Slide 1: Investor Presentation 3rd Quarter - December 2011
Investor Presentation 3rd Quarter - December 2011
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: Business Overview
Business Overview Opportunities and Strategies Building Momentum Company Performance 3
Slide 4: Business Overview
Business Overview • Graco manufactures equipment to pump, meter, mix and dispense a wide variety of fluids – Difficult to handle materials with high viscosities – Abrasive or corrosive properties – Multiple component materials that require precise ratio control • Outstanding reputation for premium p
Slide 5: Graco's Formula for Margin Generation
Graco’s Formula for Margin Generation Strong partnerships Outstanding channel Close relationship with material partners that add with end users suppliers value Market leading Niche end users with Best in class quality investments in new stringent product and delivery product development requirements
Slide 6: Business Overview
Business Overview • 28% revenue growth in 2010; 24% YTD 3rd Qtr 2011 Strong financial performance and • Incremental operating earnings leverage on organic operating leverage revenue growth of 35% to 45% Well-positioned • Sales primarily through independent distributors – channel partners approximate
Slide 7: An Introduction to our Businesses
An Introduction to our Businesses Rational Global Q311 YTD YOY Geographic Business Competitors Market Size Revenue Growth Mix 2010 Sales - $409M Industrial Asia 27% ITW, Exel, Idex, IR, Dover and $2.0 billion 27% Americas 46% Wagner Europe 27% 2010 Sales - $257M Contractor Americas Asia 64% 12% Wagn
Slide 8: Industrial Equipment – Paint Spraying
Industrial Equipment – Paint Spraying 8
Slide 9: Industrial Equipment – Multi Component Paint Spraying
Industrial Equipment – Multi Component Paint Spraying 9
Slide 10: Industrial Equipment – Protective Coating
Industrial Equipment – Protective Coating 10
Slide 11: Industrial Equipment – Fast-set Coating
Industrial Equipment – Fast-set Coating 11
Slide 12: Industrial Equipment – Fast-set Foam Insulation
Industrial Equipment – Fast-set Foam Insulation 12
Slide 13: Industrial Equipment – In-plant Polyurethane
Industrial Equipment – In-plant Polyurethane 13
Slide 14: Industrial Equipment – Sealants & Adhesives
Industrial Equipment – Sealants & Adhesives 14
Slide 15: Industrial Equipment – Composites
Industrial Equipment – Composites 15
Slide 16: Industrial Equipment – Process Industry
Industrial Equipment – Process Industry 16
Slide 17: Industrial Equipment – Process, Sanitary
Industrial Equipment – Process, Sanitary 17
Slide 18: Contractor Equipment – Painting & Texturing
Contractor Equipment – Painting & Texturing 18
Slide 19: Contractor Equipment – Striping
Contractor Equipment – Striping 19
Slide 20: Lubrication Equipment – Vehicle Services
Lubrication Equipment – Vehicle Services 20
Slide 21: Lubrication Equipment – Industrial
Lubrication Equipment – Industrial 21
Slide 22: Opportunities and Strategies
Business Overview Opportunities and Strategies Building Momentum Company Performance 22
Slide 23: Graco's Growth Plans and Earnings Drivers
Graco’s Growth Plans and Earnings Drivers 12%+ Acquisitions New Markets Global 3% - 5% Expansion New Product Development End User Conversion Industrial Graco Earnings Production Average CAGR Growth Rate 23
Slide 24: Industrial Equipment
Industrial Equipment • New applications in adjacent markets – Sanitary – Composites – Alternative energy • Material changes driving demand – High performance multiple component materials – Low - or no - VOC coatings – Green initiatives • Customer ROI-based new products – Integration of equipment wit
Slide 25: Contractor Equipment
Contractor Equipment • Conversion of end users from manual application methods to equipment is a major focus outside North America – In Europe and Asia, spray equipment penetration is less than 40% in developed countries and less than 10% in developing countries • Application of texture and cementit
Slide 26: Lubrication Equipment
