Slide 1: Investor Presentation: 2009 & Sept YTD 2010 Results
Investor Presentation 2009 & Sept YTD 2010 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: Handheld Professional Sprayer
New Product Example: Handheld Professional Sprayer ■ Breakthrough technology delivers professional airless quality spray in a hand held cordless tool Markets Served ■ Professional Painting Contractor ■ Consumer 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: New Market – Line Striping - Thermoplastic
Example: New Market – Line Striping - Thermoplastic ThermoLazer ■ 100% incremental launched 2H 2009 ■ Leverages existing LineDriver platform 18
Slide 19: Example: New Market – Line Removal
Example: New Market – Line Removal GrindLazer ■ 100% incremental launched Q1 2010 ■ Leverages existing LineDriver platform 19
Slide 20: 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
Slide 21: Financial Summary
® 7 GRACO Financial Summary PROVEN QUALITY. LEADING TECHNOLOGY ,
Slide 22: Third Quarter 2010 Results
Third Quarter 2010 Results ■ Sales for the quarter up 29 percent compared to third quarter last year and down 1 percent from second quarter ■ Sales were up in all segments; regionally, sales were up 29 percent in the Americas, up 22 percent in Europe, and up 37 percent in Asia Pacific ■ Third quarte
Slide 23: 9 Months 2010 Results
9 Months 2010 Results ■ Sales year-to-date up 26 percent compared to prior year ■ Sales were up in all segments and sales were up 21 percent in the Americas, 22 percent in Europe, and 51 percent in Asia Pacific – The overall year-to-date growth rate of 26% includes 1 percentage point from translatio
Slide 24: Financial Results 9 Months
Financial Results 9 Months ($ Millions except EPS) 2010 2009 Change Sales $ 546.8 $ 432.9 26% Gross Profit Rate 54.1% 49.8% Operating Expenses 180.4 164.7 10% Operating Earnings 115.3 50.8 127% Net Earnings $ 75.8 $ 31.7 139% Earnings Per Share $ 1.25 $ 0.53 136% 24
Slide 25: 9 Months 2010 Sales $547M
9 Months 2010 Sales $547M Segment Geography Lubrication Asia Pacific 10% / $55M 20% / $112M Industrial 54% / $297M Americas Contractor 56% / $306M Europe 36% / $195M 24% / $129M 25
Slide 26: 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% ■ $100 million debt p
Slide 27: Financial Results Full Year
Financial Results Full Year ($ 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%) 27
Slide 28: 2009 – Full Year Sales $579M
2009 – Full Year of Sales $579M Segment Geography Lubrication Asia Pacific 10% / $58M 18% / $107M Industrial 54% / $313M Americas Contractor 57% / $329M Europe 36% / $208M 25% / $143M 28
Slide 29: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall $841 $850 $816 $817 $750 $732 $650 $605 $579 $550 $450 2004 2005 2006 2007 2008 2009 29
Slide 30: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $10 1966 1972 1978 1984 1990 1996 2002 2008 30
Slide 31: Earnings Per Share
Earnings Per Share Target: 12%+ $2.32 $2.17 $1.99 $1.80 $1.55 $0.81 2004 2005 2006 2007 2008 2009 31
Slide 32: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency 27.7% 27.6% 26.7% - Leverage volume increases 26.1% - Continuous improvement culture 22.9% 12.9% 2004 2005 2006 2007 2008 2009 32
Slide 33: Strong Cash Generation
Strong Cash Generation ($ 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 34: 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 34
Slide 35: 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 35
Slide 36: 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 36
Slide 37: 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 38: 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 rate, excludes special dividend of $1.50 paid in 2004 38
Slide 39: 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 40: Move Measure Control
Move Measure Control Dispense Spray