Slide 1: Investor Presentation Company Overview Third Quarter 2020
////////////////// Investor Presentation Company Overview Third Quarter 2020 1
Slide 2: Safe Harbor
Safe Harbor ////////////////// Today’s presentation includes forward-looking statements that reflect management’s current expectations about the Company’s future business and financial performance. These statements are subject to certain risks and uncertainties that could cause actual results to dif
Slide 3: Distribution of Global Sales
62% Distribution 39% 40% of Global $1,180 M 21% 17% 21% Sales September 2020 Year to Date Americas EMEA Asia Pacific Industrial Process Contractor 61% 50% 53% 29% 31% 21% 25% 16% 14% Industrial Process Contractor Industrial Process Contractor Industrial Process Contractor 3
Slide 4: 2019 Sales by End Market
2019 Sales by End Market ////////////////// Wood – 1% White Goods – 2% Mining – 2% Vehicle Services – 4% Public Works – 4% Oil & Natural Gas – 4% Other – 9% Automotive – 11% Industrial & Machinery – 16% Construction – 48% 4
Slide 5: Graco is part of your everyday life
Graco is part of your everyday life. 5
Slide 6: Graco is part of your everyday life
Graco is part of your everyday life. 6
Slide 7: Niche Diversified Fluid Handling Business
Diversified Fluid Handling Business Niche 5.5%+ ~40% Difficult applications; corrosive, Organic Revenue CAGR* Of revenue is parts viscous, hard-to-move materials & accessories *20-year average, constant currency 7
Slide 8: High Customer Value, Strong Product
Material Supplier Relationships Best in Class End User Delivery Interaction High Customer Value, Strong Customer Leading New ROI Strong Product Channel Product Investment Lowest Total Partners Cost of Ownership Differentiation Stringent Best in Class Product Requirements Quality Niche Markets 8
Slide 9: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2019 Sales No. of SKUs Sold Per Day ($ in millions) Highly-valued products at low volumes 0-1 63,700 93% $ 846 51% 2-5 2,800 4% $ 258 16% 51% of our revenue comes from products 6 - 10 800 1% $ 126 8% that we sell 11 - 15 300 0% $ 51
Slide 10: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Strategic Initiatives 12%+ ► New Product Development 10% ► New Markets ► Global Expansion ► Acquisitions ► End-user Conversion Targeted Revenue Targeted Earnings CAGR CAGR Through a cycle 10
Slide 11: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Acquisitions Strategic 3-4% + Initiatives 12% 12%+ Price 1-2% 9-10% 1-2% 5-7% 3% Industrial Production Targeted Organic Targeted Targeted Earnings Average Growth Rate CAGR Revenue CAGR CAGR Through a cycle 11
Slide 12: Exceptional Returns
Exceptional Returns 5.5%+ 30% 44% 20% Organic Revenue CAGR Return on Invested Capital Return on Equity Return on Assets Based on a 20-year average, constant currency 12
Slide 13: Business Model
Business Model ////////////////// Brand Promise ▶ Company Overview ▶ Operational Excellence ▶ Engineering & Manufacturing Excellence ▶ Extensive Reach 13
Slide 14: Our Brand Promise
▶ Innovation – Leading with technologically-advanced features, pioneering design, high performance and unparalleled reliability ▶ Quality – Our customers invest in high-quality products built to last for years of reliable service ▶ A+ Service – We’re guided by a Our Brand mindset of integrity and a
Slide 15: Engineering Excellence
Engineering Excellence Annual R&D Investment 4.2% * Target More than Double-Digit Returns 2.6 x* as a percent of sales our peer group versus peers at 1.6% ▶ new product * Peers: ITW, CSL, DOV, CFX, IEX, NDSN, WTS, FLS, based on a 5-year average, 2015 - 2019. 15 15
Slide 16: Manufacturing Excellence
Manufacturing Excellence Goal is 80% Zero < 1% Production based in the US cost change Warranty costs on the same basket of goods (yoy) 16
Slide 17: Service Excellence
Service Excellence Same Day 96%+ Orders in by noon, In-stock service level ship the same day (goal is > 92%) 17
Slide 18: Extensive Reach
Extensive Reach Customers in over 100 Installed base 30,000+ countries ~100 Outlets/Distributors Facilities in years old 12 countries 18
Slide 19: Company Segments
Company Segments ////////////////// ▶ Industrial Company ▶ Process Overview ▶ Contractor 19
Slide 20: Industrial
Industrial September 2020, Nine Months $465M -15% 32% Segment Revenue Organic Operating Margin - 200 basis points 20
Slide 21: Industrial: End Markets and Growth Drivers
Industrial Key End Markets ▶ General industrial ▶ Automotive ▶ Res & non-res construction ▶ Alternative energy & others Growth Drivers & Trends ▶ Factory movement & upgrades ▶ Automation ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Material changes Select Representative Industry Participants
