Slide 1: Investor Presentation Fourth Quarter and Year-end 2015
Investor Presentation Fourth Quarter and Year-end 2015
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 3
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: 2015 Sales — $1,286 Million
2015 Sales — $1,286 Million EMEA 23% 59% Industrial 19% Process Asia Pacific 18% 22% Contractor 65% Industrial 20% Process 15% Contractor 38% Industrial 23% Process 48% Industrial 39% Contractor 21% Process 31% Contractor 5
Slide 6: 2014 Sales by End Market
2014 Sales by End Market* Residential & Non-Residential Construction – 44% Automotive – 13% 13% Industrial & Machinery – 18% 44% Other – 7% Oil and Natural Gas – 5% 18% Public Works – 5% Vehicle Services – 3% 3% Mining – 3% 7% 3% 5% 5% Wood – 1% White Goods – 1% * Proforma for acquisitions completed
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 a
Slide 8: Process Equipment Segment
Process Equipment Segment • Growth Drivers and Trends – Fill product lines for a single source solution – Targeting competition in the industrial lubrication market – Acquisitions completed in 2014 and 2015, as well as $4 million in incremental investment in 2015 for regional and product growth init
Slide 9: Contractor Equipment Segment
Contractor Equipment Segment • Growth Drivers and Trends – Conversion of end users from manual application methods to equipment is a major focus outside North America – Application of texture & cementitious materials – Entry level product & channel expansion – Expanding pavement maintenance product
Slide 10: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 11: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in End Class User Delivery Interaction Customer Leading Strong NPD ROI Channel Investment Lowest Total Partners Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 11
Slide 12: Manufacturing and Engineering Excellence
Manufacturing and Engineering Excellence • 80%+ of production is based in the United States – High-quality, efficient, engaged labor force – Centralization allows for leverage of overhead – A currency mismatch of sales to COGS exists, however • Continuous improvement culture – Unique Graco cost-to-p
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of 2014 Sales # of SKUs Units Sold Per Day ($ in millions) 0-1 39,188 (91%) $516 (49%) 2-5 2,552 (6%) $197 (19%) 6 - 10 612 (1%) $85 (8%) 11 - 15 216 (1%) $45 (4%) Greater than 15 547 (1%) $217 (20%) Legacy Graco Total 43,115 $1,060 Plus: Acq
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 – 2015 * Graco 4.6% R&D Spending Peers 1.6% Innovation * Peer average R&D spending as a percentage of revenues based on 2014 data 17
Slide 18: Process – Husky 1050e
Process – Husky 1050e A revolutionary diaphragm pump that operates on electricity 18
Slide 19: Contractor – Professional Gas Airless Upgrade
Contractor – Professional Gas Airless Upgrade • New Standard Series − No frills, Day-In-Day-Out Performance/Reliability at an Attractive Price • New ProContractor Series − Full Featured Heavy-Duty Performance/Reliability for “New Construction” Job Sites – Hose Reel, MaxLife® Pump, Pressure Gauge, He
Slide 20: Industrial – Reactor Hydraulic
Industrial – Reactor® 2 Hydraulic Advancing the Industry through improved control • On board data recording of key process parameters • Graco InSiteTM – Remote Reporting Technology − Real-time remote viewing of machine status w/ PC or smart device − Cloud storage of all key processing parameters • D
Slide 21: Industrial – Therm-O-Flow Bulk Hot Melt System
Industrial – Therm-O-Flow® Bulk Hot Melt System • For hot melt adhesives in 55 gal drums • Offers fast melt rates and throughput capability two times greater than the leading competitor • Updated to include Graco Control Architecture • Advanced temperature controls eliminate scorched material, mate
Slide 22: Industrial – M2K
Industrial – M2K Fixed Ratio, Entry Level Mechanical Proportioner • Increases mix material accuracy to improve finish quality and reduce material waste compared to hand mixing • Compact size makes it faster and easier to flush, saving time and disposal costs • Ideal for lower volume two component ma
Slide 23: Industrial – Pro Xp Auto
Industrial – Pro Xp Auto • Increases spray performance and transfer efficiency • 24/7 gun monitoring tracks performance • Easily adapts to changing voltage needs • Fits almost any system requirement • Service reminders eliminate guesswork 23
Slide 24: 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 25: Multimaq Acquisition, Brazil
Acquired December 2014 • A manufacturer and distributor of finishing products in Brazil • Establishes Graco’s first operational presence in market • While small, Multimaq has an existing customer base and knowledgeable sales force • Allows us to enhance our long- term competitive position in Brazi
Slide 26: 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 27: Oil & Natural Gas – Chemical Injection Pumps
Oil & Natural Gas – Chemical Injection Pumps Pumping solution for precise injection of chemicals into producing wells and pipelines • Utilizes proven Graco technology • Complete product line offering available • Available with electric, solar, and pneumatic drives • Control options include cellular-
Slide 28: Industrial – ToughTek Pumps
Industrial – Big performance, from a small sprayer – Grab the power of ToughTek pumps • Utilizes proven Graco technology • Expands presence in several attractive markets Flooring Fireproofing • Strong fit with existing products − Fireproofing Infrastructure Stucco and Repair EIFS − Flooring − Insu
Slide 29: Contractor – TrueCoat 360 Series
Contractor – TrueCoat® 360 Series Painting just got easier – It’s in the Bag! • Spray in ANY direction, even upside down • Handles unthinned paints and stains • Easy cleanup – reuse or toss the bag NEW $129 $169 $199 $259 29
Slide 30: Process – Chemsafe Diaphragm Pumps
Process – Chemsafe Diaphragm Pumps Pumping Solution for Corrosive Chemicals • Features 100% PTFE or UHMW polyethylene fluid paths • PTFE over-molded diaphragm • CNC machined design insures precision fit and superior chemical containment • Full line available in 1.5”, 1”,1/2”, 3/8”, 1/4” models 30
Slide 31: 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 32: Recent Acquisitions
Recent Acquisitions TM TM High Pressure Equipment Company ® 32
Slide 33: Announced January 2016
Announced January 2016…. ® Landfill gas analyzers, flow meters, remediation pumps, landfill gas well-heads, and accessories 33
Slide 34: Geotech and Landtec Overview
® Overview Geotechnical Instruments Products & Applications • Portable and fixed gas analyzers for landfill, biogas, and medical applications Will become part of QED Environmental Systems • ~50 employees • Located in Leamington Spa, UK • Geotech’s UK location and EMEA footprint provides a platform f
Slide 35: Acquired January 2015
Acquired January 2015 • White Knight - Manufactures high purity and ultra-high purity fluid handling equipment used to deliver, circulate, reclaim and transport aggressive chemical fluids and Semiconductor slurries Fabrication Solar Panel Fabrication Flat Panel Display / LED / Electronics Fabricatio
Slide 36: Acquisition – High Pressure Equipment
Acquisition – High Pressure Equipment • High Pressure Equipment Company (HiP®), an Erie, Pennsylvania based manufacturer of high quality, high pressure valves used in Oil & Natural Gas (O&NG) and other industrial processes was acquired on January 20, 2015 • The acquisition was an all cash transactio
Slide 37: 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 38: Change in Segment Reporting
Change in Segment Reporting • The Company revised the presentation of its financial reporting segments, during Q1, into the following three segments: – Industrial - includes Industrial Products and Applied Fluid Technologies divisions – Process - includes Process, Oil and Natural Gas, and Lubricatio
Slide 39: Graco Reported Results
Graco Reported Results $ millions except EPS Fourth Quarter Year-to-Date 2015 2014 Change 2015 2014 Change Sales $ 325.6 $ 306.0 6% $ 1,286.5 $ 1,221.1 5% Gross Profit 171.8 164.8 4% 684.7 666.7 3% % of Sales 52.8 % 53.8 % (1.0) pts 53.2 % 54.6 % (1.4) pts Operating Earnings 76.1 69.5 10 % 302.1 308
Slide 40: Divestiture of Held Separate Business Assets
Divestiture of Held Separate Business Assets • April 1, 2015, pursuant to the Federal Trade Commission final order, the Company sold the Liquid Finishing business assets for $610 million • Net earnings include gain on the sale, after transaction costs and tax, and investment income of $1 million ($0
Slide 41: Tax Items
