Graco Inc. · NYSE:GGG
Graco — Investor Presentation (January 2013)
50 slides from Graco's investor presentation, January 2013
Slide 1: Investor Presentation 4th Quarter — January 2013
Investor Presentation 4th Quarter — January 2013
Slide 2: Safe Harbor
Safe Harbor Today’s presentation includes forward-looking statements that reflect management’s g current expectations p about the Company’s p y future business and financial performance. These statements are subject to certain risks and uncertainties that could cause actual results to differ from an
Slide 3: Overview
¾ Overview Enduring Business Model Strategies for Long-Term Growth – Invest I t in i New N P Products d t – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 4: Business Overview
Business Overview • Graco G manufactures f t premium i equipment i t to t pump, meter, t mixi and dispense a wide variety of fluids and coatings – Difficult to handle materials with high g viscosities – Abrasive and corrosive properties – Multiple component materials that require precise ratio contr
Slide 5: 2012 Sales $1.012 Billion
2012 Sales $1.012 Billion Segment Geography $’s millions $’s millions Asia Pacific Contractor $219 Industrial $299 22% $603 29% 60% Americas $536 53% Lubrication $110 Europe 11% $257 25% 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 YTD 2012 Sales - $603M – Material changes driving demand Asia 26% • Other Oth Representative R t ti IIndustry d t P
Slide 7: Lubrication Equipment Segment
Lubrication Equipment Segment • Growth Drivers and Trends – Expanding international markets and presence – Targeting industrial lubrication market YTD 2012 Sales - $110M • Other Representative Industry Participants Americas 74% Asia – Lincoln, Li l V Vogel, l BEKA BEKA, S Samoa, RAASM RAASM, Europe
Slide 8: Contractor Equipment Segment
Contractor Equipment Segment • Growth G th Drivers Di and dTTrends d – 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 YTD 2012 Sales - $299M – Expa
Slide 9: Enduring Business Model
Overview ¾ Enduring Business Model Strategies for Long-Term Growth – Invest I t in i New N P Products d t – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 10: High Customer Value, Strong Product Differentiation
High Customer Value, Strong Product Differentiation Material Supplier Relationships Best in End Class User Delivery Interaction Customer Strong Leading NPD ROI Channel Lowest Total Partners Investment Cost of O Ownership hi Stringent Best in Prod ct Product Cl Class Requirements Quality Niche Market
Slide 11: Manufacturing and Engineering Excellence
Manufacturing and Engineering Excellence • 80%+ of production is based in the United States – High quality, efficient, engaged labor force – Centralization allows for leverage of overheads • Continuous improvement culture – Unique Graco cost to produce measurement tool • Ongoing capital investment –
Slide 12: Low-Volume, High-Mix Delivers Customer ROI
Low-Volume, High-Mix Delivers Customer ROI Average Number of 2011 Sales # of SKUs Units Sold Per Day ($ 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 12
Slide 13: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 14: 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 14
Slide 15: Strategies for Long-Term Growth
Overview du g Business Enduring us ess Model ode ¾ Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company p y Performance
Slide 16: 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% 1.6% Graco 4.6% Peer P group iincludes: l d • Colfax • Illinois Tool Works • Dover • Ingersoll Rand • Dresser Rand • Nordson • Flowserve • Robbins & Myers • IDEX
Slide 17: Industrial – Electrostatic Applicators
Industrial – Electrostatic Applicators • Many models to choose from, including air spray, air-assist and Smart Control • Redesigned components improve spray performance and transfer efficiency • Strong ROI when replacing conventional air-assist and HVLP guns with the Pro Xp • Smart Controls analyze
