Graco Inc. History

Company Perspectives:

Graco's mission is to generate sustained profitable growth to benefit its customers, employees, shareholders and communities. We will be the world's leading supplier of fluid management products and packages in the markets we target.

Key Dates:

1926:

Leil and Russell Gray found Gray Company, Inc. in Minneapolis to make and sell "Graco" air-powered grease guns.

1941:

Sales reach $1 million; as part of the war effort, Gray Company designs mobile lubrication equipment for use on the battlefield.

1958:

Company introduces Hydra-Spray, the first airless paint spray unit.

1962:

David A. Koch, son-in-law of Leil Gray, takes over leadership as president.

1969:

Company goes public as Graco Inc.

1970:

Chicago-based H.G. Fischer & Co., a finishing and electrostatics business, is acquired.

1986:

Company stock begins trading on the New York Stock Exchange.

1993:

New spray gun manufacturing plant is opened in Sioux Falls, South Dakota.

1996:

A distribution and manufacturing center is opened in Rogers, Minnesota.

1999:

The German firm Böllhoff Verfahrenstechnik is acquired.

2001:

Graco acquires ASM Company, Inc.

2003:

Sharpe Manufacturing Company is acquired.

Company History:

Graco Inc. is a world leader in fluid-handling systems and components. The company designs and manufactures products that move, measure, mix, proportion, control, dispense, and apply a wide range of fluids and viscous materials for a variety of industries, ranging from shipbuilding and aerospace to construction contracting and fast-lube outlets. According to Harlan S. Byrne in a February 1997 Barron's article, "Graco is one of those companies, nearly invisible to investors, that makes a steady living by supplying humdrum products--in its case, application systems for paint, sealants, adhesives and lubricants." Low-profile Graco serves such industry giants as Andersen Windows and Caterpillar Inc. while quietly holding a number one position in a majority of its markets.

First Products: 1920s-30s

Graco traces its history to Gray Company, Inc., which was founded in 1926 by Leil and Russell Gray to manufacture and sell the air-powered grease gun the brothers had developed for use in automobile maintenance. The men, who worked in a downtown Minneapolis garage, found hand-operated grease guns cumbersome to use, especially in the winter months when lubricants were more difficult to move. After field tests showed their invention was easier to handle and more effective than the hand-operated devices, the brothers hired three employees and began manufacturing "Graco" air-powered grease guns. First year sales were about $35,000.

Within two years, the men added other products to the Graco line, such as an air-powered pumping unit that moved automotive fluids directly from shipping containers through a flexible hose to the service area. The company also began a nationwide marketing program directed primarily to car dealers and service station owners.

Sales had reached $65,000 by 1931. The company continued to grow even during the Great Depression years, and in 1938 the business moved into a new plant, where Russell Gray further expanded the product line. Leil Gray, as company president, accelerated marketing and sales efforts; a branch office opened in New York, and salesmen carried Graco products in trailers bearing the company insignia. Sales topped $1 million in 1941.

Postwar Change of Focus and Rapid Growth

During World War II, Gray Company designed mobile lubrication equipment for use on the battlefield, while a tire retreading system helped extend limited resources at home. After the war the company turned its attention to industrial uses of the pumping technology it had been developing over the years. Spraying units, finishing equipment, and dispensing systems were designed for uses ranging from spreading adhesives to handling food.

By the mid-1950s, the 400-employee company had revenues in excess of $5 million. Driven by the needs of its customers, Gray Company continued to play the role of innovator. The company was the first to use hydraulics for cleaning, and the first to develop cold airless atomization (a process that used pressure to separate liquid into fine particles) for spray painting and coating. The company also began to design automated systems for manufacturing plants and implement plans for international operations.

In 1958 Leil Gray died, and Harry A. Murphy, Sr., was named president and CEO. That same year, Gray Company introduced Hydra-Spray, the first airless paint spray unit, and airless-spray technology propelled the company's growth in the 1960s. In 1965 Gray Company developed an electrically powered airless-spray system that freed painting contractors from bulky compressors. The company also introduced equipment that permitted hot airless pumping, proportionate mixing, and automatically controlled dispensing of fluids.

