Graco Inc. · NYSE:GGG
Graco — Investor Presentation (November 2012)
50 slides from Graco's investor presentation, November 2012
Slide 1: Investor Presentation 3rd Quarter — November 2012
Investor Presentation 3rd Quarter — November 2012
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 Growth – Invest I t in i New N P Products d t – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 4: Business Overview
Business Overview • Graco G manufactures f t premium i equipment i t to t pump, meter, t mixi and dispense a wide variety of fluids and coatings – Difficult to handle materials with high g viscosities – Abrasive and corrosive properties – Multiple component materials that require precise ratio contr
Slide 5: 2012 – Nine Months $759 Million in Sales
2012 – Nine Months $759 Million in Sales Segment Geography $’s millions $’s millions Asia Pacific Contractor $167 Industrial $229 22% $447 30% 59% Americas $403 53% Lubrication $83 Europe 11% $189 25% 5
Slide 6: Industrial Equipment Segment
Industrial Equipment Segment • Growth Drivers and Trends – Factory movements and upgrades – Integration of equipment with factory data and control systems – Reducing energy consumption Sept YTD 2012 Sales - $447M – Material changes driving demand Asia 27% • Other Oth Industry I d t Participants P ti
Slide 7: Lubrication Equipment Segment
Lubrication Equipment Segment • Growth Drivers and Trends – Expanding international markets and presence – Targeting industrial lubrication market Sept YTD 2012 Sales - $83M • Other Industry Participants Americas 73% – Lincoln, Li l V Vogel, l BEKA BEKA, S Samoa, RAASM RAASM, Asia 19% Europe and reg
Slide 8: Contractor Equipment Segment
Contractor Equipment Segment • Growth G th Drivers Di and dTTrends d – Conversion of end users from manual application methods to equipment is a major focus outside North America – Application of texture & cementitious materials – Entry level product & channel expansion Sept YTD 2012 Sales - $229M –
Slide 9: Enduring Business Model
Overview ¾ Enduring Business Model Strategies for Long-Term Growth – Invest I t in i New N P Products d t – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 10: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in End Class User Delivery Interaction Customer Strong Leading NPD ROI Channel Lowest Total Partners Investment Cost of O Ownership hi Stringent Best in Prod ct Product Cl Class Requirements Quality Niche Market
Slide 11: Manufacturing and Engineering Excellence
Manufacturing and Engineering Excellence • 80%+ of production is based in the United States – High quality, efficient, engaged labor force – Centralization allows for leverage of overheads • Continuous improvement culture – Unique Graco cost to produce measurement tool • Ongoing capital investment a
Slide 12: Low-Volume, High-Mix Delivers Customer ROI
Low-Volume, High-Mix Delivers Customer ROI Average Number of 2011 Sales # of SKUs Units Sold Per Day ($ in millions) 0-1 37,307 (90%) $435 (49%) 2-5 2,612 (6%) $173 (19%) 6 - 10 664 (2%) $78 (9%) 11 - 15 242 (1%) $51 (6%) Greater than 15 547 (1%) $158 (17%) Totals 41,372 $895 12
Slide 13: 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 14: Graco’s Growth Plans and Earnings Drivers
Graco’s Growth Plans and Earnings Drivers 12%+ Acquisitions New Markets Graco Earnings Global CAGR 3% - 5% Expansion New Product Development Industrial End User Production Conversion Average Growth Rate 14
Slide 15: Strategies for Long-Term Growth
Overview du g Business Enduring us ess Model ode ¾ Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company p y Performance
Slide 16: Targeting Growth Through New Products and Markets
Targeting Growth Through New Products and Markets New Product Development Expense as a Percentage of Revenues - 2011 Peer Group Mean 16 1.6 Graco 4.6 Peer P group iincludes: l d • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Robbins & Myers • IDEX • Wa
Slide 17: Industrial – Electrostatic Applicators
