Slide 1: Investor Presentation 4th Quarter and Year-End 2018
Investor Presentation 4th Quarter and Year-End 2018
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
ü Overview u Enduring Business Model u Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Global Expansion – Make Acquisitions u Company Performance
Slide 4: Business Overview
Business Overview ► Graco manufactures premium equipment to pump, move, 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
Slide 5: Year-To-Date December 2018 Sales – $1,653 Million
Year-To-Date December 2018 Sales – $1,653 Million EMEA 24% 60% Industrial 15% Process Asia Pacific 20% 25% Contractor 70% Industrial 19% Process 11% Contractor 34% Industrial 23% Process 43% Contractor 47% Industrial 21% 32 Process 32% Contractor 5
Slide 6: 2017 Sales by End Market
2017 Sales by End Market !Residential & Non-Residential Construction – 45% 18% !Industrial & Machinery – 18% !Automotive – 13% 45% !Other – 8% 13% !Oil and Natural Gas – 5% !Public Works – 4% 8% !Vehicle Services – 3% 5% 4% 2%3% !Mining – 2% !White Goods – 1% !Wood – 1% 6
Slide 7: 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, Wagner, Carlisle Companies,
Slide 8: Process Equipment Segment
Process Equipment Segment ► Growth Drivers and Trends § Targeting new products and new markets § Fill product lines for a single source solution § Focus on spec’ing in product at large OEM’s ► Other Representative Industry Participants § Idex, Dover, IR, Lincoln, Vogel, Bijur, Hannay, Coxreels and r
Slide 9: Contractor Equipment Segment
Contractor Equipment Segment ► Growth Drivers and Trends § Conversion of end users from manual application methods to equipment § Application of texture and cementitious materials § Entry level product and channel expansion § Expanding pavement maintenance product line and channel ► Other Representa
Slide 10: Enduring Business Model
u Overview ü Enduring Business Model u Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Global Expansion – Make Acquisitions u Company Performance
Slide 11: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in End Class User Delivery Interaction Customer Strong Leading NPD ROI Channel Investment Lowest Total Partners Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 11
Slide 12: Manufacturing & Engineering Excellence
Manufacturing & Engineering Excellence ► 80%+ of production is based in the United States § High-quality, efficient, engaged labor force § Centralization allows for leverage of overheads § A currency mismatch of sales to COGS exists, however ► Continuous improvement culture § Unique Graco cost-to-pr
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2018 Sales # of SKUs Sold Per Day ($ in millions) 0-1 59,400 93% $ 820 50% 2-5 2,900 5% $ 295 18% 6 - 10 800 1% $ 129 8% 11 - 15 300 0% $ 55 3% Greater than 15 800 1% $ 354 21% Graco 2018 64,200 $1,653 13
Slide 14: Strategies for Long-Term Growth
u Overview u Enduring Business Model ü Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Global Expansion – Make Acquisitions u Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► New Product Development ► New Markets Graco ► Global Expansion Targeted Earnings 3% - 5% ► Acquisitions CAGR Industrial ► End User Conversion Production Average Growth Rate 15
Slide 16: Invest in New Products / Target New Markets
u Overview u Enduring Business Model ü Strategies for Long-Term Growth ü Invest in New Products ü Target New Markets – Global Expansion – Make Acquisitions u Company Performance
Slide 17: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2018* R&D Spending Graco 4.1% Peers 1.7% Innovation * Peer average R&D spending as a percentage of revenues based on 2017 data 17
Slide 18: Industrial – King Sprayer Packages
® Industrial – King Sprayer Packages New King pneumatic airless sprayers – powerful machines for the toughest protective coatings ► New air motor exceeds the performance of the industry-standard legacy King platform ► Designed for waterproofing, fireproofing and protective coating applications, even
Slide 19: Industrial – Reactor 2 Mobile App
Industrial – Reactor 2™ Mobile App Real-time status and remote control capability in the palm of the spray foam insulation contractor’s hand ► Easy, efficient method to remotely monitor and adjust machine performance ► Key features § Turn machine and pump on/off remotely § Adjust temperatures and pr
