Slide 1: Investor Presentation — August 2013
Investor Presentation — August 2013 Investor Presentation
Slide 2: Safe Harbor
Safe Harbor Today’s presentation includes forward-looking statements that reflect management’s g current expectations p about the Company’s p y future business and financial performance. These statements are subject to certain risks and uncertainties that could cause actual results to differ from an
Slide 3: Overview
¾ Overview Enduring Business Model Strategies for Long-Term Long Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions C Company P Performance f
Slide 4: Business Overview
Business Overview • Graco manufactures premium equipment to pump, meter, mix and dispense a wide variety of fluids and coatings – Difficult Diffi lt tto handle h dl materials t i l with ith hi high h viscosities i iti – Abrasive and corrosive properties – Multiple component materials that require pr
Slide 5: Year-to-date June 2013 Sales $555.1 Million
Year-to-date June 2013 Sales $555.1 Million EMEA 25% 72% Industrial 24% Contractor Americas 4% Lubrication Asia Pacific 54% 21% 46% Industrial 75% Industrial 40% Contractor 18% Contractor C t t 14% Lubrication 7% Lubrication WORLDWIDE 58% Industrial 32% Contractor 10% Lubrication 5
Slide 6: 2012 Sales by End Market
2012 Sales by End Market * Public Works, 5% Automotive, 15% Vehicles Services, 4% Residential and Industrial & Non-Residential Machinery, 13% C Construction, t ti 40% Mining and Oil & Gas, 6% Wood, 4% White Goods, 3% Other, 8% Chemical, 2% * Graco management estimate 6
Slide 7: Industrial Equipment Segment
Industrial Equipment Segment • Growth Drivers and Trends – Factory movements and upgrades – Integration g of equipment q p with factory y data and control systems – Reducing energy consumption – Material changes driving demand • Other Representative Industry Participants YTD June 2013 Sales – Exel,
Slide 8: Lubrication Equipment Segment
Lubrication Equipment Segment • Growth Drivers and Trends – Fill product lines for a single source solution – Targeting competition in the industrial lubrication market • Other Representative p Industry y Participants p – Lincoln, Vogel, Bijur, Hannay, Coxreels, and YTD June 2013 Sales regional play
Slide 9: Contractor Equipment Segment
Contractor Equipment Segment • Growth Drivers and Trends – Conversion of end users from manual application methods to equipment is a major focus outside North A America i – Application of texture & cementitious materials – Entry level product & channel expansion – Expanding pavement maintenance prod
Slide 10: Enduring Business Model
Overview ¾ Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 11: High Customer Value, Strong Product Differentiation
High g Customer Value, Strong g Product Differentiation Material Supplier p Relationships Best in End Class User Delivery Interaction Customer Strong Leading NPD ROI Channel Lowest Total Partners I Investment t t Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 11
Slide 12: Manufacturing and Engineering Excellence
Manufacturing g and Engineering g g Excellence • 80%+ of production is based in the United States – High quality, efficient, engaged labor force – Centralization C t li ti allows ll ffor lleverage off overheads h d • Continuous improvement culture – Unique Graco cost to produce measurement tool • On
Slide 13: Low-Volume, High-Mix Delivers Customer ROI
Low-Volume, High-Mix g Delivers Customer ROI Average Number of 2012 Sales # of SKUs Units Sold Per Day ($ in millions) 0-1 37,176 (91%) $452 (49%) 2-5 2,430 (6%) $173 (19%) 6 - 10 307 (1%) $84 (9%) 11 - 15 211 (1%) $40 (4%) Greater than 15 548 (1%) $170 (19%) Legacy Graco Total 40 972 40,972 $919 Pl
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long Long-Term Term Growth – Invest in New Products – Expand p Geographically g p y – Target New Markets – Make Acquisitions Company Performance
Slide 15: Graco's Growth Plans and Earnings Drivers
Graco’s Growth Plans and Earnings g Drivers 12%+ Acquisitions New Markets Graco Earnings Global CAGR 3% - 5% Expansion New Product Development Industrial End User Production Conversion Average Growth Rate 15