In 1962 Leil Gray's son-in-law David A. Koch was named president, succeeding Murphy. In the early years of his tenure, Koch guided the company through a plant modernization program and an important period of growth. In 1969, Gray Company, Inc. was taken public and changed its name to Graco Inc. Sales for the year were $33 million up from about $12 million when Koch assumed company leadership.

International expansion moved forward with the purchase of a majority interest in French automobile servicing equipment and products manufacturer Fogautolube S.A. and also with the establishment of a Canadian sales subsidiary. Domestically, Graco purchased Chicago-based H.G. Fischer & Co., a finishing and electrostatics business, in 1970. Sales topped $50 million in 1971. The company experienced an annual growth rate of 17 percent in sales and about 20 percent in net earnings over the ten-year period from 1963 to 1973.

A Decade of Change: 1970s

Graco's rapid growth faltered in 1974. Financial analyst Ken Johnson, in a 1975 Corporate Report article, suggested that Graco was surprised by a weakening market that had been disguised by customer purchases made in response to rapidly rising raw material prices. Net sales for 1974 rose only 6.3 percent, and net earnings fell 50 percent. The slide continued in 1975 with a significant drop in revenues.

Nevertheless, Graco rebounded in 1976. Pumps and spray-painting equipment for the construction and decorating trades led the recovery. Graco sales more than doubled over four years, and earnings reached a high of $10 million or $4.45 per share in 1979. Concern regarding future growth prompted the company to develop technology acquired earlier in the decade.

Electrostatic painting, which required less paint and reduced emissions, had become a preferred finishing method in increasingly cost-conscious, competitive, and environmentally concerned times. A heavy investment in the technology paid off: Graco developed a successful new line of sophisticated products and positioned itself as an electrostatic equipment supplier for automobile makers.

Robotics Venture

In 1981 the company established a joint venture, Graco Robotics, Inc. (GRI), with Edon Finishing Systems of Troy, Michigan, in order to develop a robotics paint-finishing system. According to Eben Shapiro, in a June 1987 Minneapolis/St. Paul CityBusiness article, Graco saw robotics as "a logical and necessary extension of its finishing business."

In 1982 Graco sales and earnings were hit by a combination of poor market and economic conditions, but the company continued to pump research and development dollars into the slowly progressing robotics venture and even increased its ownership from 51 to 80 percent. GRI sold its first robots in 1983 and became profitable in 1984. With 1985 sales around $20 million, GRI contributed about 10 percent of total Graco sales.

Koch stepped down as president of Graco in 1985, remaining chairman and CEO. Walter Weyler, a vice-president with General Electric Company, succeeded him. Quoted in an April 1985 Minneapolis Star Tribune article, Koch remarked that he intended to focus on the strategic direction of the company as it made the transition from an emphasis on components to high-tech systems.

Activity continued in other business segments. In 1984 Graco discontinued a consumer painting business started in the late 1970s. The purchase of Lockwood Technology, Inc. (LTI), a supplier of chemical bonding and sealing equipment, broadened the fluid handling group that same year. The company acquired 100 percent ownership of a former Japanese joint venture in 1985, thus expanding its international operations in the Far East. The following year Graco's common stock was listed on the New York Stock Exchange.

By 1986, GRI had become a major supplier of paint-spraying robots, and its customers included Chrysler, Ford, Fiat, Ferrari, Volvo, and Rolls-Royce. Moreover, Japanese automakers purchased robotics paint sprayers for plants located in the United States. GRI was one of only a few U.S. robot makers that had been able to maintain profitability.

A Changing Marketplace: The 1990s

Demand for finishing equipment fell off, however, as U.S. automakers completed installation of the new generation of paint sprayers in the late 1980s; and profits on foreign sales of large automated systems were low because of customizing costs. Graco's 1988 domestic sales were flat, while a 31.7 percent increase in international sales was attributable to its traditional products, such as portable airless-spray painters.

International sales slowed in 1990, but increased U.S. sales in architectural coating and cleaning equipment helped Graco achieve both record sales and earnings for the year; net revenues were $321.3 million, and net earnings were $17.7 million. Continuing recession in the United States and poor economic conditions in several European countries resulted in decreased earnings in 1991, which fell by nearly 50 percent. The company also reported losses associated with the divestment of its robotics division; pressure from larger competitors had prompted the sale.

The company initiated a year-long strategic review in 1992, while it refined various aspects of its businesses. As a result, Graco exited the packaging and converting aspect of the adhesive equipment market with the sale of LTI and a related joint venture, two Detroit-area operations were consolidated in the building that was constructed for Graco Robotics, and a new spray-gun manufacturing plant was planned.

Weyler resigned his positions as president and chief operating officer in January 1993. Koch--who was the major company shareholder as well as CEO and chairman--commented at the time that he and Weyler had important differences regarding the future direction of the company. "The sudden resignation of a president is enough to throw most public companies into a tailspin," wrote Scott Carlson, in the St. Paul Pioneer Press Dispatch in March 1993. But with Koch once again at the helm, Wall Street was not fazed; Graco had a solid reputation as a well-run company, with little long-term debt, no across-the-board competition, and the ability to meet the challenges of changing internal and external conditions.

George Aristides, a 20-year Graco veteran, was promoted to president and chief operating officer in June 1993. Aristides had served as vice-president of manufacturing operations since 1985 and led the $20 million, five-year conversion of Graco's two sprawling Minneapolis plants to a cellular operation with work groups producing components or products from start to finish. Also in 1993 Graco opened up a new factory for manufacturing spray guns in Sioux Falls, South Dakota.

Graco in 1993 became the first company in its industry to become ISO 9000--registered at all its major sites. ISO 9000, which set business practice standards, was adopted by the International Organization for Standardization in 1987. Forty percent of Graco's 1992 sales had been in the international marketplace where certification was increasingly expected. More American companies, such as the Sherwin-Williams Company, one of Graco's largest customers for pumps and paint spraying equipment, were also asking their vendors to be certified.

Ongoing recessions in Europe and Japan, both important overseas markets, had forced Graco to downsize operations in those regions. In 1994, Graco restructured its operations in the Pacific and in Europe. In order to boost product development, the company pumped in $23.1 million in capital expenditures into engineering and manufacturing capabilities in 1994 and added another $19.8 million in 1995. Late in 1995 plans for a $70 million distribution and manufacturing center were announced, and the David A. Koch Center opened in Rogers, Minnesota, the following year. This last move enabled the company to transfer its fast-growing contractor equipment manufacturing operation out of its crowded main plant in Minneapolis.

After 33 years as CEO, Koch stepped down from the post in January 1996. Koch was succeeded by Aristides, while maintaining his position as chairman. Net earnings grew by 31 percent to $36.2 million in 1996 on little change in revenue, which was up just 1 percent to $391.8 million. But profits were slim on foreign sales which contributed nearly one-third of total volume.

Harlan S. Byrne, in a February 1997 Barron's article, credited Aristides with shaking up "the once sleepy organization." Product development spending was increased by nearly 50 percent from 1992 to 1996. Graco introduced 130 new items in 1996 and expected to increase that number to 160 in 1997. Products introduced in the previous three years generated 21 percent of 1996 worldwide sales. Selling, general, and administrative expenses were cut from 40 to 31 percent of revenues from 1992 to 1996. Byrne regarded Graco's gains in earnings under Aristides as dramatic. Net earnings, before special items, had more than tripled since 1992. Nevertheless, he noted that "Aristides won't be happy until annual revenues rise, on average, at a double-digit clip."

Revenues increased 6 percent in 1997, reaching a record $423.9 million, but net earnings surged 24 percent, to $44.7 million, thanks to Aristides's efforts to permanently reduce expenses. The following year the company spent about $191 million to buy back 22 percent of its outstanding common stock that had been held by a trust for heirs of the company founders.

In February 1999 James Earnshaw was named president and CEO of Graco, with Aristides becoming vice-chairman. Earnshaw was brought in from the outside, having spent 26 years at Cleveland diversified manufacturer Eaton Corporation, where he most recently served as head of the Eden Prairie, Minnesota-based hydraulics division. In June 1999 Graco acquired Böllhoff Verfahrenstechnik (BV), based in Bielefeld, Germany, a producer of piston pumps, diaphragm pumps, two-component proportioning equipment, and applicators used in the automotive and industrial markets, primarily in Europe. BV had 1998 sales of about $20 million.

Quietly Reaching New Heights: Early 2000s

At the end of 1999 Earnshaw resigned "to pursue other opportunities," and Aristides returned as CEO. Dale Johnson, a 23-year Graco veteran, was named president and COO. During 2000 the company moved its corporate headquarters from Golden Valley, Minnesota, back to the site of its largest manufacturing plant in Minneapolis, and also began a 130,000-square-foot expansion of that same plant. Behind the corporate move was a desire by management to get closer to the production operations. In early 2000 Graco introduced the Magnum line of spray-painting products for smaller paint contractors. The new line was sold through home center and paint store channels, with the Home Depot, Inc. big-box chain being the main distribution outlet.

More management changes were on tap for 2001. In March, Johnson, the heir apparent to Aristides, stepped down as president and COO to become vice-president of Graco's contractor equipment division. After an outside search for a new leader, the company hired David A. Roberts as president and CEO in June 2001. Roberts had been a group vice-president of the Marmon Group, a privately held group of diverse companies based in the Chicago area, overseeing several manufacturing firms. Meantime, in April 2001 Aristides was named company chairman, succeeding longtime Chairman Koch.

Also in 2001 Graco acquired ASM Company, Inc., maker and marketer of spray tips, guns, poles, and other accessories for the professional painter. Headquartered in Orange, California, ASM had sales of approximately $11 million in 2000. ASM distributed its products through the paint store, home center, and rental channels. Following the acquisition, the ASM operation was transferred to Graco's Sioux Falls plant. Overall, Graco struggled during 2001 because of the global economic recession. Revenues of $472.8 million were down about 4 percent from the previous year, and net earnings of $65.3 million represented a drop of approximately 9 percent.

By 2002 Graco's financial position was so strong that it had retired all of its long-term debt. Cash-rich, the firm was on the lookout for significant acquisitions while continuing to pour money into new product development. In mid-2002 Graco closed the manufacturing plant in Bielefeld, Germany, it had gained in the BV deal. Some product lines that had been manufactured there were discontinued and the rest were transferred to the Minneapolis facilities. Aristides resigned as chairman during 2002 and was succeeded by Lee R. Mitau, who had served as a Graco director since 1990.

In early 2003 Graco used some of its cash hoard to buy back 2.2 million shares of its stock from the founding family, spending $54.8 million to do so. Later in the year the company began construction of a new 42,000-square-foot building on its corporate campus where some of the company's manufacturing and administrative employees would be housed. This building was completed in February 2004. Graco also continued to seek growth in emerging markets by developing distributors in such countries and regions as China, Korea, India, the Middle East, and Eastern Europe. By 2003 the company had distributors in more than 100 countries and was generating 37 percent of its sales outside the United States. Growth was further aided by the April 2003 acquisition of Sharpe Manufacturing Company of Santa Fe Springs, California, for $13.5 million. Sharpe, which had 2002 revenues of $11 million, produced spray guns and related parts and accessories for the automotive refinishing market, a new sector for Graco. Early in 2004 the manufacturing operations of Sharpe were relocated to the Sioux Falls plant.

Graco's low-profile, methodical approach yielded its best results yet in 2003, when revenues reached a record $535.1 million, a 10 percent jump from 2002, and net income totaled a best-ever $86.7 million, a 15 percent increase. Looking to the future, Graco aimed to continue to grow by developing new products, expanding into new market segments, adding to its global distribution system, and pursuing strategic acquisitions. On the manufacturing side, the company also announced in mid-2004 that it would spend about $4 million to open a 50,000-square-foot manufacturing plant in the Shanghai region of China. A leased facility, the plant was expected to become operational during the second half of 2005.

Principal Subsidiaries: Equipos Graco Argentina S.A.; Graco Barbados FSC Limited; Graco Canada Inc.; Graco do Brasil Limitada (Brazil); Graco Europe N.V. (Belgium); Graco Fluid Equipment (Shanghai) Co., Ltd. (China); Graco GmbH (Germany); Graco Hong Kong Limited; Graco K.K. (Japan); Graco Korea Inc.; Graco Limited (U.K.); Graco Minnesota Inc.; Graco N.V. (Belgium); Graco S.A.S. (France); Graco South Dakota Inc.

