Slide 1: Investor Presentation 2009 Results
Investor Presentation 2009 Results
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: Business Overview
Business Overview ■ Graco manufactures equipment to pump, meter, mix and dispense a wide variety of fluids – We specialize in difficult to handle materials with high viscosities, and – Abrasive or corrosive properties, and – Multiple component materials that require precise ratio control ■ We are gl
Slide 4: Contractor Equipment Market Dynamics
Contractor Equipment Market Dynamics ■ Graco served market is approximately $450 - $500M ■ Major end-markets include new residential construction, commercial construction, remodel and repaint ■ Applications include painting, texture, fine finish, cleaning, and pavement maintenance ■ Channel includes
Slide 5: 2010 Contractor Equipment Product Line
2010 Contractor Equipment Product Line 5
Slide 6: Contractor Equipment Growth Opportunities
Contractor Equipment Growth Opportunities ■ 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
Slide 7: Industrial Equipment Market Dynamics
Industrial Equipment Market Dynamics ■ Graco served market is approximately $2.0B worldwide – Liquid Finishing and Process Equipment $900M – Sealant and Adhesive $600M – Protective Coatings, Foam and In-Plant Polyurethane $500M ■ Products sold through independent 3rd party value adding distributors
Slide 8: Industrial Equipment Growth Opportunities
Industrial Equipment Growth Opportunities ■ Expand internationally – Industrialization and wage inflation in developing markets – Factory relocations to low-cost geographies ■ Enter new adjacent markets – Sanitary – Composites – Alternative energy ■ Capitalize on material changes – High performance
Slide 9: Lubrication Equipment Market Dynamics
Lubrication Equipment Market Dynamics ■ Worldwide Lubrication Equipment market is approximately $1.1B worldwide – Vehicle Service Equipment - $400M – Industrial Lubrication Equipment - $700M ■ Products sold through independent 3rd party distributors, through oil jobbers and direct to OEM’s ■ Entrenc
Slide 10: Lubrication Equipment Growth Opportunities
Lubrication Equipment Growth Opportunities ■ Expand internationally – Historical investment and focus has been U.S. – Implemented specialized selling organization in Europe in 2009 – Developing products to meet local market needs – Building channel ■ Industrial lubrication market – Entered via small
Slide 11: Targeting Growth with New Products
Targeting Growth with New Products ■ Invested nearly $38M in product development in 2009 – 6.5% of revenue ■ Targeting 30% of sales from products developed in the last 3 years – 2009 was 26% ■ Increased emphasis on expanding product offering into new markets 11
Slide 12: New Product Example: Graco HFR Metering System
New Product Example: Graco HFR Metering System ■ Versatile, precision-controlled, fixed ratio meter, mix and dispense system – Handles a variety of two- component materials – Polyurethane foams, polyurethane elastomers, epoxies, silicones and polyureas Markets Served ■ Automotive, construction, recr
Slide 13: New Product Example: Diaphragm Pumps
New Product Example: Diaphragm Pumps 30% more energy efficient than leading competitors 20% increase in fluid flow compared to current offering Expanded line for a wider range of applications/chemicals Markets Served ■ Process and General Industry 13
Slide 14: New Product Example: Pro Cordless Sprayer
New Product Example: Pro Cordless Sprayer ■ Breakthrough technology delivers professional airless quality spray in a hand held cordless tool Markets Served ■ Professional Painting Contractor - worldwide 14
Slide 15: Targeting Growth Through Global Expansion
Targeting Growth Through Global Expansion ■ Added 1370 distribution outlets in 2009 – 350 in Europe, 200 in Asia/Latin America 15
Slide 16: Targeting Growth through Channel Expansion
Targeting Growth through Channel Expansion Expanded entry level spray equipment channel – Entry level product stocked in more than 5,000 U.S. retail locations 16
Slide 17: Targeting Growth in New Markets
Targeting Growth in New Markets ■ Pavement Maintenance ■ Alternative Energy ■ Composites ■ Industrial Lubrication ■ Sanitary 17
Slide 18: Example: Existing Market – Line Striping - Paint
Example: Existing Market – Line Striping - Paint LineLazer ■ Global market leadership position in short line paint striping market ■ Designed for use with LineDriver 18
Slide 19: Example: New Market – Line Striping - Thermoplastic
Example: New Market – Line Striping - Thermoplastic ThermoLazer ■ 100% incremental launched 2H 2009 ■ Leverages existing LineDriver platform 19
Slide 20: Example: New Market – Line Removal
