Cuộc họp Báo cáo Kết quả Kinh doanh Quý 3 Năm tài chính 2026 của Graco (GGG): Doanh thu Kỷ lục và Định hướng Quý 4

Điểm tin chính

• Graco Inc. (NYSE: GGG) đã báo cáo doanh thu kỷ lục trong quý 3 năm tài chính 2026 đạt 586 triệu USD, tăng 8% so với cùng kỳ năm ngoái, bao gồm mức tăng trưởng hữu cơ 4%.
• Lượng đơn đặt hàng mới hữu cơ tăng 7% trong quý và tăng 4% từ đầu năm đến nay. Không tính các thương vụ thâu tóm, giá trị đơn hàng tồn đọng tính đến ngày 16 tháng 10 đã tăng 51 triệu USD, tương đương 18%, so với đầu năm.
• Lợi nhuận hoạt động điều chỉnh đạt 161 triệu USD, trong khi EPS điều chỉnh tăng 5% lên 0,81 USD. Biên lợi nhuận hoạt động điều chỉnh giảm gần 180 điểm cơ bản xuống 27%, chủ yếu do cơ cấu sản phẩm và kênh phân phối.
• Cả ba phân khúc đều tăng trưởng: Doanh số phân khúc Thầu xây dựng (Contractor) tăng 5%, Công nghiệp (Industrial) tăng 11% và Thị trường Mở rộng (Expansion Markets) tăng 8%. Phân khúc Bán dẫn ghi nhận doanh thu theo quý cao nhất trong nhiều năm.
• Ban quản lý dự kiến doanh thu quý 4 năm tài chính đạt từ 610 triệu USD đến 640 triệu USD, dựa trên xu hướng đơn hàng và lượng đơn hàng tồn đọng hiện tại, mà không tính đến khả năng nhu cầu tăng tốc.
• Graco đã hoàn tất thương vụ thâu tóm Valco Melton và đặt mục tiêu tăng biên EBITDA của công ty này từ mức cận 20% lên vùng khoảng 25% trong vòng ba năm sau khi hoàn tất thương vụ.

Dữ liệu tài chính quan trọng

Kết quả hoạt động kinh doanh và vận hành

Contractor: Doanh số tăng 5%, bao gồm các thương vụ thâu tóm, với mức tăng trưởng hữu cơ đạt 2% và tăng trưởng ở tất cả các khu vực. Mảng sơn chuyên nghiệp ở khu vực Châu Mỹ dẫn đầu kết quả hoạt động, nhờ sự đón nhận của khách hàng đối với QuickShot II và ProReach. Chi tiêu cho cơ sở hạ tầng và xây dựng thương mại cũng đóng góp vào kết quả. Lượng đơn đặt hàng tăng 7% trong quý và tăng 2% từ đầu năm đến nay. Kênh trung tâm cải tạo nhà ở yếu hơn một chút, nhưng ban quản lý cho biết không có thay đổi căn bản nào ở kênh này.

Industrial: Doanh số tăng 11%, phản ánh đóng góp từ cả hoạt động kinh doanh cốt lõi và các thương vụ thâu tóm. Hệ thống Sơn phủ bột hưởng lợi từ các dự án, trong khi chi tiêu bảo trì và sửa chữa vẫn duy trì ở mức khả quan. Graco cũng báo cáo sự gia tăng sử dụng máy bơm QUANTM và sự tăng trưởng tiếp tục trong mảng bôi trơn tự động. Lượng đơn đặt hàng từ đầu năm đến nay tăng 1%, mặc dù một số dự án vốn lớn gặp phải chu kỳ ra quyết định kéo dài hơn hoặc bị trì hoãn. Tăng trưởng trong quý 3 diễn ra diện rộng ở nhiều khu vực địa lý nhưng khiêm tốn hơn tại Mỹ.

Nếu không tính Valco Melton và các chi phí liên quan, lợi nhuận hoạt động phân khúc Công nghiệp đi ngang ở mức 74 triệu USD. Biên lợi nhuận phân khúc giảm gần một điểm phần trăm chủ yếu do cơ cấu sản phẩm và kênh phân phối. Ban quản lý cho biết tỷ suất lợi nhuận thực tế của phân khúc Công nghiệp nếu không tính Valco Melton đạt khoảng 33%.

