Slide 1: Investor Presentation Third Quarter 2018
Investor Presentation Third Quarter 2018
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 – Target New Markets – Global Expansion – 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 Sept. 2018 Sales – $1,247 Million
Year-To-Date Sept. 2018 Sales – $1,247 Million EMEA 24% 60% Industrial 15% Process Asia Pacific 20% 25% Contractor 69% Industrial 19% Process 12% Contractor 33% Industrial 23% Process 44% Contractor 47% Industrial 20% Process 33% Contractor 5
Slide 6: 2017 Sales by End Market
2017 Sales by End Market Residential & Non-Residential Construction – 45% 18% Industrial & Machinery – 18% Automotive – 13% 45% Other – 8% 13% Oil and Natural Gas – 5% Public Works – 4% 8% 5% Vehicle Services – 3% 4% 2%3% Mining – 2% White Goods – 1% Wood – 1% 6
Slide 7: 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, Wagner, Carlisle Companies,
Slide 8: Process Equipment Segment
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 r
Slide 9: Contractor Equipment Segment
Contractor Equipment Segment ► Growth Drivers and Trends Conversion of end users from manual application methods to equipment Application of texture and cementitious materials Entry level product and channel expansion Expanding pavement maintenance product line and channel ► Other Representa
Slide 10: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Global Expansion – 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 Strong Leading 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-pr
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2017 Sales # of SKUs Sold Per Day ($ in millions) 0-1 58,000 93% $ 730 49% 2-5 2,900 5% $ 256 17% 6 - 10 700 1% $ 117 8% 11 - 15 300 0% $ 53 4% Greater than 15 700 1% $ 319 22% Graco 2017 Sales $1,475 13
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products – Target New Markets – Global Expansion – Make Acquisitions Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► New Product Development ► New Markets Graco ► Global Expansion Targeted Earnings 3% - 5% ► Acquisitions CAGR Industrial ► End User Conversion Production Average Growth Rate 15
Slide 16: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth Invest in New Products Target New Markets – Global Expansion – Make Acquisitions Company Performance
Slide 17: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2017* R&D Spending Graco 4.1% Peers 1.7% Innovation * Peer average R&D spending as a percentage of revenues based on 2017 data 17
Slide 18: Industrial – King Sprayer Packages
Industrial – King Sprayer Packages ® New King pneumatic airless sprayers – powerful machines for the toughest protective coatings ► New air motor exceeds the performance of the industry-standard legacy King platform ► Designed for waterproofing, fireproofing and protective coating applications, even
Slide 19: Industrial – Reactor 2 Mobile App
Industrial – Reactor 2™ Mobile App Real-time status and remote control capability in the palm of the spray foam insulation contractor’s hand ► Easy, efficient method to remotely monitor and adjust machine performance ► Key features Turn machine and pump on/off remotely Adjust temperatures and pr
Slide 20: Industrial – ToughTek F800e
Industrial – ToughTek F800e ® A powerful pump for any size fireproofing job ► Small, lightweight design allows contractor to move quickly between floors ► Ideal for applications where portability is needed ► For coating structural steel with cementitious fireproofing materials ► Improves productivit
Slide 21: Industrial – OptiStar 4.0
® Industrial – OptiStar 4.0 The new standard for powder gun control ► Control crucial coating parameters ► Obtain excellent results and measurable ® system optimization Accurate powder output control Eliminate overcharging of sensitive powders 250 customized programs available ► Web-connectivi
Slide 22: Contractor – TexSpray FastFinish
Contractor – TexSpray™ FastFinish™ Fastest hopper gun texture spray system on the market ► Small-to-medium residential & non-residential applications ► Finish jobs 6X faster than traditional gravity-fed hopper gun systems ► Compact and portable system reduces operator fatigue ► Delivers the performa
Slide 23: Contractor – DutyMax GH 675DI
Contractor – DutyMax™ GH™ 675DI Maximum power in a small package ► Commercial roofing applications ► Ideal for small-to-medium coating jobs traditionally completed by hand ► High-pressure sprayer delivers 6,750 psi in a small, compact and highly-portable package ► Perfect for hard-to-spray materials
Slide 24: Contractor – RoadLazer RoadPak HD
Contractor – RoadLazer™ RoadPak™ HD High-productivity striping machine ► Truck-mounted line striping system delivers 2X higher paint output than previous models ► 5-gun capability – completes airport striping jobs in a single pass ► Pre-programmed for airport stripe patterns for faster set up ► Rear
Slide 25: Process – Husky and SaniForce 2150e
Process – Husky™ and SaniForce 2150e ® Electric diaphragm pumps configurable for many applications ► Expanding Graco’s presence in the electric Aluminum | Cast Iron pump market with larger size offerings ► Helps customers lower energy consumption, increase control, and decrease ownership and operati
Slide 26: Process – Electric Grease Jockey
Process – Electric Grease Jockey® On-road and mobile automatic lubrication system ► Increases fleet revenue Lubricates while vehicle is moving Eliminates need to wait for shop time to manually lubricate ► Decreases operating costs Extends component life by 4X Saves on grease usage ► Easy-to-
