Slide 1: Investor Presentation 1st Quarter — June 2012
Investor Presentation 1st Quarter — June 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: Planning for Growth in 2012
Planning for Growth in 2012 Americas Europe Asia Pacific Industrial Segment Favorable: Gen Industrial; Favorable: Gen Industrial; Automotive; Ag; Heavy Machinery Favorable: Emerging EMEA Automotive; Heavy Machinery Stable: Construction Challenging: S Europe Challenging: Project Activity Contractor S
Slide 4: Business Overview
Business Overview Opportunities and Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 5: 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 6: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in End Class User Delivery Interaction Customer Strong Leading NPD ROI Channel Lowest Total Partners Investment Cost of Ownership Stringent Best in Product Class Requirements Quality Niche Markets 6
Slide 7: Strong Customer Value Means Low-Volume, High-Mix
Strong Customer Value Means Low-Volume, High-Mix Average Number of Total Sales $ # of SKUs Units Sold Per Day (in millions) 0-1 37,307 (90%) $435 (49%) 2-5 2,612 (6%) $173 (19%) 6 - 10 664 (2%) $78 (9%) 11 - 15 242 (1%) $51 (6%) Greater than 15 547 (1%) $158 (17%) Totals 41,372 $895 7
Slide 8: 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 9: An Introduction to our Segments
An Introduction to our Segments Rational Global 2011 YOY Business Competitors Market Size Revenue Growth Geographic Mix 2011 Sales - $502M Industrial Asia 29% ITW, Exel, Idex, 23% $2.0 billion IR, Dover and Wagner (9% 1Q12) Americas 44% Europe 27% 2011 Sales - $291M Contractor Americas Asia 14% 13%
Slide 10: 2012 – First Quarter Sales
2012 – First Quarter Sales $234 Million Segment Geography $’s millions $’s millions Contractor Asia Pacific $53 $72 Industrial 31% 23% $134 57% Americas $126 54% Lubrication $28 12% Europe $55 23% 10
Slide 11: Opportunities & Strategies
Business Overview Opportunities & Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 12: 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 12
Slide 13: 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 14: 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 15: 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 16: Building Momentum
Business Overview Opportunities and Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 17: Targeting Growth Through New Products and Markets
Targeting Growth Through New Products and Markets New Product Development Expense as a Percentage of Revenues - 2011 Peer Group Mean 1.6 Graco 4.6 Peer group includes: • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Robbins & Myers • IDEX • Watts Water
Slide 18: Industrial – Integrated Proportioning System
Industrial – Integrated Proportioning System • For foam or polyurea • Innovative design uses 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 advanced
Slide 19: Industrial – New Product – Peristaltic Hose Pump
Industrial – New Product – Peristaltic Hose Pump Key Product Attributes • Electric driven • Metering capability • Seal less to prevent leaks • Ability to handle abrasive materials • Wide chemical compatibility range New Peristaltic Hose Pump Opens New Opportunities • Ceramics • Potable and waste wat
Slide 20: Lubrication – New Products
Lubrication – New Products • LD Pump – Specifically designed for emerging markets – Eastern Europe, China, SEA, India and Brazil • Market Requirements – Size / Performance – Smaller service shops – Lower Duty Cycle – Lower number of oil changes per day – Price – Size, duty cycle, and competitive env
Slide 21: Lubrication – New Products
Lubrication – New Products Complete Offering Designed for Emerging Markets 21
Slide 22: CED – New Product
CED – New Product • LineLazer IV 250SPS Self Propel striping unit that gives the user the choice of a ―Stand-On‖ striping system − City Striping Jobs − Intersections − Airports − Large Parking Ramps − Bike Paths − Large Parking Lots − Turf – Sports Fields − Stencil Jobs • Pavement • Turf 22
Slide 23: Building Momentum
Business Overview Opportunities and Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 24: 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 24
Slide 25: Asia Pacific Training Investment – Shanghai
Asia Pacific Training Investment – Shanghai • Target Audience • Dedicated AP Training Team – Graco Employees – Local Language Capability – Distributors • First Year Results – Material Suppliers & End Users – Opened - April 2011 – 1080 Trainees – 50 Events 25
Slide 26: Building Momentum
Business Overview Opportunities and Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 27: AFTD – New Markets
AFTD – New Markets • Existing homes — Reactor E-8p – For applying no-heat foam insulation in existing homes • Seal and insulate rim joists; create air barriers in attics – 86 million homes in N. America need better insulation – For insulation contractors who want to build their business, also remode
Slide 28: CED – New Markets
CED – New Markets • XForce HD and ProShot HD Handheld Target Markets Protective & Marine Coatings Market - Specializing in protection and preservation of Steel and Concrete − Food and Beverage − Power Generation − Bridge and Highway − Rail − Healthcare and Steel Fabrication Secondary Markets: −
Slide 29: Building Momentum
Business Overview Opportunities and Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 30: Finishing Group
Graco Acquired 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 30
Slide 31: Finishing Brands Results
Finishing Brands Results 12 Months $ Millions Ended Year Ended * March-12 * Dec-11 Dec-10 Powder Finishing Sales $ 125 $ 120 $ 100 Operating Income 25 25 20 EBITDA 25 25 20 Liquid Finishing (Held Separate) Sales $ 260 $ 250 $ 210 Operating Income 50 50 35 EBITDA 55 55 40 *Based on information provid
Slide 32: FTC Order to Hold Separate and Maintain Assets
FTC Order to Hold Separate and Maintain Assets • Intent is to 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
Slide 33: Product Range
Product Range Electrostatic Powder Guns Reciprocators Powder Kitchens Complete Systems 33
Slide 34: 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 34
Slide 35: End Markets
End Markets All Other 15% Job Coaters Architecture 3% 27% Machines Industry 3% Automotive / Transportation 5% Electrical / Electronics 6% Heating / Cooling / Sanitary Home Appliances 6% 22% Metallic Furniture 13%
Slide 36: Key Geographies
Key Geographies Gema Sales Families Gema Sales - 2011 (Revenues) 36
Slide 37: Company Performance
Business Overview Opportunities & Strategies Building Momentum – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 38: Consolidated Financial Results
Consolidated Financial Results $ millions except EPS 1st Quarter Year-to-Date 2012 2011 Change Sales $ 234.1 $ 217.7 8% Gross Profit 132.2 124.4 6% % of Sales 56.5 % 57.1 % (0.6) pts Operating Earnings 58.0 57.1 2% % of Sales 24.8 % 26.2 % (1.4) pts Net Earnings $ 35.4 $ 37.3 (5)% % of Sales 15.1 %
Slide 39: 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 40: 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 41: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply
Slide 42: Financial Summary For Q1 2012
Financial Summary For Q1 2012 - Appendix
Slide 43: Financial Results – First Quarter 2012
Financial Results – First Quarter 2012 ($ Millions except EPS) 2012 2011 Change Sales $ 234.1 $ 217.7 8% Gross Profit Rate 56.5% 57.1% Operating Expenses 74.2 67.3 10% Operating Earnings 58.0 57.1 2% Net Earnings $ 35.4 $ 37.3 (5%) Earnings Per Share $ 0.58 $ 0.61 (5%) 43
Slide 44: First Quarter 2012 Results
First Quarter 2012 Results • Sales for the quarter up 8 percent compared to first quarter last year • Sales were up in all segments; regionally, sales were up 9 percent in the Americas 10 percent in Asia Pacific, and 3 percent in Europe – Currency translation did not have a material effect on total
Slide 45: Financial Summary For 2011
Financial Summary For 2011 - Appendix
Slide 46: 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 47: 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% 47
Slide 48: 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% $211 24% 48
Slide 49: Annual Sales ($ 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 $138 $133 $135 $136 - Cash acquisitions - Share repurchases $122 $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