Slide 1: Investor Presentation 4th Quarter and Year-End 2016
Investor Presentation 4th Quarter and Year-End 2016
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 – Expand Geographically – 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: 2016 Sales – $1.3 Billion
2016 Sales – $1.3 Billion EMEA 23% 59% Industrial 17% Process Asia Pacific 18% 24% Contractor 68% Industrial 18% Process 14% Contractor 36% Industrial 22% Process 47% Industrial 42% Contractor 20% Process 33% Contractor 5
Slide 6: 2015 Sales by End Market
2015 Sales by End Market Residential & Non-Residential Construction – 45% Industrial & Machinery – 17% Automotive – 12% Other – 8% Oil and Natural Gas – 6% Public Works – 4% Vehicle Services – 4% Mining – 2% Wood – 1% White Goods – 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,
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
Slide 9: Contractor Equipment Segment
Contractor Equipment Segment • Growth Drivers and Trends – Entry level product and channel expansion – Conversion of end users from manual application methods to equipment is a major focus outside North America – Application of texture and cementitious materials – Expanding pavement maintenance prod
Slide 10: Enduring Business Model
Overview 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 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-pr
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units Sold 2015 Sales # of SKUs Per Day ($ in millions) 0-1 43,006 92% $531 48% 2-5 2,578 5% $212 19% 6 - 10 625 1% $91 8% 11 - 15 215 1% $41 4% Greater than 15 567 1% $234 21% Legacy Graco Total Sales $1,109 Plus: Acquisition and Non-bran
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► Acquisitions Graco ► New Product Development Targeted Earnings ► New Markets 3% - 5% CAGR ► End User Conversion Industrial Production Average Growth Rate 15
Slide 16: Invest in New Products
Overview Enduring Business Model Strategies for Long-Term Growth Invest in New Products – Expand Geographically – 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 – 2016* Graco 4.6% R&D Spending Peers 1.6% Innovation * Peer average R&D spending as a percentage of revenues based on 2015 data 17
Slide 18: Industrial – Airless Sprayers
Industrial – Airless Sprayers e-Xtreme™ Electric Airless Sprayer • World’s first electric sprayer for protective coatings approved for hazardous locations • Electric power is safe, reliable, and convenient – Sprayers will be sold/used in emerging countries where compressed air is not readily availab
Slide 19: Contractor – Paint Sprayers
Contractor – Paint Sprayers Home Center Products Pro Products • New “Pro” performance features • Common platform delivers economies ProXChange™ “No Tools” pump repair of scale for entry-level markets cartridge • ProXChange “No Tools” pump repair Longer life / higher output cartridge Heavy-duty drive
Slide 20: Contractor – Pro Markets
Contractor – Pro Markets Texture Applications Pavement Striping Applications • 3 new interior / exterior options • New LineLazer V – 5th generation • Graco exclusive “Pro” features • #1 selling airless line striping system worldwide – 50% more air and fluid output – “SmartStart” system extends pump
Slide 21: Process – Saniforce 1040-e
Process – Saniforce® 1040-e Electric driven diaphragm pump for food and beverage applications 21
Slide 22: Target New Markets
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically Target New Markets – Make Acquisitions Company Performance
Slide 23: Industrial – Cementitious Materials Equipment
® Industrial – • Expands our presence in the construction industry • Handles cementitious materials – Stuccos, self-leveling flooring, fireproofing, repair mortars, grouts • Piston pump technology ‒ Fireproofing sprayers ‒ Stucco / EIFS sprayers • Rotor/stator pumps – Continuous mixers – Mortar pump
Slide 24: Industrial – EcoQuip
® Industrial – EcoQuip 2 • EcoQuip 2 sets new standards for Vapor Abrasive® Blasting – Faster, easier, and more reliable than existing systems – Up to 92% less dust than traditional dry blasting – Much less water than traditional water-based methods (around 1 qt./min) • Expand into new markets – Coa
Slide 25: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets Make Acquisitions Company Performance
Slide 26: Recent Acquisitions
Recent Acquisitions TM TM TM TM High Pressure Equipment Company ® & 26
Slide 27: Acquired January 2016
& Acquired January 2016 Geotechnical Instruments – UK manufacturer of portable and fixed landfill gas analyzers and biogas analyzers used for monitoring, Landfill compliance, and control of landfill and biogas processes Landtec – Manufactures landfill gas wellheads and accessories Biogas Wastewater
Slide 28: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 29: Financial Results
Financial Results Statement of Earnings Fourth Quarter Year-to-Date $ in millions except per share amounts 2016 2015 Change 2016 2015 Change 14 Weeks 13 Weeks 53 Weeks 52 Weeks Sales $ 349.1 $ 325.6 7% $ 1,329.3 $ 1,286.5 3% Gross Profit 184.7 171.8 8% 708.2 684.7 3% % of Sales 52.9 % 52.8 % 0.1 pts
Slide 30: Non-GAAP Disclosure Reconciliation
Non-GAAP Disclosure Reconciliation Results excluding the 2016 non-cash impairment and 2015 Liquid Finishing investment income and expense provide a more consistent base of comparison of on-going results. 2016 – Goodwill and Intangible Asset Impairment 2016 operating results of our Oil and Natural Ga
Slide 31: Components of Net Sales Change
Financial Results Components of Net Sales Change Fourth Quarter December 2016 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 6% (1)% 17 % 6% 12 % 4% 7% Acquisitions 0% 5% 0% 1% 2% 1% 1% Currency (2)% (2)% (0)% (0)% (5)% (1)% (1)% Total 4% 2% 17
Slide 32: Tax Items
Tax Items The deferred tax benefit of $31 million related to non-cash impairment charges recorded in the fourth quarter had a significant impact on the effective tax rate for both the quarter and the year The effective tax rate for the quarter was 6% compared to 27% for the fourth quarter last year.