Slide 27: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Global Expansion Make Acquisitions Company Performance
Slide 28: Recent Acquisitions by Segment
Recent Acquisitions by Segment Industrial Process Contractor TM TM TM TM High Pressure Equipment Company ® TM & 28
Slide 29: ProHydro – Acquired March 2018
ProHydro – Acquired March 2018 QED Environmental Systems acquired the assets of ProHydro, the developer and manufacturer of the Snap Sampler® passive groundwater sampling system ► Samples without purging for significant labor savings ► Designed for high sample accuracy and precision ► Eliminates col
Slide 30: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Global Expansion – Make Acquisitions Company Performance
Slide 31: Graco Reported Q3 Results
Graco Reported Q3 Results Statement of Earnings Third Quarter Year-to-Date $ in millions except per share amounts 2018 2017 Change 2018 2017 Change Sales $ 416 $ 380 10 % $ 1,247 $ 1,100 13 % Gross Profit 221 204 9% 674 594 13 % % of Sales 53.2 % 53.7 % (0.5) pts 54.0 % 54.0 % 0.0 pts Operating Earn
Slide 32: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Tax benefits related to stock option exercises and the effects of certain tax provision adjustments have caused fluctuation in the Company’s effective tax rate. Excluding the impact of these items presents a more consistent basis for comparison of financi
Slide 33: Financial Results
Financial Results Components of Net Sales Change Third Quarter September 2018 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 5% 15 % 5% 8% 3% 10 % 7% Acquisitions 5% 1% 1% 1% 6% 6% 3% Currency 0% (1)% 0% (1)% 0% (2)% 0% Total 10 % 15 % 6% 8% 9%
Slide 34: Operating Earnings
Operating Earnings Change in Operating Earnings Third Quarter Year-to-Date 2017 Operating Earnings ($M and % of sales) $ 101 27 % $ 289 26 % Translation effect (2) 0 12 1 Volume, product and channel mix, price and cost 17 0 58 0 Effect of acquired business operations and acquisition costs, net 2 0 4
Slide 35: Notable Info from Q3 2018 Earnings Release & Call
Notable Info from Q3 2018 Earnings Release & Call Excluding bricks and mortar, capital expenditure expectations are approximately $35 million in 2018. Current estimate of 2018 building projects to increase production and distribution capacity is approximately $40 million. Additional building project
Slide 36: Year-to-Date September 2018 Results
Year-to-Date September 2018 Results Sales increase of 13% Favorable effect of currency translation rates increased sales by approximately $20 million, 2 percentage points Acquired businesses sales of $34 million account for 3 percentage points of growth Gross margin rate comparable to 2017 Rea
Slide 37: 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 Current Sales Growth Q3 2018 8% Sales Growth Q3 2018 3% Sales Growth Q3 2018 10% Sales Growth Q3 2018 7% Environment YTD 2018 9% YTD 2018 3% YTD 20
Slide 38: 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 Approximately 5 Million Shares Remaining on Return Repu
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 ► Serve niche markets where customers are willing to purchase quality, technology-based products ► Products perform critical f
Slide 40: Financial Summary Q3 2018
Financial Summary Q3 2018 Appendix
Slide 41: Financial Results – Third Quarter
Financial Results – Third Quarter Statement of Earnings Third Quarter $ in millions except per share amounts 2018 2017 Change Sales $ 416 $ 380 10 % Gross Profit 221 204 9% % of Sales 53.2 % 53.7 % (0.5) pts Operating Earnings 115 101 13 % % of Sales 27.6 % 26.7 % 0.9 pts Net Earnings $ 93 $ 75 23 %
Slide 42: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Tax benefits related to stock option exercises and the effects of certain tax provision adjustments have caused fluctuation in the Company’s effective tax rate. Excluding the impact of these items presents a more consistent basis for comparison of financi
Slide 43: Third Quarter 2018 Results
Third Quarter 2018 Results Sales increase of 10% Currency translation rates did not have a significant effect on sales for the quarter Acquired businesses sales of $12 million account for 3 percentage points of growth Gross margin rate down 0.5 percentage point from third quarter 2017 Lower av
Slide 44: Financial Summary 2017
Financial Summary 2017 Appendix
Slide 45: Financial Performance
Financial Performance Sales and Operating Margin, as Reported Net Sales Operating Margins 1,800 30% 1,600 25% 1,400 Operating Margins Sales ($ 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 Diluted $0.52 $0.60 $0.72 $0.
Slide 46: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1978 1990 2002 2014 46
Slide 47: Stock Dividend Growth
Stock Dividend Growth $0.53 $0.33 2018 $0.25 2013* 2008* $0.07 2003* *Dividends adjusted for 2017 3-for-1 stock split 47
Slide 48: Strong Cash Generation
Strong Cash Generation ($ Millions) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Operating Cash Flows $ 338 $ 276 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 % of Net Income 134% 679% 55% 107% 115% 127% 114% 98% 300% 134% Capital Expenditures 40 42 42 31 23 18 24 17 11 29 Free Cash Flow $ 2
Slide 49: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group Graco Note: The 5 year average includes adjustments for the 2016 for impairment Source: S&P Capital IQ 49
Slide 50: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com