Expansion Markets: Doanh số tăng 8%. Mảng Bán dẫn tạo ra doanh thu theo quý cao nhất trong nhiều năm khi khách hàng đầu tư vào công suất sản xuất tiên tiến và các quy trình sản xuất phức tạp hơn. Doanh số mảng Môi trường tăng trưởng ở mức hai chữ số. Lượng đơn đặt hàng của phân khúc tăng mạnh 62% trong quý 3 và tăng 44% từ đầu năm đến nay. Lợi nhuận hoạt động tăng 5% lên 11 triệu USD.

Graco cũng công bố một thỏa thuận công nghệ, theo đó ABB sẽ nhận bản quyền công nghệ Động cơ Từ thông Ngang (Transverse Flux Motor) đã được cấp bằng sáng chế của ETM cho các tháp làm mát trung tâm dữ liệu, hệ thống tản nhiệt và các ứng dụng quản lý nhiệt liên quan. Ban quản lý cho biết các công ty đang hướng tới các đợt lắp đặt đầu tiên cho trung tâm dữ liệu vào cuối năm 2029.

Dự báo của Ban quản lý

Ban quản lý dự kiến doanh thu quý 4 năm tài chính 2026 đạt từ 610 triệu USD đến 640 triệu USD. Triển vọng này dựa trên xu hướng đơn hàng và lượng đơn hàng tồn đọng hiện tại, và không giả định nhu cầu sẽ tăng tốc trong quý.

Công ty dự kiến điều kiện giá bán - chi phí sẽ duy trì ở mức tương đối trung tính trong quý 4 sau khi giá bán thực tế đã bù đắp chi phí đầu vào ròng cao hơn trong quý 3.

Các ưu tiên ngắn hạn của ban quản lý bao gồm chuyển đổi đơn hàng thành các đợt giao hàng, hỗ trợ việc áp dụng sản phẩm mới, quản lý áp lực chi phí, khai thác hiệu ứng cộng hưởng từ thâu tóm và duy trì dịch vụ khách hàng.

Đối với Valco Melton, Graco đặt mục tiêu mở rộng biên EBITDA từ mức cận 20% lên vùng khoảng 25% trong vòng ba năm. Các động lực được lên kế hoạch bao gồm thay đổi quy trình mua sắm, cải tiến sản xuất, đầu tư vốn và các cơ hội bán hàng chéo.

Rủi ro và các điểm cần theo dõi

• Các khách hàng công nghiệp tiếp tục tiếp cận một cách thận trọng đối với một số dự án vốn lớn hơn, làm kéo dài chu kỳ ra quyết định và dịch chuyển doanh thu giữa các kỳ.
• Doanh thu quý 3 năm tài chính không tính Valco Melton đạt mức thấp hơn một chút so với khoảng 580 triệu USD đến 600 triệu USD mà Graco đưa ra trước đó, chủ yếu do tiến độ dự án trong phân khúc Công nghiệp.
• Cơ cấu sản phẩm và kênh phân phối, bao gồm đóng góp cao hơn từ các hệ thống Sơn phủ bột, đã gây áp lực lên biên lợi nhuận hoạt động điều chỉnh.
• Valco Melton hiện có biên EBITDA thấp hơn so với mảng hoạt động Công nghiệp cốt lõi của Graco và sẽ làm pha loãng biên lợi nhuận phân khúc được báo cáo trong giai đoạn tích hợp.
• Mô hình kinh doanh chu kỳ ngắn của Graco hạn chế khả năng quan sát triển vọng tương lai, trong khi tiến độ dự án có thể di chuyển doanh thu giữa các kỳ báo cáo.

Nội dung nổi bật trong phần Hỏi & Đáp với chuyên gia phân tích

Ban quản lý cho biết nhu cầu ở phân khúc Thầu xây dựng vẫn tích cực bất chấp sự suy yếu tiếp diễn của thị trường nhà ở dân dụng. Hoạt động thương mại, các dự án cơ sở hạ tầng, ứng dụng lớp phủ bảo vệ và mảng bọt xốp đã hỗ trợ cho kết quả kinh doanh, trong khi các sản phẩm mới thu hút được sự chú ý tại các kênh sơn chuyên nghiệp.

Đối với phân khúc Công nghiệp, ban quản lý mô tả các thị trường truyền thống của Graco là khá trầm lắng, nhưng lưu ý rằng lượng đơn đặt hàng đã cải thiện trong nửa sau của quý 3 và xu hướng này tiếp tục kéo dài sang quý 4. Tuy nhiên, triển vọng quý 4 dựa trên giả định xu hướng đơn hàng vẫn xoay quanh các mức trước đó thay vì đưa mức cải thiện gần đây vào dự báo.

Về phân bổ vốn, Graco có kế hoạch duy trì tiếp cận cân bằng giữa các thương vụ thâu tóm và mua lại cổ phiếu. Ban quản lý cho biết danh mục các mục tiêu thâu tóm tiềm năng của họ chứa hơn 100 cái tên đang xem xét, trong đó chú trọng nhiều hơn vào các thị trường cuối tăng trưởng nhanh hơn như bán dẫn, xử lý nước thải và quản lý nước.

Graco kết thúc quý với khoảng 135 triệu USD nợ và 140 triệu USD tiền mặt. Ban quản lý dự kiến báo cáo kết quả hoạt động kinh doanh sẽ chuyển từ thu nhập lãi vay cao hơn trong lịch sử sang chi phí nợ lớn hơn.

Toàn văn Biên bản Cuộc họp Báo cáo Kết quả Kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Good morning, and welcome to the third quarter conference call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company website at www.graco.com. Graco has additional information available in a PowerPoint slide presentation, which is available as part of the webcast player. At the request of the company, we will open the conference up for questions and answers after opening remarks from management.

I will now hand the conference over to John Bower, Director of Investor Relations. John, please go ahead.

John Bower

Good morning. I'm here with Mark Sheahan, our President and Chief Executive Officer; Sanjiv Gupta, Chief Financial Officer and Treasurer; and Chris Knutson, Vice President, Chief Accounting Officer and Controller. We welcome you to our conference call to report Graco's fiscal 2026 Third Quarter results.

Before we begin, I'd like to remind everyone that certain statements made during this call may be forward-looking and are subject to risks and uncertainties. Please refer to the safe harbor statement included in our earnings release and earnings presentation as well as our SEC filings for additional information regarding these risks and uncertainties.

I will now turn the conference over to Mark Sheahan.

Mark Sheahan

Thank you, John, and good morning, everyone. Before turning to our quarterly results, I wanted to just highlight the technology agreement we announced yesterday with our ETM business and ABB. Under this agreement, ABB will license ETM's patented Transverse Flux Motor technology for use in data center cooling towers, heat rejection systems and related thermal management applications.

The agreement builds on our existing collaboration with ABB in industrial applications, and it creates an opportunity to participate in one of the fastest-growing infrastructure markets in the world. As demand for AI, cloud computing and high-density data centers continues to grow, cooling performance is becoming increasingly important to energy efficiency, reliability and operating costs. We believe ETM's direct drive motor technology is well positioned to address those needs by reducing mechanical complexity and improving the overall system performance.

Just as importantly, ABB's decision to expand its relationship with ETM and Graco is a strong validation of the technology, the team and the commercial opportunity ahead. By combining ABB's global scale, customer relationships and manufacturing capabilities with ETM's differentiated technology, we have a unique opportunity to create value in a large and growing market while further demonstrating the long-term potential of the ETM platform. Based on current development time line, the companies are targeting the first data center installations by the end of 2029.

Now turning to the quarterly results. We delivered another strong quarter with record sales of $586 million, an increase of 8% compared to last year, including organic growth of 4%. The growth was broad-based with all 3 segments and all reportable regions contributing. Importantly, the growth was supported by improving order activity. Organic incoming orders increased 7% in the quarter, and they were up 4% year-to-date. Backlog as of October 16, excluding acquisitions, increased $51 million or 18% from the beginning of the year. That provides us with improved visibility as we enter into the fourth quarter.

During the quarter, we completed the acquisition of Valco Melton, which expands our precision adhesive dispensing and quality assurance capabilities. We're excited about the meaningful revenue and operating synergies available across the combined businesses. Our integration priorities are to enable cross-selling through our complementary customer relationships and channels to leverage procurement and manufacturing capabilities and to preserve customer service and business momentum. We're targeting expansion of Valco Melton's EBITDA margin from the high teens to the mid-20% range within 3 years of closing.

Turning to the segments. Our Contractor segment delivered sales growth of 5%, including acquisitions and organic growth of 2% with growth across all of the regions. Results were led by professional paint in the Americas, where customer adoption of new products like QuickShot II and ProReach contributed to healthy sell-through in key channels. The results reflected strong commercial execution and growing demand for our products. Infrastructure spending and commercial construction activity are also contributing to the segment's momentum. Across the segment, bookings increased 7% in the quarter and 2% year-to-date, supporting demand entering the fourth quarter.

The Industrial segment delivered 11% sales growth in the third quarter, reflecting contributions from the core business and acquisitions. Growth was led by project activity in Powder Finishing systems, while customer spending on maintenance and repair remains strong. We also saw increased adoption of electric technologies, including the QUANTM pump in process manufacturing applications and continued growth in automatic lubrication. Overall demand remained steady with year-to-date bookings up 1%. At the same time, customers continue to take a measured approach to certain larger capital projects resulting in longer decision cycles in some applications.

Expansion Markets segment sales increased 8% during the quarter. Semiconductor delivered the strongest quarterly revenue in several years as customers invested in advanced manufacturing capacity and more complex production processes. These requirements are expanding the range of applications served by our high purity and precision technologies. Environmental also delivered double-digit growth during the quarter. Bookings in this segment increased 62% in the third quarter, and they're up 44% year-to-date.

Turning to the outlook. We expect fourth quarter revenue of $610 million to $640 million based on current order trends and backlog. Order activity supports our outlook, although demand conditions vary across our markets and larger project schedules can shift revenue between periods. Our priorities are to convert orders into shipments, advance new product adoption, manage cost pressures and capture acquisition synergies while maintaining customer service.

With that, I'll turn the call over to Sanjiv to provide more details on our financial results for the quarter.

Sanjiv Gupta

Thank you, Mark, and good morning, everyone. I'll provide some additional detail on our third quarter financial performance, profitability and cash flow. We reported record Q3 revenue of $586 million. As we discussed last quarter, our third quarter revenue guidance was $580 million to $600 million, excluding Valco Melton.

On a comparable basis, third quarter revenue finished slightly below that range, primarily within the Industrial segment, reflecting the timing around larger capital projects, including longer decision cycles and some projects being delayed or pushed out. Importantly, we are not seeing broad-based deterioration in demand as indicated by order trends. Our fourth quarter outlook reflects current business conditions and the timing of converting order activity and backlog into revenue. Our outlook does not assume an acceleration in demand during the fourth quarter.

With that context, let me turn to profitability in the third quarter. Adjusted operating earnings came in at $161 million and adjusted earnings per share grew 5% to $0.81. Realized pricing was able to offset higher net input costs, and we maintained good expense discipline while continuing to invest in our strategic growth initiatives. Adjusted operating margin was 27% of sales, down nearly 180 basis points from the prior year quarter, primarily due to the product and channel mix, including a higher mix of Powder Finishing systems. This was partially offset by disciplined cost management with operating expenses down approximately $3 million, excluding acquired expenses, amortization, acquisition-related costs and the prior year contingent consideration benefit.

Contractor operating earnings at $71 million rose 5% with stable margins versus last year. Excluding Valco Melton and related costs, operating earnings for Industrial were flat at $74 million, with margin down nearly 1% from the same quarter last year due primarily to product and channel mix discussed earlier. Expansion Markets operating earnings at $11 million increased 5% on semiconductor strength despite a tough comparable to the prior year, which included upfront license fee in our electric motor product application that did not repeat.

Turning to cash flow. We generated $463 million of operating cash flow year-to-date, representing 116% of adjusted net earnings. We continue to deploy capital in a balanced manner. For the year-to-date, we repurchased shares for $467 million, paid $145 million in dividends, invested $436 million in acquisition, net of cash acquired, and invested $48 million in capital expenditures. Even after funding these investments, we continue to maintain a slightly positive net cash position.

In summary, our third quarter performance reinforces the strength of our operating model and cash generation. We remain well positioned to invest in strategic growth opportunities while maintaining a disciplined approach to capital allocation and long-term shareholder value creation. That concludes our prepared remarks.

Operator, we are ready for the questions.

Operator

[Operator Instructions] Our first question comes from Mike Halloran with Baird.