Lubrication Equipment • Focused on expanding international markets and presence – Rapidly adding resources for specialized global marketing and selling – Developing products to meet local market needs – Building global channel • Industrial lubrication market targeted opportunities – Expanding produc
Slide 27: Building Momentum
Business Overview Opportunities and Strategies Building Momentum Company Performance 27
Slide 28: Graco Announces Agreement to Acquire Finishing Group
Graco Announces Agreement to Acquire Finishing Group 28
Slide 29: Acquisition Consistent with Strategic Growth Initiatives
Acquisition Consistent with Strategic Growth Initiatives Graco Growth Strategies Finishing Acquisition • Expand Geographically Strong, global manufacturing sales and distribution capabilities • Invest in New Products Innovative products and strong R&D capabilities • Target New Markets Market leading
Slide 30: Targeting Growth Through New Products and Markets
Targeting Growth Through New Products and Markets New Product Development Expense as a Percentage of Revenues, 2010 Peer Group Mean 1.6 Graco 5.1 Peer group includes: • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Robbins & Myers • IDEX • Watts Water T
Slide 31: Graco XP70 Plural-Component Sprayer
Graco XP70 Plural-Component Sprayer Markets Served • Tanks, railcars, pipes, bridges, wind towers, water towers, structural steel, shipbuilding High-pressure plural-component sprayer for protective coatings • Smart alternative to hand mixing • Affordable, easy to use 31
Slide 32: Graco ProMix 2KE
Graco ProMix® 2KE Markets Served • General metal, wood and furniture, farm and construction, truck and bus Entry level electronic proportioner • Highly accurate mix system has configurations for all spray technologies • Easy to install and use • Handles all common 2K finishing materials including ep
Slide 33: Sanitary Market - Graco SaniForce
Sanitary Market - Graco SaniForce Markets Served Food, Beverage, Cosmetics, Pharmaceutical • Unique high pressure solutions for extremely high viscosity materials • Breakthrough seal design allows for wider range of drum and bins to capitalize on growing need for reusable containers • Targeting gro
Slide 34: Industrial Lube Market - Graco G3 Electric Pumps
Industrial Lube Market - Graco G3 Electric Pumps Versatile Design Helps Solve Today’s Lubrication Challenges Markets Served Mobile equipment, Wind Energy, Factory Machinery, Steel Mills, Pulp and Paper, Food and Beverage • Industry leading control technology – most user friendly and provides more d
Slide 35: New Market: Remodeling Foam
New Market: Remodeling Foam • Remodeling Foam Market – Driven by rising energy costs – Estimated 80 million U.S. homes are under- insulated – Poor home starts causing more contractors to look for this type of work • Why would the homeowner be interested? – Average cost 2,400 sq. ft. two level house
Slide 36: Composites Market - Graco RS Chop Gun
Composites Market - Graco RS Chop Gun Markets Served • Marine and watercraft, pool and spa, bath, transportation Chop gun for composites industry • Features industry-first blade cartridge – Accomplish blade changes in less than a minute! – Increased production uptime • Lighter and more ergonomic th
Slide 37: International and Emerging Markets Drove 2010 Growth
International and Emerging Markets Drove 2010 Growth Europe 25% Asia Pacific 46% Latin America 52% 37
Slide 38: Company Performance
Business Overview Opportunities and Strategies Building Momentum Company Performance 38
Slide 39: Financial Results – Nine Months
Financial Results – Nine Months ($ Millions except EPS) 2011 2010 Change Sales $ 679.7 $ 546.8 24% Gross Profit Rate 56.4% 54.1% Operating Expenses 211.1 180.4 17% Operating Earnings 172.1 115.3 49% Net Earnings $ 111.9 $ 75.8 48% Earnings Per Share $ 1.82 $ 1.25 46% 39
Slide 40: 2011 – Nine Month Sales $680 Million
2011 – Nine Month Sales $680 Million Segment Geography $’s millions $’s millions Asia Pacific Contractor $153 $229 22% 34% Industrial $377 Americas 55% $364 54% Lubrication $74 Europe 11% $163 24% 40
Slide 41: Cash Deployment Priorities
