GGG

CFA Institute Research Challenge
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Bethel University

CFA INSTITUTE RESEARCH CHALLENGE 12/21/14
2
Bethel University Student Research
This report is published for educational purposes
only by students competing in the CFA Institute
Research Challenge.
Date: 12/21/2014 Ticker: GGG:NYSE
Coverage
We initiate coverage on Graco, Inc. (GGG) with a 12-month price target of $81.50 and a
HOLD recommendation. This is a 3.2% return on the current stock price as of
December 21, 2014. Our price target was based on a Discounted Cash Flow Model in
addition to various per share valuation methods and qualitative assessment about the
macroeconomy and industry growth in the future.
Solid but conservative business model.
Although GGG is a strong company from many angles, management’s current approach
tends to be more conservative. This increases the likelihood of a potential missed
opportunity that could have driven overall growth at a higher rate. We see this as being
an incredibly important potential miss, specifically in our current slow growth
macroeconomic environment.
Impressive share of the market not yielding significant growth.
GGG has incredible margins from serving a niche market and essentially having the
advantage of being able to charge a high price for their high quality products. The
company does not however show signs of gaining significant market share, or
significantly increasing their bottom line despite insignificant threats of new entrance
to their market, low threat of substitute products, low bargaining power of customers
and suppliers and low competition in the industry. A detailed Porter’s Five Forces
analysis can be seen in Appendix 7
At 20.71x NTM EPS of $3.95 combined with DCF Analysis, GGG appears fully
valued with little upside.
At this valuation level GGG’s premium over its industry IME is at a historical high as
well as right at it’s 52 week high. We do not see the company growing at a pace over
projected estimates and do not see the market granting a higher multiple for GGG.
Company Overview
Graco, Inc. designs and manufactures equipment to move highly viscous, difficult-to-
handle fluids and coatings. The company operates in three operating segments,
Industrial, Contractor, and Lubrication within the Diversified Machinery Industry.
Business Model/Strategic Focus. Graco has an enduring business model that has
continually helped the company navigate the ever-changing global economy. This
model includes four strategies for long-term growth: new product development,
targeting new markets for existing technologies, geographic expansion, and key
acquisitions. The CFO Jim Graner recently commented on November 6, 2014 at the CFA
analyst day, “The strategies are the same today as they were ten years ago. We believe
in our strategies. They have served us well and we believe will continue to serve us
well.”
Industry: Diversified Machinery
22.0%
23.0%
24.0%
25.0%
26.0%
27.0%
28.0%
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
Sales and Margin
Source: FactSet, Team Estimates
Source: Yahoo! Finance

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Graco’s strong focus on the key business components of operational excellence, customer
intimacy, and product leadership give the company a strong current and future position
within the global market.
Management. Graco has a strong management team with broad experience in the
industry. Their consistent adherence to long-term strategies paired with their talented
team has been one of the major components to which Graco can attribute its success.
Graco has a culture intently focused on innovation and product quality that has been set
by the management team. On our site visit, we were able to see that employee retention
was strong, backed by a comment, “You are new here if you haven’t been around for ten
years or more.” Detailed management overview is in Appendix 16.
Patrick J. McHale, 52. President and Chief Executive Officer, a position he has held since
June 2007.
James A. Graner, 69. Chief Financial Officer, a position he has held in conjunction with
Treasurer from September 2005 to June 2011.
Christian E. Rothe, 40. Vice President and Treasurer, a position he has held since June
2011. Prior to Graco, held various positions in business development and accounting and
finance.
Jim Graner, CFO, will be retiring in the fall of 2015. We are confident that the hiring
decisions made by the company, whether external or internal, will be consistent with the
strategies employed throughout the company’s history.
Industry Overview and Competitive Positioning
As part of the Diversified Machinery Industry, we used ratios and models comparing four
main competitors with Graco’s performance: Colfax (CFX), Nordson (NDSN), Idex (IEX),
and FlowServe (FLS). The company’s relatively strong financial ratios, when compared to
competitors, stems from the high ROI provided to customers and the premium that Graco
charges for its products.
Although finding a list of trading competitors in the Diversified Machinery Industry is not
difficult, comparing these companies to Graco poses a significant challenge. The
diversified nature of the industry eliminates the plausibility of comparing most
companies in the industry side-by-side. Graco currently offers over 60,000 SKU’s, most of
which have different competitors entirely. Therefore, a ratio analysis between
competitors primarily provides guidance in our projections and target price models,
rather than a direct comparison.
Operational Excellence. Graco has centralized manufacturing operations that have
allowed the company to effectively leverage their overhead, driving their cost savings,
reliability, and quality in their products. This is well exemplified by the highest profit
margins of any of their competitors (see Exhibit A). They emphasize return on
investment and believe in both manufacturing and engineering excellence by investing
heavily in their factories as well as their R&D programs. They have a relentless focus on
quality and efficiency in their factories. Their operational excellence, specifically within
manufacturing, has allowed Graco the flexibility to be a rare company that has a high
product mix with a low volume of sales. Even with such high quantities of units, their
flexible manufacturing infrastructure, including shared components within products,
allows them to quickly and efficiently transition to create a wide array of products,
depending upon sales demand (Exhibit B).
Exhibit B: Source: Graco Numbers
Exhibit A. Source: FactSet

