Slide 1: Investor Presentation March 2012
Investor Presentation March 2012
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: 2011 Highlights
2011 Highlights • Record sales • New peak sales in Asia Pacific and Latin America • Industrial Segment achieved new peaks in both sales and operating earnings • Lubrication Segment eclipsed $100 million in sales and doubled operating earnings from the prior year, both new peaks • Diluted EPS matched
Slide 4: Planning for Growth in 2012
Planning for Growth in 2012 Americas Europe Asia Pacific Industrial Segment Favorable: Gen Industrial; Favorable: Gen Ind; Automotive; Favorable: Gen Industrial; Automotive; Ag; Heavy Machinery Emerging EMEA; N Europe Automotive; Heavy Machinery Challenging: Construction Challenging: Const; S Europe
Slide 5: Business Overview
Business Overview Opportunities and Strategies Building Momentum Company Performance
Slide 6: Business Overview
Business Overview • Graco manufactures equipment to pump, meter, mix and dispense a wide variety of fluids – Difficult to handle materials with high viscosities – Abrasive and corrosive properties – Multiple component materials that require precise ratio control • Outstanding reputation for premium
Slide 7: Graco's Formula for Margin Generation
Graco’s Formula for Margin Generation • High customer value • Manufacturing and engineering excellence = Sustainable Profitability 7
Slide 8: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in Class End Delivery User Interaction Customer Leading Strong NPD ROI Channel Investment Lowest Total Partners Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 8
Slide 9: Manufacturing and Engineering Excellence
Manufacturing and Engineering Excellence • 90%+ 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 a
Slide 10: Business Overview
Business Overview Strong financial • 20% revenue growth in 2011; 28% growth in 2010 performance and • Incremental operating earnings leverage on organic operating leverage revenue growth of 35% to 45%; 2011 was 44% Well-positioned • Sales primarily through independent distributors – channel partners
Slide 11: An Introduction to our Segments
An Introduction to our Segments Business Rational Global 2011 YOY Geographic Mix Competitors Market Size Revenue Growth Industrial 2011 Sales - $502M ITW, Exel, Asia 29% Idex, IR, $2.0 billion 23% Dover and Americas Wagner 44% Europe 27% 2011 Sales - $291M Contractor Americas Asia 63% 14% Wagner $0.
Slide 12: Industrial Equipment – Paint Spraying
Industrial Equipment – Paint Spraying 12
Slide 13: Industrial Equipment – Multi Component Paint Spraying
Industrial Equipment – Multi Component Paint Spraying 13
Slide 14: Industrial Equipment – Protective Coating
Industrial Equipment – Protective Coating 14
Slide 15: Industrial Equipment – Fast-Set Foam Insulation
Industrial Equipment – Fast-Set Foam Insulation 15
Slide 16: Industrial Equipment – Sealants & Adhesives
Industrial Equipment – Sealants & Adhesives 16
Slide 17: Industrial Equipment – Composites
Industrial Equipment – Composites 17
Slide 18: Industrial Equipment – Process Industry
Industrial Equipment – Process Industry 18
Slide 19: Industrial Equipment – Process, Sanitary
Industrial Equipment – Process, Sanitary 19
Slide 20: Contractor Equipment – Painting & Texturing
Contractor Equipment – Painting & Texturing 20
Slide 21: Contractor Equipment – Striping
Contractor Equipment – Striping 21
Slide 22: Lubrication Equipment – Vehicle Services
Lubrication Equipment – Vehicle Services 22
Slide 23: Lubrication Equipment – Industrial
Lubrication Equipment – Industrial 23
Slide 24: Opportunities and Strategies
Business Overview Opportunities and Strategies Building Momentum Company Performance
Slide 25: Graco's Growth Plans and Earnings Drivers
Graco’s Growth Plans and Earnings Drivers 12%+ Acquisitions New Markets Graco Earnings Global CAGR 3% - 5% Expansion New Product Development Industrial End User Production Conversion Average Growth Rate 25
Slide 26: Industrial Equipment
Industrial Equipment • New applications in adjacent markets – Sanitary – Composites – Alternative energy • Material changes driving demand – High performance multiple component materials – Low - or no - VOC coatings – Green initiatives • Customer ROI-based new products – Integration of equipment wit
Slide 27: Contractor Equipment
Contractor Equipment • 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 texture and cementit
Slide 28: Lubrication Equipment
Lubrication Equipment • Focused on expanding international markets and presence – Rapidly adding resources for specialized global marketing and selling – Developing products to meet local market needs – Building global channel • Industrial lubrication market targeted opportunities – Expanding produc
Slide 29: Building Momentum
Business Overview Opportunities and Strategies Building Momentum Company Performance
Slide 30: Double-Digit Growth Worldwide in 2011
Double-Digit Growth Worldwide in 2011 EMEA 19% North America 16% Asia Pacific 32% Latin New Sales Peak America 34% New Sales Peak 30
Slide 31: Finishing Group
Graco to Acquire on April 2, 2012 for $650 million Finishing Group Liquid Finishing 2011 Revenues* $375 million ~ 2/3 2011 EBITDA* $80 million Powder Finishing ~ 1/3 Powder Finishing Liquid Finishing – Held Separate * Unaudited, provided by ITW 31
Slide 32: Powder Finishing – Strong Strategic Fit
Powder Finishing – Strong Strategic Fit • Well established brand name – High quality – A technology leader • Large installed base • Access to attractive end markets • Desirable emerging market exposure • Strong and growing global distribution base • Scale to drive long-term growth worldwide 32
Slide 33: FTC Order to Hold Separate and Maintain Assets
FTC Order to Hold Separate and Maintain Assets • Intent is maintain business and its momentum while FTC considers a settlement proposal from Graco • Liquid Finishing businesses to be run completely independent of Graco – Wholly-owned, but no Graco involvement or influence – Day-to-day operations und
Slide 34: Targeting Growth Through New Products and Markets
Targeting Growth Through New Products and Markets New Product Development Expense as a Percentage of Revenues 1 Peer Group Mean 1.6 2 Graco 4.6 Peer group includes: • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Robbins & Myers 1 • IDEX • Watts Water T
Slide 35: Lubrication – Opening Up New Markets
Lubrication – Opening Up New Markets Graco Industrial Lubrication Solution 35
Slide 36: Contractor – Expansion of Handheld Line
Contractor – Expansion of Handheld Line • Heavy duty handheld, designed for protective and marine coatings • Will be the world’s most powerful handheld airless sprayer – 4000 PSI in the palm of your hand – can handle very difficult materials • Product will be available in 2H 2011 36
Slide 37: Industrial – Expanding Process Capabilities
Industrial – Expanding Process Capabilities • SaniForce line expansion – ½” FDA Compliant • Process Pumps – 3” Family – 30% more efficient – More materials for more applications 37
Slide 38: Industrial – Integrated Proportioning System
Industrial – Integrated Proportioning System • For foam or polyurea • Innovative design re-purposes wasted heat from the engine to heat the A & B materials • System’s smaller generator saves the contractor about $7,000 in diesel fuel costs annually • Proprietary Graco Control Architecture enables ad
Slide 39: Company Performance
Business Overview Opportunities and Strategies Building Momentum Company Performance
Slide 40: Financial Results – Full Year
Financial Results – Full Year ($ Millions except EPS) 2011 2010 Change Sales $ 895.3 $ 744.1 20% Gross Profit Rate 55.9% 54.2% Operating Expenses 280.7 250.3 12% Operating Earnings 219.5 153.1 43% Net Earnings $ 142.3 $ 102.8 38% Earnings Per Share $ 2.32 $ 1.69 37% 40
Slide 41: 2011 Sales $895 Million
2011 Sales $895 Million Segment Geography $’s millions $’s millions Asia Pacific Contractor $208 $291 23% Industrial 33% $502 56% Americas $476 53% Lubrication $102 Europe 11% $211 24% 41
Slide 42: Cash Deployment Priorities
Cash Deployment Priorities - International footprint - Product development Organic Growth Investments - Production capacity and capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% - 6 million authorized share Dividends/Share Repurchase rep
Slide 43: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term above-market growth • Premium products that provide a strong ROI for end users • Leading market positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical fun
Slide 44: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply
Slide 45: Financial Summary For Q4 2011 - Appendix
Financial Summary For Q4 2011 - Appendix
Slide 46: Fourth Quarter 2011 Results
Fourth Quarter 2011 Results • Sales for the quarter up 9 percent compared to fourth quarter last year • Sales were up in all segments; regionally, sales were up 9 percent in the Americas 20 percent in Asia Pacific, and flat in Europe – Currency translation did not have a material effect on sales • F
Slide 47: 2011 Results
2011 Results • Sales year-to-date up 20 percent compared to prior year • Sales were up in all segments and geographies, including 17 percent in the Americas, 19 percent in Europe, and 32 percent in Asia Pacific – The overall year-to-date growth rate of 20% includes 2 percentage points from currency
Slide 48: Financial Summary For 2011 - Appendix
Financial Summary For 2011 - Appendix
Slide 49: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall $895 $900 $841 $816 $817 $800 $744 $732 $700 $605 $600 $579 $500 $400 $300 $200 $100 $0 2004 2005 2006 2007 2008 2009 2010 2011 49
Slide 50: Historic Sales ($ Millions)
Historic Sales ($ Millions) CAGR 9% $1,000 $100 $10 1966 1981 1996 2011 50
Slide 51: Earnings Per Share
Earnings Per Share Target: 12%+ $2.32 $2.32 $2.17 $1.99 $1.80 $1.69 $1.55 $0.81 2004 2005 2006 2007 2008 2009 2010 2011 51
Slide 52: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency - Leverage volume increases 27.7% 27.6% - Continuous improvement culture 26.7% 26.1% 24.5% 22.9% 20.6% 12.9% 2004 2005 2006 2007 2008 2009 2010 2011 52
Slide 53: Strong Cash Generation
Strong Cash Generation ($ Millions) 2011 2010 2009 2008 2007 2006 2005 Operating Cash Flows $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 % of Net Income 114% 98% 300% 134% 116% 104% 121% Capital Expenditures 24 17 11 27 37 34 20 Free Cash Flow $ 138 $ 84 $ 136 $ 135 $ 140 $ 122 $ 133 Dividends $ 51 $ 4
Slide 54: Leverage
Leverage ($ Millions) 2011 2010 2009 2008 2007 2006 2005 EBITDA $ 251 $ 187 $ 109 $ 222 $ 261 $ 252 $ 213 Debt, Net of Cash $ 6 $ 69 $ 93 $ 186 $ 121 $ 12 $ (10) Debt to EBITDA 2% 37% 85% 84% 46% 5% Operating Earnings $ 220 $ 153 $ 74 $ 187 $ 232 $ 226 $ 191 Interest Expense $9 $4 $5 $8 $3 $1 $1 54
Slide 55: Free Cash Flow ($ Millions)
Free Cash Flow ($ Millions) Strong cash flow for: - Dividends $140 $136 $138 $133 $135 - Cash acquisitions $122 - Share repurchases $106 $84 2004 2005 2006 2007 2008 2009 2010 2011 Cash provided by operating activities less property, plant and equipment additions plus proceeds from sale of property
Slide 56: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Return on Assets Return on Equity Return on Net Profit Margin Invested Capital S&P 500 Diversified Machinery Graco Source: Interactive Data, 2012 Thomson Reuters 56
Slide 57: Annual Dividend Growth
Annual Dividend Growth $0.90 - Dividends more than doubled $0.84 $0.80 $0.74 $0.76 $0.66 $0.58 $0.52 $0.37 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: Annual dividends rate, excludes special dividend of $1.50 paid in 2004 57
Slide 58: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply