Slide 1: Investor Presentation 1st Quarter 2016
Investor Presentation 1st Quarter 2016
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 – 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 March 2016 Sales – $305 Million
Year-To-Date March 2016 Sales – $305 Million EMEA 25% 58% Industrial 19% Process Asia Pacific 18% 23% Contractor 68% Industrial 18% Process 14% Contractor 38% Industrial 23% Process 48% Industrial 39% Contractor 21% Process 31% Contractor 5
Slide 6: 2014 Sales by End Market
2014 Sales by End Market* Residential & Non-Residential Construction – 44% Automotive – 13% 13% Industrial & Machinery – 18% 44% Other – 7% Oil and Natural Gas – 5% 18% Public Works – 5% Vehicle Services – 3% 3% Mining – 3% 7% 3% 5% 5% Wood – 1% White Goods – 1% * Proforma for ac
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 a
Slide 8: Process Equipment Segment
Process Equipment Segment • Growth Drivers and Trends – Fill product lines for a single source solution – Targeting competition in the industrial lubrication market • Other Representative Industry Participants – Idex, Dover, IR, Lincoln, Vogel, Bijur, Hannay, Coxreels, and regional players Q1 2016 S
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 and cementitious materials – Entry level product and channel expansion – Expanding pavement maintenance prod
Slide 10: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – 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-pr
Slide 13: Low Volume, High Mix Delivers Customer ROI
Low Volume, High Mix Delivers Customer ROI Average Number of 2014 Sales # of SKUs Units Sold Per Day ($ in millions) 0-1 39,188 (91%) $516 (49%) 2-5 2,552 (6%) $197 (19%) 6 - 10 612 (1%) $85 (8%) 11 - 15 216 (1%) $45 (4%) Greater than 15 547 (1%) $217 (20%) Legacy Graco Total 43,115 $1,060 Plus: Acq
Slide 14: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Target New Markets – Make Acquisitions Company Performance
Slide 15: Growth Plans and Earnings Drivers
Growth Plans and Earnings Drivers 12%+ ► Acquisitions Graco ► New Product Development Targeted Earnings ► New Markets 3% - 5% CAGR ► End User Conversion Industrial 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: Targeting Growth Through New Products & Markets
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2015 Graco 4.6% R&D Spending Peers 1.6% Innovation 17
Slide 18: Contractor – Paint Sprayers
Contractor – Paint Sprayers Home Center Products Pro Products • New “Pro” performance features • Common platform delivers economies ProXChange™ “No Tools” pump repair of scale for entry-level markets cartridge • ProXChange “No Tools” pump repair Longer life / higher output cartridge Heavy-duty
Slide 19: Contractor – Pro Markets
Contractor – Pro Markets Texture Applications Pavement Striping Applications • 3 new interior / exterior options • New LineLazer V – 5th generation • Graco exclusive “Pro” features • #1 selling airless line striping system worldwide – 50% more air and fluid output – “SmartStart” system extends pump
Slide 20: Process – Saniforce 1040-e
Process – Saniforce® 1040-e Electric driven diaphragm pump for food and beverage applications 20
Slide 21: Process – LubePro Pumps
Process – LubePro™ Pumps Robust platform of injector-based automatic lubrication systems • Industry proven Fireball pump air cylinder and piston design • High-strength, shatter resistant reservoir • Cycles and vents lubricant injectors in as little as 10 seconds 21
Slide 22: Industrial – Endura-Flo
Industrial – Endura-Flo High Pressure Diaphragm Pumps • Superior durability for abrasive materials • Innovative design ensures easy access to critical components for fast, online repair • Minimal solvent to flush and consistent startup pressure make it perfect for multiple color change and piggable
Slide 23: Target New Markets
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products Target New Markets – Make Acquisitions Company Performance
Slide 24: Industrial – Fireproofing and Stucco Sprayers
® Industrial – • Expands our presence in the construction industry • Handles cementitious materials – Stuccos, self-leveling flooring, fireproofing, repair mortars, grouts • Piston pump technology ‒ Fireproofing sprayers ‒ Stucco / EIFS sprayers • Rotor/stator pumps – Continuous mixers – Mortar pump
Slide 25: Industrial – EcoQuip
® Industrial – EcoQuip 2 • EcoQuip 2 sets new standards for Vapor Abrasive Blasting – Faster, easier, and more reliable than existing systems – Up to 92% less dust than traditional dry blasting – Much less water than traditional water based methods (around 1 qt./min) • Expand into new markets – Coat
Slide 26: Process – PSB High-Purity Pumps