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Customer, Distributor, and Supplier Intimacy. Graco has strong relationships with
material suppliers, end users, and channel partners. Their central attention is niche
markets in which they can charge a premium price for their high-quality and specific
products that are cost-effectively manufactured. In serving niche markets, they have a
determined customer-centered approach they use in developing new products to solve
new problems and continually improve existing product lines.
Despite selling heavily through distribution, Graco has made sure to stay close to the end
users to ensure that their products are not only the quality that they expected, but also to
seek out new opportunities for future innovation. They have a distinguished sales staff
that are highly trained and focused on showing their customers the high ROI they receive
from investing in Graco products. For example, in their contractor segment, the sales
people will travel to demonstrate products to potential customers. They allow the
contractors to use the products for a period of time to prove the quality and ROI inherent
in the high-quality equipment. Close relationships, such as these, allow Graco to maintain
their position as a product leader in these niche markets.
Product Leadership. Spending three times the amount of research and development as
their competitors, Graco ensures that their products are of the highest quality and
innovation (see Exhibit C, D). Their quality standards prove to be much higher as well, as
the company has committed to rigorous testing 10x the regulatory standards, compared
with competitors’ equipment that might break down at 2x or 3x regulatory standards.
Their product development is customer-centered and “enables customers to reduce their
use of labor, material and energy, improve quality and achieve environmental
compliance.” They invest heavily to help cut costs for their end-users and those customers
are willing to pay a premium for these solutions that help achieve a higher ROI on their
own work. In addition, Graco performs quality and accuracy testing at each important
juncture within the manufacturing process in order to achieve 100% product quality
certification.
Environmental Compliance. Graco maintains a strong commitment to environmentally
friendly machinery. In their recent acquisition of QED Environmental Systems, the
company has taken steps towards “environmental monitoring and remediation”. EcoQuip,
another recent acquisition, “offers an eco-friendly abrasive blasting technology”. Graco
also launched Diesel Exhaust Fluid dispensing solutions to facilitate clean and hygienic
disposal of these fluids in garages and heavy equipment maintenance facilities. The ability
for Graco to enter into and capitalize on environmentally friendly equipment will strongly
facilitate growth for the company’s top-line objectives.
Shareholder Value. Graco’s management maintains a strong initiative to provide
maximum shareholder value. This can be seen through two avenues: Dividends and Share
Buybacks. Graco strives to continuously provide a dividend at 30% of EPS (Exhibit E).
This per share valuation was recently raised to $1.20 on an annual basis, matching our
team’s projections. Graco has also announced aggressive commitment to reducing diluted
shares outstanding under 60M with a target by the end of FY2015, done at an average rate
of 10,000 shares per day. To reflect this commitment, we have employed a target common
shares level of 59.9 for FY2015 valuation.
Macroeconomic Outlook
The domestic macroeconomy shows slow, but steady growth in the post-recession
environment. We expect U.S. GDP to grow between 2-3% in 2015 (see Appendix 14-15).
Graco’s annual sales performance is fairly correlated with GDP, thus we expected to see
sales figures to grow minimally at 2%. After collecting and analyzing various economic
indicators and indices, we have determined a correlation with Graco’s sales and stock
price on a few key arenas: Oil and Mining Industries, Housing and Construction, and
Industrial Indices. End Market breakdown can be seen in Exhibit F.
Exhibit C: Source: Graco Numbers
Exhibit D. Source: FactSet, Team Estimates
Exhibit E Source: FactSet
Dividend Payout Ratio
Exhibit F: Source: Graco Numbers
Exhibit E Source: FactSet

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The success of Graco’s Lubrication segment, and the company as a whole, is loosely tied
to the success of various mining, oil, and gas indices (See Exhibit G). Paired with the
company’s recent acquisition of UK-based Alco Valves Group and a potential
improvement in mining and the recent boom in the oil industries, we see strong growth
prospects for proportionate sales stemming from these markets. See Appendix 14-15 for
complete analysis.
The success of Graco’s Contractor segment is strongly tied to the success of various
housing market health indicators (See Exhibit H). We forecast slow, but steady growth in
the housing market based on low interest rates and relatively relaxing credit. See
Appendix 14-15 for complete analysis.
Our main comparison index is an industrial production index. We have used comparison
trends and correlations between Graco’s valuation and the valuation of the index as
guidance for our target price models.
See Appendix 14-15 for complete analysis.
Operating Segment Overview
Graco, Inc. operates with three operating segments, Industrial, Contractor, and
Lubrication. These three segments are tied to economic indicators that correlate with
sales production on the segment level.
Industrial. Per management comment, Graco considers the Industrial segment to be the
“rockstar”, boasting roughly 59% of the company’s sales with a margin of 32.3% in
FY2013. Through this segment, Graco provides products that spray protective coatings,
fast-set foam insulation, sealants and adhesives, and other sanitation based fluids.
Opportunity for expansion and acquisition exists primarily in the Industrial segment due
to the wide array of end markets.
Performance. Industrial will continue posting the strongest margin, ranging between 32-
33%. However, Industrial share of total sales will slowly taper off to about 58% of sales
as the other segments gain market share, characteristic of pre-recession levels.
Contractor. Contractor directs its sales toward three broad areas: paints, texture, and
pavement maintenance. A primary catalyst for growth exists with the conversion of
manual brush and roller techniques to spray applicators. This is the second largest
segment by sales, representing 28-30% of overall sales and a margin between 20-23%.
Performance. We estimate that contractor will represent 32% of sales in 2015 and will
rise to 33-34% in the years following. Contractor performance is tied to movements in
the industrial and construction industries and, with slow post-recession growth, we
expect room for growth in the upcoming years. Margin will rest at 22.0% for 2015, as
contractor performance continues to strengthen.
Lubrication. Lubrication derives its sales around two main areas: industrial machinery
lubrication and vehicle services. Therefore, the segment is reliant on success in the Auto
and O&NG Industries. The company produces equipment that allows customers to
manually and automatically apply lubrication fluids to machinery and equipment. In
2013, Lubrication represented 10% of overall sales, with a strong margin of 20.6%.
Performance. Lubrication revenues will grow very slowly, due to depressed
commodities prices in the mining and oil industries. Margin will remain at or above 21%,
with share of sales remaining at 9.0%, reflecting little to no growth in O&NG industry.
Exhibit G: Source: Bloomberg
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20.00
40.00
60.00
80.00
100.00
70
80
90
100
110
120
130
140
12/1/09
6/1/10
12/1/10
6/1/11
12/1/11
6/1/12
12/1/12
6/1/13
12/1/13
6/1/14
Ind. Prod.
Mining
GGG Monthly
Price
Exhibit H: Source: Bloomberg

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53%25%
22%
54%26%
20%
54%26%
20%
53%27%
20%
Geographic Sales
Blue: Americas
Red: EMEA
Green: Asia-Pacific
2012 2013
2014E 2015E
Employee Efficiency
Sales Per Employee. An important analysis to keep tabs on, we compared
Graco’s employee/sales ratio for a nine year period, tracking efficiency pre-
and post-recession. The results were extremely conservative, with the
company clearly not gaining any material efficiencies or synergies through
their employee head-count. This supports our analysis that the company has
reached a maturity stage and will struggle to continue its high historical
growth rates.
Geographic Breakdown
Graco has diversified its presence in many regions, which proves effective in
avoiding economic downturns in any one country. Per management
comment, the company employs local and regional sales personnel that live
where they sell, promoting efficiency. In northern Africa, the market is
served by salespeople from France and in certain areas of Saudi Arabia, the
company serves the market with salespeople from the UK, both common
practices in the industry. As the company is currently in the process of
adding on-the-ground salespeople in the denoted regions, we expect growth
from these markets.
Americas. Graco’s production in the Americas
comprises roughly 55% of overall company sales.
Two-thirds of overall sales. Sales production from this
region is largely tied to housing, and general
economic health indicators. Growth opportunity
exists with potential expansion into South America,
noted by the company’s recent commitment to
boosting the sales force on the continent. However, as
the developed market in the United States is difficult
to foster significant expansion, we see this number
staying flat for the near-term.
Europe, Middle East, Africa. EMEA comprises the
next largest segment for Graco’s sales, at roughly 25%
of sales. Europe presents opportunity in emerging
markets, while Graco’s presence in the Middle East
and Africa is minimal, presenting strong opportunity
for expansion. We see EMEA’s share of sales
increasing in FY2014 and FY2015 backed by
expansion opportunity and increased volume from the
Alco-Valves acquisition.
Asia-Pacific. The Asia-Pacific segment is comprised
mainly of China, Japan, and Australia, with
surrounding islands included. This geographic
segment comprises roughly 20% of Graco’s sales. The
Asia-Pacific region presents the greatest room for
development and future expansion. Much of the
success of this region stems from productivity in
China, and given the macroeconomic outlook in the
country, we have taken a conservative stance on
growth of sales from this region, keeping sales at 20%
for FY2014 and FY2015.Source: Company
Data, Team Estimates
Source: The Conference
Board

