Slide 1: Investor Presentation
Investor Presentation February 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, 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: 2014 Sales — $1.221 Billion
2014 Sales — $1.221 Billion EMEA 25% 74% Industrial Asia Pacific 23% Contractor 19% 3% Lubrication 76% Industrial 17% Contractor 7% Lubrication 48% Industrial 39% Contractor 59% Industrial 13% Lubrication 31% Contractor 10% Lubrication 5
Slide 6: 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 7: 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 2014 Sales Lubrication
Slide 8: 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 9: 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 10: 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 10
Slide 11: 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 – A currency mismatch of sales to COGS exists, however • Continuous improvement culture – Unique Graco cost-to-
Slide 12: 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 13: 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 13
Slide 14: 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 15: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2014* Graco 4.4% R&D Spending Peers* 1.6% Innovation * Peer average R&D spending as a percentage of revenues based on 2013 data 15
Slide 16: Contractor – Professional Airless Line Upgrade
Contractor – Professional Airless Line Upgrade • Small to Midsize Electric Sprayers − New ProConnect Quick Change Paint Pump for “On The Job” Replacement Repairs − NEW FastFlush Mode Saves Time with Easy/Fast Sprayer Clean-Up − NEW “Rugged Durable” look with Enhanced Motor, Control, Pump Improveme
Slide 17: 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 18: 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 19: 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 20: 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 20
Slide 21: Industrial – Husky Poly Pumps
Industrial – Husky Poly Pumps 1.5” and 2” Poly Double Diaphragm Pumps • Completes full line of Polypropylene and Kynar pumps for chemical applications • Up to 30% more efficient than market leaders • 30% increase in flow • Reinforced frame for increased strength and smaller profiles • Up to 5 tim
Slide 22: Lubrication – XD Powered Rewind Hose Reels
Lubrication – XD Powered Rewind Hose Reels • Heavy duty hose reels for dispense, transfer, & evacuation of fluids – Direct Drive Motor Safer for the operator, More reliable & less maintenance, Narrower footprint – Modular Design Mix & match frames and motors, easier to stock inventory, and allows
Slide 23: 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 24: Multimaq Acquired December 2014
Multimaq 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
Slide 25: 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 26: Contractor
Contractor 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 26
Slide 27: 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 28: Acquisition of Alco Valves Group
Acquisition of Alco Valves Group • The Alco Valves Group (Alco), a United Kingdom based manufacturer of high quality, high pressure values used in Oil & Natural Gas (O&NG) and other industrial processes was acquired on October 1, 2014. • Alco generated approximately £19 million of revenue in the
Slide 29: Acquired October 1, 2014
Acquired October 1, 2014 Alco Hi-Tek (Oil and Gas projects) • Double block and bleed (DBB) valves • Chemical injection valves • Mono-flange valves • Piping valves Alco Valves (Oil and Gas standard distributed valves) • High pressure single valves • Needle and ball • Instrument manifolds • Super al
Slide 30: Acquired December 2014
Acquired December 2014 • Adds new products and technologies to build our surface prep business • Expands rental channel opportunities worldwide • Manufacturing will relocate from Ontario to Minneapolis in 2015 • New product launch in Feb. 2015 – upgrading all Geo-Blaster models – Improved performanc
Slide 31: 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 32: Acquisition – High Pressure Equipment
Acquisition – High Pressure Equipment • High Pressure Equipment Company (HiP), an Erie, Pennsylvania based manufacturer of high quality, high pressure values used in Oil & Natural Gas (O&NG) and other industrial processes was acquired on January 20, 2015 • The acquisition was an all cash transaction
Slide 33: 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 34: Graco Reported Q4 Results
Graco Reported Q4 Results $ millions except EPS Fourth Quarter 2014 2013 Change Sales $ 306.0 $ 271.9 13 % Gross Profit 164.8 147.2 12 % % of Sales 53.8 % 54.1 % (0.3) pts Operating Earnings 69.5 63.3 10 % % of Sales 22.7 % 23.3 % (0.6) pts Net Earnings $ 49.0 $ 44.7 10 % % of Sales 16.0 % 16.5 % (0
Slide 35: Q4 and Full Year 2014 Sales Data
Q4 and Full Year 2014 Sales Data Components of Net Sales Change Fourth Quarter 2014 Segment Region Industrial Contractor Lubrication Americas EMEA Asia Pacific Consolidated Volume and Price 8% 11 % 18 % 13 % 8% 4% 11 % Acquisitions 9% — — 6% 6% 4% 5% Currency (4)% (2)% (2)% (1)% (6)% (3)% (3)% Total
Slide 36: Notable Info from Q4 2014 Earnings Release & Call
Notable Info from Q4 2014 Earnings Release & Call • Capital expenditures expected to be approximately $35 million in 2015 • 2015 annualized tax rate is projected to be approximately 32-33% – The Federal R&D tax credit has not been extended into 2015. If approved, the 2015 annualized tax rate is expe
Slide 37: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Stable: General Industrial, Foam Insulation, Stable: Western Europe Adhesive Dispense Stable: General Industrial Challenging: Currency, Challenging: Ship Building, Mining Challenging: Heavy Machinery Geopolitical Spotty: Project Activ
Slide 38: Divestiture of Liquid Finishing Business Assets
Divestiture of Liquid Finishing Business Assets • The Federal Trade Commission (FTC) issued its final Decision and Order in October requiring Graco to complete the sale of the Liquid Finishing business assets that were acquired in a larger transaction from Illinois Tool Works (ITW) in April 2012. Th
Slide 39: Net Proceeds From Sale to be Approximately $570 million
Net Proceeds From Sale to be Approximately $570 million • The all-cash sale price for the Liquid Finishing business assets is $590 million, subject to normal post-closing adjustments • Net proceeds from the sale are expected to be approximately $570 million – The difference between the purchase pric
Slide 40: Priorities for the Divestiture Proceeds
Priorities for the Divestiture Proceeds • Reduce debt, as allowed under debt agreements: – Post-closing net debt position of approximately $200 million $300 million in private placement debt will remain, offset by approximately $100 million in cash • Redeploy proceeds in strategic acquisitions – Imm
Slide 41: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Shareholder Dividend Payout Ratio ~30% Return Three Million Shares Remaining on Authorization 41
Slide 42: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term, above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical
Slide 43: Financial Summary Q4 2014 Appendix
Financial Summary Q4 2014 Appendix
Slide 44: Financial Results – Full Year
Financial Results – Full Year ($ Millions except EPS) 2014 2013 Change Sales $ 1,221.1 $ 1,104.0 11% Gross Profit Rate 54.6% 55.0% Operating Expenses 357.8 327.7 9% Operating Earnings 308.9 279.8 10% Net Earnings $ 225.6 $ 210.8 7% Earnings Per Share $ 3.65 $ 3.36 9% 44
Slide 45: 2014 Results
2014 Results • Sales increased 11 percent, including 4 percentage points from acquired operations, no net impact from currency translation • Gross profit margin of 54.6 percent, down slightly from last year – Non-recurring inventory-related purchase accounting effects .2 percentage point and lower m
Slide 46: Financial Results – Fourth Quarter
Financial Results – Fourth Quarter ($ Millions except EPS) 2014 2013 Change Sales $ 306.0 $ 271.9 13% Gross Profit Rate 53.8% 54.1% Operating Expenses 95.3 83.9 14% Operating Earnings 69.5 63.3 10% Net Earnings $ 49.0 $ 44.7 10% Earnings Per Share $ 0.80 $ 0.71 13% 46
Slide 47: Fourth Quarter 2014 Results
Fourth Quarter 2014 Results • Sales increased 13 percent (16 percent at consistent currency translation rate), including 5 percentage points from acquired operations • Gross profit margin of 53.8 percent, down slightly from last year • Operating earnings up 10% from last year – Operating expenses we
Slide 48: Financial Summary 2014 Appendix
Financial Summary 2014 Appendix
Slide 49: 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 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36 $3.65
Slide 50: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 50
Slide 51: Stock Dividend Growth
Stock Dividend Growth $1.20 $0.80 2015 $0.66 2010 2007 $0.37 2004 51
Slide 52: Strong Cash Generation
Strong Cash Generation ($ Millions) 2014 2013 2012 2011 2010 2009 2008 2007 2006 Operating Cash Flows $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 % of Net Income 107% 115% 127% 114% 98% 300% 134% 116% 104% Capital Expenditures 31 23 18 24 17 11 29 37 34 Free Cash Flow $ 210 $ 220 $ 172 $ 1
Slide 53: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average Source: Interactive Data, MSN Money 53
Slide 54: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com