signature=f62f1ec47a85918a7d111dd1dcc3aa4e,Form 8-K, 2006 Year End Earnings

Exhibit 99.1, Graco Inc. 2006 Year End Earnings Release

FOR IMMEDIATE RELEASE:

FOR FURTHER INFORMATION:

Monday, January 29, 2007

Mark W. Sheahan (612) 623-6656

GRACO REPORTS RECORD

2006 RESULTS

NET SALES INCREASE 12

PERCENT

DILUTED

EARNINGS PER SHARE INCREASE 21 PERCENT

NET PROFIT MARGIN REACHES A RECORD 18.3 PERCENT

MINNEAPOLIS, MN

(January 29, 2007) Graco Inc. (NYSE: GGG)today announced record 2006

net earnings of $149.8 million on sales of $816.5 million. Diluted net earnings per share

were $2.17 versus $1.80 last year, a 21 percent increase. In the fourth quarter of 2006,

net sales of $203.4 million were 10 percent higher than last year. Diluted net earnings

per share were $0.52 versus $0.46 last year, a 13 percent increase.

Twelve-month sales in

the Contractor Equipment segment were $320.5 million versus $305.3 million last year, a 5

percent increase. This increase was driven by higher international sales. In the

Industrial Equipment segment, 2006 sales were $416.5 million versus $367.1 million last year, a 13

percent increase. For the year, the Industrial segment experienced growth in all

geographic regions. Lubrication Equipment segment sales were $79.5 million versus $59.3

million last year, a 34 percent increase. The Lubriquip acquisition contributed 19

percentage points of this growth.

Twelve-month sales in

the Americas were $534.9 million versus $486.2 million last year, a 10 percent increase.

Acquired businesses contributed 2 percentage points of the increase. In Europe, sales were

$175.7 million versus $151.0 million last year, a 16 percent increase. Europe had

double-digit growth in all three segments including a 20 percent increase in Contractor

and a 14 percent increase in Industrial. Exchange rate changes added 1 percentage point to

Europes sales growth for the year. Asia Pacific sales for the year were $105.9

million versus $94.5 million last year, a 12 percent increase. All three segments

experienced sales growth in Asia Pacific this year including Contractor, which increased

by 25 percent.

Fourth quarter

Contractor Equipment sales were $71.0 million versus $72.6 million last year, a 2 percent

decrease. Sales in Europe and Asia increased by 30 percent and 21 percent, respectively

while sales in the Americas declined 11 percent. The decline in the Americas occurred in

both the paint store and home center channels reflecting the impact of a soft U.S. housing

market. Industrial Equipment sales were $110.6 million versus $97.4 million last year, a

14 percent increase. This segment continued to experience solid growth in all three

geographic regions this quarter. Lubrication Equipment sales in the fourth quarter were

$21.8 million versus $15.5 million last year, a 40 percent increase. The Lubriquip

acquisition contributed 35 percentage points of sales growth this quarter.

Fourth quarter sales in

the Americas were $124.9 million versus $122.0 million last year, a 2 percent increase.

Sales increases in the Industrial and Lubrication segments were offset by the

aforementioned decline in U.S. Contractor Equipment sales. In Europe, fourth quarter sales

were $47.5 million versus $38.6 million last year, a 23 percent increase. Sales in Europe

were 14 percent higher than last years fourth quarter at constant exchange rates.

Solid gains continued across all three segments this quarter including a 30 percent

increase in the Contractor segment. Asia Pacific sales for the fourth quarter were $31.0

million versus $25.0 million last year, a 24 percent increase with double-digit gains in

all three reportable segments. Sales in Asia Pacific were 21 percent higher than last year

at constant exchange rates.

For the year,

Gracos gross profit margin was 53.2 percent versus 51.8 percent last year. A

substantial portion of this difference can be attributed to last years gross profit

margin being reduced by the higher cost of inventory of acquired businesses. The remaining

portion of the increase in gross profit margin came from improved manufacturing

efficiencies and higher sales volume, which have more than offset the negative impact of

higher material, labor and overhead costs. Fourth quarter gross profit margin was 52.7

percent versus 52 percent last year mainly due to the favorable impact of exchange rate

changes.

For the year, operating

profit margin was 27.7 percent versus 26.1 percent last year. The 2006 operating profit

margin was reduced by 30 basis points as the result of the Lubriquip acquisition. The

increase in operating profitability for the year was due to a combination of the

aforementioned higher gross profits and disciplined spending, which led to lower operating

expenses, expressed as a percentage of sales. The fourth quarter operating profit margin

of 25.8 percent was 40 basis points lower than last year due to the impact of the

Lubriquip acquisition.

Operating expenses for

the year were $208.0 million versus $188.3 million last year. Acquired businesses

contributed $4 million of incremental operating expenses in 2006.

Included in cost of

goods sold and operating expenses were costs and inventory charges related to the Gusmer

consolidation activities totaling $4.8 million for the year, including $1.6 million in the

fourth quarter. The fourth quarter also included approximately $0.5 million of costs and

expenses related to the Lubriquip consolidation.

Gracos effective

tax rate was 33.2 percent for the year and 31.1 percent for the fourth quarter. The lower

effective tax rate for the quarter resulted mainly from tax legislation reinstating the

research and development credit for the full year.

When compared to 2005

results, the weaker U.S. dollar versus foreign currencies helped to increase twelve-month

net sales and net earnings. Favorable translation rates increased net sales and net

earnings by approximately $5 million and $2 million for the year, respectively, most of

which occurred in the fourth quarter.

For the year, Graco

repurchased approximately 2.1 million shares of common stock. As of year-end, the Company

had approximately 5 million shares remaining under its existing share repurchase

authorization, which expires on February 29, 2008.

2006 has been

another year of record sales and earnings for Graco, said Chairman, President and

Chief Executive Officer David A. Roberts. Over the past 5 years we have grown our

sales and net earnings by 73 percent and 129 percent, respectively. These results

demonstrate that our strategies are working. We started 2006 with strong sales growth in

all three of our segments. As the year progressed, we experienced sales declines in our

U.S. Contractor business due to the softening housing market, but the international

Contractor business, along with our Industrial and Lubrication businesses, continued to

post solid revenue gains leading to an overall increase in our sales of 12 percent in the

second half of the year. The fact that we were able to grow at these rates, in the face of

the U.S. housing slowdown, demonstrates the strength of our global presence and diverse

end-markets. Graco serves approximately 40 different industries across the globe and

having one or two that are soft is not cause for great concern. As such, we continue to

plan for higher sales and net earnings growth in 2007.

Cautionary Statement

Regarding Forward-Looking Statements

A forward-looking

statement is any statement made in this earnings release and other reports that the

Company files periodically with the Securities and Exchange Commission, as well as in

press releases, analyst briefings, conference calls and the Companys Annual Report

to shareholders which reflects the Companys current thinking on market trends and

the Companys future financial performance at the time they are made. All forecasts

and projections are forward-looking statements.

The Company desires to

take advantage of the safe harbor provisions of the Private Securities

Litigation Reform Act of 1995 by making cautionary statements concerning any

forward-looking statements made by or on behalf of the Company. The Company cannot give

any assurance that the results forecasted in any forward-looking statement will actually

be achieved. 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:

economic conditions in the United States and other major world economies, currency

fluctuations, political instability, changes in laws and regulations, and changes in

product demand. Please refer to Exhibit 99 to the Companys Annual Report on Form

10-K for fiscal year 2005 for a more comprehensive discussion of these and other risk

factors.

Investors should realize

that factors other than those identified above and in Exhibit 99 might prove important to

the Companys future results. It is not possible for management to identify each and

every factor that may have an impact on the Companys operations in the future as new

factors can develop from time to time.

Conference Call

A conference call for

analysts and institutional investors will be held Tuesday, January 30, 2007, at 11:00 a.m.

ET to discuss Gracos fourth quarter and year-end results. Graco management will host

the call.

A real-time, listen-only

webcast of the conference call will be broadcast live over the Internet. Individuals

wanting to listen can access the call at the Companys website at

www.graco.com. 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

Gracos website, or by telephone beginning at approximately 1:00 p.m. ET on January

30, 2007, by dialing 800.405.2236, pass code 11081328, if calling within the U.S. or

Canada. The dial-in number for international participants is 303.590.3000, with the same

pass code. The replay by telephone will be available through February 2, 2007.

Graco Inc. supplies

technology and expertise for the management of fluids in both industrial and commercial

applications. It designs, manufactures and markets systems and equipment to move, measure,

control, dispense and spray fluid 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.

GRACO INC. AND

SUBSIDIARIES

Consolidated Statements

of Earnings

Fourth Quarter (13 weeks) Ended

Year (52 weeks) Ended

(In thousands, except per share amounts)

Dec. 29, 2006

Dec. 30, 2005

Dec. 29, 2006

Dec. 30, 2005

Net Sales

$203,421

$185,603

$816,468

$731,702

Cost of products sold

96,248

89,133

382,511

352,352

Gross Profit

107,173

96,470

433,957

379,350

Product development

7,733

7,080

29,970

26,970

Selling, marketing and distribution

31,575

27,875

119,122

110,135

General and administrative

15,350

12,918

58,866

51,175

Operating Earnings

52,515

48,597

225,999

191,070

Interest expense

290

184

946

1,374

Other expense (income), net

508

(166

)

687

342

Earnings before Income Taxes

51,717

48,579

224,366

189,354

Income taxes

16,100

16,300

74,600

63,500

Net Earnings

$35,617

$32,279

$149,766

$125,854

Net Earnings per Common Share

Basic

$0.53

$0.47

$2.21

$1.83

Diluted

$0.52

$0.46

$2.17

$1.80

Weighted Average Number of Shares

Basic

67,104

68,419

67,807

68,766

Diluted

68,328

69,431

68,977

69,862

Segment Information

Fourth Quarter (13 weeks) Ended

Year (52 weeks) Ended

(In thousands)

Dec. 29, 2006

Dec. 30, 2005

Dec. 29, 2006

Dec. 30, 2005

Net Sales

Industrial / Automotive

$110,634

$97,423

$416,498

$367,119

Contractor

70,958

72,633

320,476

305,298

Lubrication

21,829

15,547

79,494

59,285

Consolidated

$203,421

$185,603

$816,468

$731,702

Operating Earnings

Industrial / Automotive

$32,665

$28,048

$128,460

$98,330

Contractor

17,302

17,388

89,064

77,598

Lubrication

4,776

4,109

18,744

15,633

Unallocated Corporate Expense

(2,228

)

(948

)

(10,269

)

(491

)

Consolidated

$52,515

$48,597

$225,999

$191,070

GRACO

INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

Dec. 29, 2006

Dec. 30, 2005

ASSETS

Current Assets

Cash and cash equivalents

$5,871

$18,664

Accounts receivable, less allowances of

$5,800 and $5,900

134,105

122,854

Inventories

76,311

56,547

Deferred income taxes

20,682

14,038

Other current assets

2,014

1,795

Total current assets

238,983

213,898

Property, Plant and Equipment

Cost

278,318

255,463

Accumulated depreciation

(153,794

)

(148,965

)

Property, plant and equipment, net

124,524

106,498

Prepaid Pension

26,903

29,616

Goodwill

67,174

52,009

Other Intangible Assets, net

50,325

39,482

Other Assets

3,694

4,127

Total Assets

$511,603

$445,630

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

Notes payable to banks

$18,363

$8,321

Trade accounts payable

27,442

24,712

Salaries, wages and commissions

26,303

23,430

Dividends payable

11,055

9,929

Other current liabilities

45,766

45,189

Total current liabilities

128,929

111,581

Retirement Benefits and Deferred Compensation

36,946

35,507

Deferred Income Taxes

14,724

10,858

Shareholders' Equity

Common stock

66,805

68,387

Additional paid-in capital

130,621

110,842

Retained earnings

138,702

112,506

Other, net

(5,124

)

(4,051

)

Total shareholders' equity

331,004

287,684

Total Liabilities and Shareholders' Equity

$511,603

$445,630

GRACO INC. AND

SUBSIDIARIES

Consolidated Statements of Cash Flows

Year (52 Weeks) Ended

(In thousands)

Dec. 29, 2006

Dec. 30, 2005

Cash Flows from Operating Activities

Net Earnings

$149,766

$125,854

Adjustments to reconcile net earnings to net cash

provided by operating activities:

Depreciation and amortization

26,046

23,496

Deferred income taxes

(6,597

)

1,260

Share-based compensation

8,392

--

Excess tax benefit related to share-based payment arrangements

(2,857

)

--

Change in:

Accounts receivable

(3,584

)

(9,101

)

Inventories

(15,587

)

4,524

Trade accounts payable

(74

)

701

Salaries, wages and commissions

1,917

2,239

Retirement benefits and deferred compensation

(12

)

396

Other accrued liabilities

(2,302

)

1,189

Other

521

2,666

Net cash from operating activities

155,629

153,224

Cash Flows from Investing Activities

Property, plant and equipment additions

(33,652

)

(19,904

)

Proceeds from sale of property, plant and equipment

128

239

Capitalized software additions

(202

)

(802

)

Acquisitions of businesses, net of cash acquired

(30,676

)

(111,005

)

Net cash used in investing activities

(64,402

)

(131,472

)

Cash Flows from Financing Activities

Borrowings on notes payable and lines of credit

58,762

82,937

Payments on notes payable and lines of credit

(49,169

)

(80,439

)

Excess tax benefit related to share-based payment arrangements

2,857

--

Common stock issued

12,008

10,481

Common stock retired

(87,570

)

(42,297

)

Cash dividends paid

(39,429

)

(35,805

)

Net cash provided by (used in) financing activities

(102,541

)

(65,123

)

Effect of exchange rate changes on cash

(1,479

)

1,481

Net increase (decrease) in cash and cash equivalents

(12,793

)

(41,890

)

Cash and cash equivalents

Beginning of year

18,664

60,554

End of year

$5,871

$18,664

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