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China GDP Growth Outlook. China, one of the
world’s largest economies, is a significant piece of
Graco’s Asia-Pacific sales. The International
Monetary Fund suggested, in 2014, that China
projected GDP growth is between 6.5-7.0%, down
from current estimates of 7.5% for 2015. Chinese
economists suggest that the economy needs growth
above 7.0% in order to foster job creation to support
the growing population. China’s economic data can
be seen in the Appendix 14.
Valuation
Our valuation are based on a discounted cash model, the details of which can be seen in
Appendix 8. Our estimated sales CAGR from 2014 through 2018E is 6.3% paired with Net
Income CAGR of 6.45%, as the company exhibits signs of a mature company – shrinking
sales growth opportunity with increased margin efficiency. It must be noted that these
growth rates will factor in the 2008-2009 financial crisis, representing growth rates that
fall far below historical sales growth of 9%. Graco management strives for top-line sales
growth of 10%, with two-thirds from organic and one-third from acquisitions. Our
models estimates are more conservative, due to Graco’s current size and shaky global
economic conditions in the post-financial crisis environment.
Conservative Estimates. Though
Graco’s management team targets top-
line sales growth of 10%, our analysis
suggests the company will not be able
to reach these historical goals,
especially given Graco’s maturity and
current established markets.
Sales Assumptions. In order to more
accurately project sales revenues in the
next five years, we have broken down
sales by operating segment. Macroeconomic trends were used to draw estimated trend
lines between sales growth within each segment and the level of economic activity.
Industries and indicators covered include Housing, O&NG, and Mining Industries on a
domestic and global basis. Details can be seen in Appendix 8.
Discounted Cash Flow Analysis – $81.71.
Our DCF valuation projects a 12-month target price of $81.71 based on an 8% top-line
growth scenario for FY2015E. This valuation stems from an average comparing the
Perpetuity Growth Method and the Exit Multiple Method to converge on a target price
(Exhibit I). Our detailed model can be seen in Appendix 8.
Our models are based around top-line sales growth as analyzed by forecasting revenue
for the Industrial, Construction and Lubrication segments. Growth calculations for each
segment were based primarily on a percentage of sales or assets. From here we
projected revenue forward at a flat growth rate due primarily to a similar projected
capital structure as stated by management.
0
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E
Consolidated Geographic Americas
EMEA
Asia-Pacific
Exhibit I. Source: Team Estimates
Exhibit J. Source: Team Estimates.
Exhibit K. Source: St Louis Fed

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Weighted Average Cost of Capital. WACC is based on industry competitors and market
conditions in combination with Graco’s historical capital structure (Exhibit J). WACC is
5.94% based on a continual capital structure of 50% equity (9.39% cost) and 50% debt
(2.49% cost). Cost of Common Equity was calculated by a peer comparison of quarterly
equity return compared to a weighted average of the S&P500 Index and the Dow Jones
Industrial Average. Levered Beta (2.70) was calculated by deriving the unlevered beta of
three competitors, IDEX, Colfax, and Nordson, and determining an average consensus.
The risk free rate of 1.59% is set as the 5-Year T-Bond as of 12/2/2014. Long-term
growth, g, is set at 2.71%, an average of the Real Potential GDP Growth Rate factoring in
145 quarters of domestic economic data (Exhibit K). We feel this is an accurate
representation due to Graco’s strong ties to economic strength. Detailed WACC
components can be seen in the Appendix 8.
Further Valuation Methods.
Price to Earnings per Share – $80.27. Our PE analysis is a blend of two parts, as seen in
Exhibit L. We believe shares warrant a premium multiple given a currently strong
financial position, strong long-term growth stemming from both organic and strategic
acquisitions, and the company’s ability to provide a high ROI to its end users. Using the
12/26/14 NTM-PE multiple of 20.71, we arrive at a projected target price of 81.80 for
FY2015.
Graco, Inc. also carries a historical P/E premium over the industry IME of about 20.8% on
a 5-year timeline (Exhibit M). This number is currently below historical trends, so we
believe the P/E of the company will outperform relative to the industry over the next few
months to in line with historical levels. We believe the business cycle has peaked,
generating an Industrial Machinery P/E at our team’s estimate of 16.50. We Graco’s P/E
at 19.93, as it typically trades at a 20.8% premium above the IME P/E. This P/E of 19.93
leads to an estimated 2015 stock price of $78.73. A blend of the two target prices reaches
$80.27.
Price to Sales per Share – $81.04. Price to Sales per Share was calculated using
assumptions about the company’s historical sales per share and price to sales per share
ratios. Graco clearly carries a premium over competitors in the Sales per Share ratio, as
seen in Exhibit N. Details can be seen in Appendix 10.
Price to Cash Flow per Share - $81.73. Price to Cash Flow per Share was calculated
using assumptions about the company’s historical Cash Flow per Share and Price to Cash
Flow per Share trends. The premium on Price to Sales per Share and Price to Cash Flow
per Share is due to its higher margin stemming from high operational efficiencies
compared to competitors.
Details can be seen in the Appendix 11.
-10
-5
0
5
10
15
20
25
30
35 Daily NTM PE - GGG/IME With Spread Spread
GGG
IME
Exhibit M. Source: FactSet
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0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Price to Sales Per Share
Over Time
GGG
NDSN
CFX
IEX
FLS
Exhibit N. Source: FactSet
Exhibit L. Source: FactSet, Excel
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1.00
2.00
3.00
4.00
5.00
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Industry EV/Sales
(Source:Factset, Team Estimates)
Exhibit O. Source: FactSet.

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EV/Sales. Historically, Graco shows a premium over our four trading competitors in this
ratio. We recognize Graco’s valuation correlation with our chosen trading comps, by
employing our DCF template to determine NDSN, CFX, and IEX as the closest valuation
competitors in our calculation of WACC (see correlations in Exhibit O). We also recognize
Graco’s valuation as the leader in the industry, confirming our PE premium of 20.8% over
the industry. EV to Sales historically indicates the cost of purchasing a company’s sales.
Graco’s higher EV to Sales compared to trading comps demonstrates its leadership and
maturity in its industry class.
Conclusion. Graco’s valuation performance is closely tied with industry competitors,
noted by the tickers in Exhibits N and O. Using industry comps as guidance, we are able
to place Graco in a premium position in a variety of metrics. We conclude that Graco’s
current P/E premium over the Industry of 19.1% will expand to the historical level of
20.8%. However, with our negative outlook on the Industrial Machinery Index, we expect
the Industry P/E to shrink from its current level of 17.4 to about 16.5 by FY2015 (Exhibit
P). Graco will remain the leader in the industry, but will experience P/E tightening with
the industry.
Investment Summary
We are initiating coverage of Graco, Inc. (GGG) with a HOLD rating and a target price of $81.50 for FY2015. This
offers a 3.2% return over the current stock price as of December 21, 2014. Our valuation is derived from a
blending of our target price models, and weighting our target price evenly with our Discounted Cash Flow
Model.
Graco, Inc. will continue to outperform the industry and peers due to its competitive positioning, long-term
growth tactics, and product excellence. The company’s management effectively employs a long-term strategy,
which centers on steady growth. Through both organic and inorganic growth we expect Graco to grow at a top-
line CAGR of 6.3% for the period ’14-’18E based on conservative estimates and historic top-line sales growth
forecasts.
Although the company is highly profitable with an effective leadership team, we see Graco as a mature company
that will require a riskier change in strategy to achieve maximum potential upside. A tangible example of this
can be seen in the allocation of dollars from the sale of the Liquid Finishing business in 2015. The company has
publically stated they will repay debt with these proceeds. This will ultimately decrease their leverage, which
affirms our conservative estimates.
In support of our target price and hold recommendation, we see Graco, Inc. as a financially strong, mature
company that will outperform peers for years to come. In both the short and long run, the company will need to
increase their tolerance of risk to drive higher levels of growth in order to maintain their goals of top-line
growth at 10%.
Financial Analysis
In this section, we will outline the assumptions made in our analysis. Full financial statements can be seen in the
Appendix 1- 5 and we determine sales CAGR from 2010-2018 to be 9.13%, with EBIT CAGR at 12.89%. Our
assumptions are fairly consistent when compared to Graco’s management expectations of 10% top-line growth
and 12% bottom line growth
5-Year GGG Price w/ Daily Volume
Exhibit P. Source: FactSet, Team Estimates

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Top-Line Sales Approach Criticism. Our valuation models are heavily based on top-line
sales growth estimates. Therefore, with our models contingent on accurate projections,
we determined that a sensitivity analysis was appropriate to stress test our sales growth
assumptions. This analysis can be seen below. We converged on a historical sales growth
rate of 8% for FY15, reflecting moderate economic growth in global markets. Scenarios in
which sales growth falls above and below 8% were rejected due to our team’s consensus
opinions on global economic health. We feel that 10% growth is unobtainable for Graco
based on two reasons: 1) Their capital structure is too conservative, and 2) Economic
markets have not fully recovered, post-Recession.
Stable Growth in Earnings. For Graco, FY2014 looks to be another year of standard top-
and bottom-line growth. Continuation of steady growth in earnings through FY2015 and
beyond rests on the heels of two primary drivers. First, we must remain bullish on the
market through 2015, especially given Graco’s correlation with overall market
movements as a major member of the Industrial Machinery industry. Second, as stated by
the company directly, “we will continue to do what we always do, slow and steady
growth.” However, in the dynamic, post-recession market, these long-term tactics may
not be enough for Graco to continue to post its historical 10% growth rate goals.
Margin Analysis. Graco has historically exhibited higher margins when compared to
peers, specifically profit and operating margins over the past 5 years, by 15%. This stems from the premium
charged for the company’s products. We feel that these margins may receive pressure from shrinking top-line
growth and the general state of maturity reached by the company, but will continue to remain relatively high
when compared to peers. Ratio and margin analysis can be seen in Exhibit Q.
Allocation of Cash Proceeds. Graco is in a unique position in which the company will have access to roughly
$800M in debt-based capital to expend on the company through credit lines, uncharacteristic of the cash-light
company. Per management guidance, we see a few potential avenues for cash expenditure:
1. Continued, or expanded share buyback program through FY2015 and potentially FY2016
2. Increased dividend payout – Note the increase to $1.20/share in 2014, an average growth rate of ~8.5%
3. Strategic Acquisitions of a medium to smaller magnitude (<$250M) due to FTC regulation
4. Further increase R&D expenditure dominance, potentially 5+% of sales
5. Further exploration into the recovering O&NG market, boosting sales share to 10% from current 6%
Profitability – DuPont Analysis. Graco exhibits a high five-year average return on equity of 39% coming from a
high quantity, low volume mix which yields relatively high net income margins and asset turnover (1.12 5yr avg).
Our forecasts indicates an estimated drop in ROE to 35-36% primarily due to a lower net income margin and
asset turnover caused by the maturation of the company. Details can be seen in Exhibit R below.
Conclusion. Our analysis aligns with our investment summary; Graco is
a highly stable and profitable company with an enduring business
model that will enable the company to succeed for years to come. We do
not see overwhelming indications in our analysis that push us to see
Graco outperforming conservative profitability or growth estimates.
Exhibit Q. Source: FactSet, Team Estimates
Exhibit R: FactSet, Team Estimates

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Investment Risks and Opportunities
Divesture of Liquid Finishing Business. In Accordance with FTC regulations, Graco has agreed to divest its
interest in the Liquid Finishing business of a 2012 acquisition from Illinois Tool Works. The announced sale of
this business to Carlisle Company will realize an estimated $570M in cash. Speculation and uncertainty exists as
to Graco’s use of this cash in the upcoming business year. Graco management has announced a commitment to
paying down roughly $300M of their current repayable debt from a revolving credit line. We believe the
company will reissue this debt at a cheaper rate, keeping their capital structure at 50% equity, 50% debt, a
structure consistent with historical trends.
Future Acquisition Strategy. Uncertainty arises in Graco’s acquisition strategy for the future. With the recent
FTC order to divest the Liquid Finishing business, we conclude that Graco will have an inability to pursue
acquisitions of high magnitude in the future. We believe the company will keep acquisitions at middle levels,
between $100-250M. We believe these acquisitions will generally represent new expansionary industries, or
industries in which Graco’s current presence is non-dominant. However, Graco’s maturity and size will limit
growth opportunity in the future, both organically and inorganically.
Growth Opportunities
Expansion into South America and Africa. Graco management has labeled expansion as a key to growth.
Graco has the opportunity to capture new markets, especially within developing and emerging economies.
Oil and Natural Gas Industry. With its recent acquisition of UK-based Alco Valves Group, Graco is
positioned to strengthen its presence in the O&NG Industry. O&NG currently accounts for 6% of the
company’s business, and we see this expanding as the industry recovers on the back of rising commodity
prices in the future.
End-User Conversion. Graco continues to pursue opportunities through the conversion of manual brush
and roller paint techniques to spray applicators. Results have been disappointing, but strong upside exists if
Graco can capture the development in emerging economies and smaller cities.
Product Development and Research. Graco maintains a commitment to product excellence backed by
consistently keeping R&D expense at 4.5-5.0% of sales. In addition, through the hiring of top employees with
new ideas in the engineering and development areas, Graco can continue to produce the best products in the
industry. Margins are reliant on continued adherence to these guidelines.
Threats to Growth
Sluggish housing market in the United States. Contractor sales, through home center stores, are tied with
the US housing market. Strict home-mortgage requirements in the post-recession environment places
pressure on sustained growth. See Appendix 15 for details.
Acquisition opportunity. Graco needs to continuously acquire new companies and segments in order to
stay viable atop the industry as the quality product leader. Their recent acquisition and dissolution of ITW’s
Liquid Finishing Business projects uncertainties in the company’s ability to acquire reasonably viable
businesses in the future.
Geopolitical tension in China. With direct business in China and Hong Kong, Graco is susceptible to the
political turmoil that has been developing.
Slow growth and potential recession in Europe. While our models are based on the assumption that
Europe avoids recession, we have factored in sensitivity analyses to show what the company’s business
could look like in an economic downturn.
Discontinuation of the R&D Tax Credit. A potential discontinuation would adversely affect the company’s
R&D expenditure. This would force a business model revamp as Graco’s competitive advantage is centered
around new, high quality products.