Cash Deployment Priorities - International footprint - Product development Organic Growth Investments - Production capacity and capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% - 6 million authorized share Dividends/Share Repurchase rep
Slide 42: 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 market positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical fun
Slide 43: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply
Slide 44: Financial Summary For Q3 2011 - Appendix
Financial Summary For Q3 2011 - Appendix
Slide 45: Third Quarter 2011 Results
Third Quarter 2011 Results • Sales for the quarter up 20 percent compared to third quarter last year • Sales were up in all segments; regionally, sales were up 13 percent in the Americas, 18 percent in Europe, and 41 percent in Asia Pacific – The overall quarter growth rate includes 4 percentage poi
Slide 46: Nine Months 2011 Results
Nine Months 2011 Results • Sales year-to-date up 24 percent compared to prior year • Sales were up in all segments and geographies, including 19 percent in the Americas, 26 percent in Europe, and 37 percent in Asia Pacific – The overall year-to-date growth rate of 24% includes 3 percentage points fr
Slide 47: Financial Summary For 2010 - Appendix
Financial Summary For 2010 - Appendix
Slide 48: Summary – 2010
Summary – 2010 • Sales up 28% – Asia the strongest, up 46% (up 41% at consistent currency translation rates) – Europe up 25% (up 29% at consistent currency translation rates) – Americas up 24% • Gross margin up 3½ percentage points • Operating profit margin up 8 percentage points • Earnings per shar
Slide 49: Financial Results
Financial Results Full Year ($ Millions except EPS) 2010 2009 Change Sales $ 744.1 $ 579.2 28% Gross Profit Rate 54.2% 50.6% Operating Expenses 250.3 218.3 15% Operating Earnings 153.1 74.5 106% Net Earnings $ 102.8 $ 49.0 110% Earnings Per Share $ 1.69 $ 0.81 109% 49
Slide 50: 2010 – Full Year Sales $744 Million
2010 – Full Year of Sales $744 Million Segment Geography $’s millions $’s millions Asia Pacific Contractor $158 $257 21% 35% Industrial Americas $409 $408 55% 55% Lubrication Europe $78 $178 10% 24% 50
Slide 51: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall 51
Slide 52: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1977 1988 1999 2010 52
Slide 53: Earnings Per Share
Earnings Per Share Target: 12%+ 53
Slide 54: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency - Leverage volume increases - Continuous improvement culture 54
Slide 55: Strong Cash Generation
Strong Cash Generation ($ Millions) 2010 2009 2008 2007 2006 2005 2004 Operating Cash Flows $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 $ 123 % of Net Income 98% 300% 134% 116% 104% 121% 113% Capital Expenditures 17 11 27 37 34 20 17 Free Cash Flow $ 84 $ 136 $ 135 $ 140 $ 122 $ 133 $ 106 Dividends $ 48 $ 4
Slide 56: Leverage
Leverage ($ Millions) 2010 2009 2008 2007 2006 2005 2004 EBITDA $ 187 $ 109 $ 222 $ 261 $ 252 $ 213 $ 179 Debt, Net of Cash $ 69 $ 93 $ 186 $ 121 $ 12 $ (10) $ (55) Debt to EBITDA 37% 85% 84% 46% 5% Operating Earnings $ 153 $ 74 $ 187 $ 232 $ 226 $ 191 $ 162 Interest Expense $4 $5 $8 $3 $1 $1 $ 0.5
Slide 57: Free Cash Flow ($ Millions)
Free Cash Flow ($ Millions) $140 Strong cash flow for: $133 $135 $136 - Dividends $122 - Cash acquisitions $106 - Share repurchases $84 2004 2005 2006 2007 2008 2009 2010 Cash provided by operating activities less property, plant and equipment additions plus proceeds from sale of property 57
Slide 58: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50% 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Net Profit Margin Invested Capital S&P 500 Diversified Machinery Graco Source: Interactive Data, 2011 Thomson Reuters 58
Slide 59: Annual Dividend Growth
Annual Dividend Growth $0.84 - Dividends more than doubled $0.80 $0.76 $0.74 $0.66 $0.58 $0.52 $0.37 2004 2005 2006 2007 2008 2009 2010 2011 Note: Annual dividends rate, excludes special dividend of $1.50 paid in 2004 59
Slide 60: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply