Graco CEO Pat McHale, who grew up a mile from the company’s flagship plant on the Mississippi in northeast Minneapolis, is the rare corporate boss who started on the shop floor.
McHale, then 28, saw a “help wanted” sign at the Graco Riverside plant in 1989. He left a job at another manufacturer to sign on as a night-shift machinist supervisor at Graco’s Riverside plant for a salary of $29,000.
McHale, a machinist who also paid his way working factory jobs to an accounting degree at the University of Minnesota, also wasn’t shy about his ambition. He wrote “CEO” as his desired job, starting with his first review.
“Pat is the sharpest CEO I’ve ever worked with,” said Lee Mitau, a 26-year independent director and the chairman of Graco’s board who also is the retired general counsel of U.S. Bancorp. “He’s very smart. Always well prepared. He reads everything about the industry. Self-confident, but no pretense.
“He is ‘true blue’ Graco. And he loves walking the manufacturing floor.”
McHale credits the factory workers — who can make $70,000 or more annually with good benefits and stock options — for the hard work and creativity that have driven performance to record levels since he was named CEO in 2007.
“I get more heat about the stock price from employees, when it goes down, than from outside stockholders,” McHale said. “Business has tended to be more about shareholders in recent years. Shareholder activism. If you don’t do everything for them, you have a problem. I’m more focused on stakeholders. Do the right things for customers, employees and our community. The shareholders will come out ahead over time.”
McHale also has done well for the Wall Street crowd.
The stock price, driven by improved annual performance every year since the Great Recession of 2008-09, has risen from $17 per share in March 2009 to recent highs around $80. That’s more than double the rise of the S&P 500 stock index during the same period. Graco, worth about $4.3 billion, also pays a $1.32 per share annual dividend.
Analysts expect Graco, which had revenue of $1.29 billion last year, to post increased earnings this year on a single-digit increase in revenue, despite the strong dollar that has translated into lower export sales after currency translations.
Born in 1926 as an air-powered lubricator, Graco has evolved into a diversified manufacturer of pumps and sprayers with three Twin Cities-area plants and 3,600 employees in several countries. The company, which manufactures about 40 percent for export, makes equipment for industrial and contractor customers that pumps peanut butter and mayonnaise into jars, lubricates vehicles, glues the soles of shoes, secures glass into window frames, and paints cars, housing and even the lines on ball fields.
“Graco has a reputation for high-quality equipment that addresses its clients’ critical needs,” analyst John Franzreb said in a recent report for Sidoti & Co. of New York. He has a high target price of $90 per share on Graco this year,
Graco has higher-than-average profit margins. And it has had to be nimble, innovative and acquisitive to keep revenue growing even modestly in the mature markets it serves in a low-inflation environment.
McHale, who calls himself a Graco “lifer,” has driven a culture where worker suggestions are welcome, innovation is encouraged and spending on research is higher than average to accelerate new products and opportunities.
He has written more than 1,000 thank-you notes and mailed them to employee homes. He once ordered managers to install vending machines in a small plant when he learned that workers had to walk a few minutes to use vending machines in a larger facility on the Riverside campus.
“I want the employees on the shop floor to know they have influence,” he said. “I want their kids to see those notes and know that I think their parents are important to our company.”
He has pulled off several small deals that have deepened the company and added to profitability. In his biggest deal involving part of big Illinois Tool Works, he had to sell off major parts because federal regulators said it would be anti-competitive.
He blames himself for not consummating the entire deal. But Graco made $141 million on the parts it had to divest. McHale chose to give some of the money as a bonus to employees and some to the Graco Foundation.
On McHale’s watch, Graco has moved up the revenue ladder of the Star Tribune 100 list of Minnesota’s largest public companies. From the low 40s a decade ago, it has moved up to No. 28 this year.
Surprise, then a tough start
One day in 2007, McHale was told by then-CEO Dave Roberts to report to an early-morning meeting. McHale was running the lubrication division. It was growing, but a consolidation of operations in the Anoka plant wasn’t going well. “My wife thought I was going to be fired,” McHale recalled.
Instead, Roberts announced he was leaving Graco to take the helm at a larger industrial company in North Carolina. And Mitau told McHale that the board had selected him to run Graco.
Several months later, in 2008, orders had dried up amid the accelerating recession. Revenue was crashing. Graco laid off more than 100 manufacturing employees, but McHale refused to cut as deep as some advised. He kept investing in marketing and products and international expansion, and minimized layoffs by moving workers among the three Twin Cities plants.
“I knew the competition would cut more deeply,” said McHale, who kept a list of those laid off. “By the end of 2009, business was growing and we had everybody back, except those who had taken other jobs.”
Graco has added hundreds of jobs since.
McHale last year made $4.2 million in cash and gains from long-term stock holdings.
“Money is nice but it’s never mattered much to me,” he said. “I live in the same vinyl-sided house in Andover for 15 years. Same friends. No place in Florida. I’ve never taken more than a week’s vacation in my life. My wife has [with the kids].”
McHale, always a task-oriented guy, likes to buy and restore antique Graco equipment. Most is stored for retirement projects. He also likes to hunt birds and fish with his kids and friends. A little golf, too.
“He doesn’t exactly drive a Rolls-Royce and live in North Oaks,” said Eric Galush, a Riverside plant crew foreman who once worked aside McHale. “Pat drives a Chevy Tahoe. For years.
“Pat still busts his butt for the company. He’s different from some other executives. He understands manufacturing. He’s personable, walks the floor, meets with all the plant workers … and he wants to know what’s going on.”
McHale also is a collector of land. A conservationist and bird hunter, he bought a few acres in Swift County in western Minnesota, starting in 1989. It’s grown to 660 acres. He has planted 12,000 trees and worked with conservation groups to restore native prairie and wildlife habitat.
“Bees, birds, insects, deer and everything else,” McHale said. “I don’t hunt deer, but I let the neighbors hunt there. You plant trees for somebody else. For the future. It looks pretty cool on Google Earth.
“That’s my [weekend] release.”
Staff writer Patrick Kennedy contributed to this story.