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
1.
Income
Statement

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
2.
Balance
Sheet

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
3.
Statement
of
Cash
Flows

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
4.
Common-‐Size
Income
Statement

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
5.
Common
Size
Balance
Sheet

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
6.
Selected
Graco-‐Constructed
Charts.
Source:
2013
Presentation

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
7.
Porter’s
Five
Forces

Threat
of
New
Entrants.
Insignificant.
Graco,

and
its
competitors,
have
a
dominant
presence
in

the
market.
The
products
provided
are
expensive

to
produce,
industry
customer
relationships
are

strong,
and
business
models
have
long-‐term

focus.
Smaller
companies
will
be
absorbed
by

larger
companies.

Threat
of
Substitute
Products.

Low.
Graco
maintains

commitment
to
providing
the

most
expensive
product
that

provides
the
highest
ROI
for

end-‐users.
Graco
has
strong

customer
relationships,
but

until
the
customer
switches
to
a

Graco
product,
they
will
remain

with
the
cheaper
products.

Bargaining
Power
of
Customers.
Low.

Similar
to
substitutes,
Graco
has
the

highest
quality
product
on
the
market,
but

also
charges
the
highest
price.
Customers

are
willing
to
pay
the
premium
as
long
as

Graco’s
products
continue
to
provide

environmentally
friendly
solutions
to

specific
manufacturing
challenges.

Competition
in
the
Industry.
Low.
Graco’s

entire
business
model
relies
on
providing
the

best
product
with
the
highest
ROI
to
its

customers.
Competition
is
fierce
and
diverse,

as
Graco
has
a
number
of
competitors
for
each

product.
As
long
as
Graco
continues

commitment
to
product
development,
they
will

continue
to
remain
at
the
top
of
the
industry.

Bargaining
Power
of
Suppliers.

Low.
Graco
is
a
company
that

produces
equipment
that
is
subject

to
fluctuations
within
the

commodities
market.
Graco
is
a

major
buyer
from
suppliers,
so
has

weight
in
negotiations.
Competition

in
the
industry
keeps
Graco’s
power

limited
when
buying
from
suppliers.

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
8.
Discounted
Cash
Flow
Model
and
Calculations

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CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

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MRP.
Market
Risk
Premium,
as
depicted
in
the
chart
to

the
left,
is
a
blend
of
the
average
Quarter
over
Quarter

returns
of
Graco
(and
competitors)
over
the
S&P500
and

DJIA.
Our
final
number,
5.89%,
is
very
comparable
to

Aswath
Damodaran
and
KPMG’s
numbers
of
5.21%
and

6%,
but
our
calculation
provides
a
more
accurate

representation
of
the
industrial
machinery
industry.

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

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)&X"#O$&6:&T"S >+@?&&&&&&&&&&&&&&&&&&& >@*?&&&&&&&&&&&&&&&&&&& >@,?&&&&&&&&&&&&&&&&&&& >*,?&&&&&&&&&&&&&&&&&&& >-2?&&&&&&&&&&&&&&&&&&& >//3?&&&&&&&&&&&&&&&&& >/31?&&&&&&&&&&&&&&&&& >/3*?&&&&&&&&&&&&&&&&& >/2+?&&&&&&&&&&&&&&&&&
T"S&H"8$ 3-<,.; 21<*/; 3,<22; 3*<@,; 3-<11; 23<11; 23<11; 23<11; 23<11;
B48C7DAE"#5F#"7689%
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B48%%AJ48G67A+@5#FH69IA21:
!B1:A
B48%%AJ48G67A"9HAK"4I69ALAM8##8C69IA>N!
Growth
Calculations.
Most
growth
calculations
were
based
around
%

of
sales,
historical
growth
rates,
and
%
of
cost
of
sales.
Our
models
are

based
around
top-‐line
sales
growth.
Diluted
Shares
Outstanding
is

placed
at
59.9,
per
management
commitment
to
a
share
buyback

program.
Tax
rates
and
cap-‐ex
are
placed
on
guidance
by
management

statements.
We
have
assumed
a
conservative
stance
with
sales
growth

at
10%,
8%,
4.5%,
4.5%,
4.5%.

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
9.
PE
and
EPS
Target
Price
Model

Model
2.
Our
model
revolves
around
positioning
Graco’s
PE
against
the
Industrial
Machinery

and
Equipment
Industry
P/E.
Data
was
gathered
from
FactSet.
We
obtained
daily
NTM-‐P/E

ratios
for
Graco,
the
S&P500,
and
the
Industry.

As
seen
in
the
above
charts,
we
originally
pitted
Graco’s
PE
against
the
S&P500’s
PE,
but
the

results
were
inconclusive
as
correlation
was
only
.445.
Transitioning
over
to
the
Industry

comparison,
we
saw
a
higher
correlation,
showing
.726
for
daily
NTM-‐P/E
numbers
on
a
10-‐
year
basis.
We
decided
to
check
to
see
if
the
correlation
was
stronger
on
a
5-‐year
basis,
and
we

obtained
a
correlation
of
.90.

On
a
5-‐year
basis
of
daily
NTM-‐P/E
values,
Graco
holds
a
20.8%
premium
P/E
to
the
Industry

P/E.
Currently,
the
spread
between
Graco’s
P/E
and
the
Industry
P/E
is
at
19.1%,
an
average

for
the
most
recent
month’s
data.
This
leads
us
to
conclude
that
Graco
will
return
to
20.8%
by

FYE2015.

Now,
we
need
to
obtain
an
accurate
estimate
of
where
we
place
the
IME
P/E
for
FYE2015.

Current
NTM-‐P/E
is
17.4
as
shown
by
the
chart
to
the
left.
Our
team
estimated
that
the

business
cycle
projects
a
P/E
of
16.5
for
the
industry
by
FYE2015,
a
decrease
from
today’s

value.

Model
1.
Taking
the
NTM-‐PE
Ratio

as
of
12/26/14
and
our
team’s

projected
2015
EPS
of
3.95,
we

come
up
with
a
target
price
of

$81.80.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%

140.0%

150.0%

0

5

10

15

20

25

30

5-‐Year
GGG/IME
With
%
Spread

Spread

GGG

IME

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

By
applying
Graco’s
20.8%
premium
to
our
projected
industry
value
of
16.5,
we
come
out
with
a
target
price
of
78.73.
When
combined
with
our
first

model,
we
blend
a
target
price
at
$80.27.

Appendix
10.
Price
to
Sales
per
Share
Model.

Model
Methodology.
Our
Price
to
Sales
per
Share
Model
was
based
primarily
on
historical
trends
on
Graco’s
Sales
per
Share
numbers
and
Price
to
Sales

per
Share
values
in
comparison
to
industry
trading
competitors
Trading
competitors
used
were
Nordson,
Colfax,
Idex,
and
FlowServe.
To
determine

sales
per
share,
our
team
employed
our
projected
shares
outstanding
of
59.9M
for
FY2015
and
our
estimated
sales
for
the
year
at
1312.0M.
A
simple

division
projects
a
Sales
per
Share
value
of
21.90
for
FY2015,
which
is
an
estimate
that
fits
historical
trends.
Data
was
gathered
from
FactSet.

After
obtaining
our
Sales
per
Share
value,
the
next
step
was
to
determine
the
Price
to
Sales
per
Share
ratio.
We
opted
to
use
FactSet
consensus
estimates

of
4.00
for
2014E
and
3.70
for
2015E.
Now,
after
multiplying
our
Sales
per
Share
value
of
21.90
by
the
Price
to
Sales
per
Share
value
of
3.70,
we
arrive
at

a
target
price
of
$81.04
for
FY2015.

Appendix
11.
Price
to
Cash
Flow
per
Share
Model

Model
Methodology.
Following
a
similar
method
as
our
Sales
per
Share
model,
we
determined
historical
Cash
Flow
per
share
values
for
Graco
and

industry
trading
competitors.
Trading
competitors
used
were
Nordson,
Colfax,
Idex,
and
FlowServe.
We
then
determined
the
Price
to
Cash
Flow
per

Share
value
for
2015E
and
a
simple
multiplication
led
us
to
a
target
price.
Data
was
gathered
from
FactSet.

After
projecting
our
financial
statements,
we
determined
Cash
Flow
per
Share
to
be
4.02
for
FY2014
and
4.24
for
FY2015.
We
feel
that
these
are

accurate
estimates,
especially
when
checked
against
FactSet
consensus
values
of
4.08
and
3.98,
respectively.

Our
Price
to
Cash
Flow
per
Share
value
for
2015E
was
determined
based
on
historical
industry
averages
and
Graco’s
historical
averages.
We
determined

a
Price
to
Cash
Flow
per
Share
value
of
19.14,
which
is
an
average
of
Graco’s
Price
to
Cash
Flow
per
Share
values
for
2010-‐2013
using
the
industry
as

guidance.
We
feel
that
this
is
an
accurate
representation
of
Graco’s
valuation.

After
multiplying
4.24
(Cash
Flow
per
Share,
Bethel
Estimate)
by
19.14
(Price
to
Cash
Flow
per
Share,
Bethel
Estimate),
we
arrive
at
a
target
price
for

FY2015E
of
$81.16,
which
we
feel
is
a
reasonable
target
price.

Appendix
12.
Price
to
Book
Value
per
Share
Model

While
this
model
was
performed
in
a
similar
manner
as
Price
to
Sales
and
Price
to
Cash
Flow,
we
opted
to
reject
this
model’s
target
price.
Price
to
Book

Value
per
Share
is
best
used
for
financial
institutions,
and
we
determined
that
this
model
does
not
fit
Graco’s
business
model
as
an
accurate
valuation

method.

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
13.

EV
to
Sales,
Competitor
Analysis

Valuation
methodology.
This
valuation
technique
was
used
to
determine
how
Graco
compares
to
trading
competitors
in
the
industry.
We
compared

Graco’s
EV/Sales
values
with
Nordson,
Colfax,
Idex,
and
FlowServe
on
a
historical
and
projected
basis.
Projected
values
were
taken
from
FactSet

consensus
estimates.

As
seen
in
the
supplemental
chart,
it
is
clear
that

Graco
has
a
premium
over
the
four
trading

competitors.
Additionally,
strong
correlation

exists
between
Graco
and
the
trading

competitors,
with
the
strongest
correlation

existing
between
Nordson,
Colfax,
and
Idex.
We

used
this
correlation
to
determine
that
Nordson,

Colfax,
and
Idex
would
be
our
three
competitors

used
in
the
Levered
Beta
calculation
of
our
DCF

analysis.

Appendix
14.
EV
to
EBITDA,
Competitor
Analysis

Valuation
methodology.
This
valuation
technique
was
used
to
determine
how
Graco

compares
to
trading
competitors
in
the
industry.
We
compared
Graco’s
EV
to
EBITDA

values
with
Nordson,
Colfax,
Idex,
and
FlowServe
on
a
historical
and
projected
basis.

Projected
Values
were
taken
from
FactSet
consensus
estimates.

As
seen
in
the
supplemental
chart,
Graco
has
a
premium
over
the
four
trading

competitors.
Additionally,
strong
correlation
exists
between
Graco
and
two

competitors,
Nordson
and
Idex.

-‐

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

EV/Sales

GGG

NDSN

CFX

IEX

FLS

-‐

5.00

10.00

15.00

20.00

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

EV
to
EBITDA

GGG

NDSN

CFX

IEX

FLS

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
14.
The
Conference
Board
Economic
Growth
Projections.

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
15.
Selected
Economic
Data
with
Comparison
Correlations
to
Graco,
Inc.

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<&$6 =95334&*61 4$&%$1 0")1+#234$&%$1 53!"#1$%)'$+"# !3!"#1$%)'$+"# :%"7)'$+"#38#76> !"#1$%)'$+"#34?6#7+#2
!"#$"%& !!'&$ #($'$$ %$#) #*&**( *!&++ %##'+ #*#)$+
,"#$"%& %%%'%$ #%,'$$ !$! #**!&% **)*& %#$') #&)),,
#"#%"%& )&'!$ #%*'$$ !*$ #,#%%% *+)($ %+*'% #,$)+,
%+"#%"%# (#'*$ #*!'$$ %$#& #,!+)+ **$!! %+%', #,&$()
!"#$"%# !+'!$ +)%'$$ ),# #*++#* *%,+, %++', #&(+(&
,"#$"%# !)'*$ +#$'$$ )#% ##(&!& &!&!( %%)'( ##%&(+
#"#%"%# ((',$ #)%'$$ !!& #+!%#, &!&*% %%,'% #+&#!!
%+"#%"%+ ,!'!$ #,%'$$ !(, #%)*** &($&$ %%*'* #%,*&%
!"#$"%+ (&'!$ +*#'$$ )&( #$%$%$ &)*,# %%&') #$#$!+
,"#$"%+ )+'%$ +##'$$ (*( +)&#(% &(*)& %%+') +(&,(,
#"#%"%+ (+'$$ ++#'$$ ,!* +,##&+ &,%$% %%%'! +,#$)*
%+"#%"%% ,+'%$ %(+'$$ ,!& +**(&% &*$)! %%%'( +&!#)%
!"#$"%% ((')$ +#+'$$ ,*$ +*&&)$ &#&!( %$('! +*$!$)
,"#$"%% )$'($ %(#'$$ ,$) +*#$%# &&,!% %$('% +&+(#%
#"#%"%% ($'+$ %(%'$$ ,$$ +&&(&( #!*,* %$&'* +&*)!(
%+"#%"%$ ,%',$ %%$'$$ *#! +#)!+% #()!! %$#'+ +&%$+%
!"#$"%$ ($'&$ %&*'$$ *!& +&+%)) #!+%# %$#'* +#,*($
,"#$"%$ (#')$ !%'$$ *#, +*+*#) &$(#& !!'! +##(,+
#"#%"%$ *$')$ !&'$$ ,#, +*%)$& &%*(% !!'% +*%()+
%+"#%"$! &*'#$ !('$$ *)% +*&+*( &*#!( !&'+ +**$&!
!"%%6*&$+"# @ABC3333333333333333333333 @ADB333333333333333333333 @ABE333333333333333333333333 @ABF3333333333333333333333333 @AEG333333333333333333333333333333 @ABD333333333333333333333333333333333333333333
!"%%6*
HHH3=)&%$6%*/3!"#$%&'$"%3462.6#$34&*61
-./01.230456782/39:;3082 $',)6666666666666666666666666
78<<.9;0456782/39:;3082 $',(6666666666666666666666666
=21:/390456>981:;30826=21.? $')#6666666666666666666666666
>90@43.6782/39:;30826AB.2102C $',*6666666666666666666666666
8#7+'&$"%1

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

Appendix
17.
Management
Profiles.

Name
Position
Since
Bio

Patrick
J.

McHale,
52

Director,
President
and
Chief

Executive
Officer

1999
Mr.
McHale,
52,
is
President
and
Chief
Executive
Officer
of
Graco
Inc.,
a
position
he
has
held
since
June
2007.
He
served
as
Vice

President
and
General
Manager,
Lubrication
Equipment
Division
of
Graco
from
June
2003
until
June
2007.
He
was
Vice
President,

Manufacturing
and
Distribution
Operations
from
April
2001
until
June
2003.
He
served
as
Vice
President,
Contractor
Equipment

Division
from
February
2000
to
March
2001.
Prior
to
becoming
Vice
President,
Lubrication
Equipment
Division
in
September

1999,
he
held
various
manufacturing
management
positions
in
Minneapolis,
Minnesota;
Plymouth,
Michigan;
and
Sioux
Falls,

South
Dakota.
Mr.
McHale
joined
the
Company
in
December
1989
and
has
been
a
director
since
June
2007.

David
M.

Lowe,
58

Executive
VP,
Industrial

Products
Division

1996
David
M.
Lowe,
58,
became
Executive
Vice
President,
Industrial
Products
Division
in
April
2012.
From
February
2005
to
April

2012,
he
was
Vice
President
and
General
Manager,
Industrial
Products
Division.
He
was
Vice
President
and
General
Manager,

European
Operations
from
September
1999
to
February
2005.
Prior
to
becoming
Vice
President,
Lubrication
Equipment
Division

in
December
1996,
he
was
Treasurer.
Mr.
Lowe
joined
the
Company
in
1995.

Charles
L.

Rescorla,
62

VP,
Corporate
Manufacturing,

Distribution
Operations
and

Corporate
Development

2001
Charles
L.
Rescorla,
62,
was
elected
Vice
President,
Corporate
Manufacturing,
Distribution
Operations
and
Corporate

Development
on
December
6,
2013.
From
June
2011
to
December
2013,
he
was
Vice
President,
Corporate
Manufacturing,

Information
Systems
and
Distribution
Operations.
He
was
Vice
President,
Manufacturing,
Information
Systems
and
Distribution

Operations
from
April
2009
to
June
2011.
He
served
as
Vice
President,
Manufacturing
and
Distribution
Operations
from

September
2005
to
April
2009.
From
June
2003
to
September
2005,
he
was
Vice
President,
Manufacturing/Distribution

Operations
and
Information
Systems.
From
April
2001
until
June
2003,
he
was
Vice
President
and
General
Manager,

Industrial/Automotive
Equipment
Division.
Prior
to
April
2001,
he
held
various
positions
in
manufacturing
and
engineering

management.
Mr.
Rescorla
joined
the
Company
in
1988.

James
A.

Graner

CFO
2005
James
A.
Graner,
69,
became
Chief
Financial
Officer
in
September
2005,
a
position
he
held
in
conjunction
with
Treasurer
from

September
2005
to
June
2011.
He
served
as
Vice
President
and
Controller
from
March
1994
to
September
2005.
He
was

Treasurer
from
May
1993
through
February
1994.
Prior
to
becoming
Treasurer,
he
held
various
managerial
positions
in
the

treasury,
accounting
and
information
systems
departments.
He
joined
the
Company
in
1974.
On
September
19,
2014,
James
A.

Graner
announced
his
intention
to
retire
from
his
position
as
the
Company's
Chief
Financial
Officer.
Mr.
Graner's
retirement
will

become
effective
in
August
2015.

Dale
D.

Johnson,
59

VP
and
GM,
Contractor
Division
1996
Dale
D.
Johnson,
59,
became
Vice
President
and
General
Manager,
Contractor
Equipment
Division
in
April
2001.
From
January

2000
through
March
2001,
he
served
as
President
and
Chief
Operating
Officer.
From
December
1996
to
January
2000,
he
was

Vice
President,
Contractor
Equipment
Division.
Prior
to
becoming
the
Director
of
Marketing,
Contractor
Equipment
Division
in

June
1996,
he
held
various
marketing
and
sales
positions
in
the
Contractor
Equipment
division
and
the
Industrial
Equipment

division.
He
joined
the
Company
in
1976.

Mark
W.

