Slide 1: Investor Presentation: Company Overview, Third Quarter 2019
////////////////// Investor Presentation Company Overview Third Quarter 2019 1
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 dif
Slide 3: Distribution of Global Sales
59% Distribution 45% 34% of Global $1,234 M 24% 17% 21% Sales September 2019 Year to Date Americas EMEA Asia Pacific Industrial Process Contractor 67% 59% 44% 33% 23% 26% 15% 20% 13% Industrial Process Contractor Industrial Process Contractor Industrial Process Contractor 3
Slide 4: 2018 Sales by End Market
2018 Sales by End Market ////////////////// Wood – 1% White Goods – 1% Mining – 2% Vehicle Services – 4% Public Works – 4% Oil & Natural Gas – 5% Other – 10% Automotive – 11% Industrial & Machinery – 19% Construction – 45% 4
Slide 5: Company Overview
Company Overview ////////////////// Part of Your Everyday Life ▶ Company ▶ DiversifiedOverview Fluid Handling Business ▶ Driving Value, Customer ROI ▶ Strategic Initiatives ▶ Organically Driven, with Exceptional Returns 5
Slide 6: Graco is part of your everyday life
Graco is part of your everyday life. 6
Slide 7: Graco is part of your everyday life
Graco is part of your everyday life. 7
Slide 8: Diversified Niche Fluid Handling Business
Diversified Fluid Handling Business Niche 6%+ ~40% Difficult applications; corrosive, Organic Revenue CAGR* Of revenue is parts viscous, hard-to-move materials & accessories *20-year average, constant currency 8
Slide 9: High Customer Value, Strong Customer ROI
Material Supplier Relationships Best in Class End User Delivery Interaction High Customer Value, Strong Customer Leading New ROI Strong Product Channel Product Investment Lowest Total Partners Cost of Ownership Differentiation Stringent Best in Class Product Requirements Quality Niche Markets 9
Slide 10: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2018 Sales No. of SKUs Highly-valued products Sold Per Day ($ in millions) at low volumes 0-1 59,400 93% $ 820 50% 2-5 2,900 5% $ 295 18% 50% of our revenue comes from products 6 - 10 800 1% $ 129 8% that we sell 11 - 15 300 0% $ 55
Slide 11: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Strategic Initiatives 12%+ ► New Product Development 10% ► New Markets ► Global Expansion ► Acquisitions ► End-user Conversion Targeted Revenue Targeted Earnings Growth CAGR CAGR Through a cycle 11
Slide 12: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Acquisitions Strategic 3-4% Initiatives 12%+ 12%+ Price 1- 2% 9-10% 1 - 2% 5-7% 3% Industrial Production Targeted Organic Targeted Targeted Earnings Average Growth Rate Growth CAGR Revenue Growth CAGR CAGR Through a cycle 12
Slide 13: Exceptional Returns
Exceptional Returns 6%+ 31% 51% 20% Organic Revenue CAGR Return on Invested Capital Return on Equity Return on Assets Based on a 20-year average, constant currency 13
Slide 14: Business Model
Business Model ////////////////// Brand Promise ▶ Company Overview ▶ Operational Excellence ▶ Engineering & Manufacturing Excellence ▶ Extensive Reach 14
Slide 15: Our Brand Promise
▶ Innovation – Leading with technologically-advanced features, pioneering design, high performance and unparalleled reliability ▶ Quality – Our customers invest in high-quality products built to last for years of reliable service ▶ A+ Service – We’re guided by a Our Brand mindset of integrity and a
Slide 16: Engineering Excellence
Engineering Excellence Annual R&D Investment 2.5X* 4.3%* Target Double-Digit More than Returns our peer group as a percent of sales vs. peers at 1.6% New product * Peers: ITW, CSL, DOV, CFX, IEX, NDSN, WTS, FLS, based on a 5-year average, 2014 - 2018 16
Slide 17: Manufacturing Excellence
Manufacturing Excellence Goal is 80% Zero < 1% Production based in the US cost change Warranty costs on the same basket of goods (yoy) 17
Slide 18: Service Excellence
Service Excellence Same Day 95%+ Orders in by noon, In-stock service level ship the same day (goal is > 92%) 18
Slide 19: Extensive Reach
Extensive Reach Customers in over 100 Installed base 30,000+ countries ~100 Outlets/Distributors Facilities in years old 12 countries 19
Slide 20: Company Segments
Company Segments ////////////////// ▶ Industrial Company ▶ Process Overview ▶ Contractor 20
Slide 21: Industrial
Industrial Key End Markets ▶ General industrial ▶ Automotive ▶ Res & non-res construction ▶ Alternative energy & others Growth Drivers & Trends ▶ Factory movement & upgrades ▶ Automation ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Material changes Select Representative Industry Participants
Slide 22: Industrial: Nine Months September 2019
Industrial September 2019, Nine Months $553M -2% 33.8% Segment Revenue Organic Operating Margin - 170 basis points 22
Slide 23: Intelligent Paint Kitchen – Expanded Offering
New Intelligent Paint Kitchen – Expanded Offering ▶ Reduces downtime & cuts energy costs ▶ Controls both electric and pneumatic systems ▶ Remote monitoring capable ▶ Scalable – start with pneumatic, upgrade to electric when ready Industrial 23
Slide 24: Pro Xp Electrostatic Guns
New Pro XpTM Electrostatic Guns ▶ 50 new gun models to meet customer's spraying needs ▶ Pro Xp waterborne gun reduces equipment costs and improves transfer efficiency ▶ Improved durability, ease of adjustments, and spray performance Industrial 24
Slide 25: Process
Process Key End Markets ▶ Pharma, food & beverage ▶ Vehicle services ▶ Oil & natural gas ▶ Environmental ▶ Semiconductor & others Growth Drivers & Trends ▶ Factory movements and upgrades ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Asset life maintenance ▶ Commodities extraction ▶ Environmen
Slide 26: Process: Nine Months September 2019
Process September 2019, Nine Months $256M 3% 22.1% Segment Revenue Organic Operating Margin +100 basis points 26
Slide 27: Pulse FC Fluid Control
New Pulse FC™ Fluid Control ▶ Wire-free fluid control ▶ Simple to use PC software with programmable cards for system set up & operation ▶ Allows facility owners to authorize all dispenses and collect fluid totals Process 27
Slide 28: SaniForce 2.0 – Unloaders
New SaniForce® 2.0 – Unloaders ▶ Saves time and money by pumping difficult materials quickly and safely ▶ Range handles low to high viscosity materials ▶ Featuring both manual and automatic controls Process 28
Slide 29: Contractor
Contractor Key End Markets ► Res & non-res construction ► Res & non-res remodeling ► Transportation Infrastructure Growth Drivers & Trends ► End user conversion from brush and roll ► Product innovation & channel expansion ► Housing & new construction ► Infrastructure spending ► Regional labor rates
Slide 30: Contractor: Nine Months September 2019
Contractor September 2019, Nine Months $425M 4% 23.7% Segment Revenue Organic Operating Margin - 100 basis points 30
Slide 31: Live Track Job
New Live Track Job Maximize sprayer performance Every sprayer progress & productivity Spray time 31
Slide 32: Small to Large Electric Sprayer Upgrade
New Small to Large Electric Sprayer Upgrade ▶ Upgraded to include the new Contractor PCTM spray gun ▶ BlueLinkTM system on board most models ▶ Some models upgraded to include new VortexTM MaxLife® pumps Contractor 32
Slide 33: LineLazer & LineDriver ES
New All Day Striping on a Single Charge LineLazer® & LineDriver® ES ▶ No engine noise or exhaust fumes ▶ No engine vibration for crisper lines ▶ Can be used indoors and outdoors ▶ Stripe up to 60 gallons on a single charge ▶ Automatic parking lot layout and skip line patterns 33
Slide 34: Capital Allocation
Capital Allocation Company Overview ////////////////// 34
Slide 35: 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 Solid dividend history Shareholder Return Approximately 21 million sh
Slide 36: Key Investment Attributes
▶ Drive long-term, above-market growth ▶ Premium products that deliver strong ROI for end users ▶ Leading industry positions ▶ Serve niche markets where customers are willing to purchase quality, technology-based products ▶ Products perform critical functions ▶ High margin, high recurring revenue ▶
Slide 37: Acquisitions
Acquisitions Company Overview ////////////////// 37
Slide 38: Acquisitions: Industrial
Acquisition ▶ Industrial 2012 2013 2014 2014 2015 2015 2017 2018 38
Slide 39: Acquisitions: Process
Acquisition ▶ Process 2013 2014 2015 2015 2016 39
Slide 40: Financial Results
Financial Results Company Overview ////////////////// 40
Slide 41: Financial Performance Sept. YTD
Minneapolis, MN Financial Performance Sept. YTD -1% 52.7% -2% -3% Revenue Gross Margin EPS Net Income (As Reported) 41
Slide 42: Financial Results
Financial Results Statement of Earnings Third Quarter Year-to-Date $ in millions except per share amounts 2019 2018 Change 2019 2018 Change (1) Net earnings and Sales $ 401 $ 416 (4)% $ 1,234 $ 1,247 (1)% diluted earnings per Gross Profit 207 221 (6)% 650 674 (3)% share for 2019 and 2018 % of Sales
Slide 43: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Excess tax benefit Non-GAAP Reconciliation Third Quarter Year-to-Date related to stock option $ in millions except per share amounts 2019 2018 Change 2019 2018 Change exercises and certain Income taxes, as reported $ 12.7 $ 15.4 (18)% $ 46.3 $ 53.4 (13)%
Slide 44: Third Quarter 2019 Results
Third Quarter 2019 Results Sales decrease of 4% in the quarter, down 2% at consistent currency rates Sales Acquired businesses sales of $2 million account for 1 percentage point of growth Rate down 1.4 percentage points from third quarter 2018 Unfavorable factory volumes as well as unfavorable c
Slide 45: Nine Months 2019 Results
Nine Months 2019 Results Modest underlying growth was offset by currency translation rates compared to last year. Sales Sales up 1 percent at consistent currency rates Acquired businesses had no significant impact Rate down 1.3 percentage points from 2018 Unfavorable factory volumes as well as u
Slide 46: Components of Net Sales Change
Financial Results Components of Net Sales Change Third Quarter September 2019 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price (9)% (2)% 5% 3% 2% (25)% (3)% Acquisitions 0% 2% 0% 0% 2% 1% 1% Currency (2)% (1)% (1)% 0% (4)% (2)% (2)% Total (11)% (1
Slide 47: Current Environment and Outlook
Current Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Total Current Sales Q3 2019 3% Sales Q3 2019 2% Sales Q3 2019 (25%) Sales Q3 2019 (3%) Environment YTD 2019 4% YTD 2019 5% YTD 2019 (13%) YTD 2019 1% Environ
Slide 48: Q3 2019 Other Items
Q3 2019 Other Items Capital expenditure expectations of approximately $35 million in 2019, excluding brick and mortar. Current estimate of 2019 building projects to increase production and distribution Cap Ex capacity is approximately $100-$105 million Additional building project investments of ap
Slide 49: Financial Summary: 2018 Appendix
Financial Summary ////////////////// ▶ 2018 Appendix Company Overview 49
Slide 50: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin, as Reported Net Sales Operating Margins 1,800 30% 1,600 25% 1,400 Operating Margins Sales ($ millions) 1,200 20% 1,000 15% 800 600 10% 400 5% 200 - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Diluted $0.52 $0.60 $0.7
Slide 51: Stock Dividend Growth
Stock Dividend Growth ////////////////// $0.64 $0.33 $0.25 $0.07 Dividends adjusted for stock splits 2003 2008 2013 2019 51
Slide 52: Strong Cash Generation
Strong Cash Generation ($ Millions) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Operating Cash Flows $ 368 $ 338 $ 276 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 % of Net Income 108% 134% 679% 55% 107% 115% 127% 114% 98% 300% Capital Expenditures 54 40 42 42 31 23 18 24 17 11 Free Cash Flow $ 3
Slide 53: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average ////////////////// 40% 30% 20% Note: 5-year average includes adjustment 10% for 2016 impairment charge 0% Source: S&P Capital IQ Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group: CSL, NDSN, IEX, DOV, IR Peer Group Graco 53
Slide 54: Worldwide Leaders in Fluid Handling
Move | Measure | Mix | Control | Dispense | Spray WORLDWIDE LEADERS IN FLUID HANDLING www.graco.com 54