Bethel CFA Research Team

Investment Overview

Market leader in niche market

Long-term/conservative business strategy

Overseas Expansion

Enduring Company with strong historical

performance

Operational Excellence

Customer Intimacy

Product Leadership

Operational

Excellence

Continuous Improvement

Centralized manufacturing

Human capital

$8,953

$26,974

$37,604

$78,074

Colfax Flowserve Idex Corp Graco

2013 Net Income per employee

8.72x

2.89x

2.08x

Customer

Intimacy

GracoSales Team

Material supplier

Channel partners

R&D Department

End Users

Product

Leadership

66,000 SKUS

Specialized Solutions

Spend 3x R&D as competitors.

Innovative

Products tested to 10x minimum legal requirement

High Product Standards

Graco R&D vs. Competition

0%

1%

2%

3%

4%

5%

6%

Peer Group Graco

R&

D S

pen

din

g 4.7%

1.6%

Innovation

Targeting Growth Through New

Products & Markets

0

50

100

150

200

250

0

500

1000

1500

2000

2500

3000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Net

Inco

me &

Net

Inco

me/E

mp

loyee

# o

f E

mp

loyees

#Employees & Net Income

# employees GGG Net Income Per Employee (in thousands) Net Income (in millions)

$78,100$69,500

13000

13500

14000

14500

15000

15500

16000

16500

0

10

20

30

40

50

60

70

80

90

1/3/05 1/3/06 1/3/07 1/3/08 1/3/09 1/3/10 1/3/11 1/3/12 1/3/13 1/3/14

GG

G P

rice (

$)

GGG Closing Price vs. GDP

GGG Close Price GDP

Real G

DP

( $ B

illion

s)

.87 Correlation

Projected 2 – 3% GDP growth serves as GGG

baseline

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

-

200

400

600

800

1,000

1,200

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Sale

s (

$ M

illi

on

s)

GGG Sales to GDP

GGG Sales Real GDP

GD

P($

Billio

ns)

.92 Correlation

40%

15%

13%

8%

6%

5%

4%

4%3% 2%

Industry Factors

Residential and Non-Residential Construction - 40%

Automotive - 15%

Industrial & Machinery - 13%

Other - 8%

Mining, Oil and Gas - 6%

Public Works - 5%

Vehicle Services - 4%

Wood - 4%

White Goods 3%

Chemical - 2%

Segment Outlook

59%

31%

10%

Segment as % of Total Sales

Industrial

Contractor

Lubrication

32.3%

22.5%20.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Industrial Contractor Lubrication

Segment Margins

Diverse End Markets in Manufacturing/Construction

Industrials projected to increase with U.S. GDP

Economies of China and Europe may stall growth

Projected to hold margins around 33%

Industrial

42%

32%

26%

Sales % by Region

Americas

EMEA

Asia-Pacific

0

20

40

60

80

100

120

0

200

400

600

800

1000

1200

04 05 06 07 08 09 10 11 12 13

Ind Segment Sales vs. Ind. Indices

Total Sales IPI MaterialsIPI- Bus Equip

Sa

les (

$ M

illio

ns)

Ind

ustria

l Ind

ice

s (0

7=

10

0)

.80 Correlation

Contractor

Majority US Sales

Margins steady at

23%

Proportional of total

sales increase to

30%

Sa

les (

$ M

illio

ns)

Ind

ustria

l Ind

ices (0

7=

10

0)

0.00

20.00

40.00

60.00

80.00

100.00

120.00

0

10000

20000

30000

40000

50000

60000

7000012

/1/0

9

3/1

/10

6/1

/10

9/1

/10

12

/1/1

0

3/1

/11

6/1

/11

9/1

/11

12

/1/1

1

3/1

/12

6/1

/12

9/1

/12

12

/1/1

2

3/1

/13

6/1

/13

9/1

/13

12

/1/1

3

3/1

/14

6/1

/14

9/1

/14

Commercial Construction vs. Sales

Commercial Construction QTR Sales

.70 Correlation

75

80

85

90

95

100

105

0

50

100

150

200

250

300

350

400

04 05 06 07 08 09 10 11 12 13

Sales vs. Industrials

Contractor IPI

Sa

les ($

Millio

ns)S

pe

ndin

g (

$ M

illio

ns)

.90 Correlation

Lubrication

Majority US Sales

Fluid product-line in industrial machinery

Margins steady at around 22%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

0

20

40

60

80

100

120

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Sale

s (

$ M

illio

ns)

Sales to Oil Production

Lubrication Oil Production

Ba

rrels

(in th

ou

sa

nd

s)

.60 Correlation

Threat of New Entrants.

Insignificant

Bargaining Power of Suppliers.

Low

Competition in the Industry.

Low Bargaining Power of

Customers. Low

Threat of Substitute Products.

Low Porter’s 5

Forces

Currency

At current rates:

• Sales for 2015 would decreased by 4%

• Earnings 10% from currency exchange.

Euro/GBP/CHF22%

Asian 8%8%

CAD4%

USD66%

Sales by Currency 2014

CHF22%

GBP12%

EUR66%

Sales in European Currencies 2014

R&D Tax Credit

0%

1%

2%

3%

4%

5%

6%

Peer Group Graco

R&

D S

pen

din

g 4.7%

1.6%

Innovation

Targeting Growth Through New

Products & Markets

Long-Term Cash Deployment

Priorities> International Footprint

> Product Development

> Production Capacity and Capabilities

> Supplement to Organic Growth

> Leverage Our Strengths

> Dividend Payout Ratio – 30%

> Three Million Shares Remaining on Authorization

Organic

Growth

Acquisitions

Shareholder

Return

Graco Reported Q4 Results$ in millions except EPS Fourth Quarter

2014 2013 Change

Sales $306.0 $271.9 13%

Gross Profit 164.8 145.2 12%

% of Sales 53.8% 54.10% (0.3) pts

Operating Earnings 69.5 63.3 10%

% of Sales 22.70% 23.30% (0.6) pts

Net Earnings 49 44.7 10%

% of Sales 16% 16.50% (0.5) pts

Diluted Earnings

Per Share 0.8 0.71 13%

Diluted Shares in Millions 61 62.9

Includes dividends (post-tax) from Liquid Finishing Business held separate:

Divdiends $4.00 $4.00

EPS Impact $0.07 $0.06

Offshore O&NG45%

Process30%

Onshore O&NG25%

Sales by Application

EMEA60%

Asia Pacific20%

Americas20%

Geographic Mix

O&NG46%

Process33%

Other21%

Sales by Industry*

Asia Pacific11%

EMEA40%

Americas49%

Geographic Mix

$100MM

$250MM

Acquisitions

December 2014

January 2015

Valuation

• Assumptions

Discounted Cash Flow

• Price to Earnings

• Price to Cash Flow

• Price to Sales

Per Share Models

Blending of Methods – $81.50

Competitors

Colfax Corporation (CFX)

Nordson Corporation (NDSN)

IDEX Corporation (IEX)

Flowserve Corporation (FLS)

Discounted Cash FlowWACC Components

Cost of Common Equity 9.39%

Risk Free Rate 1.59%

Market Risk Premium 5.89%

Levered Beta 2.70

Size Premium 0.0

After Tax Cost of Debt 2.49%

Assumed Tax Rate 32.00%

Capital Structure 50 debt, 50 equity

Final WACC 5.94%

Market Risk Premium

Graco 6.15% 0.4 5.89%

Nordson 6.05% 0.1

Idex 5.49% 0.25

Flowserve 5.80% 0.25 MRP

EPS/PE

GGG Premium over IME - 5 Year Analysis

5 Year Numbers NTM - PE NTM - PE

GGG 5-Year Average 19.06 Current IME 17.4

IME 5-Year Average 15.90 Estimated 16.5

Correlation 0.90 Est. GGG 19.94

% Spread Average 20.8%

Recent Month Spread 19.1%

Current PE Premium is 19.1%, which we conclude shows that Graco is undervalued compared to the industry.

-5

0

5

10

15

20

25

30

12/27/04 12/27/05 12/27/06 12/27/07 12/27/08 12/27/09 12/27/10 12/27/11 12/27/12 12/27/13

Daily NTM PE - GGG/IME With Spread

Spread

GGG

IME

Investment Conclusion

Shrinking Sales growth opportunity

Consistent strategies

Cash Deployment

Questions?