Slide 1: Investor Presentation
Investor Presentation November 2014
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: Year-to-date September 2014 Sales — $915 Million
Year-to-date September 2014 Sales — $915 Million EMEA 25% 73% Industrial Asia Pacific 24% Contractor 18% 3% Lubrication 75% Industrial 18% Contractor 7% Lubrication 46% Industrial 41% Contractor 58% Industrial 13% Lubrication 32% 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 YTD Sept. 2014 Sales L
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 • Continuous improvement culture – Unique Graco cost-to-produce measurement tool • Ongoing capital investment –
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 - 2013 Graco 4.7% R&D Spending Peers 1.6% Innovation 15
Slide 16: Contractor – Professional Airless Line Upgrade
Contractor – Professional Airless Line Upgrade • Standard Series Upgrades: enhanced pump and filter technology, brushless DC motor, smart control architecture, innovative cart design • ProContractor Series Upgrades (including Standard): fast pump connect system, enhanced flushing technology, hose re
Slide 17: Industrial – Reactor 2
Industrial – Reactor® 2 • Next gen technology for spray foam insulation and polyurea – Compact footprint – Easy troubleshooting – Graco InSite lets contractors: Log and document job data and spray parameters Manage crews See activity remotely from mobile device 17
Slide 18: E-Flo DC Supply Pump
E-Flo® DC Supply Pump • Energy efficient electric brushless that is ideal for high-pressure applications such as waterborne spraying or moving high viscosity materials • 5X more efficient than similarly sized pneumatic pumps, resulting in significantly lower electric bills for the end user • Operate
Slide 19: Industrial – ExactaBlend AGP
Industrial – ExactaBlend AGP • Superior mixing and ratio assurance for the glass industry • Easy to operate • Optimal mixing and on-ratio proportioning capabilities for quality assurance • Quick and easy base purge reduces material waste • Optional data download provides reports on ratio, flow ra
Slide 20: Industrial – Fluid Monitoring Controls
Industrial – Fluid Monitoring Controls • Graco Informer® – Monitors fluid use data for environmental compliance reports – Identifies worn tips on spray guns – Quickly and efficient spray gun calibration • Graco ProControl 1KE – Actively manages fluid and air – Maintenance reminders include tank fil
Slide 21: Contractor – Pavement Maintenance
Contractor – Pavement Maintenance • LineLazer® IV 250DC Dual Color Striper for jobs requiring “Highlight” lines – Ease of Use - “Fast and easy set ups” – High Production - Up to 5 paint and bead guns – Technology - Leverage our LL250SPS technology to give striping contractors a new, stand-on solutio
Slide 22: 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 23: South America – Key Initiatives
South America – Key Initiatives Market Education End-user Conversion Product Training & Launches World Trade Center Free Zone, Geographical Montevideo, Uruguay Expansion Develop Local Specialized Support Staff Sales Team 23
Slide 24: 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 25: 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 25
Slide 26: Industrial – Expanding the Process Division Core
Industrial – Expanding the Process Division Core 50% Increase in New Product Development Team • Support robust growth in sanitary and cleaning categories with increased product development resource • Enter targeted oil and gas pumping applications • Expand offering of highly efficient electric drive
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: Acquired December 2013
Acquired December 2013 Soil Air % of 2013 Revenue Sampling,Strippers, Designs, manufactures, and markets 7% 7% proprietary pumping systems, air strippers Landfill Int. 17% and gas wellheads for a variety of Gas, 8% environmental and industrial applications; Air Powered Remediation Air primarily reme
Slide 29: Acquired December 2013
Acquired December 2013 • Strong fit with Graco’s protective coatings equipment − Optimized process to use water vapor to assist abrasive blasting process − Utilized in industrial, marine, construction, restoration, cleaning industries 29 29
Slide 30: 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 31: 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 32: 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 33: Graco Reported Q3 Results on October 22, 2014
Graco Reported Q3 Results on October 22, 2014 $ millions except EPS Third Quarter 2014 2013 Change Sales $ 302.6 $ 277.0 9% Gross Profit 165.8 150.9 10 % % of Sales 54.8 % 54.5 % 0.3 pts Operating Earnings 78.9 69.7 13 % % of Sales 26.1 % 25.2 % 0.9 pts Net Earnings $ 59.6 $ 56.1 6% % of Sales 19.7
Slide 34: 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 35: 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 36: 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 37: Priorities for the Divestiture Proceeds
Priorities for the Divestiture Proceeds • Reduce debt, as allowed under debt agreements: – Post-closing net debt position of nearly zero $300 million in private placement debt will remain, offset by a nearly equal amount in cash • Redeploy proceeds in strategic acquisitions – Immediately available c
Slide 38: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Shareholder Dividend Payout Ratio ~30% Return Three Million Shares Remaining on Authorization 38
Slide 39: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term, above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical
Slide 40: Financial Summary Q3 2014 Appendix
Financial Summary Q3 2014 Appendix
Slide 41: Financial Results – Year-to-Date September
Financial Results – Year-to-Date September ($ Millions except EPS) 2014 2013 Change Sales $ 915.1 $ 832.1 10% Gross Profit Rate 54.9% 55.3% Operating Expenses 262.5 243.8 8% Operating Earnings 239.5 216.4 11% Net Earnings $ 176.5 $ 166.1 6% Earnings Per Share $ 2.85 $ 2.65 8% 41
Slide 42: Year-to-Date September 2014 Results
Year-to-Date September 2014 Results • Sales increased 10 percent, including 3 percentage points from acquired operations, currency translation added 1 percentage point • Gross profit margin of 55 percent, down slightly from last year – Non-recurring inventory-related purchase accounting effects and
Slide 43: Financial Results – Third Quarter
Financial Results – Third Quarter ($ Millions except EPS) 2014 2013 Change Sales $ 302.6 $ 277.0 9% Gross Profit Rate 54.8% 54.5% Operating Expenses 86.9 81.1 7% Operating Earnings 78.9 69.7 13% Net Earnings $ 59.6 $ 56.1 6% Earnings Per Share $ 0.97 $ 0.89 9% 43
Slide 44: Third Quarter 2014 Results
Third Quarter 2014 Results • Sales increased 9 percent, including 3 percentage points from acquired operations, no net impact from currency translation • Gross profit margin of 55 percent, up slightly from last year • Operating earnings up 13% on 9% sales growth – Operating expenses were 7 percent h
Slide 45: Financial Summary 2013 Appendix
Financial Summary 2013 Appendix
Slide 46: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin Net Sales Operating Margins 1,200 30% 1,000 25% Operating Margins Sales ($ millions) 800 20% 600 15% 400 10% 200 5% - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD Sept 2014 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36 $2
Slide 47: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 47
Slide 48: Stock Dividend Growth
Stock Dividend Growth $1.10 $0.80 2014 $0.66 2010 2007 $0.37 2004 48
Slide 49: Strong Cash Generation
Strong Cash Generation ($ Millions) 2013 2012 2011 2010 2009 2008 2007 2006 2005 Operating Cash Flows $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 % of Net Income 115% 127% 114% 98% 300% 134% 116% 104% 121% Capital Expenditures 23 18 24 17 11 29 37 34 20 Free Cash Flow $ 220 $ 172 $ 138 $ 8
Slide 50: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average Source: Interactive Data, MSN Money 50
Slide 51: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com