Slide 18: Industrial – Peristaltic Hose Pump
Industrial – Peristaltic Hose Pump K Product Key P d t Attributes Att ib t • Electric driven • Metering capability • Sealless to pprevent leaks • Ability to handle abrasive materials • Wide chemical compatibility range New Peristaltic Hose Pump p Opens p New Opportunities pp • Ceramics • Potable and
Slide 19: Industrial – Dual Control Electric Piston Pump
Industrial – Dual Control Electric Piston Pump • More efficient than similar-sized pneumatic motors – great ROI • Constant pressure like a pneumatic motor and constant flow like an electric motor • Innovative dual control technology provides less pulsation at changeovers for a more consistent finish
Slide 20: Lubrication New Products – Cord and Light Reels
Lubrication New Products – Cord and Light Reels New Products for Existing End Markets • Product line expansion that leverages existing relationships • Opportunity to be a single source equipment provider for the entire bank of reels Innovative Design • Displace competitive products with durability d
Slide 21: Lubrication New Products – GBL 7500 Pumps
Lubrication New Products – GBL 7500 Pumps Extending the Industrial Lube Pump Line • GBL 7500 pumps lubricate compressors that move natural gas through thousands of miles of pipeline • Manufactured to maintain the highest industry standards in applications that require continuous-duty operations • Hi
Slide 22: CED – New Product LineLazer IV 250SPS
CED – New Product LineLazer IV 250SPS Stand-On striping unit − Cityy Striping p g Jobs − Intersections − Airports − Large Parking Ramps − Bike Paths − Large Parking Lots − Turf - Sports Fields − Stencil Jobs ¾ Pavement ¾ Turf 22
Slide 23: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 24: Asia Pacific – New Markets / Applications
Asia Pacific – New Markets / Applications A t Automotive ti – NVH Wi d Energy Wind E – Lubrication L b i ti FIAT, China G3/Injector, China • New N product d (HFR) that h serves market k needs d • New N product d that h fits fi market k requirement i Sanitary – Process Construction – Water Proofing S
Slide 25: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – Invest I t in i New N P Products d t – Expand Geographically – Target g New Markets – Make Acquisitions Company Performance
Slide 26: Industrial – New Markets/Applications (EMEA)
Industrial – New Markets/Applications End-user conversion moving to Industry in EMEA (Europe/Middle East/Africa) • Industrial roadshow • End-user conversion program focus on new Pro Xp electrostatic • Sanitary specialist team for food & beverage & pharmaceutical markets 26
Slide 27: Industrial – New Market Example
Industrial – New Market Example Passive Fire Protection (PFP) Plural-Component Sprayer • Sprays p y intumescent epoxy p y fire p protection coatings g • For structural steel on oil rigs and commercial buildings – Helps insulate structural steel from high-temp hydrocarbon fires; buys time for people
Slide 28: Industrial – New Markets
Industrial – New Markets • Existing homes – Reactor E-8p – For applying no-heat foam insulation in existing homes ¾ Seal and insulate rim joists; create air barriers in attics – 86 million homes in North America need better insulation – For insulation contractors who want to build their business, al
Slide 29: Strategies for Long-Term Growth
Overview Enduring Business Model ¾ Strategies for Long-Term Growth – 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: Acquisition of Finishing Businesses
Acquisition of Finishing Businesses • On April 2, 2012, the Company completed the purchase of the finishing businesses of Illinois Tool Works Inc. The acquisition includes Powder Finishing and Liquid Finishing equipment operations, technologies and brands. Results of the Powder Finishing business ha
Slide 32: Product Range
Product Range Electrostatic Powder Guns Complete Systems Powder Kitchens Reciprocators 32
Slide 33: Powder Finishing – Strong Strategic Fit
Powder Finishing – Strong Strategic Fit • Well established brand name – High quality – A technology leader • Large installed base • Access A tto attractive tt ti end d markets k t • Desirable emerging market exposure • Strong and growing global distribution base • Scale to drive long-term growth wor
Slide 34: End Markets
End Markets Heating/Cooling/Sanitary Job Coaters Automotive/Transportation Home Appliances Architecture Machines Industry Electrical/Electronics Metallic Furniture 34
Slide 35: Company Performance
Overview Enduring g Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions ¾ Company Performance
Slide 36: Consolidated Financial Results
Consolidated Financial Results $ millions except EPS S Fourth F th Quarter Q t Year-to-Date Y t D t 2012 2011 Change 2012 2011 Change Sales $ 253.7 $ 215.6 18 % $ 1,012.5 $ 895.3 13 % Gross Profit $ 138.9 117.0 19 % $ 550.5 500.2 10 % % of Sales 54.7 % 54.3 % 0.4 pts 54.4 % 55.9 % (1.5) pts Operatin
Slide 37: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Favorable: General Industrial, Automotive, Ag, Heavy Machinery Favorable: Emerging EMEA Stable: General Industrial Stable: Construction Challenging: g g Western Europe p Challenging: g g Project j Activity y Contractor Segment Improvi
Slide 38: Cash Deployment Priorities
Cash Deployment Priorities - International footprint - Product development Organic Growth Investments p - Production capacity y and capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% - 6 million authorized share Dividends/Share Repurchase
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 h quality, lit ttechnology-based h l b d products d t • Products
Slide 40: Financial Summary For Q4 2012 - Appendix
Financial Summary F YTD For Q4 2012 - Q Appendix
Slide 41: Financial Results – Full Year
Financial Results – Full Year ($ Millions except EPS) 2012 2011 Change Sales $ 1,012.5 1 012 5 $ 895.3 895 3 13% Gross Profit Rate 54.4% 55.9% Operating Expenses 325.9 280.7 16% Operating Earnings 224.7 219.5 2% Net Earnings $ 149.1 $ 142.3 5% Earnings Per Share S $ 2.42 $ 2.32 4% % 41
Slide 42: 2012 Results
2012 Results • Sales year-to-date up 13 percent (15 percent at consistent currency translation rates) compared to prior year – Powder Finishing sales of $93 million accounts for 10 percentage points – Currency translation rates decreased sales by approximately $15 million • Year-to-date gross profit
Slide 43: Financial Summary For 2012 - Appendix
Financial Summary For 2012 - Appendix
Slide 44: Annual Sales ($ Millions)
Annual Sales ($ Millions) T Target: t 66-7% 7% O Organic i 10%+ Overall $1,100 $1,012 $ , $1,000 $895 $900 $816 $841 $817 $800 $ $732 $744 $700 $605 $579 $600 $500 $400 $300 $200 $100 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 44
Slide 45: Historic Sales ($ Millions)
Historic Sales ($ Millions) CAGR 9% $1,000 $100 $10 45
Slide 46: Earnings Per Share
Earnings Per Share Target: 12%+ $2.42 $2.32 $2.32 $2.17 $1.99 $1.80 $1.69 $1 55 $1.55 $0 81 $0.81 2004 2005 2006 2007 2008 2009 2010 2011 2012 46
Slide 47: Operating Margin
Operating Margin - Disciplined spending - g efficiency Increased manufacturing y - Leverage volume increases 27.7% 27.6% - Continuous improvement culture 26.7% 26.1% 24 5% 24.5% 22.9% 22.2% 20.6% 12.9% 2004 2005 2006 2007 2008 2009 2010 2011 2012 47
Slide 48: Strong Cash Generation
Strong Cash Generation ($ Millions) 2012 2011 2010 2009 2008 2007 2006 2005 2004 Operating Cash Flows $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 $ 123 % of Net Income 127% 114% 98% 300% 134% 116% 104% 121% 113% Capital Expenditures 18 24 17 11 27 37 34 20 17 Free Cash Flow $ 172 $ 138 $ 84 $ 13
Slide 49: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50.0% 40.0% 30 0% 30.0% 20.0% 10.0% % 0.0% Return on Assets Return on Equity Return on Net Profit Margin I Invested t d Capital C it l S&P 500 Diversified Machinery Graco Source: Interactive Data, Data 2012 Thomson Reuters 49
Slide 50: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply