Slide 1: Investor Presentation 3rd Quarter 2017
Investor Presentation 3rd Quarter 2017
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 − Global Expansion – Target New Markets – 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 September 2017 Sales – $1,100 Million
Year-to-Date September 2017 Sales – $1,100 Million EMEA 23% 58% Industrial 16% Process Asia Pacific 19% 26% Contractor 69% Industrial 18% Process 13% Contractor 34% Industrial 22% Process 46% Industrial 44% Contractor 20% Process 34% Contractor 5
Slide 6: 2016 Sales by End Market
2016 Sales by End Market Residential & Non-Residential Construction – 46% 17% Industrial & Machinery – 17% Automotive – 12% 46% 12% Other – 8% Oil and Natural Gas – 5% 8% Public Works – 4% 5% Vehicle Services – 4% 4% 2% 4% Mining – 2% Wood – 1% White Goods – 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, Nordson an
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 regional
Slide 9: 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 line and
Slide 10: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products − Global Expansion – Target New Markets – 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 Leading Strong 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-produce me
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2016 Sales # of SKUs Sold Per Day ($ in millions) 0-1 55,600 90% $ 614 46% 2-5 4,200 7% $ 282 21% 6 - 10 800 1% $ 112 8% 11 - 15 300 1% $ 49 4% Greater than 15 700 1% $ 272 21% Graco 2016 Sales $1,329 13
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth − Invest in New Products − Global Expansion – Target New Markets – Make Acquisitions Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► End User Conversion ► New Product Development Graco ► New Markets Targeted Earnings 3% - 5% ► Global Expansion CAGR Industrial ► Acquisitions Production Average Growth Rate 15
Slide 16: Invest in New Products
Overview Enduring Business Model Strategies for Long-Term Growth Invest in New Products Target New Markets – Make Acquisitions Company Performance
Slide 17: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2016 Graco 4.6% R&D Spending Peers 1.7% Innovation 17
Slide 18: Process – Power Pro ESP
Process – Power Pro ESPTM Portable Electric Groundwater Sampling Pump ► Unique, all-in-one design ► Portable design allows for remote water sampling where power is limited Oil and Gas ► No generator needed – runs on portable 12 volt battery ► Light-weight – less than 32 lbs Landfill Mining Industria
Slide 19: Process – SST AODD Flange Pumps
Process – SST AODD Flange Pumps ► Stainless Steel Pumps for the chemical and marine industries ► Rotating flange design allows for connection flexibility and easy install ► Up to five times longer diaphragm life compared to others in its class ► Rugged construction with high corrosion and abrasion r
Slide 20: Process – PSB Series
Process – PSB Series High-Purity AODD Chemical Pumps ► Advance pump technologies ► For high-purity chemical delivery applications in the semi-conductor, aerospace and solar industries 20
Slide 21: Process – BIOGAS 3000
Process – BIOGAS 3000 Fixed Biogas Analyzer for Landfill and Anaerobic Digestion Sites ► Up to 4 sample points for constant monitoring of the complete gas control process, maximizing yield for plant operators ► Gases Measured: CH4, CO2, O2, H2S, H2 & CO ► Ability to monitor the gas control process b
Slide 22: Industrial – EcoQuip EQp
® Industrial – EcoQuip 2 EQp ► EcoQuip 2 EQp – Powerful, Portable, Professional Affordable Vapor Abrasive® blasting system for small jobs Portable cart system – only 220 lbs. Generates up to 92% less dust than dry blasting ► Expands customer base and applications Graffiti removal Paint & stain remov
Slide 23: Industrial – Spray Automation
Industrial – Spray Automation Improving End-User Profitability and Efficiency ► Delivering finishing equipment that is easy to integrate into automation Simple integration into existing automation Reduces end-user integration costs Serves a wide range of end-user technical needs and markets Improves
Slide 24: Industrial – Intelligent Paint Kitchen
Industrial – Intelligent Paint Kitchen Complete, integrated Graco solution for the Paint Kitchen ► Inexpensive option to advanced monitoring systems ► Easily connects paint monitoring and control systems ► Provides real-time data and critical control functions ► Reduces installation costs in hazardo
Slide 25: Contractor – 2017 New Products
Contractor – 2017 New Products Handheld Airless Sprayers Low Pressure Spray Tips ► Breakthrough performance, reliability, finish ► SmartTip™ technology delivers the Fastest way to finish small jobs industry’s best finish at the lowest airless spray pressure Perfect Airless Finish™ at any hand speed
Slide 26: Contractor – 2017 New Products
Contractor – 2017 New Products Battery Powered Line Striper High Volume Low Pressure ► Industry’s first professional electric striper ► The most advanced portable HVLP technology available ► Featuring e-power™ technology SmartStart™ system reduces heat No engine noise, vibration or fumes TurboContro
Slide 27: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets Make Acquisitions Company Performance
Slide 28: Recent Acquisitions
Recent Acquisitions TM TM TM TM High Pressure Equipment Company ® TM & 28
Slide 29: Acquisitions – Environmental Focus
Acquisitions – Environmental Focus Geotechnical Instruments – UK manufacturer of portable and fixed landfill gas analyzers Acquired Jan 2016 and biogas analyzers used for monitoring, compliance, and control of landfill and biogas processes Landtec – Manufacturer of landfill gas wellheads and accesso
Slide 30: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets – 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 2017 2016 Change 2017 2016 Change Sales $ 380 $ 327 16 % $ 1,100 $ 980 12 % Gross Profit 203 177 15 % 593 524 13 % % of Sales 53.6 % 54.0 % (0.4) pts 53.9 % 53.4 % 0.5 pts Operating Earn
Slide 32: Non-GAAP Disclosure Reconciliation
Non-GAAP Disclosure Reconciliation Net income excluding the excess tax benefits on exercised stock options and other tax planning benefits, which will not recur in 2018, presents a more consistent comparison of financial results. A calculation of the non-GAAP measurements of adjusted income taxes, n
Slide 33: Cash Flow and Liquidity
Cash Flow and Liquidity Net Earnings and Cash from Operations $150 M $100 M $50 M $114M $110M $80M $86M $75M $51M $39M $54M $55M $40M $29M $51M $65M $54M $57M $68M $61M $50M $- $(50M) ($140M) $(100M) $(150M) $(200M) Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Net Earnings Cash Flow from Op
Slide 34: Operating Earnings
Operating Earnings Change in Operating Earnings Third Quarter Year-to-Date 2016 Operating Earnings ($M and % of sales) $ 81 25 % $ 221 23 % Translation effect 2 0 (3) 0 Volume, price and cost 25 0 72 1 Volume and earnings based incentives (4) (1) (8) (1) Decrease in intangible amortization related t
Slide 35: Notable Info from Q3 2017 Earnings Release & Call
Notable Info from Q3 2017 Earnings Release & Call Capital expenditure expectations of approximately $40 million in 2017 Currently evaluating brick and mortar requirements as Contractor and other regional production and distribution facilities near capacity. During the third quarter, the Company noti
Slide 36: Year-to-Date September 2017 Results
Year-to-Date September 2017 Results Sales increased 12 percent Unfavorable effect of currency translation rates decreased sales by approximately $6 million (1 percentage point) Acquired businesses had no significant impact Gross profit margin rate increased 0.5 percentage point from September 2016 H
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 Sales Growth Sales Growth Sales Growth Sales Growth Current Q3 2017 11% Q3 2017 14% Q3 2017 28% Q3 2017 15% Environment YTD 2017 11% YTD 2017 12% Y
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 Dividend Payout Ratio ~30% Shareholder Approximately 3 Million Shares Remaining on Return Repurchase A
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 2017
Financial Summary Q3 2017 Appendix
Slide 41: Financial Results – Third Quarter
Financial Results – Third Quarter Statement of Earnings Third Quarter $ in millions except per share amounts 2017 2016 Change Sales $ 380 $ 327 16 % Gross Profit 203 177 15 % % of Sales 53.6 % 54.0 % (0.4) pts Operating Earnings 100 81 22 % % of Sales 26.2 % 24.9 % 1.3 pts Net Earnings $ 75 $ 54 39
Slide 42: Non-GAAP Disclosure Reconciliation
Non-GAAP Disclosure Reconciliation Net income excluding the excess tax benefits on exercised stock options and other tax planning benefits, which will not recur in 2018, presents a more consistent comparison of financial results. A calculation of the non-GAAP measurements of adjusted income taxes, n
Slide 43: Third Quarter 2017 Results
Third Quarter 2017 Results Sales increased 16 percent Favorable effect of currency translation rates increased sales by approximately $3 million (1 percentage point) Acquired businesses had no significant impact Gross profit margin rate decreased 0.4 percentage point from third quarter 2016 Favorabl
Slide 44: Financial Summary 2016
Financial Summary 2016 Appendix
Slide 45: Financial Performance: Sales and Operating Margin
Financial Performance Sales and Operating Margin Net Sales Operating Margins 1,400 30% 1,200 25% Operating Margins Sales ($ millions) 1,000 20% 800 15% 600 10% 400 200 5% - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Diluted $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.
Slide 46: Historic Sales ($ Millions)
Historic Sales ($ Millions) 46
Slide 47: Stock Dividend Growth
Stock Dividend Growth $1.44 $1.00 2017 $0.66 2013 2007 $0.22 2003 47
Slide 48: Strong Cash Generation
Strong Cash Generation ($ Millions) 2016 2015 2014 2013 2012 2011 2010 2009 2008 Operating Cash Flows $ 269 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 % of Net Income 661% 55% 107% 115% 127% 114% 98% 300% 134% Capital Expenditures 42 42 31 23 18 24 17 11 29 Free Cash Flow $ 227 $ 148 $ 210 $ 22
Slide 49: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 50% 40% 30% 20% 10% 0% Return on Assets Return on Equity Return on Capital Operating Profit Margin Peer Group Graco 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