Slide 1: Investor Presentation 1st Half 2017
Investor Presentation 1st Half 2017
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 − Global Expansion – Target New Markets – Make Acquisitions 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 June 2017 Sales – $720 Million
Year-to-Date June 2017 Sales – $720 Million EMEA 23% 57% Industrial 17% Process Asia Pacific 18% 26% Contractor 69% Industrial 18% Process 13% Contractor 34% Industrial 22% Process 46% Industrial 44% Contractor 20% Process 34% Contractor 5
Slide 6: 2016 Sales by End Market
2016 Sales by End Market Residential & Non-Residential Construction – 46% 17% Industrial & Machinery – 17% Automotive – 12% 46% 12% Other – 8% Oil and Natural Gas – 5% 8% Public Works – 4% 5% Vehicle Services – 4% 4% 2% 4% Mining – 2% Wood – 1% White Goods – 1% 6
Slide 7: Industrial Equipment Segment Operating Margins
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, Nordson an
Slide 8: Process Equipment Segment Operating Margins
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 regional
Slide 9: Contractor Equipment Segment Operating Margins
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 line and
Slide 10: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products − Global Expansion – 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 & 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-produce me
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2016 Sales # of SKUs Sold Per Day ($ in millions) 0-1 55,600 90% $ 614 46% 2-5 4,200 7% $ 282 21% 6 - 10 800 1% $ 112 8% 11 - 15 300 1% $ 49 4% Greater than 15 700 1% $ 272 21% Graco 2016 Sales $1,329 13
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products − Global Expansion – Target New Markets – Make Acquisitions Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► End User Conversion ► New Product Development Graco ► New Markets Targeted Earnings 3% - 5% ► Global Expansion CAGR Industrial ► Acquisitions Production Average Growth Rate 15
Slide 16: Invest in New Products
Overview Enduring Business Model Strategies for Long-Term Growth Invest in New Products 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 – 2016 Graco 4.6% R&D Spending Peers 1.7% Innovation 17
Slide 18: Process – Power Pro ESP
Process – Power Pro ESPTM Portable Electric Groundwater Sampling Pump ► Unique, all-in-one design ► Portable design allows for remote water sampling where power is limited Oil and Gas ► No generator needed – runs on portable 12 volt battery ► Light-weight – less than 32 lbs Landfill Mining Industria
Slide 19: Process – SST AODD Flange Pumps
Process – SST AODD Flange Pumps ► Stainless Steel Pumps for the chemical and marine industries ► Rotating flange design allows for connection flexibility and easy install ► Up to five times longer diaphragm life compared to others in its class ► Rugged construction with high corrosion and abrasion r
Slide 20: Process – PSB Series
Process – PSB Series High-Purity AODD Chemical Pumps ► Advance pump technologies ► For high-purity chemical delivery applications in the semi-conductor, aerospace and solar industries 20
Slide 21: Process – BIOGAS 3000
Process – BIOGAS 3000 Fixed Biogas Analyzer for Landfill and Anaerobic Digestion Sites ► Up to 4 sample points for constant monitoring of the complete gas control process, maximising yield for plant operators ► Gases Measured: CH4, CO2, O2, H2S, H2 & CO ► Ability to monitor the gas control process b
Slide 22: Industrial – EcoQuip EQp
® Industrial – EcoQuip 2 EQp ► EcoQuip 2 EQp – Powerful, Portable, Professional ® Affordable Vapor Abrasive blasting system for small jobs Portable cart system – only 220 lbs. Generates up to 92% less dust than dry blasting ► Expands customer base and applications Graffiti removal Paint & stain remo
Slide 23: Industrial – Spray Automation
Industrial – Spray Automation Improving End-User Profitability and Efficiency ► Delivering finishing equipment that is easy to integrate into automation Simple integration into existing automation Reduces end-user integration costs Serves a wide range of end-user technical needs and markets Improves
Slide 24: Industrial – Intelligent Paint Kitchen
Industrial – Intelligent Paint Kitchen Complete, integrated Graco solution for the Paint Kitchen ► Inexpensive option to advanced monitoring systems ► Easily connects paint monitoring and control systems ► Provides real-time data and critical control functions ► Reduces installation costs in hazardo
Slide 25: Contractor – 2017 New Products
Contractor – 2017 New Products Handheld Airless Sprayers Low Pressure Spray Tips ► Breakthrough performance, reliability, finish ► SmartTip™ technology delivers the Fastest way to finish small jobs industry’s best finish at the lowest Airless Spray pressure Perfect Airless Finish™ at any hand speed
