Slide 1: Investor Presentation 2010 & First Quarter 2011 Results
Investor Presentation 2010 & First Quarter 2011 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: – Difficult to handle materials with high viscosities – Abrasive or corrosive properties – Multiple component materials that require precise ratio control • We are global, with more than 45% o
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: 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 6: 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 7: 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 8: 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 9: Lubrication Equipment Growth Opportunities
Lubrication Equipment Growth Opportunities • Expand internationally – Historical investment and focus has been U.S. – Implemented specialized global marketing and selling organization – Developing products to meet local market needs – Building global channel • Industrial lubrication market – Entered
Slide 10: Strategic Growth Plans
Strategic Growth Plans • Invest in New Product • Expand Geographically • Target New Markets • Make Acquisitions 10
Slide 11: Targeting Growth Through Acquisitions
Targeting Growth Through Acquisitions
Slide 12: Graco Announces Agreement to Acquire Finishing Group
Graco Announces Agreement to Acquire Finishing Group 12
Slide 13: Acquisition Consistent with Strategic Growth Initiatives
Acquisition Consistent with Strategic Growth Initiatives Graco Growth Strategies Finishing Acquisition Expand geographically Strong, global manufacturing sales and distribution capabilities Invest in new products Innovative products and strong R&D capabilities Target new markets Market leading powde
Slide 14: Targeting Growth Through New Products
Targeting Growth Through New Products
Slide 15: Targeting Growth with New Products
Targeting Growth with New Products • Invested nearly $38M in product development in 2010 – 6% of revenue • Targeting 30% of sales from products developed in the last 3 years – 2010 was 27% 15
Slide 16: Graco XP70 Plural-Component Sprayer
Graco XP70 Plural-Component Sprayer Markets Served – Tanks, railcars, pipes, bridges, wind towers, water towers, structural steel, shipbuilding High-pressure plural-component sprayer for protective coatings – Smart alternative to hand mixing – Affordable, easy to use 16
Slide 17: Graco ProMix 2KE
Graco ProMix® 2KE Markets Served – General metal, wood and furniture, farm and construction, truck and bus Entry level electronic proportioner – Highly accurate mix system has configurations for all spray technologies – Easy to install and use – Handles all common 2K finishing materials including ep
Slide 18: Targeting Growth Through New Markets
Targeting Growth Through New Markets
Slide 19: Sanitary Market - Graco SaniForce
Sanitary Market - Graco SaniForce Markets Served Food, Beverage, Cosmetics, Pharmaceutical • Unique high pressure solutions for extremely high viscosity materials • Breakthrough seal design allows for wider range of drum and bins to capitalize on growing need for reusable containers • Targeting grow
Slide 20: Industrial Lube Market - Graco G3 Electric Pumps
Industrial Lube Market - Graco G3 Electric Pumps Versatile Design Helps Solve Today’s Lubrication Challenges Markets Served Mobile equipment, Wind Energy, Factory Machinery, Steel Mills, Pulp and Paper, Food and Beverage • Industry leading control technology – most user friendly and provides more da
Slide 21: Composites Market - Graco RS Chop Gun
Composites Market - Graco RS Chop Gun Markets Served – Marine and watercraft, pool and spa, bath, transportation Chop gun for composites industry – Features industry-first blade cartridge • Accomplish blade changes in less than a minute! • Increased production uptime – Lighter and more ergonomic tha
Slide 22: Targeting Growth Through Global Expansion
Targeting Growth Through Global Expansion
Slide 23: International and Emerging Markets Drove 2010 Growth
International and Emerging Markets Drove 2010 Growth Europe 25% Asia Pacific 46% Latin America 52% 23
Slide 24: New 2011 Asia Pacific Headquarters
New 2011 Asia Pacific Headquarters 24 24
Slide 25: Asia Pacific Training Investment