Slide 20: Industrial – ToughTek F800e
® Industrial – ToughTek F800e A powerful pump for any size fireproofing job ► Small, lightweight design allows contractor to move quickly between floors ► Ideal for applications where portability is needed ► For coating structural steel with cementitious fireproofing materials ► Improves productivit
Slide 21: Industrial – OptiStar 4.0
® Industrial – OptiStar 4.0 The new standard for powder gun control ► Control crucial coating parameters ► Obtain excellent results and measurable ® system optimization § Accurate powder output control § Eliminate overcharging of sensitive powders § 250 customized programs available ► Web-connectivi
Slide 22: Contractor – TexSpray FastFinish
Contractor – TexSpray™ FastFinish™ Fastest hopper gun texture spray system on the market ► Small-to-medium residential & non-residential applications ► Finish jobs 6X faster than traditional gravity-fed hopper gun systems ► Compact and portable system reduces operator fatigue ► Delivers the performa
Slide 23: Contractor – DutyMax GH 675DI
™ ™ Contractor – DutyMax GH 675DI Maximum power in a small package ► Commercial roofing applications ► Ideal for small-to-medium coating jobs traditionally completed by hand ► High-pressure sprayer delivers 6,750 psi in a small, compact and highly-portable package ► Perfect for hard-to-spray materia
Slide 24: Contractor – RoadLazer RoadPak HD
™ ™ Contractor – RoadLazer RoadPak HD High-productivity striping machine ► Truck-mounted line striping system delivers 2X higher paint output than previous models ► 5-gun capability – completes airport striping jobs in a single pass ► Pre-programmed for airport stripe patterns for faster set up ► Re
Slide 25: Process – Husky and SaniForce 2150e
® ™ Process – Husky and SaniForce 2150e Electric diaphragm pumps configurable for many applications ► Expanding Graco’s presence in the electric Aluminum | Cast Iron pump market with larger size offerings ► Helps customers lower energy consumption, increase control, and decrease ownership and operat
Slide 26: Process – Pulse Pro Fluid Management
Process – Pulse™ Pro Fluid Management The Next Generation in Fluid Management ► Monitor every drop, every time – automatically ► Built on the legacy of Matrix and designed for the modern workshop § Wireless dispense meter puts control at technician's fingertips § Quick user identification with NFC t
Slide 27: Process – Electric Grease Jockey
Process – Electric Grease Jockey® On-road and mobile automatic lubrication system ► Increases fleet revenue § Lubricates while vehicle is moving § Eliminates need to wait for shop time to manually lubricate ► Decreases operating costs § Extends component life by 4X § Saves on grease usage ► Easy-to-
Slide 28: Make Acquisitions
u Overview u Enduring Business Model ü Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Global Expansion ü Make Acquisitions u Company Performance
Slide 29: Recent Acquisitions by Segment
Recent Acquisitions by Segment Industrial Process Contractor TM TM TM TM High Pressure Equipment Company ® TM & 29
Slide 30: ProHydro – Acquired March 2018
ProHydro – Acquired March 2018 QED Environmental Systems acquired the assets of ProHydro, the developer and manufacturer of the Snap Sampler® passive groundwater sampling system ► Samples without purging for significant labor savings ► Designed for high sample accuracy and precision ► Eliminates col
Slide 31: Company Performance
u Overview u Enduring Business Model u Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Global Expansion – Make Acquisitions ü Company Performance
Slide 32: Financial Results
Financial Results Statement of Earnings Fourth Quarter Year-to-Date $ in millions except per share amounts 2018 2017 Change 2018 2017 Change Sales $ 406 $ 375 8% $ 1,653 $ 1,475 12 % Gross Profit 209 201 4% 883 795 11 % % of Sales 51.4 % 53.6 % (2.2) pts 53.4 % 53.9 % (0.5) pts Operating Earnings 97
Slide 33: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Certain items have caused fluctuation in the Company’s financial results. Excluding the impact of these items presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements follows: Non-GAAP Reconciliation
Slide 34: Cash Flow and Liquidity
Cash Flow and Liquidity Net Earnings, as Adjusted, and Cash from Operations $120 M $110M $112M $114M $100 M $92M $86M $84M $83M $86M $83M $80 M $73M $68M $66M $67M $59M $59M $60 M $57M $57M $50M $40 M $20 M $- Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Net Earnings, as Adjusted Cash Flow
Slide 35: Operating Earnings
Operating Earnings Change in Operating Earnings Fourth Quarter Year-to-Date 2017 Operating Earnings ($M and % of sales) $ 89 24 % $ 379 26 % Translation effect (2) (1) 9 0 Volume, product and channel mix, price and cost 8 (2) 65 0 Effect of acquired business operations and acquisition costs, net 2 0
Slide 36: Notable Info from Q4 2018 Earnings Release & Call
Notable Info from Q4 2018 Earnings Release & Call Capital expenditure expectations of approximately $40 million in 2019, excluding bricks and mortar. Current estimate of 2019 building projects to increase production and distribution capacity is approximately $100-$110 million § Additional building p
Slide 37: Full Year 2018 Results
Full Year 2018 Results Sales increase of 12% (11% at consistent currency) § Acquired businesses sales of $43 million account for 3 percentage points of growth Gross margin down 0.5 percentage point from 2017 § Effect of lower average gross margin rates of acquired operations (including purchase acco
Slide 38: 2019 Environment and Outlook
2019 Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Total Current Sales Growth Q4 2018 6% Sales Growth Q4 2018 8% Sales Growth Q4 2018 12% Sales Growth Q4 2018 8% Environment 2018 8% 2018 4% 2018 13% 2018 8% Unch
Slide 39: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities !"International Footprint Organic !"Product Development Growth !"Production Capacity and Capabilities !"Supplement to Organic Growth Acquisitions !"Leverage Our Strengths !"Solid Dividend History Shareholder !"Approximately 21 Million Shares Remaining on Return R
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 ► Serve niche markets where customers are willing to purchase quality, technology-based products ► Products perform critical f
Slide 41: Financial Summary Q4 2018 Appendix
Financial Summary Q4 2018 Appendix
Slide 42: Financial Results – Fourth Quarter
Financial Results – Fourth Quarter Statement of Earnings Fourth Quarter $ in millions except per share amounts 2018 2017 Change Sales $ 406 $ 375 8% Gross Profit 209 201 4% % of Sales 51.4 % 53.6 % (2.2) pts Operating Earnings 97 89 8% % of Sales 23.8 % 23.9 % (0.1) pts Net Earnings $ 74 $ 36 103 %
Slide 43: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Certain items have caused fluctuation in the Company’s financial results. Excluding the impact of these items presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements follows: Non-GAAP Reconciliation
Slide 44: Fourth Quarter 2018 Results
Fourth Quarter 2018 Results Sales increase of 8% (at consistent currency translation rates up 10%) § Acquired businesses sales of $9 million account for 2 percentage points of growth Gross margin rate down 2.2 percentage points from fourth quarter 2017 § Unfavorable product and channel mix, unfavora
Slide 45: Financial Summary 2018 Appendix
Financial Summary 2018 Appendix
Slide 46: Financial Performance – Historical
Financial Performance – Historical Sales and Operating Margin, as Reported Net Sales Operating Margins 1,800 30% 1,600 25% 1,400 Operating Margins Sales ($ millions) 1,200 20% 1,000 15% 800 600 10% 400 5% 200 - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Diluted $0.
Slide 47: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 47
Slide 48: Stock Dividend Growth
Stock Dividend Growth $0.64 $0.33 2019 $0.25 2013* 2008* $0.07 2003* *Dividends adjusted for 2017 3-for-1 stock split 48
Slide 49: Strong Cash Generation
Strong Cash Generation ($ Millions) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Operating Cash Flows $ 368 $ 338 $ 276 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 % of Net Income 108% 134% 679% 55% 107% 115% 127% 114% 98% 300% Capital Expenditures 54 40 42 42 31 23 18 24 17 11 Free Cash Flow $ 3
Slide 50: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group Graco Note: Based on 2012 – 2017 data . The 5 year average includes adjustments for the 2016 for impairment Source: S&P Capital IQ 50
Slide 51: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com