Graco Inc. · NYSE:GGG
Graco — Investor Presentation (February 2014)
54 slides from Graco's investor presentation, February 2014
Slide 1: Investor Presentation — February 2014
Investor Presentation — February 2014 Investor Presentation
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
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: 2013 Sales — $1.104 Billion
2013 Sales — $1.104 Billion EMEA 26% 73% Industrial Asia Pacific 24% Contractor 20% 3% Lubrication 75% Industrial 17% Contractor 8% Lubrication 46% Industrial 40% Contractor 59% Industrial 14% Lubrication 31% Contractor 10% Lubrication 5
Slide 6: Sales by End Market
Sales by End Market * Residential and Non-Residential Construction – 40% 40% Automotive – 15% 15% Industrial & Machinery – 13% Other – 8% Mining, Oil and Gas – 6% 2% 3% Public Works – 5% 13% 4% Vehicle Services – 4% 4% 8% Wood – 4% 5% 6% White Goods – 3% Chemical – 2% * Graco management estimate, 20
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, Idex, IR, Dover, Wagner and
Slide 8: 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 2013 Sales Asia Lubric
Slide 9: 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 10: 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
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 Leading Strong NPD ROI Channel Investment Lowest Total Partners Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 11
Slide 12: 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 13: Low-Volume, High-Mix Delivers Customer ROI
Low-Volume, High-Mix Delivers Customer ROI Average Number of 2012 Sales # of SKUs Units Sold Per Day ($ in millions) 0-1 37,176 (91%) $452 (49%) 2-5 2,430 (6%) $173 (19%) 6 - 10 307 (1%) $84 (9%) 11 - 15 211 (1%) $40 (4%) Greater than 15 548 (1%) $170 (19%) Legacy Graco Total 40,972 $919 Plus: Gema
Slide 14: 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
Slide 15: 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 15
Slide 16: 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
Slide 17: 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 * Peer data as of FY 2012 17
Slide 18: 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 19: 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 rate
Slide 20: Industrial – 3" Diaphragm Pump
Industrial – 3” Diaphragm Pump Transferring chemicals where high flow rates are required • Application – Dewatering (acidic water) a coal mine • Solution – Polypropylene Husky 3300 (3” AODD pump) • Keys to success – Higher flow rates, up to 260 gpm – Higher efficiency – Ease of service – Lighter we
Slide 21: 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 21
Slide 22: 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 23: 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 24: 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 25: Contractor – Handheld Guns
Contractor – Handheld Guns TrueCoat® II • Generation II Handheld Airless TrueCoat Plus II − Variable pressure control − Sprays all directions − Fully repairable TrueCoat Pro II − New corded pro model • XForce HD and ProShot® HD ProShot® II − Heavy duty/high pressure airless for protective and marin
Slide 26: 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 27: Industrial – Remote Reporting Technology
Industrial – Remote Reporting Technology GPS Location, 1 Rig GPS, All Rigs Job Log Daily Use Log 27
Slide 28: 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 29: Expand Geographically
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 30: South America – Key Initiatives
South America – Key Initiatives Market Education End-user Conversion Product Training & Launches Negotiating World Trade Center Geographical Free Zone, Montevideo, Uruguay Expansion Develop Local Specialized Support Staff Sales Team 30
Slide 31: 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
Slide 32: 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 33: 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 33
Slide 34: 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 35: 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 bo
Slide 36: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets Make Acquisitions Company Performance
Slide 37: 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% and gas wellheads for a variety of Gas, 8% environmental and industrial applications; Air Powered Remediation Air primarily reme
Slide 38: 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 38 38
Slide 39: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 40: Graco Reported Q4 Results on January 27, 2014
Graco Reported Q4 Results on January 27, 2014 $ millions except EPS Fourth Quarter Year-to-Date 2013 2012 Change 2013 2012 Change Sales $ 271.9 $ 253.7 7% $ 1,104.0 $ 1,012.5 9% Gross Profit 147.2 138.9 6% 607.5 550.5 10 % % of Sales 54.1 % 54.7 % (0.6) pts 55.0 % 54.4 % 0.6 pts Operating Earnings 6
Slide 41: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Stable: General Industrial, Automotive, Favorable: Emerging EMEA Stable: General Industrial Construction Stable: Western Europe Challenging: Ship Building, Mining Challenging: Ag, Heavy Machinery Challenging: EM Currency Spotty: Proje
Slide 42: 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 43: 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 44: Financial Summary Q4 2013 – Appendix
Financial Summary Q4 2013 – Appendix Investor Presentation
Slide 45: Financial Results – Full Year
Financial Results – Full Year ($ Millions except EPS) 2013 2012 Change Sales $ 1,104.0 $ 1,012.5 9% Gross Profit Rate 55.0% 54.4% Operating Expenses 327.7 325.9 1% Operating Earnings 279.8 224.7 25% Net Earnings $ 210.8 $ 149.1 41% Earnings Per Share $ 3.36 $ 2.42 39% 45
Slide 46: 2013 Results
2013 Results • Sales increase 9 percent compared to prior year; with the first quarter impact of the powder finishing operations contributing approximately 3 percentage points (no net impact from currency translation) • Year-to-date gross profit margin of 55 percent, up ½ percentage point from last
Slide 47: Financial Results – Fourth Quarter
Financial Results – Fourth Quarter ($ Millions except EPS) 2013 2012 Change Sales $ 271.9 $ 253.7 7% Gross Profit Rate 54.1% 54.7% Operating Expenses 83.9 81.0 4% Operating Earnings 63.3 57.9 9% Net Earnings $ 44.7 $ 42.3 6% Earnings Per Share $ 0.71 $ 0.68 4% 47
Slide 48: Fourth Quarter 2013 Results
Fourth Quarter 2013 Results • Sales for the quarter up 7 percent compared to fourth quarter 2012 (no net impact from currency translation) • Gross profit margin for the quarter of 54 percent, down ½ percentage point from fourth quarter 2012 – Manufacturing spending increases and changes in mix, incl
Slide 49: 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 EPS $1.55 $1.80 $2.17 $2.30 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36 49
Slide 50: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 50
Slide 51: Stock Dividend Growth
Stock Dividend Growth $1.10 $0.80 2014 $0.66 2010 2007 $0.37 2004 51
Slide 52: Strong Cash Generation
Strong Cash Generation ($ 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 53: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average Source: Interactive Data, 2013 Thomson Reuters 53
Slide 54: Slide 54