Slide 16: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies g for Long-Term g Growth – Invest in New Products – Expand p Geographically g p y – Target New Markets – Make Acquisitions Company Performance
Slide 17: Targeting Growth Through New Products and Markets
Targeting Growth Through New Products and Markets New Product Development Expense as a Percentage of Revenues - 2012 Peer Group Mean 1.6% Graco 4.8% Peer group includes: • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Watts Water Technologies • IDEX 17
Slide 18: Industrial – Dual Control Electric Piston Pump
Industrial – Dual Control Electric Piston Pump • Combines the benefits of a pneumatic motor with the energy efficiency of an electric drive unit • Strong ROI for End User 18
Slide 19: Industrial – Electrostatic Applicators
Industrial – Electrostatic Applicators • Improved spray performance and transfer efficiency • Strong ROI when replacing conventional air-assist and HVLP™ guns with the Pro Xp™ • Smart Controls analyze performance, adapt to voltage needs and assist in troubleshooting Pro Xp™ Manual Electrostatic Guns
Slide 20: Industrial – Plural Component Line Expansion
Industrial – Plural Component Line Expansion • Added four new sprayers • Graco XP50™ – For F jobs j b requiring i i more volume l – Allows user to spray with multiple guns • Graco XP50™ Quick-Set – For quick-setting hybrid and elastomeric urethane coatings • Graco XP35™ – For low-pressure p airless
Slide 21: Lubrication – G1 Electric Lubrication Pump
Lubrication – G1 Electric Lubrication Pump Entry Level Electric Lubrication Pump • Designed for: – Wind Energy – Small Package Cars/Trucks – Small Dump Trucks – Sea Port Cranes – Excavators – Machine Tools – Packaging Machinery Competitive Targets: – Lincoln – Vogel – Bijur j Benefits: • High value
Slide 22: Contractor – Handheld Guns
Contractor – Handheld Guns TrueCoat® II • Generation II Handheld Airless TrueCoat® Plus II – Variable Pressure Control – Sprays all Directions – Fully Repairable TrueCoat® Pro II – New Corded Pro Model • XForce™ HD and ProShot® HD ProShot® II – Heavy Duty/High Pressure Airless for Protective and Mar
Slide 23: Contractor – GH Big Rigs
Contractor – GH™ Big Rigs™ Responded to market need for higher pressure hydraulic sprayer with highest performing, most versatile, gas hydraulic sprayers in the industry GH™ 933 GH™ 5040 GH™ 833 GH™ 733 GH™ 2570 GH™ 1017 GH Big Rig Family 23
Slide 24: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 25: InvisiPac Tank-Free Hot Melt Delivery System
InvisiPac™ Tank-Free Hot Melt Delivery System Revolutionary hot melt equipment for the packaging industry • Designed for case and carton sealing 25
Slide 26: Industrial – Passive Fire Protection (PFP)
Industrial – Passive Fire Protection (PFP) • Plural-component sprayer • Sprays intumescent epoxy fire protection coatings • For structural steel on oil rigs and commercial buildings – Helps p insulate structural steel from high-temp g p fires; buys time for people to evacuate • Data reporting lets c
Slide 27: Industrial – 3" Diaphragm Pump
Industrial – 3” Diaphragm Pump Transferring chemicals where high flow rates are required • Application – Coating thermal and carbonless paper – Operation details ¾ Filling roll coater ¾ 24 hours per day, five days per week • Solution – Stainless Steel Husky™ 3300 (3” AODD pump) • Keys to success – H
Slide 28: Contractor – Field Striping
Contractor – Field Striping • EZ Bead™ - Accessory Pressurized Bead System for the LineLazer® Family of Stripers – The solution for Airport and Municipalities who often require pressurized application of beads • FieldLazer™ S90 – High-Pressure Airless, Battery Powered Field Marker for lines and logo
Slide 29: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 30: Acquired April 2012 – Strong Strategic Fit
® Acquired April 2012 – Strong Strategic Fit • Well established brand name – High quality – A technology leader • Large g installed base • Access to attractive end markets • Desirable emerging market exposure • Strong and growing global distribution base • Scale to drive long long-term term growth w
Slide 31: Product Range
® Product Range Electrostatic Powder Guns Complete Systems Powder Kitchens Reciprocators 31
Slide 32: Company Performance