Process – PSB High-Purity Pumps High Purity Diaphragm Pumps for Chemical Delivery & Dispense • Leak-free check caps with tongue-&-groove seals • High-density PTFE prevents frequent tiebolt retorque • Durable machined design with minimal parts • Process-safe PTFE, PFA fluid paths ideal for high- puri
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 ® & 28
Slide 29: Acquired January 2016
& Acquired January 2016 Geotechnical Instruments – UK manufacturer of portable and fixed landfill gas analyzers and biogas analyzers used for monitoring, Landfill compliance, and control of landfill and biogas processes Landtec – Manufactures landfill gas wellheads and accessories Biogas Wastewater
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: Financial Results
Financial Results $ millions except EPS First Quarter 2016 2015 Change Sales $ 304.9 $ 306.5 (1)% Gross Profit 161.8 162.1 (0)% % of Sales 53.1 % 52.9 % 0.2 pts Operating Earnings 60.9 65.2 (7)% % of Sales 20.0 % 21.3 % (1.3) pts Held Separate Investment Income, Net - (29.5) Net Earnings $ 39.6 $ 68
Slide 32: Non-GAAP Reconciliation
Non-GAAP Reconciliation • Net earnings in the first quarter of 2015 included $30 million ($0.49 per diluted share) of net investment income from Liquid Finishing • The Liquid Finishing businesses were sold in the second quarter of 2015. Second quarter 2015 net earnings included net gain on the sale
Slide 33: Components of Net Sales Change
Financial Results Components of Net Sales Change First Quarter March 2016 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price 3% (11)% (1)% (7)% 10 % 6% (1)% Acquisitions 2% 8% − 1% 3% 3% 2% Currency (2)% (2)% (1)% − (3)% (3)% (2)% Total 3% (5)% (2)%
Slide 34: Operating Earnings
Operating Earnings Change in Operating Earnings First Quarter 2015 Operating Earnings ($M and % of sales) $ 65 21 % Translation effect (2) — Mix, pricing and product cost (2) — Effect of acquired businesses operations on operating earnings leverage 1 — Effect of 2015 inventory step-up and acquisitio
Slide 35: First Quarter 2016 Results
First Quarter 2016 Results • Sales decreased 1 percent (at consistent currency translation rates, sales increase 1 percent); acquired businesses account for 2 percentage points of growth • Gross profit margin consistent with first quarter 2015 – Favorable effects of realized pricing and reduced acqu
Slide 36: Notable Info from Q1 2016 Earnings Release & Call
Notable Info from Q1 2016 Earnings Release & Call • Capital expenditure expectations of approximately $40 million in 2016 do not include building expansion for the Contractor business which is nearing capacity • Unallocated corporate expenses may vary by quarter; full year 2016 expenses are expected
Slide 37: Current Environment and Outlook
Current Environment and Outlook Constant currency basis and excluding acquisitions completed in the prior 12 months Americas EMEA Asia Pacific Worldwide Current Sales Change Sales Change Sales Change Sales Change Environment Q1 2016 (7%) Q1 2016 10% Q1 2016 6% Q1 2016 (1%) Industrial Sales Change Se
Slide 38: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Dividend Payout Ratio ~30% Shareholder Return Approximately 4 Million Shares Remaining o
Slide 39: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term, above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical
Slide 40: Financial Summary 2015 Appendix
Financial Summary 2015 Appendix
Slide 41: Financial Results – Full Year
Financial Results – Full Year ($ Millions except EPS) 2015 2014 Change Sales $ 1,286.5 $ 1,221.1 5% Gross Profit Rate 53.2% 54.6% Operating Expenses 382.6 357.8 7% Operating Earnings 302.1 308.9 (2%) Net Earnings $ 345.7 $ 225.6 53% Earnings Per Share $ 5.86 $ 3.65 61% In April, the Company sold the
Slide 42: 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 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.36
Slide 43: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 43
Slide 44: Stock Dividend Growth
Stock Dividend Growth $1.32 $1.00 2016 (est) $0.66 2013 2007 $0.22 2003 44
Slide 45: Strong Cash Generation
Strong Cash Generation ($ Millions) 2015 2014 2013 2012 2011 2010 2009 2008 2007 Operating Cash Flows $ 190 $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 % of Net Income 55% 107% 115% 127% 114% 98% 300% 134% 116% Capital Expenditures 42 31 23 18 24 17 11 29 37 Free Cash Flow $ 148 $ 210 $ 220 $ 17
Slide 46: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average 40.0% 30.0% 20.0% 10.0% 0.0% Return on Assets Return on Equity Return on Net Profit Margin Invested Capital Diversified Industrials Graco Source: Interactive Data, MSN Money 46
Slide 47: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com