Slide 1: Investor Presentation 2010 Results
Investor Presentation 2010 Results
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 Graco manufactures equipment to pump, meter, mix and dispense a wide variety of fluids – We specialize in difficult to handle materials with high viscosities, and – Abrasive or corrosive properties, and – Multiple component materials that require precise ratio control We are gl
Slide 4: Contractor Equipment: Market Dynamics
Contractor Equipment Market Dynamics Graco served market is approximately $450 - $500M Major end-markets include new residential construction, commercial construction, remodel and repaint Applications include painting, texture, fine finish, cleaning, and pavement maintenance Channel includes
Slide 5: 2010 Contractor Equipment Product Line
2010 Contractor Equipment Product Line 5
Slide 6: Contractor Equipment: Growth Opportunities
Contractor Equipment Growth Opportunities 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
Slide 7: Industrial Equipment: Market Dynamics
Industrial Equipment Market Dynamics Graco served market is approximately $2.0B worldwide – Liquid Finishing and Process Equipment $900M – Sealant and Adhesive $600M – Protective Coatings, Foam and In-Plant Polyurethane $500M Products sold through independent 3rd party value adding distributors
Slide 8: Industrial Equipment: Growth Opportunities
Industrial Equipment Growth Opportunities Expand internationally – Industrialization and wage inflation in developing markets – Factory relocations to low-cost geographies Enter new adjacent markets – Sanitary – Composites – Alternative energy Capitalize on material changes – High performance
Slide 9: Lubrication Equipment: Market Dynamics
Lubrication Equipment Market Dynamics Worldwide Lubrication Equipment market is approximately $1.1B worldwide – Vehicle Service Equipment - $400M – Industrial Lubrication Equipment - $700M Products sold through independent 3rd party distributors, through oil jobbers and direct to OEM’s Entrenc
Slide 10: Lubrication Equipment: Growth Opportunities
Lubrication Equipment Growth Opportunities Expand internationally – Historical investment and focus has been U.S. – Implemented specialized selling organization in Europe in 2009 – Developing products to meet local market needs – Building channel Industrial lubrication market – Entered via small
Slide 11: Targeting Growth with New Products
Targeting Growth with New Products Invested nearly $38M in product development in 2010 – 5% of revenue Targeting 30% of sales from products developed in the last 3 years – 2010 was 27% Increased emphasis on expanding product offering into new markets 11
Slide 12: New Product Example: Graco HFR Metering System
New Product Example: Graco HFR Metering System Versatile, precision-controlled, fixed ratio meter, mix and dispense system – Handles a variety of two- component materials – Polyurethane foams, polyurethane elastomers, epoxies, silicones and polyureas Markets Served Automotive, construction, rec
Slide 13: New Product Example: Diaphragm Pumps
New Product Example: Diaphragm Pumps 30% more energy efficient than leading competitors 20% increase in fluid flow compared to current offering Expanded line for a wider range of applications/chemicals Markets Served Process and General Industry 13
Slide 14: New Product Example: Handheld Professional Sprayer
New Product Example: Handheld Professional Sprayer Breakthrough technology delivers professional airless quality spray in a hand held cordless tool Markets Served Professional Painting Contractor Consumer 14
Slide 15: Targeting Growth Through Global Expansion
Targeting Growth Through Global Expansion 15
Slide 16: Targeting Growth through Channel Expansion
Targeting Growth through Channel Expansion Expanded entry level spray equipment channel – Entry level product stocked in more than 5,000 U.S. retail locations 16
Slide 17: Targeting Growth in New Markets
Targeting Growth in New Markets Pavement Maintenance Alternative Energy Composites Industrial Lubrication Sanitary 17
Slide 18: Example: New Market – Line Striping - Thermoplastic
Example: New Market – Line Striping - Thermoplastic ThermoLazer 100% incremental launched 2H 2009 Leverages existing LineDriver platform 18
Slide 19: Example: New Market – Line Removal
Example: New Market – Line Removal GrindLazer 100% incremental launched Q1 2010 Leverages existing LineDriver platform 19
Slide 20: Graco Manufacturing
Graco Manufacturing Aligned with divisions, co-located with product development to speed new product development and improve initial launch cost and quality Measured on annual cost change and expected to achieve zero or better year- to-year total cost change – Graco has been on the Lean journey
Slide 21: Financial Summary For 2010
® yf GRACO Financial Summary For 2010 PROVEN QUALITY. LEADING
Slide 22: Fourth Quarter 2010 Results
Fourth Quarter 2010 Results Sales for the quarter up 35 percent compared to fourth quarter last year Sales were up in all segments; regionally, sales were up 35 percent in the Americas, up 33 percent in Europe, and up 37 percent in Asia Pacific Fourth quarter gross profit margin of 54½ percent
Slide 23: 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% $49M in divi
Slide 24: Financial Results Full Year
Financial Results Full Year ($ 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% 24
Slide 25: 2010 – Full Year Sales $744M
2010 – Full Year of Sales $744M Segment Geography Lubrication Asia Pacific 10% / $78M 21% / $158M Industrial 55% / $409M Americas 55% / $408M Europe Contractor 35% / $257M 24% / $178M 25
Slide 26: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall $841 $850 $816 $817 $744 $750 $732 $650 $605 $579 $550 $450 2004 2005 2006 2007 2008 2009 2010 26
Slide 27: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1977 1988 1999 2010 27
Slide 28: Earnings Per Share
Earnings Per Share Target: 12%+ $2.32 $2.17 $1.99 $1.80 $1.69 $1.55 $0.81 2004 2005 2006 2007 2008 2009 2010 28
Slide 29: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency 27.7% 27.6% 26.7% - Leverage volume increases 26.1% - Continuous improvement culture 22.9% 20.6% 12.9% 2004 2005 2006 2007 2008 2009 2010 29
Slide 30: Strong Cash Generation
Strong Cash Generation ($ 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 31: 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 32: Free Cash Flow ($ Millions)
Free Cash Flow ($ Millions) Strong cash flow for: $140 - Dividends $135 $136 $133 - Cash acquisitions - Share repurchases $122 $106 $85 2004 2005 2006 2007 2008 2009 2010 Cash provided by operating activities less property, plant and equipment additions plus proceeds from sale of property 32
Slide 33: 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 33
Slide 34: Cash Deployment Priorities
Cash Deployment Priorities - International footprint Organic Growth Investments - Product development - Production capacity & capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% Dividends/Share Repurchase - 6 million authorized share repur
Slide 35: Annual Dividend Growth
Annual Dividend Growth - Dividends more than doubled $0.84 $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 35
Slide 36: 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 37: Move Measure Control
Move Measure Control Dispense Spray