Slide 1: Investor Presentation
Investor Presentation August 2014
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 3
Slide 4: Business Overview
Business Overview • Graco manufactures premium equipment to pump, 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 a broa
Slide 5: Year-to-date June 2014 Sales — $613 Million
Year-to-date June 2014 Sales — $613 Million EMEA 25% 72% Industrial Asia Pacific 25% Contractor 19% 3% Lubrication 75% Industrial 18% Contractor 7% Lubrication 47% Industrial 40% Contractor 58% Industrial 13% Lubrication 32% Contractor 10% Lubrication 5
Slide 6: 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, Idex, IR, Dover, Wagner and
Slide 7: Lubrication Equipment Segment
Lubrication Equipment Segment • Growth Drivers and Trends – Fill product lines for a single source solution – Targeting competition in the industrial lubrication market • Other Representative Industry Participants – Lincoln, Vogel, Bijur, Hannay, Coxreels, and regional players YTD June 2014 Sales As
Slide 8: 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
Slide 9: 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 9
Slide 10: 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 10
Slide 11: Manufacturing and Engineering Excellence
Manufacturing and Engineering Excellence • 80%+ of production is based in the United States – High-quality, efficient, engaged labor force – Centralization allows for leverage of overheads • Continuous improvement culture – Unique Graco cost-to-produce measurement tool • Ongoing capital investment –
Slide 12: 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 12
Slide 13: Graco’s Growth Plans and Earnings Drivers
Graco’s Growth Plans and Earnings Drivers 12%+ ► Acquisitions ► New Product Development Graco ► New Markets Targeted Earnings 3% - 5% ► Global Expansion CAGR Industrial ► End User Conversion Production Average Growth Rate 13
Slide 14: Strategies for Long-Term Growth: 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 14
Slide 15: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues - 2013 Graco 4.7% R&D Spending Peers 1.6% Innovation 15
Slide 16: E-Flo DC Supply Pump
E-Flo DC Supply Pump • Energy efficient electric brushless that is ideal for high-pressure applications such as waterborne spraying or moving high viscosity materials, • 5X more efficient than similarly sized pneumatic pumps, resulting in significantly lower electric bills for the end user. • Operat
Slide 17: Contractor – Professional Airless Line Upgrade
Contractor – Professional Airless Line Upgrade • Standard Series Upgrades: enhanced pump and filter technology, brushless DC motor, smart control architecture, innovative cart design • ProContractor Series Upgrades (including Standard): fast pump connect system, enhanced flushing technology, hose re
Slide 18: Industrial – ExactaBlend AGP
Industrial – ExactaBlend AGP • Superior mixing and ratio assurance for the glass industry • Easy to operate • Optimal mixing and on-ratio proportioning capabilities for quality assurance • Quick and easy base purge reduces material waste • Optional data download provides reports on ratio, flow ra
Slide 19: Industrial – Dual Control Electric Piston Pump
Industrial – Dual Control Electric Piston Pump • Combines the benefits of a pneumatic motor with the energy efficiency of an electric drive unit • Strong ROI for end user 19
Slide 20: Industrial – Fluid Monitoring Controls
Industrial – Fluid Monitoring Controls • Graco Informer® – Monitors fluid use data for environmental compliance reports – Identifies worn tips on spray guns – Quickly and efficient spray gun calibration • Graco ProControl 1KE – Actively manages fluid and air – Maintenance reminders include tank fil
Slide 21: Lubrication – G1 Electric Lubrication Pump
Lubrication – G1 Electric Lubrication Pump Entry Level Electric Lubrication Pump • Designed for: – Wind energy – Small package cars/trucks – Small dump trucks – Sea port cranes – Excavators – Machine tools – Packaging machinery Representative Industry Participants: – Lincoln – Vogel – Bijur Benef
Slide 22: Lubrication – Dyna-Star Electric Lubrication Pump
Lubrication – Dyna-Star® Electric Lubrication Pump • Electric pumps for heavy-duty automatic lubrication and transfer systems – Graco Advantage Drive™ – heavy-duty gear drive – Tube-in-tube vent and fill path – convert drum to injector system instantly – Vent valve mounted directly to pump – Speed a
Slide 23: Contractor – Pavement Maintenance
Contractor – Pavement Maintenance • LineLazer® IV 250DC Dual Color Striper for jobs requiring “Highlight” lines – Ease of Use - “Fast and easy set ups” – High Production - Up to 5 paint and bead guns – Technology - Leverage our LL250SPS technology to give striping contractors a new, stand-on solutio
Slide 24: Industrial – Remote Reporting Technology
Industrial – Remote Reporting Technology GPS Location, 1 Rig GPS, All Rigs Job Log Daily Use Log 24
Slide 25: Industrial – ProMix PD2K Proportioners
Industrial – ProMix® PD2K Proportioners • 100% positive displacement technology for accurate mix ratios and consistent performance – Mixes the material close to the gun so the flush zone is significantly smaller – Allows customers to use less paint, spend less on disposal costs and allows for faster
Slide 26: Strategies for Long-Term Growth: Expand Geographically
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products Expand Geographically – Target New Markets – Make Acquisitions Company Performance 26
Slide 27: South America – Key Initiatives
South America – Key Initiatives Market Education End-user Conversion Product Training & Launches World Trade Center Free Zone, Geographical Montevideo, Uruguay Expansion Develop Local Specialized Support Staff Sales Team 27
Slide 28: Strategies for Long-Term Growth: 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 28
Slide 29: Industrial – Expanding the Process Division Core
Industrial – Expanding the Process Division Core 50% Increase in New Product Development Team • Support robust growth in sanitary and cleaning categories with increased product development resource • Enter targeted oil and gas pumping applications • Expand offering of highly efficient electric drive
Slide 30: Industrial – InvisiPac Tank-Free Hot Melt Delivery System
Industrial – InvisiPac® Tank-Free Hot Melt Delivery System Revolutionary Hot Melt Equipment for the Packaging Industry • Designed for case and carton sealing • Ten-minutes startup, no tank char, no nozzle plugging – less maintenance, more uptime 30
Slide 31: Lubrication – Power Rewind Hose Reels
Lubrication – Power Rewind Hose Reels • XD 60, XD 70 and XD 80 - designed for improved safety and performance • Innovative direct drive motor is safer for operators and broadens our product offering • Drive unit requires minimum maintenance and has a longer life • Durable design suitable for hars
Slide 32: G-Flex 1500 Flexible Parts Feeding Solution
G-Flex 1500 Flexible Parts Feeding Solution • A uniquely-designed part feeder for industrial manufacturing applications • Vibratory table that recirculates parts preventing over-accumulation and part bunch ups • Highly tolerant of process contamination • Great value when compared to traditional b
Slide 33: Strategies for Long-Term Growth: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets Make Acquisitions Company Performance 33
Slide 34: Acquired December 2013 (Soil)
Acquired December 2013 Soil Air % of 2013 Revenue Sampling,Strippers, Designs, manufactures, and markets 7% 7% proprietary pumping systems, air strippers Landfill Int. 17% and gas wellheads for a variety of Gas, 8% environmental and industrial applications; Air Powered Remediation Air primarily reme
Slide 35: Acquired December 2013
Acquired December 2013 • Strong fit with Graco’s protective coatings equipment − Optimized process to use water vapor to assist abrasive blasting process − Utilized in industrial, marine, construction, restoration, cleaning industries 35 35
Slide 36: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance 36
Slide 37: Graco Reported Q2 Results on July 23, 2014
Graco Reported Q2 Results on July 23, 2014 $ millions except EPS Second Quarter 2014 2013 Change Sales $ 322.5 $ 286.0 13 % Gross Profit 176.9 158.7 11 % % of Sales 54.8 % 55.5 % (0.7) pts Operating Earnings 85.8 75.2 14 % % of Sales 26.6 % 26.3 % 0.3 pts Net Earnings $ 66.2 $ 57.8 15 % % of Sales 2
Slide 38: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Improving: General Industrial, Improving: Western Europe Stable: General Industrial Automotive, Construction Challenging: EM Currency, Challenging: Ship Building, Mining Challenging: Heavy Machinery Geopolitical Spotty: Project Activi
Slide 39: Cash Deployment Priorities
Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Dividend Payout Ratio 25-30% Shareholder Return Six Million Authorized Share Repurchase - 10% of Outstanding Sha
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 Q2 2014 Appendix
Financial Summary Q2 2014 Appendix
Slide 42: Financial Results – Year-to-Date June
Financial Results – Year-to-Date June ($ Millions except EPS) 2014 2013 Change Sales $ 612.5 $ 555.1 10% Gross Profit Rate 54.9% 55.7% Operating Expenses 175.6 162.7 8% Operating Earnings 160.6 146.7 9% Net Earnings $ 117.0 $ 110.0 6% Earnings Per Share $ 1.88 $ 1.76 7% 42
Slide 43: Year-to-Date June 2014 Results
Year-to-Date June 2014 Results • Sales increased 10 percent, including 3 percentage points from acquired operations, no net impact from currency translation • Gross profit margin of 55 percent, down 1 percentage point from last year – Non-recurring inventory-related purchase accounting effects and l
Slide 44: Financial Results – Second Quarter
Financial Results – Second Quarter ($ Millions except EPS) 2014 2013 Change Sales $ 322.5 $ 286.0 13% Gross Profit Rate 54.8% 55.5% Operating Expenses 91.0 83.5 9% Operating Earnings 85.8 75.2 14% Net Earnings $ 66.2 $ 57.8 15% Earnings Per Share $ 1.07 $ 0.92 16% 44
Slide 45: Second Quarter 2014 Results
Second Quarter 2014 Results • Sales increased 13 percent, including 4 percentage points from acquired operations, currency translation added 1 percentage point • Gross profit margin of 55 percent, down 1 percentage point from last year – Changes in product mix, including higher proportion of entry l
Slide 46: Financial Summary 2013 Appendix
Financial Summary 2013 Appendix
Slide 47: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin Net Sales Operating Margins 1,200 30% 1,000 25% Operating Margins Sales ($ millions) 800 20% 600 15% 400 10% 200 5% - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD June 2014 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36 $1
Slide 48: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 48
Slide 49: Stock Dividend Growth
Stock Dividend Growth $1.10 $0.80 2014 $0.66 2010 2007 $0.37 2004 49
Slide 50: Strong Cash Generation
Strong Cash Generation ($ Millions) 2013 2012 2011 2010 2009 2008 2007 2006 2005 Operating Cash Flows $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 % of Net Income 115% 127% 114% 98% 300% 134% 116% 104% 121% Capital Expenditures 23 18 24 17 11 29 37 34 20 Free Cash Flow $ 220 $ 172 $ 138 $ 8
Slide 51: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average Source: Interactive Data, MSN Money 51
Slide 52: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com