Slide 33: Operating Earnings
Operating Earnings Change in Operating Earnings Fourth Quarter Year-to-Date 2015 Operating Earnings ($M and % of sales) $ 76 23 % $ 302 23 % Translation effect (1) — (4) — Mix, volume and pricing 15 1 22 — Effect of acquired businesses operations, inventory set-up and acquisition costs, net — — 4 —
Slide 34: Fourth Quarter 2016 Results
Fourth Quarter 2016 Results Sales increased 7% (8% at consistent currency translation rates) – Acquired businesses account for 1 percentage point of growth – Fourth quarter 2016 included 14 weeks compared to 13 weeks in 2015 Gross profit rate consistent with fourth quarter 2015 – Realized pricing an
Slide 35: Full Year 2016 Results
Full Year 2016 Results Sales increased 3% (4% at consistent currency translation rates) – Acquired businesses account for 1 percentage points of growth – 2016 was a 53 week year compared to 52 weeks in 2015 Gross margin rate consistent with 2015 – Favorable impact of reduced acquisition related purc
Slide 36: Notable Info from Q4 2016 Earnings Release & Call
Notable Info from Q4 2016 Earnings Release & Call Capital expenditure expectations of approximately $40 million in 2017 Unallocated corporate expenses in 2017 are expected to be approximately $31 million or $2 million higher compared to 2016 Non-cash impairment of intangible assets in fourth quarter
Slide 37: 2016 U.S and Non-U.S. Business Data Points
2016 U.S and Non-U.S. Business Data Points* 2016 sales $1,329 million- Sales from U.S production to U.S. customers ~ 45-47% Sales Sales from U.S. production to foreign customers ~ 30% Sales from foreign production to foreign customers ~ 20% Sales from foreign production to U.S. customers ~ 3-5% 2016
Slide 38: Current Environment and Outlook
Current Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Worldwide Sales Growth Sales Growth Sales Growth Sales Growth Current Q4 2016 6% Q4 2016 11% Q4 2016 4% Q4 2016 7% Environment FY 2016 1% FY 2016 6% FY 2016
Slide 39: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Dividend Payout Ratio ~30% Shareholder Return Approximately 4 Million Shares Remaining on Authorizatio
Slide 40: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term, above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical
Slide 41: Financial Summary 2016 Appendix
Financial Summary 2016 Appendix
Slide 42: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin Net Sales Operating Margins 1,400 30% 1,200 25% Operating Margins Sales ($ millions) 1,000 20% 800 15% 600 10% 400 200 5% - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Diluted $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.
Slide 43: Historic Sales ($ Millions)
Historic Sales ($ Millions) 43
Slide 44: Stock Dividend Growth
Stock Dividend Growth $1.44 $1.00 2017 $0.66 2013 2007 $0.22 2003 44
Slide 45: Strong Cash Generation
Strong Cash Generation ($ Millions) 2016 2015 2014 2013 2012 2011 2010 2009 2008 Operating Cash Flows $ 269 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 % of Net Income 661% 55% 107% 115% 127% 114% 98% 300% 134% Capital Expenditures 42 42 31 23 18 24 17 11 29 Free Cash Flow $ 227 $ 148 $ 210 $ 22
Slide 46: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50% 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group Graco Source: S&P Capital IQ 46
Slide 47: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com