Slide 1: Investor Presentation August 2011
Investor Presentation August 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 agenda
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: Business Overview
Business Overview • 28% revenue growth in 2010; 27% in 1H 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 approximately 30,
Slide 6: An Introduction to our Businesses
An Introduction to our Businesses Global 1H11 vs. 1H10 Business Revenue Growth Outlook Market Size Industrial • Asia strong • Europe and Americas 55% of 1H11 $2.0 billion 28% stable revenues Contractor • US construction 35% of 1H11 remains challenging revenues $0.5 billion 21% • Growth in new produc
Slide 7: Graco Business Model
Graco Business Model 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 Creating value f
Slide 8: Industrial Equipment
Industrial Equipment • Pumps and dispensing equipment for the liquid finishing, process, sanitary, sealants, adhesives, composites, protective coatings and foam markets. • Rational competitors including ITW, Exel, Idex, IR, Dover and Wagner Liquid Finishing and Protective Coatings, Foam Sealant and
Slide 9: Contractor Equipment
Contractor Equipment • Major end-markets include residential construction, commercial construction, remodel and repaint • Channel includes paint retailers, equipment houses and rental centers • Wagner is the most significant worldwide competitor Fine Finish Painting Pavement Maintenance Texture 9
Slide 10: Lubrication Equipment
Lubrication Equipment • Equipment used to transfer, meter and dispense lubricants with a full line of pumps, meters, hose reels, controls and centralized lubrication products. • Major competitors include Lincoln, Vogel, BEKA, Samoa, & RAASM Industrial Vehicle Lubrication Services 10
Slide 11: Opportunities and Strategies
Business Overview Opportunities and Strategies Building Momentum Company Performance 11
Slide 12: 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 Industrial Graco Earnings Production Average CAGR Growth Rate 12
Slide 13: 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 14: 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 15: Lubrication Equipment
Lubrication Equipment • Focus on historically underserved international markets – Specialized global marketing and selling organization expanding rapidly – Developing products to meet local market needs – Building global channel • Industrial lubrication market targeted opportunities – Expanding prod
Slide 16: Building Momentum
Business Overview Opportunities and Strategies Building Momentum Company Performance 16
Slide 17: Graco Announces Agreement to Acquire Finishing Group
Graco Announces Agreement to Acquire Finishing Group 17
Slide 18: 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 19: 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 Graco Peer group includes: • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Robbins & Myers • IDEX • Watts Water Technolog
Slide 20: 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 20
Slide 21: 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 22: 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 grow
Slide 23: 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 da
Slide 24: 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 25: 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 tha
Slide 26: International and Emerging Markets Drove 2010 Growth
International and Emerging Markets Drove 2010 Growth Europe 25% Asia Pacific 46% Latin America 52% 26
Slide 27: Company Performance
Business Overview Opportunities and Strategies Building Momentum Company Performance 27
Slide 28: Financial Results – First Half
Financial Results – First Half ($ Millions except EPS) 2011 2010 Change Sales $ 452.3 $ 356.8 27% Gross Profit Rate 56.8% 53.6% Operating Expenses 141.5 119.3 19% Operating Earnings 115.3 71.9 60% Net Earnings $ 75.4 $ 45.4 66% Earnings Per Share $ 1.22 $ 0.74 65% 28
Slide 29: 2011 – First Half Sales $452 Million
2011 – First Half Sales $452 Million Segment Geography $’s millions $’s millions Asia Pacific Contractor Industrial Americas Lubrication Europe 29
Slide 30: 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 31: Key Investment Attributes
Key Investment Attributes • Leading market positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical functions • Consistent investments in capital and growth initiatives • Shareholder-minded management • Financial strength
Slide 32: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply
Slide 33: Financial Summary For Q2 2011 - Appendix
Financial Summary For Q2 2011 - Appendix
Slide 34: Second Quarter 2011 Results
Second Quarter 2011 Results • Sales for the quarter up 22 percent compared to second quarter last year and up 8 percent from first quarter • Sales were up in all segments; regionally, sales were up 14 percent in the Americas, 32 percent in Europe, and 34 percent in Asia Pacific • Second quarter gros
Slide 35: First Half 2011 Results
First Half 2011 Results • Sales year-to-date up 27 percent compared to prior year • Sales were up in all segments and sales were up 23 percent in the Americas, 30 percent in Europe, and 35 percent in Asia Pacific – The overall year-to-date growth rate of 27% includes 3 percentage points from transla
Slide 36: Financial Summary For 2010 - Appendix
Financial Summary For 2010 - Appendix
Slide 37: Summary – 2010
Summary – 2010 • Sales up 28% – Asia the strongest, up 46% (up 41% at consistent exchange rates) – Europe up 25% (up 29% at consistent exchange rates) – Americas up 24% • Gross margin up 3½ percentage points • Operating profit margin up 8 percentage points • Earnings per share up 109% • $49M in divi
Slide 38: Financial Results Full Year
Financial Results Full Year ($ 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% 38
Slide 39: 2010 – Full Year Sales $744 Million
2010 – Full Year of Sales $744 Million Segment Geography $’s millions $’s millions Asia Pacific Contractor Industrial Americas Lubrication Europe 39
Slide 40: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall 40 40
Slide 41: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1977 1988 1999 2010 41
Slide 42: Earnings Per Share
Earnings Per Share Target: 12%+ 42
Slide 43: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency - Leverage volume increases - Continuous improvement culture 43 43
Slide 44: Strong Cash Generation
Strong Cash Generation ($ 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 45: 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 46: Free Cash Flow ($ Millions)
Free Cash Flow ($ Millions) Strong cash flow for: - Dividends - Cash acquisitions - Share repurchases Cash provided by operating activities less property, plant and equipment additions plus proceeds from sale of property 46 46
Slide 47: 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 47
Slide 48: 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 48
Slide 49: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply