Slide 1: Investor Presentation May 2014
Investor Presentation May 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. p These statements are subject to certain risks and uncertainties that could cause actual results to differ from anticipa
Slide 3: Overview
9 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 p component p materials that require q p precise ratio control – Servin
Slide 5: Year-to-date March 2014 Sales — $290 Million
Year-to-date March 2014 Sales — $290 Million EMEA 25% 75% Industrial Asia Pacific 22% Contractor C t t 20% 3% Lubrication 75% Industrial 17% Contractor 8% Lubrication 49% Industrial 37% Contractor 61% Industrial 14% Lubrication 29% Contractor 10% Lubrication 5
Slide 6: Industrial Equipment Segment
Industrial Equipment Segment • Growth G th Drivers Di and dTTrends d – 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,
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 Lincoln, Vogel Vogel, Bijur, Bijur Hannay, Hannay Coxreels, Coxreels and reg
Slide 8: Contractor Equipment Segment
Contractor Equipment Segment • Growth G th Drivers Di and dTTrends d – 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 maintena
Slide 9: Enduring Business Model
Overview 9 Enduring Business Model Strategies g for Long-Term g Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company p y 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 g 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 g 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 9 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 N M Markets k T Targeted t d 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 9 Strategies for Long-Term Growth 9 Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance 14
Slide 15: Targeting Growth Through New Products & Markets
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues - 2013 Graco 4.7% ng D Spendin Peers R&D 1.6% Innovation 15
Slide 16: 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, t enhanced h d flflushing hi ttechnol
Slide 17: Industrial – ExactaBlend AGP
Industrial – ExactaBlend™ AGP • Superior mixing and ratio assurance for the glass industry • Easyy to operate p • 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 r
Slide 18: 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 18
Slide 19: 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 20: 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 Benefit
Slide 21: 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 Drive™ – heavy heavy-duty duty gear drive – Tube-in-tube vent and fill path – convert drum to injector system instantly – Vent valve mounted directly
Slide 22: Contractor – Pavement Maintenance
Contractor – Pavement Maintenance • LineLazer® IV 250DC Dual Color Striper for jobs requiring “Highlight” lines – Ease of Use - “Fast and easyy set ups” p – High Production - Up to 5 paint and bead guns – Technology - Leverage our LL250SPS technology to give striping contractors a new, stand-on t d
Slide 23: Industrial – Remote Reporting Technology
Industrial – Remote Reporting Technology GPS Location, 1 Rig GPS, All Rigs Job Log Daily Use Log 23
Slide 24: 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 25: Strategies for Long-Term Growth: Expand Geographically
Overview Enduring Business Model 9 Strategies for Long-Term Growth – Invest in New Products 9 Expand p Geographically g p y – Target New Markets – Make Acquisitions C Company P Performance f 25
Slide 26: 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 26
Slide 27: Strategies for Long-Term Growth: Target New Markets
Overview Enduring Business Model 9 Strategies for Long-Term Growth – Invest in New Products – Expand Geographically 9 Target New Markets – Make Acquisitions Company Performance 27
Slide 28: 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 29: Industrial – InvisiPac Tank-Free Hot Melt Delivery System
Industrial – InvisiPac® Tank-Free Hot Melt Delivery System R Revolutionary l ti H t Melt Hot M lt Equipment E i t for f ththe Packaging P k i Industry I d t • Designed for case and carton sealing • Ten Ten-minutes minutes startup, startup no tank char, char no nozzle plugging – less maintenance, mor
Slide 30: 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 31: 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 bow
Slide 32: Strategies for Long-Term Growth: Make Acquisitions
Overview Enduring Business Model 9 Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets 9 Make Acquisitions Company Performance 32
Slide 33: Acquired December 2013: Soil Air
Acquired December 2013 Soil Air % of 2013 Revenue Sampling,Strippers, Designs, manufactures, and markets 7% 7% proprietary pumping systems, air strippers Landfill Int. 17% andd gas wellheads llh d ffor a variety i t off Gas 8% Gas, environmental and industrial applications; Air Powered Remediation A
Slide 34: 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 industrial, marine marine, construction construction, restoration, cleaning industries 34 34
Slide 35: Company Performance
Overview Enduring g Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions 9 Company Performance 35
Slide 36: Graco Reported Q1 Results on April 23, 2014
Graco Reported Q1 Results on April 23, 2014 $ millions except EPS First Quarter 2014 2013 Change Sales $ 290.0 $ 269.0 8% Gross Profit 159.3 150.6 6% % of Sales 54.9 % 56.0 % (1.1) pts O Operating ti Earnings E i 74 7 74.7 71 5 71.5 4% % of Sales 25.8 % 26.6 % (0.8) pts Net Earnings $ 50.7 $ 52.1 (3
Slide 37: 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 38: 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 39: 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 40: Financial Summary Q1 2014 Appendix
Financial Summary Q1 2014 Appendix
Slide 41: Financial Results – First Quarter
Financial Results – First Quarter ($ Millions except EPS) 2014 2013 Change Sales $ 290.0 $ 269.0 8% Gross Profit Rate 54.9% 56.0% Operating Expenses 84.6 79.1 7% O Operating ti Earnings E i 74 7 74.7 71 5 71.5 4% Net Earnings $ 50.7 $ 52.1 (3%) Earnings Per Share $ 0.81 $ 0.84 (4%) 41
Slide 42: First Quarter 2014 Results
First Quarter 2014 Results • Sales increased 8 percent, including 3 percentage points from acquired operations, no net impact from currency translation compared to first quarter prior year • Gross profit margin of 55 percent, down 1 percentage point from last year – Non-recurring inventory-related p
Slide 43: Financial Summary 2013 Appendix
Financial Summary 2013 Appendix
Slide 44: Financial Performance
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 Q1 2014 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36 $0.81 44
Slide 45: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 45
Slide 46: Stock Dividend Growth
Stock Dividend Growth $1.10 $0.80 2014 $0 66 $0.66 2010 2007 $0.37 2004 46
Slide 47: Strong Cash Generation
Strong Cash Generation ($ 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 48: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 40.0% 30.0% 20.0% 10 0% 10.0% 0.0% Return on Assets Return on Equity q y Return on Net Profit Margin g Invested Capital Diversified Industrials Graco Source: Interactive Data, MSN Money 48
Slide 49: www.graco.com
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com