 10-K
Item: Item 7A
Chunk 62
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company sells and purchases products and services in currencies other than the U.S. dollar and pays variable interest rates on borrowings under certain credit facilities. Consequently, the Company is subject to profitability risk arising from exchange and interest rate movements. The Company may use a variety of financial and derivative instruments to manage foreign currency and interest rate risks. The Company does not enter into any of these instruments for trading purposes to generate revenue. Rather, the Company’s objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange and interest rates.

The Company may use forward exchange contracts, options and other hedging activities to hedge the U.S. dollar value resulting from anticipated currency transactions and net monetary asset and liability positions. At December 27, 2024, the currencies to which the Company had the most significant balance sheet exchange rate exposure were the euro, Swiss franc, Canadian dollar, British pound, Japanese yen, Australian dollar, Chinese renminbi, South Korean won and Indian rupee. It is not possible to determine the true impact of currency rate changes; however, the direct translation effect on net sales and net earnings can be estimated. In 2024, changes in currency translation rates reduced sales by approximately $6 million and reduced net earnings by approximately $3 million. In 2023, changes in currency translation rates reduced sales by approximately $2 million and reduced net earnings by approximately $4 million.

2025 Outlook

Entering 2025, overall incoming order rates remain steady in an uncertain macroeconomic environment. Demand in China and for semiconductor products appear to have stabilized. The Company's reorganization into global businesses, centered around common customers and distributors, has been completed and is designed with the intention of driving incremental profitable growth. The Company remains committed to its core growth strategies of developing new products, expanding distribution, seeking adjacent markets and new geographies, and pursuing strategic acquisitions. As a result, the Company's outlook for 2025 is low single-digit revenue growth on an organic, constant currency basis. 

At January 31, 2025 exchange rates, assuming the same volumes, mix of products and mix of business by currency as in 2024, the movement in foreign currencies would have an unfavorable impact of approximately 1 percentage point on net sales and 2 percentage points on net earnings for 2025. 

The Company's backlog is not a good indicator of future long-term business levels. In addition to economic growth