Slide 1: Investor Presentation
Investor Presentation May 2015
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 – Expand Geographically – Target New Markets – Make Acquisitions Company Performance 3
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 2015 Sales — $306 Million
Year-To-Date March 2015 Sales — $306 Million EMEA 23% 60% Industrial 20% Process Asia Pacific 17% 20% Contractor 65% Industrial 21% Process 14% Contractor 37% Industrial 23% Process 47% Industrial 40% Contractor 22% Process 31% Contractor 5
Slide 6: 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 7: 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 2015 S
Slide 8: 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
Slide 9: Enduring Business Model
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 10: 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 10
Slide 11: Manufacturing and Engineering Excellence
Manufacturing and 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
Slide 12: Strategies for Long-Term Growth
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 13: Graco's Growth Plans and Earnings Drivers
Graco’s Growth Plans and Earnings Drivers 12%+ ► Acquisitions ► New Product Development Graco ► New Markets Targeted Earnings 3% - 5% ► Global Expansion CAGR Industrial ► End User Conversion Production Average Growth Rate 13
Slide 14: Invest in New Products
Overview Enduring Business Model Strategies for Long-Term Growth Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 15: R&D Spending
Targeting Growth Through New Products & Markets New Product Development Expense as a Percentage of Revenues – 2014 Graco 4.4% R&D Spending Peers 1.6% Innovation 15
Slide 16: Contractor – Professional Airless Line Upgrade
Contractor – Professional Airless Line Upgrade • Small to Midsize Electric Sprayers − New ProConnect Quick Change Paint Pump for “On the Job” Replacement Repairs − NEW FastFlush Mode Saves Time with Easy/Fast Sprayer Clean-Up − NEW “Rugged Durable” look with Enhanced Motor, Control, Pump Improveme
Slide 17: Contractor – Professional Gas Airless Upgrade
Contractor – Professional Gas Airless Upgrade • New Standard Series − No frills, Day-In-Day-Out Performance/Reliability at an Attractive Price • New ProContractor Series − Full Featured Heavy-Duty Performance/Reliability for “New Construction” Job Sites – Hose Reel, MaxLife® Pump, Pressure Gauge, He
Slide 18: Industrial – Therm-O-Flow Bulk Hot Melt System
Industrial – Therm-O-Flow® Bulk Hot Melt System • For hot melt adhesives in 55 gal drums • Offers fast melt rates and throughput capability two times greater than the leading competitor • Updated to include Graco Control Architecture • Advanced temperature controls eliminate scorched material, mate
Slide 19: Industrial – M2K
Industrial – M2K Fixed Ratio, Entry Level Mechanical Proportioner • Increases mix material accuracy to improve finish quality and reduce material waste compared to hand mixing • Compact size makes it faster and easier to flush, saving time and disposal costs • Ideal for lower volume two component ma
Slide 20: Industrial – Pro Xp Auto
Industrial – Pro Xp Auto • Increases spray performance and transfer efficiency • 24/7 gun monitoring tracks performance • Easily adapts to changing voltage needs • Fits almost any system requirement • Service reminders eliminate guesswork 20
Slide 21: Process – Husky Poly Pumps
Process – Husky Poly Pumps 1.5” and 2” Poly Double Diaphragm Pumps • Completes full line of Polypropylene and Kynar pumps for chemical applications • Up to 30% more efficient than market leaders • 30% increase in flow • Reinforced frame for increased strength and smaller profiles • Up to 5 times
Slide 22: Process – XD Powered Rewind Hose Reels
Process – XD Powered Rewind Hose Reels • Heavy duty hose reels for dispense, transfer, & evacuation of fluids – Direct Drive Motor Safer for the operator, more reliable & less maintenance, narrower footprint – Modular Design Mix & match frames and motors, easier to stock inventory, and allows for
Slide 23: Expand Geographically
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 24: Multimaq Acquisition (December 2014)
Acquired December 2014 • A manufacturer and distributor of finishing products in Brazil • Establishes Graco’s first operational presence in market • While small, Multimaq has an existing customer base and knowledgeable sales force • Allows us to enhance our long- term competitive position in Brazil