Industrial – Electrostatic Applicators • Many models to choose from, including air spray, air-assist and Smart Control • Redesigned components improve spray performance and transfer efficiency • Strong ROI when replacing conventional air-assist and HVLP guns with the Pro Xp • Smart Controls analyze
Slide 18: Industrial – Peristaltic Hose Pump
Industrial – Peristaltic Hose Pump K Product Key P d t Attributes Att ib t • Electric driven • Metering capability • Seal less to pprevent leaks • Ability to handle abrasive materials • Wide chemical compatibility range New Peristaltic Hose Pump p Opens p New Opportunities pp • Ceramics • Potable an
Slide 19: Industrial – Dual Control Electric Piston Pump
Industrial – Dual Control Electric Piston Pump • More efficient than similar-sized pneumatic motors – great ROI • Constant pressure like a pneumatic motor and constant flow like an electric motor • Innovative dual control technology provides less pulsation at changeovers for a more consistent finish
Slide 20: Lubrication New Products – Cord and Light Reels
Lubrication New Products – Cord and Light Reels New Products for Existing End Markets • Product line expansion that leverages existing relationships • Opportunity to be a single source equipment provider for the entire bank of reels Innovative Design • Displace competitive products with durability d
Slide 21: Lubrication New Products – GBL 7500 Pumps
Lubrication New Products – GBL 7500 Pumps Extending the Industrial Lube Pump Line • GBL 7500 pumps lubricate compressors that move natural gas through thousands of miles of pipeline • Manufactured to maintain the highest industry standards in an applications that requires continuous-duty operations
Slide 22: CED – New Product
CED – New Product LineLazer IV 250SPS Stand-On striping unit − Cityy Striping p g Jobs − Intersections − Airports − Large Parking Ramps − Bike Paths − Large Parking Lots − Turf - Sports Fields − Stencil Jobs ¾ Pavement ¾ Turf 22
Slide 23: 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 24: Asia Pacific – New Markets / Applications
Asia Pacific – New Markets / Applications A t Automotive ti – NVH Wi d Energy Wind E – Lubrication L b i ti FIAT, China G3/Injector, China • New N product d (HFR) that h serves market k needs d • New N product d that h fits fi market k requirement i Sanitary – Process Construction – Water Proofing S
Slide 25: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – Invest I t in i New N P Products d t – Expand Geographically – Target g New Markets – Make Acquisitions Company Performance
Slide 26: Industrial – New Markets/Applications
Industrial – New Markets/Applications End-user conversion moving to Industry in EMEA (Europe/Middle East/Africa) • Industrial roadshow • End-user conversion program focus on new Pro Xp electrostatic • Sanitary specialist team for food & beverage & pharmaceutical markets 26
Slide 27: Industrial – New Market Example
Industrial – New Market Example XM PFP Plural-Component Sprayer • Sprays intumescent epoxy fire protection coatings • For structural steel on oil rigs and commercial buildings – Helps insulate structural steel from high-temp hydrocarbon fires; buys time for people to evacuate • Data reporting lets c
Slide 28: Industrial – New Markets
Industrial – New Markets • Existing homes – Reactor E-8p – For applying no-heat foam insulation in existing homes ¾ Seal and insulate rim joists; create air barriers in attics – 86 million homes in North America need better insulation – For insulation contractors who want to build their business, al
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: Finishing Group
Graco Acquired on April 2, 2012 for $650 million Finishing Group Liquid Finishing 2011 Revenues* $375 million ~ 2/3 2011 EBITDA* $80 million Powder Finishing ~ 1/3 Powder Finishing Liquid Finishing – Held Separate * Unaudited, provided by ITW 30
Slide 31: FTC Order to Hold Separate and Maintain Assets
FTC Order to Hold Separate and Maintain Assets • Federal Trade Commission (FTC) issued a Hold Separate Order for Graco to hold Liquid Finishing assets separate and in compliance with the FTC order: – Liquid Finishing businesses are run independently by existing management – Under the supervision of
Slide 32: Product Range
Product Range Electrostatic Powder Guns Complete Systems Powder Kitchens Reciprocators 32
Slide 33: Powder Finishing – Strong Strategic Fit
Powder Finishing – Strong Strategic Fit • Well established brand name – High quality – A technology leader • Large installed base • Access A tto attractive tt ti end d markets k t • Desirable emerging market exposure • Strong and growing global distribution base • Scale to drive long-term growth wor
Slide 34: End Markets
End Markets Heating/Cooling/Sanitary Job Coaters Automotive/Transportation Home Appliances Architecture Machines Industry Electrical/Electronics Metallic Furniture 34
Slide 35: Company Performance
Overview Enduring g Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions ¾ Company Performance
Slide 36: Consolidated Financial Results
Consolidated Financial Results $ millions except EPS S Third Thi dQQuarter t Year-to-Date Y t D t 2012 2011 Change 2012 2011 Change Sales $ 256.5 $ 227.3 13 % $ 758.8 $ 679.7 12 % Gross Profit $ 139.9 126.3 11 % 411.6 383.2 7% % of Sales 54.6 % 55.6 % (1.0) pts 54.3 % 56.4 % (2.1) pts Operating Earn
Slide 37: Current Environment
Current Environment Americas Europe Asia Pacific Industrial Segment Favorable: General Industrial; Automotive; Ag; Heavy Machinery Favorable: Emerging EMEA Favorable: General Industrial; Stable: Construction Challenging: g g Western Europe p Challenging: g g Project j Activity y Contractor Segment I
Slide 38: Cash Deployment Priorities
Cash Deployment Priorities - International footprint - Product development Organic Growth Investments p - Production capacity y and capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% - 6 million authorized share Dividends/Share Repurchase
Slide 39: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase h quality, lit ttechnology-based h l b d products d t • Products
Slide 40: Financial Summary For 2012 – Appendix
Financial Summary F YTD Q3 For 2012 - Appendix
Slide 41: Financial Results – Nine Months
Financial Results – Nine Months ($ Millions except EPS) 2012 2011 Change Sales $ 758.8 758 8 $ 678.7 678 7 12% Gross Profit Rate 54.3% 56.4% Operating Expenses 244.9 211.1 16% Operating Earnings 166.8 172.1 (3%) Net Earnings $ 106.9 $ 111.9 (5%) Earnings Per Share S $ 1.73 $ 1.82 ( %) (5%) 41
Slide 42: September Year-to-Date 2012 Results
September Year-to-Date 2012 Results • Sales year-to-date up 12 percent (13 percent at consistent currency translation rates) compared to prior year – Powder Finishing sales of $62 million accounts for 9 percentage points – Currency translation rates decreased sales by approximately $14 million • Yea
Slide 43: Financial Summary For 2011 – Appendix
Financial Summary For 2011 - Appendix
Slide 44: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall $895 $900 $841 $816 $817 $ $800 $744 $732 $700 $605 $600 $579 $500 $400 $300 $200 $100 $0 2004 2005 2006 2007 2008 2009 2010 2011 44
Slide 45: Historic Sales ($ Millions)
Historic Sales ($ Millions) CAGR 9% $1,000 $100 $10 1966 1981 1996 2011 45
Slide 46: Earnings Per Share
Earnings Per Share Target: 12%+ $2.32 $2.32 $2 17 $2.17 $1.99 $1.80 $1.69 $1 55 $1.55 $0.81 2004 2005 2006 2007 2008 2009 2010 2011 46
Slide 47: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency - Leverage volume increases 27.7% 27 6% 27.6% - p Continuous improvement culture 26.7% % 26.1% 24.5% 22.9% 20.6% 12.9% 2004 2005 2006 2007 2008 2009 2010 2011 47
Slide 48: Strong Cash Generation
Strong Cash Generation ($ Millions) 2011 2010 2009 2008 2007 2006 2005 Operating Cash Flows $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 % of Net Income 114% 98% 300% 134% 116% 104% 121% Capital Expenditures 24 17 11 27 37 34 20 Free Cash Flow $ 138 $ 84 $ 136 $ 135 $ 140 $ 122 $ 133 Dividends $ 51 $ 4
Slide 49: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Return on Assets Return on Equity Return on Net Profit Margin Invested Capital S&P 500 Diversified Machinery Graco Source: Interactive Data, Data 2012 Thomson Reuters 49
Slide 50: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply