Slide 1: Investor Presentation 1st Quarter 2018
Investor Presentation 1st Quarter 2018
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 differ from anticipate
Slide 3: Overview
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Make Acquisitions Company Performance
Slide 4: Business Overview
Business Overview ► Graco manufactures premium equipment to pump, move, meter, mix and dispense a wide variety of fluids and coatings – Difficult to handle materials with high viscosities – Abrasive and corrosive properties – Multiple component materials that require precise ratio control – Serving
Slide 5: Year-To-Date March 2018 Sales – $406 Million
Year-To Date March 2018 Sales – $406 Million EMEA 25% 59% Industrial 15% Process Asia Pacific 21% 26% Contractor 73% Industrial 16% Process 11% Contractor 34% Industrial 23% Process 43% Contractor 48% Industrial 20% Process 32% Contractor 5
Slide 6: 2017 Sales by End Market
2017 Sales by End Market Residential & Non-Residential Construction – 45% 18% Industrial & Machinery – 18% Automotive – 13% 45% Other – 8% 13% Oil and Natural Gas – 5% Public Works – 4% 8% Vehicle Services – 3% 5% 4% 2%3% Mining – 2% White Goods – 1% Wood – 1% 6
Slide 7: 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 Material changes driving demand ► Other Representative Industry Participants Exel, Wagner, Carlisle Companies, Nordson an
Slide 8: Process Equipment Segment
Process Equipment Segment ► Growth Drivers and Trends Targeting new products and new markets Fill product lines for a single source solution Focus on spec’ing in product at large OEM’s ► Other Representative Industry Participants Idex, Dover, IR, Lincoln, Vogel, Bijur, Hannay, Coxreels and regional
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 America Application of texture & cementitious materials Entry level product & channel expansion Expanding pavement maintenance product line and
Slide 10: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Make Acquisitions Company Performance
Slide 11: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in End Class User Delivery Interaction Customer Leading Strong NPD ROI Channel Investment Lowest Total Partners Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 11
Slide 12: Manufacturing & Engineering Excellence
Manufacturing & Engineering Excellence ► 80%+ of production is based in the United States High-quality, efficient, engaged labor force Centralization allows for leverage of overheads A currency mismatch of sales to COGS exists, however ► Continuous improvement culture Unique Graco cost-to-produce me
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2017 Sales # of SKUs Sold Per Day ($ in millions) 0-1 58,000 93% $ 730 49% 2-5 2,900 5% $ 256 17% 6 - 10 700 1% $ 117 8% 11 - 15 300 0% $ 53 4% Greater than 15 700 1% $ 319 22% Graco 2017 Sales $1,475 13
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Make Acquisitions Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► End User Conversion ► New Product Development Graco ► New Markets Targeted Earnings 3% - 5% ► Global Expansion CAGR Industrial ► Acquisitions Production Average Growth Rate 15
Slide 16: Invest in New Products
Overview Enduring Business Model Strategies for Long-Term Growth Invest in New Products Target New Markets – Make Acquisitions Company Performance
Slide 17: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2017* R&D Spending Graco 4.1% Peers 1.7% Innovation * Peer average R&D spending as a percentage of revenues based on 2017 data 17
Slide 18: Industrial – King Sprayer Packages
® Industrial – King Sprayer Packages New King pneumatic airless sprayers – powerful machines for the toughest protective coatings ► New air motor exceeds the performance of the industry-standard legacy King platform ► Designed for waterproofing, fireproofing and protective coating applications, even
Slide 19: Industrial – Reactor 2 Mobile App
Industrial – Reactor 2™ Mobile App Real-time status and remote control capability in the palm of the contractor’s hand ► Easy, efficient method to remotely monitor and adjust machine performance ► Key features Turn machine and pump on/off remotely Adjust temperatures and pressure (Electric Reactor)
Slide 20: Industrial – ToughTek F800e
® Industrial – ToughTek F800e A powerful pump for any size fireproofing job ► Small, lightweight design allows contractor to move quickly between floors ► Ideal for applications where portability is needed ► For coating structural steel with cementitious fireproofing materials ► Improves productivit
Slide 21: Industrial – OptiStar 4.0
® Industrial – OptiStar 4.0 The new standard for powder gun control ► Control crucial coating parameters ► Obtain excellent results and measurable ® system optimization Accurate powder output control Eliminate overcharging of sensitive powders 250 customized programs available ► Web-connectivity wit
Slide 22: Contractor – TexSpray FastFinish
Contractor – TexSpray™ FastFinish™ Fastest hopper gun texture spray system on the market ► Small-to-medium residential & non-residential applications ► Finish jobs 6X faster than traditional gravity-fed hopper gun systems ► Compact and portable system reduces operator fatigue ► Delivers the performa
Slide 23: Contractor – DutyMax GH 675DI
Contractor – DutyMax™ GH™ 675DI Maximum power in a small package ► Commercial roofing applications ► Ideal for small-to-medium coating jobs traditionally completed by hand ► High-pressure spray rig delivers 6,750 psi in a small, compact and highly-portable package ► Perfect for hard-to-spray materia
Slide 24: Contractor – RoadLazer RoadPak HD
Contractor – RoadLazer™ RoadPak™ HD High-productivity striping machine ► Truck-mounted line striping system delivers 2X higher paint output than previous models ► 5-gun capability – completes airport striping jobs in a single pass ► Pre-programmed for airport stripe patterns for faster set up ► Rear
Slide 25: Process – Husky and SaniForce 2150e
Process – Husky™ and SaniForce 2150e ® Electric diaphragm pumps configurable for many applications ► Expanding Graco’s presence in the electric Aluminum | Cast Iron pump market with larger size offerings ► Helps customers lower energy consumption, increase control, and decrease ownership and operati
Slide 26: Process – Electric Grease Jockey
Process – Electric Grease Jockey® On-road and mobile automatic lubrication system ► Increases fleet revenue Lubricates while vehicle is moving Eliminates need to wait for shop time to manually lubricate ► Decreases operating costs Extends component life by 4X Saves on grease usage ► Easy-to-order an
Slide 27: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets Make Acquisitions Company Performance
Slide 28: Recent Acquisitions by Segment
Recent Acquisitions by Segment Industrial Process Contractor TM TM TM TM High Pressure Equipment Company ® TM & 28
Slide 29: ProHydro – Acquired March 2018
ProHydro – Acquired March 2018 QED Environmental Systems acquired the assets of ProHydro, the developer and manufacturer of the Snap Sampler® passive groundwater sampling system ► Samples without purging for significant labor savings ► Designed for high sample accuracy and precision ► Eliminates col
Slide 30: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Make Acquisitions Company Performance
Slide 31: Graco Reported Q1 Results
Graco Reported Q1 Results Statement of Earnings First Quarter $ in millions except per share amounts 2018 2017 Change Sales $ 406 $ 341 19 % Gross Profit 222 186 20 % % of Sales 54.7 % 54.6 % 0.1 pts Operating Earnings 112 87 28 % % of Sales 27.5 % 25.7 % 1.8 pts Net Earnings $ 86 $ 61 41 % % of Sal
Slide 32: Non-GAAP Disclosure Reconciliation
Non-GAAP Disclosure Reconciliation Tax benefits related to stock option exercises have caused significant fluctuation in the Company’s effective tax rate. Excluding the impacts presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements of adjuste
Slide 33: Q1 2018 Sales Data
Q1 2018 Sales Data Components of Net Sales Change First Quarter March 2018 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 13 % 10 % 11 % 9% 8% 23 % 11 % Acquisitions 5% 1% 1% 1% 7% 5% 3% Currency 7% 3% 3% 1% 13 % 8% 5% Total 25 % 14 % 15 % 11 %
Slide 34: Q1 2018 Operating Earnings
Q1 2018 Operating Earnings Change in Operating Earnings First Quarter 2017 Operating Earnings ($M and % of sales) $ 87 26 % Translation effect 8 1 Volume, price and cost 23 0 Volume and earnings based incentives and market-driven share-based compensation (3) (1) Effect of acquisitions on operating e
Slide 35: Notable Info from Q1 2018 Earnings Release & Call
Notable Info from Q1 2018 Earnings Release & Call Capital expenditure expectations of approximately $40 million in 2018, excluding bricks and mortar Planning and design for several production and distribution facilities that are nearing capacity is underway. Current estimate of 2018 projects is appr
Slide 36: Current Environment and Outlook
Current Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Worldwide Current Sales Change Sales Change Sales Change Sales Change Q1 2018 9% Q1 2018 8% Q1 2018 23% Q1 2018 11% Environment Environment Unchanged Environ
Slide 37: 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 Approximately 6 Million Shares Remaining on Return Repurchase Autho
Slide 38: 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 ► Serve niche markets where customers are willing to purchase quality, technology-based products ► Products perform critical f
Slide 39: Financial Summary Q1 2018 Appendix
Financial Summary Q1 2018 Appendix
Slide 40: Financial Results – First Quarter
Financial Results – First Quarter Statement of Earnings First Quarter $ in millions except per share amounts 2018 2017 Change Sales $ 406 $ 341 19 % Gross Profit 222 186 20 % % of Sales 54.7 % 54.6 % 0.1 pts Operating Earnings 112 87 28 % % of Sales 27.5 % 25.7 % 1.8 pts Net Earnings $ 86 $ 61 41 %
Slide 41: Non-GAAP Disclosure Reconciliation
Non-GAAP Disclosure Reconciliation Tax benefits related to stock option exercises have caused significant fluctuation in the Company’s effective tax rate. Excluding the impacts presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements of adjuste
Slide 42: First Quarter 2018 Results
First Quarter 2018 Results ► Sales increased 19 percent; 5 percentage points from the favorable effect of currency translation and 3 percentage points from acquired businesses ► Gross profit margin rate up 0.1 percentage point compared to first quarter 2017 Favorable effects from currency translatio
Slide 43: Financial Summary 2017 Appendix
Financial Summary 2017 Appendix
Slide 44: Financial Performance
Financial Performance Sales and Operating Margin, as Reported Net Sales Operating Margins 1,800 30% 1,600 25% 1,400 Operating Margins Sales ($ millions) 1,200 20% 1,000 15% 800 600 10% 400 5% 200 - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Diluted $0.52 $0.60 $0.72 $0.
Slide 45: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1978 1990 2002 2014 45
Slide 46: Stock Dividend Growth
Stock Dividend Growth $0.53 $0.33 2018 $0.25 2013* 2008* $0.07 2003* *Dividends adjusted for 2017 3-for-1 stock split 46
Slide 47: Strong Cash Generation
Strong Cash Generation ($ Millions) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Operating Cash Flows $ 338 $ 276 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 % of Net Income 134% 679% 55% 107% 115% 127% 114% 98% 300% 134% Capital Expenditures 40 42 42 31 23 18 24 17 11 29 Free Cash Flow $ 2
Slide 48: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group Graco 2016 adjusted for impairment Source: S&P Capital IQ 48
Slide 49: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com