Example: New Market – Line Removal GrindLazer ■ 100% incremental launched Q1 2010 ■ Leverages existing LineDriver platform 20
Slide 21: Graco Manufacturing
Graco Manufacturing ■ Aligned with divisions, co-located with product development to speed new product development and improve initial launch cost and quality ■ Measured on annual cost change and expected to achieve zero or better year-to-year total cost change – Graco has been on the Lean journey f
Slide 22: Financial Summary
® 7 GRACO Financial Summary PROVEN QUALITY. LEADING TECHNOLO
Slide 23: Fourth Quarter 2009 Results
Fourth Quarter 2009 Results ■ Sales for the quarter down 12 percent from last year, but steady compared to third quarter this year ■ Sales were down in all segments; regionally, sales were down in the Americans and Europe, but up in Asia Pacific ■ Fourth quarter gross profit margin of 53 percent was
Slide 24: Financial Results 4th Quarter
Financial Results 4th Quarter ($ Millions except EPS) 2009 2008 Change Sales $ 146.3 $ 166.7 (12%) Gross Profit Rate 52.9% 48.8% Operating Expenses 53.6 66.0 (19%) Operating Earnings 23.7 15.4 54% Net Earnings $ 17.2 $ 10.1 71% Earnings Per Share $ 0.28 $ 0.17 65% 24
Slide 25: Summary – 2009
Summary – 2009 ■ Sales down 29% – Asia the strongest, down 17% with flat contractor sales – Americas down 28%, all segments – Europe down 39%, all segments (down 35% at consistent exchange rates) ■ Gross margin – 51% ■ Operating profit margin – 13% ■ Earnings per share down 59% ■ $100 million debt p
Slide 26: Financial Results Full Year
Financial Results Full Year ($ Millions except EPS) 2009 2008 Change Sales $ 579.2 $ 817.3 (29%) Gross Profit Rate 50.6% 52.9% Operating Expenses 218.3 244.8 (11%) Operating Earnings 74.5 187.4 (60%) Net Earnings $ 49.0 $ 120.9 (59%) Earnings Per Share $ 0.81 $ 1.99 (59%) 26
Slide 27: 2009 – Full Year Sales $579M
2009 – Full Year of Sales $579M Segment Geography Lubrication Asia Pacific 10% / $58M 18% / $107M Industrial 54% / $313M Americas 57% / $329M Contractor Europe 36% / $208M 25% / $143M 27
Slide 28: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall $841 $850 $816 $817 $750 $732 $650 $605 $579 $550 $450 2004 2005 2006 2007 2008 2009 28
Slide 29: Earnings Per Share
Earnings Per Share Target: 12%+ $2.32 $2.17 $1.99 $1.80 $1.55 $0.81 2004 2005 2006 2007 2008 2009 29
Slide 30: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency 27.7% 27.6% 26.7% - Leverage volume increases 26.1% - Continuous improvement culture 22.9% 12.9% 2004 2005 2006 2007 2008 2009 30
Slide 31: Strong Cash Generation
Strong Cash Generation ($ Millions) 2009 2008 2007 2006 2005 2004 Operating Cash Flows $ 147 $ 162 $ 177 $ 156 $ 153 $ 123 % of Net Income 300% 134% 116% 104% 121% 113% Capital Expenditures 11 27 37 34 20 17 Free Cash Flow $ 136 $ 135 $ 140 $ 122 $ 133 $ 106 Dividends $ 45 $ 45 $ 43 $ 39 $ 36 $ 130
Slide 32: Leverage
Leverage ($ Millions) 2009 2008 2007 2006 2005 2004 EBITDA $ 109 $ 222 $ 261 $ 252 $ 213 $ 179 Debt, Net of Cash $ 93 $ 186 $ 121 $ 12 $ (10) $ (55) Debt to EBITDA 85% 84% 46% 5% - - Operating Earnings $ 74 $ 187 $ 232 $ 226 $ 191 $ 162 Interest Expense $5 $8 $3 $1 $1 $ 0.5 32
Slide 33: Free Cash Flow ($ Millions)
Free Cash Flow ($ Millions) Strong cash flow for: $140 - Dividends $135 $136 $133 - Cash acquisitions - Share repurchases $122 $106 2004 2005 2006 2007 2008 2009 Cash provided by operating activities less property, plant and equipment additions plus proceeds from sale of property 33
Slide 34: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50% 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Net Profit Margin Invested Capital S&P 500 Diversified Machinery Graco Source: Interactive Data, 2010 Thomson Reuters 34
Slide 35: Cash Deployment Priorities
Cash Deployment Priorities - International footprint Organic Growth Investments - Product development - Production capacity & capabilities - Supplement to organic growth Acquisitions - Leverage our strengths - Dividend payout ratio 25-30% Dividends/Share Repurchase - 6 million authorized share repur
Slide 36: Annual Dividend Growth
Annual Dividend Growth - Dividends more than doubled $0.80 $0.76 $0.74 $0.66 $0.58 $0.52 $0.37 2004 2005 2006 2007 2008 2009 2010 Note: Annual dividends paid, excludes special dividend of $1.50 paid in 2004 36
Slide 37: Key Investment Attributes
Key Investment Attributes ■ Leading market positions ■ Serves niche markets where customers are willing to purchase quality, technology-based products ■ Products perform critical functions ■ Consistent investments in capital and growth initiatives ■ Shareholder-minded management ■ Financial strength
Slide 38: Move Measure Control
Move Measure Control Dispense Spray