Slide 22: Process
Process September 2020, Nine Months $243M -11% 19% Segment Revenue Organic Operating Margin -300 basis points 22
Slide 23: Process: End Markets and Growth Drivers
Process Key End Markets ▶ Pharma, food & beverage ▶ Vehicle services ▶ Oil & natural gas ▶ Environmental ▶ Semiconductor & others Growth Drivers & Trends ▶ Factory movements and upgrades ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Asset life maintenance ▶ Commodities extraction ▶ Environmen
Slide 24: Contractor
Contractor September 2020, Nine Months $472M 11% 26% Segment Revenue Organic Operating Margin +200 basis points 24
Slide 25: Contractor: End Markets and Growth Drivers
Contractor Key End Markets ► Res & non-res construction ► Res & non-res remodeling ► Transportation Infrastructure Growth Drivers & Trends ► End user conversion from brush and roll ► Product innovation & channel expansion ► Housing & new construction ► Infrastructure spending ► Regional labor rates
Slide 26: Capital Allocation
Capital Allocation Company Overview ////////////////// 26
Slide 27: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities ////////////////// International footprint Organic Product development Growth Production capacity and capabilities Supplement to organic growth Acquisitions Leverage our strengths Solid dividend history Shareholder Return Approximately 18.5 million
Slide 28: Key Investment Attributes
▶ Drive long-term, above-market growth ▶ Premium products that deliver strong ROI for end users ▶ Leading industry positions ▶ Serve niche markets where customers are willing to purchase quality, technology-based products ▶ Products perform critical functions ▶ High margin, high recurring revenue ▶
Slide 29: Acquisitions
Acquisitions Company Overview ////////////////// 29
Slide 30: Acquisitions: Industrial
Acquisition ▶ Industrial 2012 2013 2014 2014 2015 2015 2017 2018 30
Slide 31: Acquisitions: Process
Acquisition ▶ Process 2013 2014 2015 2015 2016 2019 31
Slide 32: Financial Results
Financial Results Company Overview ////////////////// 32
Slide 33: Financial Performance Sept. YTD
Minneapolis, MN Financial Performance Sept. YTD -4% 51.7% -17% -17% Revenue Gross Margin EPS Net Income (As Reported) 33
Slide 34: Financial Results
Financial Results Statement of Earnings Third Quarter September Year-to-Date $ in millions except per share amounts 2020 2019 Change 2020 2019 Change (1) Operating earnings, net Sales $ 439.3 $ 400.6 10 % $1,179.8 $1,233.8 (4)% earnings and diluted earnings per share for 2020 and 2019 Gross Profit 2
Slide 35: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Excluding the impacts Non-GAAP Reconciliation Third Quarter September Year-to-Date of impairment $ in millions except per share amounts 2020 2019 Change 2020 2019 Change charges, excess tax Operating earnings, as reported $ 125.0 $ 103.4 21 % $ 259.6 $ 32
Slide 36: Non-cash Impairment
Non-cash Impairment ▶ In the second quarter, the Company entered into negotiations to sell its U.K.-based valve business ("Alco"), which has significant exposure to oil and natural gas markets, and has accumulated operating losses since acquired in 2014. Alco operations contributed $7 million of sal
Slide 37: Third Quarter 2020 Results
Third Quarter 2020 Results Sales ► Up 10 percent from 2019, up 9 percent at consistent translation rates Acquired businesses added 1 percentage point ► Rate up 0.3 percentage point from 2019 Gross Margin Realized pricing, lower product costs and favorable currency translation offset unfavorable
Slide 38: Nine Months 2020 Results
Nine Months 2020 Results ► Down 4 percent from 2019, down the same at consistent translation rates Sales Acquired businesses added 1 percentage point ► Rate down 1.0 percentage point from 2019 Gross Margin Realized pricing not enough to offset unfavorable product and channel mix ► Operating earn
Slide 39: Components of Net Sales Changes
Financial Results Components of Net Sales Changes Third Quarter September 2020 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price (3)% (12)% 32 % 13 % (5)% 5% 8% Acquisitions 0% 5% 0% 1% 0% 2% 1% Currency 2% 1% 1% 0% 4% 2% 1% Total (1)% (6)% 33 % 14
Slide 40: Other Items
Other Items Cap Ex Capital expenditure expectations of approximately $85 million in 2020, including approximately $50 million facility expansion Expenses Unallocated corporate expenses in 2020 are expected to be approximately $30 million Shares Through September 2020, we repurchased 2.3 million shar