Slide 26: Contractor – 2017 New Products
Contractor – 2017 New Products Battery Powered Line Striper High Volume Low Pressure ► Industry’s first professional electric striper ► The most advanced portable HVLP technology available ► Featuring e-power™ technology SmartStart™ system reduces heat No engine noise, vibration or fumes TurboContro
Slide 27: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets Make Acquisitions Company Performance
Slide 28: Recent Acquisitions
Recent Acquisitions TM TM TM TM High Pressure Equipment Company ® TM & 28
Slide 29: Acquisitions – Environmental Focus
Acquisitions – Environmental Focus Geotechnical Instruments – UK manufacturer of portable and fixed landfill gas analyzers Acquired Jan 2016 and biogas analyzers used for monitoring, compliance, and control of landfill and biogas processes Landtec – Manufacturer of landfill gas wellheads and accesso
Slide 30: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Make Acquisitions Company Performance
Slide 31: Graco Reported Q2 Results
Graco Reported Q2 Results Statement of Earnings Second Quarter Year-to-Date $ in millions except per share amounts 2017 2016 Change 2017 2016 Change Sales $ 379 $ 348 9% $ 720 $ 653 10 % Gross Profit 204 185 10 % 389 347 12 % % of Sales 53.7 % 53.2 % 0.5 pts 54.1 % 53.1 % 1.0 pts Operating Earnings
Slide 32: 2017 Sales Data
2017 Sales Data Components of Net Sales Change Second Quarter June 2017 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 13 % 15 % 5% 7% 12 % 20 % 10 % Acquisitions 0% 0% 0% 0% 0% 0% 0% Currency (2)% (2)% (1)% 0% (3)% (2)% (1)% Total 11 % 13 % 4%
Slide 33: 2017 Operating Earnings
2017 Operating Earnings Change in Operating Earnings Second Quarter Year-to-Date 2016 Operating Earnings ($M and % of sales) $ 78 23 % $ 139 21 % Translation effect (2) (1) (4) — Volume, price and cost 21 1 48 1 Effect of 2016 inventory step-up, acquisition costs and 2017 acquired business operation
Slide 34: Notable Info from Q2 2017 Earnings Release & Call
Notable Info from Q2 2017 Earnings Release & Call Capital expenditure expectations of approximately $40 million in 2017 Currently evaluating brick and mortar requirements for 2018 as Contractor and other production and distribution facilities near capacity Unallocated corporate expenses in 2017 are
Slide 35: Year-to-Date June 2017 Results
Year-to-Date June 2017 Results • Sales increased 10 percent (11 percent at consistent currency translation rates); acquired businesses had no significant impact • Gross profit margin up 1 percentage point from June 2016 – Favorable effects from higher production volume and realized pricing were part
Slide 36: Current Environment and Outlook
Current Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Worldwide Sales Growth Sales Growth Sales Growth Sales Growth Current Q2 2017 7% Q2 2017 12% Q2 2017 20% Q2 2017 10% Environment YTD 2017 11% YTD 2017 11% YT
Slide 37: 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 Dividend Payout Ratio ~30% Shareholder Approximately 3 Million Shares Remaining on Return Repurchase A
Slide 38: 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 39: Financial Summary Q2 2017
Financial Summary Q2 2017 Appendix
Slide 40: Financial Results – Second Quarter
Financial Results – Second Quarter Statement of Earnings Second Quarter $ in millions except per share amounts 2017 2016 Change Sales $ 379 $ 348 9% Gross Profit 204 185 10 % % of Sales 53.7 % 53.2 % 0.5 pts Operating Earnings 99 78 26 % % of Sales 26.0 % 22.5 % 3.5 pts Net Earnings $ 80 $ 51 57 % %
Slide 41: Second Quarter 2017 Results
Second Quarter 2017 Results • Sales increased 9 percent (10 percent at consistent currency translation rates); acquired businesses had no significant impact • Gross profit margin up one-half percentage point from second quarter 2016 – Favorable effects from higher production volume and realized pric
Slide 42: Financial Summary 2016
Financial Summary 2016 Appendix
Slide 43: Financial Performance: 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 2016 Diluted $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.
Slide 44: Historic Sales ($ Millions)
Historic Sales ($ Millions) 44
Slide 45: Stock Dividend Growth
Stock Dividend Growth $1.44 $1.00 2017 $0.66 2013 2007 $0.22 2003 45
Slide 46: Strong Cash Generation
Strong Cash Generation ($ Millions) 2016 2015 2014 2013 2012 2011 2010 2009 2008 Operating Cash Flows $ 269 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 % of Net Income 661% 55% 107% 115% 127% 114% 98% 300% 134% Capital Expenditures 42 42 31 23 18 24 17 11 29 Free Cash Flow $ 227 $ 148 $ 210 $ 22
Slide 47: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50% 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group Graco Source: S&P Capital IQ 47
Slide 48: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com