Principal Divisions: Contractor Equipment; Industrial/Automotive Equipment; Lubrication Equipment.

Principal Competitors: Illinois Tool Works Inc.; Nordson Corporation; Exel Industries SA; Raven Industries, Inc.

Further Reading:

• Black, Sam, "Cash-Rich, Debtless, Graco Wants to Buy," Minneapolis/St. Paul Business Journal, February 1, 2002.
• ------, "Toro, Graco Chasing Big-Box Retail Market," Minneapolis/St. Paul CityBusiness, January 26, 2001, p. 5.
• Byrne, Harlan S., "Revitalized," Barron's, February 3, 1997, p. 22.
• Carlson, Scott, "Restructuring Graco," St. Paul Pioneer Press Dispatch, March 1, 1993.
• "Corporate Capsule: Graco Inc.," Minneapolis/St. Paul CityBusiness, July 15, 1991 and April 23, 1993.
• "David Koch Ending His 33-Year Tenure As CEO at Graco," Minneapolis Star Tribune, December 16, 1995, p. 2D.
• Ewen, Beth, "Graco Reports Earnings Downturn Due to Lower Profit Margins," Minneapolis/St. Paul CityBusiness, August 7-20, 1989, p. 16.
• "Fast-Forward on the Paint-Spray Line," Financial World, October 31-November 13, 1984, pp. 70-71.
• Feyder, Susan, "'Stick-To-Itiveness' Pays Off for Graco," Minneapolis Star Tribune, May 5, 1986, p. 1M.
• Fredrickson, Tom, "Aristides Primes the Pump at Graco," Minneapolis/St. Paul CityBusiness, November 12-19, 1993, p. 1.
• ------, "Woes Across the Water," Minneapolis/St. Paul CityBusiness, May 27-June 2, 1994, p. 1.
• "Graco Hires GE Official As President," Minneapolis Star Tribune, April 12, 1985.
• Johnson, Ken, "Graco at the Gap," Corporate Report Minnesota, June 1975, pp. 35-36.
• ------, "Graco at the Ready," Corporate Report Minnesota, September 1981.
• Kearney, Robert P., "A Pumped Up Graco," Corporate Report Minnesota, April 1986, pp. 45+.
• The Graco Story, Minneapolis: Graco Inc., 2001.
• Maturi, Richard J., "The Age of Robots," Barron's, August 18, 1986, p. 36.
• Peterson, Susan E., "Aggressive Graco Pumps Up the Volume," Minneapolis Star Tribune, May 17, 1993, p. 1D.
• ------, "Global Competition Spurs ISO 9000," Minneapolis Star Tribune, November 22, 1993, p. 1D.
• ------, "Graco Names Aristides President, COO," Minneapolis Star Tribune, June 25, 1993, p. 3D.
• ------, "Graco Reports Record Sales and Earnings for Last Year," Minneapolis Star Tribune, February 15, 1991, p. 2D.
• ------, "Long-Term Changes Paying Off at Graco," Minneapolis Star Tribune, November 12, 1997, p. 1D.
• ------, "Osborne Resigns As Graco President After One Year," Minneapolis Star Tribune, May 27, 1998, p. 1D.
• ------, "Walter Weyler Resigns from Graco Because of 'Differences' with CEO," Minneapolis Star Tribune, January 16, 1993, p. 1D.
• Randle, Wilma, "Dollar's Strength Hit Graco in '84," St. Paul Pioneer Press Dispatch, May 8, 1985.
• St. Anthony, Neal, "Graco Is Returning to Its Northeast Minneapolis Roots," Minneapolis Star Tribune, May 5, 2000, p. 1D.
• ------, "With Little Notice, Graco Keeps Growing," Minneapolis Star Tribune, February 15, 2002, p. 1D.
• Shapiro, Eben, "Graco Robots Wow Even the Japanese," Minneapolis/St. Paul CityBusiness, June 3, 1987, p. 1.

Source: International Directory of Company Histories, Vol.67. St. James Press, 2005.