Slide 25: Target New Markets
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically Target New Markets – Make Acquisitions Company Performance
Slide 26: Contractor – Painting just got easier
TM Contractor Painting just got easier – It’s in the Bag! • Spray in ANY direction, even upside down • Handles unthinned paints and stains • Easy cleanup – reuse or toss the bag TM NEW TM TM TM $129 $169 $199 $259 26
Slide 27: Make Acquisitions
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets Make Acquisitions Company Performance
Slide 28: Recent Acquisitions
Recent Acquisitions TM Gema–CEL Food Coating Business TM High Pressure Equipment Company 28
Slide 29: Acquisition of Alco Valves Group
Acquisition of Alco A Acquisition of Alco Valves Group • The Alco Valves Group (Alco), a United Kingdom based manufacturer of high quality, high pressure valves used in Oil & Natural Gas (O&NG) and other industrial processes was acquired on October 1, 2014. • Alco generated approximately £19 million
Slide 30: Alco Valves Group Acquired October 1, 2014
Acquired October 1, 2014 Alco Hi-Tek (Oil and Gas projects) • Double block and bleed (DBB) valves • Chemical injection valves • Mono-flange valves • Piping valves Alco Valves (Oil and Gas standard distributed valves) • High pressure single valves • Needle and ball • Instrument manifolds • Super al
Slide 31: Geo-Blaster Acquisition (December 2014)
Acquired December 2014 • Adds new products and technologies to build our surface prep business • Expands rental channel opportunities worldwide • Manufacturing will relocate from Ontario to Minneapolis in 2015 • New product launch in Feb. 2015 – upgrading all Geo-Blaster models – Improved performanc
Slide 32: White Knight Acquisition (January 2015)
Acquired January 2015 • White Knight - Manufactures high purity and ultra-high purity fluid handling equipment used to deliver, circulate, reclaim and transport aggressive chemical fluids and Semiconductor slurries Fabrication Solar Panel Fabrication Flat Panel Display / LED / Electronics Fabricatio
Slide 33: Acquisition – High Pressure Equipment
Acquisition – High Pressure Equipment • High Pressure Equipment Company (HiP), an Erie, Pennsylvania based manufacturer of high quality, high pressure valves used in Oil & Natural Gas (O&NG) and other industrial processes was acquired on January 20, 2015 • The acquisition was an all cash transaction
Slide 34: Company Performance
Overview Enduring Business Model Strategies for Long-Term Growth – Invest in New Products – Expand Geographically – Target New Markets – Make Acquisitions Company Performance
Slide 35: Change in Segment Reporting
Change in Segment Reporting • During Q1, the Company revised the presentation of our financial reporting segments into the follow three segments: – Industrial Segment, includes Industrial Products and Applied Fluid Technologies divisions – Process Segment, includes Process, Oil and Natural Gas, and
Slide 36: Graco Reported Q1 Results
Graco Reported Q1 Results $ millions except EPS First Quarter 2015 2014 Change Sales $ 306.5 $ 290.0 6% Gross Profit 162.1 159.3 2% % of Sales 52.9 % 54.9 % (2.0) pts Operating Earnings 65.2 74.7 (13)% % of Sales 21.3 % 25.8 % (4.5) pts Net Earnings $ 68.8 $ 50.7 36 % % of Sales 22.5 % 17.5 % 5.0 pt
Slide 37: Q1 2015 Sales Data
Q1 2015 Sales Data Components of Net Sales Change First Quarter 2015 Segment Region Industrial Process Contractor Americas EMEA Asia Pacific Consolidated Volume and Price (1)% 5% 16 % 12 % — (10)% 5% Acquisitions — 27 % — 5% 8% 4% 5% Currency (5)% (4)% (4)% (1)% (14)% (3)% (4)% Total (6)% 28 % 12 %
Slide 38: Operating Earnings
Operating Earnings Change in Operating Earnings First Quarter 2014 Q1 Operating Earnings ($M and % of sales) $ 75 26 % Translation effect (7) (2) Volume effect on gross margin 7 — Effect of acquired businesses on operating earnings leverage 3 — Effect of inventory step-up, net, and acquisition costs
Slide 39: Notable Info from Q1 2015 Earnings Release & Call
Notable Info from Q1 2015 Earnings Release & Call • Capital expenditures expected to be approximately $30-40 million in 2015. • Tax rate for second quarter is expected to be approximately 33%; for the year approximately 32-33% – Second quarter and annual rate assumes no dividends, and excludes the i
Slide 40: Current Environment
Current Environment Americas EMEA Asia Pacific Industrial Segment Stable: General Industrial, Adhesive Stable: Western Europe Dispense Stable: General Industrial Challenging: Currency, Challenging: Ship Building, Mining Challenging: Heavy Machinery Geopolitical Spotty: Project Activity Contractor Se
Slide 41: Divestiture of Liquid Finishing Business Assets
Divestiture of Liquid Finishing Business Assets • In March 2015, the FTC approved the Company’s application to sell the Liquid Finishing business assets • On April 1, 2015 the sale was completed in a $590 million cash transaction, subject to customary post-closing adjustments • Net proceeds from the
Slide 42: Long-Term Cash Deployment Priorities
Long-Term Cash Deployment Priorities International Footprint Organic Growth Product Development Production Capacity and Capabilities Supplement to Organic Growth Acquisitions Leverage Our Strengths Dividend Payout Ratio ~30% Shareholder Return More than 7 Million Shares Remaining on Authorization 42
Slide 43: Key Investment Attributes
Key Investment Attributes • Strategies that will drive long-term, above-market growth • Premium products that provide a strong ROI for end users • Leading industry positions • Serves niche markets where customers are willing to purchase quality, technology-based products • Products perform critical
Slide 44: Financial Summary Q1 2015 Appendix
Financial Summary Q1 2015 Appendix
Slide 45: Financial Results – First Quarter
Financial Results – First Quarter ($ Millions except EPS) 2015 2014 Change Sales $ 306.5 $ 290.0 6% Gross Profit Rate 52.9% 54.9% Operating Expenses 96.9 84.6 15% Operating Earnings 65.2 74.7 (13%) Net Earnings $ 68.8 $ 50.7 36% Earnings Per Share $ 1.14 $ 0.81 41% Includes investment income, net, f
Slide 46: First Quarter 2015 Results
First Quarter 2015 Results • Sales increased 6 percent, including 5 percentage points of organic sales growth and 5 percentage points of growth from acquired operations, partially offset by 4 percentage points of currency head winds • Gross profit margin of 52.9 percent, down 2 percentage points fro
Slide 47: Financial Summary 2014 Appendix
Financial Summary 2014 Appendix
Slide 48: 2014 Sales — $1.221 Billion
2014 Sales — $1.221 Billion EMEA 25% 64% Industrial 13% Process Asia Pacific 19% 23% Contractor 67% Industrial 16% Process 17% Contractor 40% Industrial 21% Process 51% Industrial 39% Contractor 18% Process 31% Contractor 48
Slide 49: Financial Results – Full Year
Financial Results – Full Year ($ Millions except EPS) 2014 2013 Change Sales $ 1,221.1 $ 1,104.0 11% Gross Profit Rate 54.6% 55.0% Operating Expenses 357.8 327.7 9% Operating Earnings 308.9 279.8 10% Net Earnings $ 225.6 $ 210.8 7% Earnings Per Share $ 3.65 $ 3.36 9% 49
Slide 50: 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 Q1 2015 EPS $1.55 $1.80 $2.17 $2.32 $1.99 $0.81 $1.69 $2.32 $2.42 $3.
Slide 51: Historic Sales ($ Millions)
Historic Sales ($ Millions) $1,000 $100 $10 51
Slide 52: Stock Dividend Growth
Stock Dividend Growth $1.20 $0.80 2015 $0.66 2010 2007 $0.37 2004 52
Slide 53: Strong Cash Generation
Strong Cash Generation ($ Millions) 2014 2013 2012 2011 2010 2009 2008 2007 2006 Operating Cash Flows $ 241 $ 243 $ 190 $ 162 $ 101 $ 147 $ 162 $ 177 $ 156 % of Net Income 107% 115% 127% 114% 98% 300% 134% 116% 104% Capital Expenditures 31 23 18 24 17 11 29 37 34 Free Cash Flow $ 210 $ 220 $ 172 $ 1
Slide 54: Capital Efficiency – 5 Year Average
Capital Efficiency – 5 Year Average Source: Interactive Data, MSN Money 54
Slide 55: New Segment Reporting – Historical Financial Information
New Segment Reporting – Historical Financial Information Segment Results (in millions): 1Q15 2014 4Q14 3Q14 2Q14 1Q14 2013 4Q13 3Q13 2Q13 1Q13 2012 2011 Sales Industrial $ 143.3 $ 622.5 $ 163.3 $ 150.5 $ 156.6 $ 152.1 $ 581.5 $ 155.3 $ 139.0 $ 142.3 $ 144.9 $ 534.5 $ 435.4 Process 67.7 223.1 62.6 52
Slide 56: New Segment Reporting – Components of Net Sales Change
New Segment Reporting – Historical Financial Information Components of Net Sales Change 1Q15 Industrial Process Contractor Total Volume and Price -1% 5% 16% 5% Acquisition 0% 27% 0% 5% Currency -5% -4% -4% -4% Total -6% 28% 12% 6% 1Q14 2Q14 3Q14 4Q14 2014 Industrial Process Contractor Total Industri
Slide 57: Worldwide Leaders in Fluid Handling
move measure mix control dispense spray Worldwide Leaders in Fluid Handling www.graco.com