Phần hỏi đáp

Michael Halloran

So could you unpack the contractor piece a little bit for me, maybe by channel within the more traditional resi commercial side, what you're seeing with the foam business and any signs of deceleration in growth rates, necessarily environment, maybe that too, but any signs of deceleration or worsening trends in any of those subareas within that segment?

Mark Sheahan

Yes. I think we are pretty happy with the performance in Q3. And obviously, organic growth now 2 quarters in a row is nice to see in that business. And we got a lot of that growth really through the pro paint channel. And it was also nice to see growth across the regions. But I would say that the level of activity that we're seeing lines up pretty well with how we thought things would play out with commercial activity and the product application that you mentioned, Mike, still doing well for us. And that has to do with, obviously, the infrastructure build-out and things that are happening despite the backdrop of the residential housing market, which has been with us here for a while, we didn't really see a market deterioration when it came to that level of activity. But I'd characterize it as pretty upbeat, pretty positive. The team is working well. They got a couple of new products that hit the mark with the customers that we sell to, and things are in good shape as we enter into Q4.

Michael Halloran

No, I appreciate that. And maybe a similar question for the Industrial segment, some of the subareas within there, how are those tracking? And then acceleration, deceleration with any pieces that you would find noteworthy on that side as we head into 4Q here?

Mark Sheahan

Yes. I would say that the top line, pretty strong performance, up 11% growth, both from underlying businesses and M&A. A lot of the non-M&A growth came out of the powder finishing side of the business as project activity was a really important contributor there. And on the -- I'll say, the legacy Graco side, kind of the maintenance and repair spending remained pretty healthy. We are also seeing some improvement in the adoption of electric technologies like our QUANTM product, and we're also seeing growth in the automatic lubrication side of the business as well.

So year-to-date bookings are still kind of flattish, up about 1%. But overall, we feel like the position -- or the business is positioned pretty well to recover as some of the, I'll call them, the legacy industrial markets start to recover. We did see some bookings improvement as we made our way through the quarter. Without getting too cute, I would say that the back half of the quarter, the bookings growth was a little bit stronger than what we were experiencing earlier in the quarter, and that's kind of continued here into Q4 as well. So very profitable business. We're excited to get it back on a growth trajectory, and there's some green shoots there.

Operator

Our next question comes from Bryan Blair of Oppenheimer.

Bryan Blair

Following up on Mike's questions there. It sounds like underlying demand trends are generally unchanged. Your team is executing pretty well. Trying to get my head around the growth moderation that's implied in Q4. If we take a stab at Valco Melton's top line contribution, it looks like flattish organic growth year-on-year. Expansion Markets states a pretty easy comp and there's tremendous momentum in semiconductor. So Contractor and/or Industrial are implied to slow quarter-on-quarter. Your prepared remarks suggested that there is still a measured approach to capital spending, some uncertainty on the industrial side, less so in terms of the trends with Contractor. But if you could provide a little more color on what you're seeing now and what's baked in directly in terms of the Q4 guide for the big segments, that would be very helpful.

Mark Sheahan

Yes. I appreciate the question. So I would just start off by saying that the headline outlook is a little bit softer than where things were previous to our announcement. But there is underlying demand, and there's really no deterioration in the underlying demand. If anything, it's maybe picked up here a little bit recently. But I think that as we are looking at how we might finish out the year, I think we're being appropriately cautious given the short-cycle nature of the business, and we really haven't done anything significant when it comes to taking backlogs way down or things like that. And we're really kind of basing the outlook based on how we see orders rolling in here in Q4.

I would say that the differences between the 2 is, really, we have seen a bit of an acceleration on the organic side in Contractor in Q2 and now in Q3. And I think that the industrial -- at least the legacy Graco industrial businesses -- remain kind of sluggish. As I said, the bookings are up 1% year-to-date. We kind of continue to see some, I think, sluggishness as we wrap up here in 2026. And hopefully, we see a little bit of an inflection as we get into '27. But that -- all that stuff factored into what we put out there for a guide here in Q4.

Bryan Blair

Okay. Appreciate the color. Your team has obviously been quite a bit more active on M&A over the recent past, and we know that's been a multiyear initiative. If we think about your current pipeline, Slide 5 references over 100 names in the active pipeline. How does the scale composition, focus areas of the pipeline now compared to 12, 24, 36 months ago? How are you thinking about near-term actionability of the pipeline? And given where your stock is trading, I'm sure your team is following the tape today, how are you prioritizing M&A versus repurchase activity currently?

Sanjiv Gupta

So I think on the capital allocation, we're going to be very similar to what we have been doing, pretty balanced between returning cash to the shareholders through buybacks. And I think as you indicated, we are looking at the stock price. So it is an attractive opportunity. We will be buying stock for sure. But at the same time, we do have a very deliberate M&A strategy, and we highlighted it in one of the slides in the deck. So we do have a pipeline. We do have specific areas we have identified. So those are the opportunities we are going to go after. And I think our cash generation, our balance sheet allows us that flexibility to do more, and that's what we'll do. So I think to answer your question, we'll -- given where the stock is, we're going to be buying it as well as we have a healthy pipeline, and we are pretty, I would say, focused on what areas we want to target the high-growth areas to diversify our revenue base, and that's what we're going to do.

Mark Sheahan

Yes. I'd probably just add that if you were to contrast what the pipeline looks like today versus maybe a couple of years ago, I think that we have maybe more names in there now that are in faster-growing end markets where we believe that if we can deploy capital, it improves the overall growth profile for the company. So some of the ones that we have highlighted that we already are in there like semiconductor space and anything in and around wastewater, water management stuff that our QED business does. Those are a couple of the target areas. And I would say we beefed up the pipeline there a little bit, Bryan, compared to what it would have been a couple of years ago.

Operator

Our next question comes from Jeffrey Hammond of KeyBanc Capital Markets.

Mitchell Moore

This is Mitch Moore on for Jeff. I just want to -- you guys talked about price covering commodity inflation. I guess, overall, with commodities and everything else, what was the overall price cost in the quarter? And just any forward view of that?

Mark Sheahan

Yes. Price cost was flat in the quarter for us. And I would think that for the rest of the year, given there's only 13 weeks left, it's kind of the way that I would look at Q4 as well.

Mitchell Moore

All right. That's helpful. And then this -- I think the initial ABB installations, you said targeted by the end of 2029. I guess in the interim, what milestones should we look for? And is this something we might see more of?

Mark Sheahan

Yes. I don't know that there will be a lot. For sure, if there are, we will call them out for you. I think this is a long-term strategic relationship that we have with them. We did have another licensing agreement with them a year ago, and they are going to be launching some of our motors into the marketplace next year. Those are targeted more like conveyor systems and factories, that kind of a thing. But I think that the punchline really is that they're a very large, well-respected global manufacturer of motors and motor technology. And for them to actively embrace what we have, they've seen it in action in a number of Graco products and in some of our other customers' products. I think it's a nice potential revenue stream for the company, and it gets us a little bit more entrenched in a market where there's just all kinds of capital going in there. I don't need to tell you guys that, and that doesn't look like it's going to change much over the next 5 to 7 years.

Operator

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

Matt Summerville

I was hoping you could first maybe do a little bit of a different kind of deeper dive on industrial, really focusing on what you're seeing from a geographic and end market standpoint with bookings. I realize you talked across some product lines, but I'm curious what kind of the walk around looks like from an end market perspective? And then I have a couple of follow-ups.

Mark Sheahan

Yes. I don't know that we have a lot. Obviously, we sell through a third-party channel, so it's kind of hard for us to tell. But I would say, generally speaking, across the board, there aren't any significant major differences in the different product categories that we have in the industrial business, and I would say for the geographic as well. I mean I think the overall message here is that it's been kind of flattish and up maybe a little bit in terms of volume here year-to-date. That's kind of what we're expecting for the rest of the year. But I don't know if Chris or Sanjiv, if you have anything you want to add to that.

Sanjiv Gupta

I would say, like, if you just look at the Q3, within the Industrial segment, the growth was across all the geographies. So it was pretty healthy. I think it was more subdued in, I would say, U.S. But overall, globally, it was pretty healthy, especially in Q3. On a go-forward basis, I think our range is really signaling -- or assuming certain continuation of this delay in the capital activity, that's what we are reflecting in our outlook. But base case would be really the order trends really stay at the same level. So I would say, as Mark indicated, we are seeing some healthy uptick, but our baseline -- or our outlook doesn't really reflect that. It's really assuming continuation of the order trends as we have seen before.

