Slide 1: Investor Presentation: Company Overview, Q4 and Full Year 2020
////////////////// Investor Presentation Company Overview Fourth Quarter 2020 and Full Year 2020 1
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 dif
Slide 3: Distribution of Global Sales
60% Distribution 41% 39% of Global $1,650 M 23% 17% 20% Sales Full Year 2020 Americas EMEA Asia Pacific Industrial Process Contractor 62% 50% 56% 29% 30% 21% 24% 14% 14% Industrial Process Contractor Industrial Process Contractor Industrial Process Contractor 3
Slide 4: 2020 Net Sales by End Market
2020 Net Sales by End Market ////////////////// Wood −1% Mining − 1% White Goods − 2% Oil & Natural Gas − 3% Vehicle Services − 3% Public Works − 5% Automotive − 9% Other − 12% Industrial & Machinery − 15% Construction − 49% 4
Slide 5: Graco is part of your everyday life.
Graco is part of your everyday life. 5
Slide 6: Graco is part of your everyday life.
Graco is part of your everyday life. 6
Slide 7: Niche Diversified Fluid Handling Business
Diversified Fluid Handling Business Niche 5.5%+ ~40% Difficult applications; corrosive, Organic Revenue CAGR* Of revenue is parts viscous, hard-to-move materials & accessories *20-year average, constant currency 7
Slide 8: High Customer Value, Strong Product
Material Supplier Relationships Best in Class End User Delivery Interaction High Customer Value, Strong Customer Leading New ROI Strong Product Channel Product Investment Lowest Total Partners Cost of Ownership Differentiation Stringent Best in Class Product Requirements Quality Niche Markets 8
Slide 9: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2020 Sales No. of SKUs Sold Per Day ($ in millions) Highly-valued products at low volumes 0-1 63,900 93% $ 840 51% 2-5 2,800 4% $ 266 16% 51% of our revenue comes from products 6 - 10 800 1% $ 120 7% that we sell 11 - 15 300 0% $ 59
Slide 10: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Strategic Initiatives 12%+ ► New Product Development 10% ► New Markets ► Global Expansion ► Acquisitions ► End-user Conversion Targeted Revenue Targeted Earnings CAGR CAGR Through a cycle 10
Slide 11: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Acquisitions Strategic 3-4% + Initiatives 12% 12%+ Price 1-2% 9-10% 1-2% 5-7% 3% Industrial Production Targeted Organic Targeted Targeted Earnings Average Growth Rate CAGR Revenue CAGR CAGR Through a cycle 11
Slide 12: Exceptional Returns
Exceptional Returns 5.5%+ 30% 44% 20% Organic Revenue CAGR Return on Invested Capital Return on Equity Return on Assets Based on a 20-year average, constant currency 12
Slide 13: Business Model
Business Model ////////////////// Brand Promise ▶ Company Overview ▶ Operational Excellence ▶ Engineering & Manufacturing Excellence ▶ Extensive Reach 13
Slide 14: Our Brand Promise
▶ Innovation – Leading with technologically-advanced features, pioneering design, high performance and unparalleled reliability ▶ Quality – Our customers invest in high-quality products built to last for years of reliable service ▶ A+ Service – We’re guided by a Our Brand mindset of integrity and a
Slide 15: Engineering Excellence
Engineering Excellence Annual R&D Investment 4.2% * Target More than Double-Digit Returns 2.6 x* as a percent of sales our peer group versus peers at 1.6% ▶ new product * Peers: ITW, CSL, DOV, CFX, IEX, NDSN, WTS, FLS, based on a 5-year average, 2015 - 2019. 15 15
Slide 16: Manufacturing Excellence
Manufacturing Excellence Goal is 80% Zero < 1% Production based in the US cost change Warranty costs on the same basket of goods (yoy) 16
Slide 17: Service Excellence
Service Excellence Same Day 96%+ Orders in by noon, In-stock service level ship the same day (goal is > 92%) 17
Slide 18: Extensive Reach
Extensive Reach Customers in over 100 Installed base 30,000+ countries ~100 Outlets/Distributors Facilities in years old 12 countries 18
Slide 19: Company Segments
Company Segments ////////////////// ▶ Industrial Company ▶ Process Overview ▶ Contractor 19
Slide 20: Industrial $678M
Industrial December 2020, Twelve Months $678M -10% 33.4% Segment Revenue Organic Operating Margin +30 basis points 20
Slide 21: Industrial: Key End Markets and Growth Drivers
Industrial Key End Markets ▶ General industrial ▶ Automotive ▶ Res & non-res construction ▶ Alternative energy & others Growth Drivers & Trends ▶ Factory movement & upgrades ▶ Automation ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Material changes Select Representative Industry Participants
Slide 22: Process $326M
Process December 2020, Twelve Months $326M -11% 19.8% Segment Revenue Organic Operating Margin -230 basis points 22
Slide 23: Process: Key End Markets and Growth Drivers
Process Key End Markets ▶ Pharma, food & beverage ▶ Vehicle services ▶ Oil & natural gas ▶ Environmental ▶ Semiconductor & others Growth Drivers & Trends ▶ Factory movements and upgrades ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Asset life maintenance ▶ Commodities extraction ▶ Environmen
Slide 24: Contractor $646M
Contractor December 2020, Twelve Months $646M 17% 25.5% Segment Revenue Organic Operating Margin +230 basis points 24
Slide 25: Contractor: Key End Markets and Growth Drivers
Contractor Key End Markets ► Res & non-res construction ► Res & non-res remodeling ► Transportation Infrastructure Growth Drivers & Trends ► End user conversion from brush and roll ► Product innovation & channel expansion ► Housing & new construction ► Infrastructure spending ► Regional labor rates
Slide 26: Capital Allocation
Capital Allocation Company Overview ////////////////// 26
Slide 27: 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 Return Approximately 18.5 million
Slide 28: Key Investment Attributes
▶ Drive long-term, above-market growth ▶ Premium products that deliver strong ROI for end users ▶ Leading industry positions ▶ Serve niche markets where customers are willing to purchase quality, technology-based products ▶ Products perform critical functions ▶ High margin, high recurring revenue ▶
Slide 29: Acquisitions
Acquisitions Company Overview ////////////////// 29
Slide 30: Acquisitions: Industrial
Acquisition ▶ Industrial 2012 2013 2014 2014 2015 2015 2017 2018 30
Slide 31: Acquisitions: Process
Acquisition ▶ Process 2013 2014 2015 2015 2016 2019 31
Slide 32: Financial Results
Financial Results Company Overview ////////////////// 32
Slide 33: Financial Performance 2020
Minneapolis, MN Financial Performance 2020 0% 51.8% -4% -4% Revenue Gross Margin EPS Net Income (As Reported) 33
Slide 34: Financial Results
Financial Results Statement of Earnings Fourth Quarter Full Year $ in millions except per share amounts 2020 2019 Change 2020 2019 Change (1) Operating earnings, Sales $ 470.3 $ 412.3 14 % $1,650.1 $1,646.0 0% net earnings and diluted earnings per share for Gross Profit 244.8 209.4 17 % 854.9 859.8
Slide 35: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Non-GAAP Reconciliation Fourth Quarter Full Year Excluding the impacts $ in millions except per share amounts 2020 2019 Change 2020 2019 Change of impairment Operating earnings, as reported $ 132.1 $ 104.2 27 % $ 391.7 $ 424.5 (8)% charges, excess tax Imp
Slide 36: Non-cash Impairment
Non-cash Impairment ▶ In the second quarter, the Company entered into negotiations to sell its U.K.-based valve business ("Alco"), which has significant exposure to oil and natural gas markets, and has accumulated operating losses since acquired in 2014. Alco operations contributed $7 million of sal
Slide 37: Fourth Quarter 2020 Results
Fourth Quarter 2020 Results ► Up 14 percent from 2019, up 12 percent at consistent translation rates Sales Acquired businesses did not have a meaningful impact ► Rate up 1.3 percentage points from 2019 Strong realized pricing, improved sales volume in the Industrial segment and Gross Margin favo
Slide 38: 2020 Results
2020 Results ► Comparable to 2019, the same at consistent translation rates Sales Acquired businesses added 1 percentage point ► Rate down 0.4 percentage point from 2019 Gross Margin Unfavorable product and channel mix ► Operating earnings, excluding non-cash impairment, up $3 million, 1% Operat
Slide 39: Components of Net Sales Changes
Financial Results Components of Net Sales Changes Fourth Quarter December 2020 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 6% (10)% 33 % 14 % 1% 16 % 11 % Acquisitions 0% 3% 0% 1% 0% 1% 1% Currency 3% 1% 2% 0% 6% 5% 2% Total 9% (6)% 35 % 15 %
Slide 40: Other Items
Other Items Cap Ex Capital expenditure expectations of approximately $115 million in 2021, including approximately $80 million in facility expansion Expenses Unallocated corporate expenses in 2021 are expected to be approximately $30 million During 2020, we repurchased 2.3 million shares. We may mak
Slide 41: Financial Summary: 2020 Appendix
Financial Summary ////////////////// ▶ 2020 Appendix Company Overview 41
Slide 42: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin, as Reported Net Sales Operating Margins 2,000 30% 1,800 1,600 25% Operating Margins Sales ($ millions) 1,400 20% 1,200 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 2019 2020 Diluted
Slide 43: Stock Dividend Growth
Stock Dividend Growth ////////////////// $0.75 $0.70 $0.64 $0.40 $0.25 $0.07 Dividends adjusted for stock splits 2003 2009 2015 2021 43
Slide 44: Strong Cash Generation
Strong Cash Generation ($ Millions) 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Operating Cash Flows $ 394 $ 419 $ 368 $ 338 $ 276 $ 190 $ 241 $ 243 $ 190 $ 162 % of Net Income 119% 122% 108% 134% 679% 55% 107% 115% 127% 114% Capital Expenditures 71 128 54 40 42 42 31 23 18 24 Free Cash Flow $
Slide 45: Worldwide Leaders in Fluid Handling
Move | Measure | Mix | Control | Dispense | Spray WORLDWIDE LEADERS IN FLUID HANDLING www.graco.com 45