Tax Items • The effective tax rate was 27% for the quarter consistent with fourth quarter 2014 – The 2015 rate benefits from foreign earnings taxed at lower rates outside the U.S. The 2014 rate benefited from post-tax dividend income in fourth quarter – Federal R&D tax credit reinstated in fourth qu
Slide 42: 2015 Sales Data
2015 Sales Data Components of Net Sales Change Fourth Quarter December 2015 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 5% (2)% 15 % 10 % — 1% 6% Acquisitions 2% 16 % — 4% 4% 5% 4% Currency (5)% (3)% (4)% (1)% (9)% (4)% (4)% Total 2% 11 % 11
Slide 43: Operating Earnings
Operating Earnings Change in Operating Earnings Fourth Quarter Year-to-Date 2014 Operating Earnings ($M and % of sales) $ 69 23 % $ 309 25 % Translation effect (6) (2) (30) (1) Mix, pricing and product cost 9 — 31 — Effect of acquired businesses on operating earnings leverage — (1) 7 (1) Effect of i
Slide 44: Notable Info from Q4 2015 Earnings Release & Call
Notable Info from Q4 2015 Earnings Release & Call • Subsequent to year-end, completed acquisitions for $49 million. These acquisitions will be included in the Process segment • Capital expenditure expectations of approximately $40 million in 2016 do not include building expansion for the Contractor
Slide 45: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Improving: Res & Non-Res Construction Stable: General Industrial, Adhesive Stable: General Industrial, aerospace Stable: Western Europe Dispense and marine Challenging: Currency, Geopolitical Challenging: Marine, Mining Challenging: H
Slide 46: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Dividend Payout Ratio ~30% Shareholder Return Approximately 4 Million Shares Remaining on Authorizatio
Slide 47: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term, above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical
Slide 48: Financial Summary 2015 Appendix
Financial Summary 2015 Appendix
Slide 49: Financial Results – Year to Date
Financial Results – Year to Date ($ Millions except EPS) 2015 2014 Change Sales $ 1,286.5 $ 1,221.1 5% Gross Profit Rate 53.2% 54.6% Operating Expenses 382.6 357.8 7% Operating Earnings 302.1 308.9 (2%) Net Earnings $ 345.7 $ 225.6 53% Earnings Per Share $ 5.86 $ 3.65 61% In April, the Company sold
Slide 50: Full Year 2015 Results
Full Year 2015 Results • Sales increased 5 percent, 10 percent at consistent exchange rates, including 6 percentage points from acquired operations • Gross profit margin of 53 percent, down 1½ percentage points from last year – Due mostly to changes in currency translation rates. Favorable effects o
Slide 51: Financial Results – Fourth Quarter
Financial Results – Fourth Quarter ($ Millions except EPS) 2015 2014 Change Sales $ 325.6 $ 306.0 6% Gross Profit Rate 52.8% 53.8% Operating Expenses 95.7 95.3 0% Operating Earnings 76.1 69.5 10% Net Earnings $ 53.5 $ 49.0 9% Earnings Per Share $ 0.94 $ 0.80 18% In April, the Company sold the Held S
Slide 52: Fourth Quarter 2015 Results
Fourth Quarter 2015 Results • Sales increased 6 percent, 10 percent at consistent exchange rates, including 4 percentage points from acquired operations • Gross profit margin of 53 percent, down 1 percentage point from last year – Due mostly to changes in currency translation rates. Favorable effect
Slide 53: Financial Summary 2015 Appendix
Financial Summary 2015 Appendix
Slide 54: Sales and Operating Margin
Financial Performance Sales and Operating Margin Net Sales Operating Margins 1,400 30% 1,200 25% Operating Margins Sales ($ millions) 1,000 20% 800 15% 600 10% 400 200 5% - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36
Slide 55: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 55
Slide 56: Stock Dividend Growth
Stock Dividend Growth $1.32 $1.00 2016 $0.66 2013 2007 $0.22 2003 56
Slide 57: Strong Cash Generation
Strong Cash Generation ($ Millions) 2015 2014 2013 2012 2011 2010 2009 2008 2007 Operating Cash Flows $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 % of Net Income 55% 107% 115% 127% 114% 98% 300% 134% 116% Capital Expenditures 42 31 23 18 24 17 11 29 37 Free Cash Flow $ 148 $ 210 $ 220 $ 17
Slide 58: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average Source: Interactive Data, MSN Money 58
Slide 59: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com