Asia Pacific Training Investment • Dedicated AP Training Team • Target Audience – Graco Employees – Distributors – Material Suppliers – End Users • Material Supplier Tech Days • Live Product Demonstrations • Multiple Languages • 700 trainees & 40 events planned in the first year 25
Slide 26: Financial Summary For First Quarter 2011 & 2010
Financial Summary For First Quarter 2011 & 2010
Slide 27: First Quarter 2011 Results
First Quarter 2011 Results • Sales for the quarter up 32 percent from first quarter last year and up 10 percent compared to fourth quarter last year • Sales were up double-digit percentages in all segments and regions • First quarter gross profit margin of 57 percent was 3 percentage points above la
Slide 28: Financial Results – First Quarter
Financial Results – First Quarter ($ Millions except EPS) 2011 2010 Change Sales $ 217.7 $ 164.7 32% Gross Profit Rate 57.1% 54.2% Operating Expenses 67.3 56.6 19% Operating Earnings 57.0 32.7 74% Net Earnings $ 37.3 $ 20.6 81% Earnings Per Share $ 0.61 $ 0.34 79% 28
Slide 29: 2011 – First Quarter Sales $218M
2011 – First Quarter Sales $218M Segment Geography Asia Pacific Lubrication 22% / $49M 11% / $25M Industrial 57% / $123M Americas Europe Contractor 53% / $116M 25% / $53M 32% / $70M 29
Slide 30: Fourth Quarter 2010 Results
Fourth Quarter 2010 Results • Sales for the quarter up 35 percent compared to fourth quarter last year • Sales were up in all segments; regionally, sales were up 35 percent in the Americas, up 33 percent in Europe, and up 37 percent in Asia Pacific • Fourth quarter gross profit margin of 54½ percent
Slide 31: Summary – 2010
Summary – 2010 • Sales up 28% – Asia the strongest, up 46% (up 41% at consistent exchange rates) – Europe up 25% (up 29% at consistent exchange rates) – Americas up 24% • Gross margin up 3½ percentage points • Operating profit margin up 8 percentage points • Earnings per share up 109% • $49M in divi
Slide 32: Financial Results Full Year
Financial Results Full Year ($ Millions except EPS) 2010 2009 Change Sales $ 744.1 $ 579.2 28% Gross Profit Rate 54.2% 50.6% Operating Expenses 250.3 218.3 15% Operating Earnings 153.1 74.5 106% Net Earnings $ 102.8 $ 49.0 110% Earnings Per Share $ 1.69 $ 0.81 109% 32
Slide 33: 2010 – Full Year Sales $744M
2010 – Full Year of Sales $744M Segment Geography Asia Pacific Lubrication 21% / $158M 10% / $78M Industrial 55% / $409M Americas 55% / $408M Europe Contractor 35% / $257M 24% / $178M 33
Slide 34: Annual Sales ($ Millions)
Annual Sales ($ Millions) Target: 6-7% Organic 10%+ Overall 34 34
Slide 35: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 1966 1977 1988 1999 2010 35
Slide 36: Earnings Per Share
Earnings Per Share Target: 12%+ 36
Slide 37: Operating Margin
Operating Margin - Disciplined spending - Increased manufacturing efficiency - Leverage volume increases - Continuous improvement culture 37 37
Slide 38: Strong Cash Generation
Strong Cash Generation ($ Millions) 2010 2009 2008 2007 2006 2005 2004 Operating Cash Flows $ 101 $ 147 $ 162 $ 177 $ 156 $ 153 $ 123 % of Net Income 98% 300% 134% 116% 104% 121% 113% Capital Expenditures 17 11 27 37 34 20 17 Free Cash Flow $ 84 $ 136 $ 135 $ 140 $ 122 $ 133 $ 106 Dividends $ 48 $ 4
Slide 39: Leverage
Leverage ($ Millions) 2010 2009 2008 2007 2006 2005 2004 EBITDA $ 187 $ 109 $ 222 $ 261 $ 252 $ 213 $ 179 Debt, Net of Cash $ 69 $ 93 $ 186 $ 121 $ 12 $ (10) $ (55) Debt to EBITDA 37% 85% 84% 46% 5% Operating Earnings $ 153 $ 74 $ 187 $ 232 $ 226 $ 191 $ 162 Interest Expense $4 $5 $8 $3 $1 $1 $ 0.5
Slide 40: Free Cash Flow ($ Millions)
Free Cash Flow ($ Millions) Strong cash flow for: - Dividends - Cash acquisitions - Share repurchases Cash provided by operating activities less property, plant and equipment additions plus proceeds from sale of property 40 40
Slide 41: 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, 2011 Thomson Reuters 41
Slide 42: 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 43: Annual Dividend Growth
Annual Dividend Growth $0.84 - 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 2011 Note: Annual dividends rate, excludes special dividend of $1.50 paid in 2004 43
Slide 44: 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 45: Move – Measure – Control – Dispense – Apply
Move – Measure – Control – Dispense – Apply