Overview E d i B Enduring Business i M Model d l Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target g New Markets – Make Acquisitions ¾ Company Performance
Slide 33: Graco Reported Q2 Results on July 24, 2013
Graco Reported Q2 Results on July 24, 2013 $ millions except EPS Second Quarter Year-to-Date 2013 2012 Change 2013 2012 Change Sales $ 286.0 $ 268.2 7% $ 555.1 $ 502.3 11 % Gross Profit $ 158.7 139.5 14 % 309.4 271.7 14 % % of Sales 55.5 % 52.0 % 3.5 pts 55.7 % 54.1 % 1.6 pts Operating Earnings $ 75
Slide 34: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Stable: General Industrial, Favorable: Emerging EMEA Automotive, Ag, Ag Heavy Machinery Machinery, Challenging: Western Europe Europe, Stable: General Industrial Construction Middle East Challenging: Project Activity Contractor Segmen
Slide 35: Cash Deployment Priorities
Cash Deployment Priorities - International footprint - Product development Organic g Growth Investments - Production P d ti capacity it and d capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% - 6 million authorized share Dividends/Share
Slide 36: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term above-market growth • Premium p products that p provide a strong g ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform crit
Slide 37: Financial Summary Q2 2013 – Appendix
Financial Summary Q2 2013 – Appendix Investor Presentation
Slide 38: Financial Results – Year-to-Date June
Financial Results – Year-to-Date June ($ Millions except EPS) 2013 2012 Change Sales $ 555.1 $ 502.3 11% Gross Profit Rate 55.7% 54.1% Operating Expenses 162.7 161.3 1% Operating Earnings 146.7 110.4 33% Net Earnings $ 110.0 $ 69.7 58% Earnings Per Share $ 1.76 $ 1.13 56% 38
Slide 39: Year-to-Date June 2013 Results
Year-to-Date June 2013 Results • Sales year-to-date up 11 percent compared to prior year (no impact from currency translation) • Year-to-date Y t d t gross profit fit margin i off 55½ percent, t up 1½ percentage t point i t from f last year – Realized pricing plus manufacturing cost improvements – N
Slide 40: Financial Results – Second Quarter
Financial Results – Second Quarter ($ Millions except EPS) 2013 2012 Change Sales $ 286.0 $ 268.2 7% Gross Profit Rate 55.5% 52.0% Operating Expenses 83.5 87.1 (4%) Operating Earnings 75.2 52.5 43% Net Earnings $ 57.8 $ 34.4 68% Earnings Per Share $ 0.92 $ 0.56 64% 40
Slide 41: Second Quarter 2013 Results
Second Quarter 2013 Results • Sales for the quarter up 7 percent compared to second quarter 2012 (no impact from currency translation) • Gross G profit fit margin i ffor the th quarter t off 55½ percent, t up 3½ percentage t points i t from last year – Realized pricing plus manufacturing cost improv
Slide 42: Financial Summary 2012 – Appendix
Financial Summary 2012 – Appendix Investor Presentation
Slide 43: 2012 Sales $1.012 Billion
2012 Sales $1.012 Billion EMEA 25% 72% Industrial 25% Contractor Americas 3% Lubrication Asia Pacific 53% 22% 49% Industrial 72% Industrial 36% Contractor 19% Contractor C t t 15% Lubrication 9% Lubrication WORLDWIDE 60% Industrial 29% Contractor 11% Lubrication 43
Slide 44: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin Net Sales Operating Margins 1,200 30% 1,000 25% gins ns) Sales ($ million Operating Marg 800 20% 600 15% 400 10% S 200 5% - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 June YTD 13 EPS $ $1.55 $ $1.80 $ $2.17 $ $2.30 $ $1.99 $ $0.81 $ $1.69 $ $2.32
Slide 45: Historic Sales ($ Millions)
Historic Sales (($ Millions)) $1,000 $100 $10 45
Slide 46: Stock Dividend Growth
Stock Dividend Growth $1.00 $0.80 2013 $0 66 $0.66 2010 2007 $0.37 2004 46
Slide 47: Strong Cash Generation
Strong g Cash Generation ($ Millions) 2012 2011 2010 2009 2008 2007 2006 2005 2004 Operating Cash Flows $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 $ 123 % of Net Income 127% 114% 98% 300% 134% 116% 104% 121% 113% Capital Expenditures 18 24 17 11 29 37 34 20 17 Free Cash Flow $ 172 $ 138 $ 84 $
Slide 48: Capital Efficiency – 5 Year Average
Capital Efficiency y – 5 Year Average g 50.0% 40.0% 30 0% 30.0% 20.0% 10 0% 10.0% 0.0% Return on Assets Return on Equity Return on Net Profit Margin Invested Capital Industry Sector Graco Source: Interactive Data, 2013 Thomson Reuters 48
Slide 49: ——— INF BeANDLING
——— INF BeANDLING