Graco Inc. · NYSE:GGG
Graco — Investor Presentation (February 2020)
53 slides from Graco's investor presentation, February 2020
Slide 1: Investor Presentation: Company Overview, Fourth Quarter & Year-End 2019
////////////////// Investor Presentation Company Overview Fourth Quarter & Year-End 2019 1
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 dif
Slide 3: Distribution of Global Sales
58% Distribution 45% 34% of Global $1,646 M 25% 17% 21% Sales Full Year 2019 Americas EMEA Asia Pacific Industrial Process Contractor 66% 59% 43% 34% 23% 26% 15% 22% 12% Industrial Process Contractor Industrial Process Contractor Industrial Process Contractor 3
Slide 4: 2019 Sales by End Market
2019 Sales by End Market ////////////////// Wood – 1% White Goods – 2% Mining – 2% Vehicle Services – 4% Public Works – 4% Oil & Natural Gas – 4% Other – 9% Automotive – 11% Industrial & Machinery – 16% Construction – 48% 4
Slide 5: Company Overview
Company Overview ////////////////// Part of Your Everyday Life ▶ Company ▶ DiversifiedOverview Fluid Handling Business ▶ Driving Value, Customer ROI ▶ Strategic Initiatives ▶ Organically Driven, with Exceptional Returns 5
Slide 6: Graco is part of your everyday life
Graco is part of your everyday life. 6
Slide 7: Graco is part of your everyday life
Graco is part of your everyday life. 7
Slide 8: Diversified Niche Fluid Handling Business
Diversified Fluid Handling Business Niche 5.5%+ ~40% Difficult applications; corrosive, Organic Revenue CAGR* Of revenue is parts viscous, hard-to-move materials & accessories *20-year average, constant currency 8
Slide 9: High Customer Value, Strong Product
Material Supplier Relationships Best in Class End User Delivery Interaction High Customer Value, Strong Customer Leading New ROI Strong Product Channel Product Investment Lowest Total Partners Cost of Ownership Differentiation Stringent Best in Class Product Requirements Quality Niche Markets 9
Slide 10: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of Units 2019 Sales No. of SKUs Sold Per Day ($ in millions) Highly-valued products at low volumes 0-1 63,700 93% $ 846 51% 2-5 2,800 4% $ 258 16% 51% of our revenue comes from products 6 - 10 800 1% $ 126 8% that we sell 11 - 15 300 0% $ 51
Slide 11: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Strategic Initiatives 12%+ ► New Product Development 10% ► New Markets ► Global Expansion ► Acquisitions ► End-user Conversion Targeted Revenue Targeted Earnings CAGR CAGR Through a cycle 11
Slide 12: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers ////////////////// Acquisitions Strategic 3-4% + Initiatives 12% 12%+ Price 1-2% 9-10% 1-2% 5-7% 3% Industrial Production Targeted Organic Targeted Targeted Earnings Average Growth Rate CAGR Revenue CAGR CAGR Through a cycle 12
Slide 13: Exceptional Returns
Exceptional Returns 5.5%+ 30% 44% 20% Organic Revenue CAGR Return on Invested Capital Return on Equity Return on Assets Based on a 20-year average, constant currency 13
Slide 14: Business Model
Business Model ////////////////// Brand Promise ▶ Company Overview ▶ Operational Excellence ▶ Engineering & Manufacturing Excellence ▶ Extensive Reach 14
Slide 15: Our Brand Promise
▶ Innovation – Leading with technologically-advanced features, pioneering design, high performance and unparalleled reliability ▶ Quality – Our customers invest in high-quality products built to last for years of reliable service ▶ A+ Service – We’re guided by a Our Brand mindset of integrity and a
Slide 16: Engineering Excellence
Engineering Excellence Annual R&D Investment 4.3% * Target More than Double-Digit Returns 2.5 x* as a percent of sales our peer group versus peers at 1.6% ▶ new product * Peers: ITW, CSL, DOV, CFX, IEX, NDSN, WTS, FLS, based on a 5-year average, 2014-2018. 16 16
Slide 17: Manufacturing Excellence
Manufacturing Excellence Goal is 80% Zero < 1% Production based in the US cost change Warranty costs on the same basket of goods (yoy) 17
Slide 18: Service Excellence
