UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934

For the quarterly period ended September 24, 2004

Commission File Number: 001-9249

	GRACO INC.
	(Exact name of Registrant as specified in its charter)

Minnesota		41-0285640
(State of incorporation)		(I.R.S. Employer Identification Number)

88 - 11th Avenue N.E.
Minneapolis, Minnesota		55413
(Address of principal executive offices)		(Zip Code)

	(612) 623-6000
	(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes

69,132,000 common shares were outstanding as of October 19, 2004.

GRACO INC. AND SUBSIDIARIES

INDEX

			Page Number
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Statements of Earnings	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6-10

	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	11-14

	Item 4.	Controls and Procedures	14


PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	15

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15-16

	Item 4.	Submission of Matters to a Vote of Security Holders	16

	Item 6.	Exhibits	17

SIGNATURES			18

EXHIBITS

PART I

	GRACO INC. AND SUBSIDIARIES
Item I.	CONSOLIDATED STATEMENTS OF EARNINGS
	(Unaudited)
	(In thousands except per share amounts)

	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	Sept 24, 2004		Sept 26, 2003		Sept 24, 2004		Sept 26, 2003

Net Sales	$	149,066	$	133,788	$	444,213	$	399,812

Cost of products sold		66,946		62,385		203,547		189,474

Gross Profit		82,120		71,403		240,666		210,338

Product development		5,231		4,464		15,798		13,265
Selling, marketing and distribution		24,449		23,794		73,976		71,979
General and administrative		9,195		9,111		29,208		27,680

Operating Earnings		43,245		34,034		121,684		97,414

Interest expense		115		146		384		386
Other expense (income), net		113		377		277		360

Earnings Before Income Taxes		43,017		33,511		121,023		96,668

Income taxes		14,200		10,800		39,900		31,300

Net Earnings	$	28,817	$	22,711	$	81,123	$	65,368

Basic Net Earnings
Per Common Share	$	.42	$	.33	$	1.17	$	.94

Diluted Net Earnings
Per Common Share	$	.41	$	.32	$	1.15	$	.93

Cash Dividends Declared
Per Common Share	$	.09	$	.06	$	.28	$	.17

See notes to consolidated financial statements.

	GRACO INC. AND SUBSIDIARIES
	CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	(In thousands)

	Sept 24, 2004			Dec 26, 2003
ASSETS

Current Assets
Cash and cash equivalents	$	56,273		$	112,118
Accounts receivable, less allowances
of $5,600 and $5,700		102,488			98,853
Inventories		39,108			29,018
Deferred income taxes		15,791			14,909
Other current assets		1,961			1,208
Total current assets		215,621			256,106

Property, Plant and Equipment
Cost		225,920			221,233
Accumulated depreciation		(134,948	)		(126,916	)
		90,972			94,317

Prepaid Pension		27,027			25,444
Goodwill		9,199			9,199
Other Intangible Assets		9,253			10,622
Other Assets		2,648			1,702
	$	354,720		$	397,390

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Notes payable to banks	$	5,883		$	4,189
Trade accounts payable		18,096			15,752
Salaries, wages and commissions		17,180			16,384
Accrued insurance liabilities		8,750			9,939
Accrued warranty and service liabilities		8,972			9,227
Income taxes payable		9,584			5,981
Dividends payable		6,452			110,304
Other current liabilities		20,993			16,171
Total current liabilities		95,910			187,947

Retirement Benefits and Deferred Compensation		31,864			30,567

Deferred Income Taxes		8,927			9,066

Shareholders' Equity
Common stock		69,103			46,040
Additional paid-in capital		98,335			81,405
Retained earnings		51,618			43,295
Other, net		(1,037	)		(930	)
Total shareholders' equity		218,019			169,810
	$	354,720		$	397,390

See notes to consolidated financial statements

	GRACO INC. AND SUBSIDIARIES
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited)
	(In thousands)

	Thirty-nine Weeks Ended
	Sept 24, 2004			Sept 26, 2003
Cash Flows from Operating Activities

Net Earnings	$	81,123		$	65,368
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization		13,333			13,568
Deferred income taxes		(985	)		(764	)
Tax benefit related to stock options exercised		5,500			3,200
Change in:
Accounts receivable		(3,740	)		2,077
Inventories		(10,112	)		957
Trade accounts payable		2,353			(1,539	)
Salaries, wages and commissions		800			(547	)
Retirement benefits and deferred compensation		(777	)		2,173
Other accrued liabilities		7,015			47
Other		(152	)		223
		94,358			84,763

Cash Flows from Investing Activities

Property, plant and equipment additions		(9,184	)		(10,934	)
Proceeds from sale of property, plant and equipment		126			109
Capitalized software additions		(856	)		--
Acquisition of business		--			(13,514	)
		(9,914	)		(24,339	)

Cash Flows from Financing Activities

Borrowings on notes payable and lines of credit		20,943			12,588
Payments on notes payable and lines of credit		(19,186	)		(21,217	)
Common stock issued		14,075			9,427
Common stock retired		(32,773	)		(55,496	)
Cash dividends paid		(123,460	)		(11,460	)
		(140,401	)		(66,158	)
Effect of exchange rate changes on cash		112			(1,606	)
Net increase (decrease) in cash and cash equivalents		(55,845	)		(7,340	)

Cash and cash equivalents

Beginning of year		112,118			103,333
End of period	$	56,273		$	95,993