Matt Summerville

Okay. Talking about 2 other quick ones. First, does Valco have a structurally different potential margin profile relative to core Graco? I know you gave kind of a 3-year view from high teens to mid-20s. Is there something structural that will prevent it from kind of hitting kind of the Graco average, number one? And then number two, can you talk about the home center piece of Contractor? I don't believe that came up.

Mark Sheahan

Yes. I would say what we wanted to just highlight was the short-term EBITDA margin potential that we're targeting after doing a lot of work and looking at specifics like what can we do to source differently, what can we do with their factory to make things flow better? What kind of capital can we put in there to make them more efficient. So we gave it over a 3-year time period. But the only real difference in terms of the structure compared to like a Graco Industrial business is that they do sell direct, but they have very good direct sales presence. Their teams, I think, are fully staffed. They can handle more revenue across that base of salespeople and sales expenses that they have. So I don't really see anything meaningful that would cause us to think that it has a dramatically different overall margin profile from our general industrial businesses over time. So we gave a 3-year target, but typically, what these things wind up doing, Matt, is over a few years, you get the quick uptick. But then after that, we find other ways and we leverage the volume better as we go forward.

With regard to the home center, it wasn't a great quarter. I think it might have been down a little bit, but maybe the guys have more detail on that, that they can share with you. But the overall numbers were good in Contractor. And sometimes you do have one channel up, one channel down. There's nothing fundamentally different in that channel that's happened. It's just the current environment that we're in there. And we are pretty encouraged with the growth and where the growth is coming from, the paint store stuff and the commercial side of the business, protective coatings, foam, those types of product lines do carry higher margin rates. So I think we're cautiously optimistic that as we close out the year that the overall demand trends remain intact, and we'll see some growth in Contractor in Q4.

Operator

[Operator Instructions] Our next question comes from the line of Andrew Buscaglia of BNP Paribas.

Andrew Buscaglia

I was hoping you can give us some color on just on the dilution in the Industrial segment as it pertains to Valco. It seems a little -- I don't know, heavier. It's hard to parse out based on Q3 because it's kind of a stub quarter. But going forward, would you say like a few hundred basis points of dilution and expect 2027 to be sub-30% for the full year for those margins?

Mark Sheahan

I'm looking at my financial experts here, but...

Sanjiv Gupta

I think we called it out, I think excluding Valco, the industrial margins were 33%. And if you look at period-over-period, it was only down 100 basis points, and that is primarily because of the mix we talked about overall within the segment with our Powder Finishing Systems. I would say on a go-forward basis, like if you adjust out the Valco specific cost, we should be at that run rate as well. Chris, you want to...

Mark Sheahan

Yes. I think one thing I would just point to is that it's a, call it, a high teens EBITDA margin business. You've got the revenue. So that's what I would plug in right now. And I think over a 3-year period, you're going to see that expand to kind of mid-20s. There is noise in the quarter for sure. I mean we had a lot of onetime costs and other things that flow through that probably made the numbers look worse than they actually were. And as Sanjiv said, if you were to strip out Valco, the underlying profitability of our industrial businesses was actually pretty good at 33%.

Andrew Buscaglia

Okay. That's helpful. And then you kind of -- just another modeling question while I got you, the kind of you guys are typically doing unallocated corporate expenses around like $40 million a year. I would imagine that should go up a little bit with Valco. And then similarly, any color on interest expense would be helpful.

Christopher Knutson

I will just say that we haven't given our guide for the unallocated corporate. It might go up a little bit. But for the most part, the unallocated corporate relates to stock compensation expense. So I don't think that, that's going to be a significant headwind for us or a significant cost adder next year.

From an interest expense standpoint, you're going to see that kind of shift around, and we're going to see more interest expense as we do have now debt on the books. We have about $135 million of debt. We do have cash of $140 million. But we will see where we've carried a lot of interest income, we'll start to see that transition into more of that debt cost.

Sanjiv Gupta

And I would say from a modeling purposes, I think as we have indicated based on our capital allocation strategy, we are going to be using our -- using our balance sheet as appropriate. So we can't really give you an exact number.

Operator

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

Mark Sheahan

All right. Well, thank you, everyone, for participating in today's call, and I look forward to seeing you here in Q4, and I hope you have a good rest of the day. Thanks a lot.

Operator

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