Service Excellence Same Day 96%+ Orders in by noon, In-stock service level ship the same day (goal is > 92%) 18
Slide 19: Extensive Reach
Extensive Reach Customers in over 100 Installed base 30,000+ countries ~100 Outlets/Distributors Facilities in years old 12 countries 19
Slide 20: Company Segments
Company Segments ////////////////// ▶ Industrial Company ▶ Process Overview ▶ Contractor 20
Slide 21: Industrial
Industrial Key End Markets ▶ General industrial ▶ Automotive ▶ Res & non-res construction ▶ Alternative energy & others Growth Drivers & Trends ▶ Factory movement & upgrades ▶ Automation ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Material changes Select Representative Industry Participants
Slide 22: Industrial segment results
Industrial December 2019, 12 Months $747M -2% 33.1% Segment Revenue Organic Operating Margin - 160 basis points 22
Slide 23: Intelligent Paint Kitchen – Expanded Offering
New Intelligent Paint Kitchen – Expanded Offering ▶ Reduces downtime & cuts energy costs ▶ Controls both electric and pneumatic systems ▶ Remote monitoring capability ▶ Scalable – start with pneumatic, upgrade to electric when ready Industrial 23
Slide 24: Pro Xp Electrostatic Guns
New Pro XpTM Electrostatic Guns ▶ 50 new gun models to meet customers’ spraying needs ▶ Pro Xp waterborne gun reduces equipment costs and improves transfer efficiency ▶ Improved durability, ease of adjustments, and spray performance Industrial 24
Slide 25: Process
Process Key End Markets ▶ Pharma, food & beverage ▶ Vehicle services ▶ Oil & natural gas ▶ Environmental ▶ Semiconductor & others Growth Drivers & Trends ▶ Factory movements and upgrades ▶ Technology upgrades ▶ Energy-efficiency upgrades ▶ Asset life maintenance ▶ Commodities extraction ▶ Environmen
Slide 26: Process segment results
Process December 2019, 12 Months $345M 1% 22.1% Segment Revenue Organic Operating Margin +180 basis points 26
Slide 27: Pulse FC Fluid Control
New Pulse® FC Fluid Control ▶ Wire-free fluid control ▶ Simple to use PC software with programmable cards for system set up & operation ▶ Allows facility owners to authorize all dispenses and collect fluid totals Process 27
Slide 28: SaniForce 2.0 – Unloaders
New SaniForce® 2.0 – Unloaders ▶ Saves time and money by pumping difficult materials quickly and safely ▶ Range handles low to high viscosity materials ▶ Featuring both manual and automatic controls Process 28
Slide 29: Contractor
Contractor Key End Markets ► Res & non-res construction ► Res & non-res remodeling ► Transportation Infrastructure Growth Drivers & Trends ► End user conversion from brush and roll ► Product innovation & channel expansion ► Housing & new construction ► Infrastructure spending ► Regional labor rates
Slide 30: Contractor segment results
Contractor December 2019, 12 Months $554M 5% 23.2% Segment Revenue Organic Operating Margin +60 basis points 30
Slide 31: Small to Large Electric Sprayer Upgrade
New Small to Large Electric Sprayer Upgrade ▶ Upgraded to include the new Contractor PCTM spray gun ▶ BlueLinkTM system on board most models ▶ Some models upgraded to include new VortexTM MaxLife® pumps Contractor 31
Slide 32: LineLazer & LineDriver ES
New All Day Striping on a Single Charge LineLazer® & LineDriver® ES ▶ No engine noise or exhaust fumes ▶ No engine vibration for crisper lines ▶ Can be used indoors and outdoors ▶ Stripe up to 60 gallons on a single charge ▶ Automatic parking lot layout and skip line patterns 32
Slide 33: Capital Allocation
Capital Allocation Company Overview ////////////////// 33
Slide 34: 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 Return Approximately 21 million sh
Slide 35: Key Investment Attributes
▶ Drive long-term, above-market growth ▶ Premium products that deliver strong ROI for end users ▶ Leading industry positions ▶ Serve niche markets where customers are willing to purchase quality, technology-based products ▶ Products perform critical functions ▶ High margin, high recurring revenue ▶
Slide 36: Acquisitions
Acquisitions Company Overview ////////////////// 36
Slide 37: Acquisitions: Industrial
Acquisition ▶ Industrial 2012 2013 2014 2014 2015 2015 2017 2018 37
Slide 38: Acquisitions: Process
Acquisition ▶ Process 2013 2014 2015 2015 2016 2019 38
Slide 39: Financial Results
Financial Results Company Overview ////////////////// 39
Slide 40: Financial Performance 2019
Minneapolis, MN Financial Performance 2019 -0% 52.2% +2% +1% Revenue Gross Margin EPS Net Income (As Reported) 40
Slide 41: Financial Results
Financial Results Statement of Earnings Fourth Quarter Full Year $ in millions except per share amounts 2019 2018 Change 2019 2018 Change (1) Net earnings and Sales $ 412 $ 406 1% $ 1,646 $ 1,653 0% diluted earnings per share for 2019 and 2018 Gross Profit 209 209 0% 860 883 (3)% have been adjusted
Slide 42: Financial Results Adjusted for Comparability
Financial Results Adjusted for Comparability Excess tax benefit Fourth Quarter Year-to-Date related to stock option $ in millions except per share amounts 2019 2018 Change 2019 2018 Change exercises and certain tax provision Income taxes, as reported $ 15.7 $ 16.3 (4)% $ 62.0 $ 69.7 (11)% Excess tax
Slide 43: Fourth Quarter 2019 Results
Fourth Quarter 2019 Results Sales increase of 1% in the quarter, up 2% at consistent currency rates Sales Acquired businesses sales of $4 million account for 1 percentage point of growth Rate down 0.6 percentage point from fourth quarter 2018 Unfavorable factory volume and unfavorable channel an
Slide 44: 2019 Results
2019 Results Sales decreased slightly from 2018, up 1 percent at consistent currency rates Sales Acquired businesses had no significant impact Rate down 1.2 percentage points from 2018 Unfavorable factory volume and unfavorable channel and product mix negatively impacting gross margin rate. Gros
Slide 45: Components of Net Sales Change
Financial Results Components of Net Sales Change Fourth Quarter December 2019 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price (1)% (4)% 9% 4% 12 % (19)% 1% Acquisitions 0% 5% 0% 0% 2% 3% 1% Currency (1)% 0% (1)% 0% (3)% (1)% (1)% Total (2)% 1% 8%
Slide 46: Current Environment and Outlook
Current Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Total Heading into 2020, we Current Sales Sales Sales Sales expect challenging end Q4 2019 4% Q4 2019 12% Q4 2019 (19%) Q4 2019 1% Environment Year 2019 4% Y
Slide 47: Other Items
Other Items Capital expenditure expectations of approximately $70 million in 2020, including approximately Cap Ex $30 million brick and mortar Expenses Unallocated corporate expenses in 2020 are expected to be approximately $30 million During 2019, we repurchased approximately 160,000 shares Shares
Slide 48: Financial Summary 2019 Appendix
Financial Summary ////////////////// ▶ 2019 Appendix Company Overview 48
Slide 49: Financial Performance Operating Margins
Financial Performance Sales and Operating Margin, as Reported Net Sales Operating Margins 2,000 30% 1,800 1,600 25% Operating Margins Sales ($ millions) 1,400 20% 1,200 1,000 15% 800 600 10% 400 5% 200 - 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Diluted $0.52
Slide 50: Stock Dividend Growth
Stock Dividend Growth ////////////////// $0.70 $0.33 $0.25 $0.07 Dividends adjusted for stock splits 2003 2008 2013 2020 50
Slide 51: Strong Cash Generation
Strong Cash Generation ($ Millions) 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Operating Cash Flows $ 419 $ 368 $ 338 $ 276 $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 % of Net Income 122% 108% 134% 679% 55% 107% 115% 127% 114% 98% Capital Expenditures 128 54 40 42 42 31 23 18 24 17 Free Cash Flow $
Slide 52: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average ////////////////// 40% 30% 20% Note: 5-year average 10% includes adjustment for 2016 impairment charge 0% Return on Assets Return on Equity Return on Capital Operating Profit Source: S&P Capital IQ Margin Peer Group: CSL, NDSN, IEX, DOV, IR Peer Group Graco 52
Slide 53: Worldwide Leaders in Fluid Handling
Move | Measure | Mix | Control | Dispense | Spray WORLDWIDE LEADERS IN FLUID HANDLING www.graco.com 53