Sheahan,
49

VP
and
GM,
Applied
Fluid

Technologies
Division

1996
Mark
W.
Sheahan,
49,
became
Vice
President
and
General
Manager,
Applied
Fluid
Technologies
Division
in
February
2008.
He

served
as
Chief
Administrative
Officer
from
September
2005
until
February
2008,
and
was
Vice
President
and
Treasurer
from

December
1998
to
September
2005.
Prior
to
becoming
Treasurer
in
December
1996,
he
was
Manager,
Treasury
Services.
He

joined
the
Company
in
1995.

David
M.

Ahlers,

VP,
HR
and
Corporate

Commiunications

2008
David
M.
Ahlers,
55,
became
Vice
President,
Human
Resources
and
Corporate
Communications
in
April
2010.
From
September

2008
through
March
2010,
he
served
as
the
Company's
Vice
President,
Human
Resources.
Prior
to
joining
Graco,
Mr.
Ahlers
held

various
human
resources
positions,
including,
most
recently,
Chief
Human
Resources
Officer
and
Senior
Managing
Director
of

GMAC
Residential
Capital,
from
August
2003
to
August
2008.
He
joined
the
Company
in
2008.

Karen
Park

Gallivan,
57

VP,
General
Counsel
and

Secretary

2003
Karen
Park
Gallivan,
57,
became
Vice
President,
General
Counsel
and
Secretary
in
September
2005.
She
was
Vice
President,

Human
Resources
from
January
2003
to
September
2005.
Prior
to
joining
Graco,
she
was
Vice
President
of
Human
Resources
and

Communications
at
Syngenta
Seeds,
Inc.
from
January
1999
to
January
2003.
From
1988
through
January
1999,
she
was
the

general
counsel
of
Novartis
Nutrition
Corporation.
Prior
to
joining
Novartis,
Ms.
Gallivan
was
an
attorney
with
the
law
firm
of

Rider,
Bennett,
Egan
&
Arundel,
L.L.P.
She
joined
the
Company
in
2003

Jeffrey
P.

Johnson,
54

VP
and
GM,
EMEA
2008
Jeffrey
P.
Johnson,
54,
became
Vice
President
and
General
Manager,
EMEA
in
January
2013.
From
February
2008
to
December

2012
he
was
Vice
President
and
General
Manager,
Asia
Pacific.
He
served
as
Director
of
Sales
and
Marketing,
Applied
Fluid

Technologies
Division,
from
June
2006
until
February
2008.
Prior
to
joining
Graco,
he
held
various
sales
and
marketing
positions,

CFA
INSTITUTE
RESEARCH
CHALLENGE

12/23/14

including,
most
recently,
President
of
Johnson
Krumwiede
Roads,
a
full-‐service
advertising
agency,
and
European
sales
manager

at
General
Motors
Corp.
He
joined
the
Company
in
2006

Brian
J.

Zumbolo,
44

VP
and
BM,
Lubrication
Division
2007
Brian
J.
Zumbolo,
44,
became
Vice
President
and
General
Manager,
Lubrication
Equipment
Division
in
August
2007.
He
was

Director
of
Sales
and
Marketing,
Lubrication
Equipment
and
Applied
Fluid
Technologies,
Asia
Pacific,
from
November
2006

through
July
2007.
From
February
2005
to
November
2006,
he
was
the
Director
of
Sales
and
Marketing,
High
Performance

Coatings
and
Foam,
Applied
Fluid
Technologies
Division.
Mr.
Zumbolo
was
the
Director
of
Sales
and
Marketing,
Finishing

Equipment
from
May
2004
to
February
2005.
Prior
to
May
2004,
he
held
various
marketing
positions
in
the
Industrial

Equipment
division.
Mr.
Zumbolo
joined
the
Company
in
1999.

Bernard
J.

Moreau,
53

VP
and
GM
South
and
Central

America

2013
Bernard
J.
Moreau,
53,
is
Vice
President
and
General
Manager,
South
and
Central
America,
a
position
he
has
held
since
January

2013.
From
November
2003
to
December
2012,
he
was
Sales
and
Marketing
Director,
EMEA,
Industrial/Automotive
Equipment

Division.
From
January
1997
to
October
2003,
he
was
Sales
Manager,
Middle
East,
Africa
and
East
Europe.
Prior
to
1997,
he

worked
in
various
Graco
sales
engineering
and
sales
management
positions,
mainly
to
support
Middle
East,
Africa
and
southern

Europe
territories.
He
joined
the
Company
in
1985.

Caroline
M.

Chambers

VP,
Corporate
Controller
and

Information
System

2005
Caroline
M.
Chambers,
49,
was
elected
Vice
President,
Corporate
Controller
and
Information
Systems
on
December
6,
2013.
She

has
also
served
as
the
Company's
principal
accounting
officer
since
September
2007.
From
April
2009
to
December
2013,
she

was
Vice
President
and
Corporate
Controller.
She
served
as
Vice
President
and
Controller
from
December
2006
to
April
2009.

She
was
Corporate
Controller
from
October
2005
to
December
2006
and
Director
of
Information
Systems
from
July
2003

through
September
2005.
Prior
to
becoming
Director
of
Information
Systems,
she
held
various
management
positions
in
the

internal
audit
and
accounting
departments.
Prior
to
joining
Graco,
Ms.
Chambers
was
an
auditor
with
Deloitte
&
Touche
in

Minneapolis,
Minnesota
and
Paris,
France.
Ms.
Chambers
joined
the
Company
in
1992.

Mark
D.

Eberlein,
53

VP
and
GM,
Process
Division
2013
Mark
D.
Eberlein,
53,
is
Vice
President
and
General
Manager,
Process
Division,
a
position
he
has
held
since
January
2013.
From

November
2008
to
December
2012,
he
was
Director,
Business
Development,
Industrial
Products
Division.
He
was
Director,

Manufacturing
Operations,
Industrial
Products
Division
from
January
to
October
2008.
From
2001
to
2008,
he
was

Manufacturing
Operations
Manager
of
a
variety
of
Graco
business
divisions.
Prior
to
joining
Graco,
Mr.
Eberlein
worked
as
an

engineer
at
Honeywell
and
at
Sheldahl.
He
joined
the
Company
in
1996.

Peter
O’Shea,

VP
and
GM,
Asia
Pacific
2013
Peter
J.
O'Shea,
49,
became
Vice
President
and
General
Manager,
Asia
Pacific
in
January
2013.
From
January
2012
until
December

2012,
he
was
Director
of
Sales
and
Marketing,
Industrial
Products
Division,
and
from
2008
to
2012,
he
was
Director
of
Sales
and

Marketing,
Industrial
Products
Division
and
Applied
Fluid
Technologies
Division.
He
was
Country
Manager,
Australia
-‐
New

Zealand
from
2005
to
2008,
and
from
2002
to
2005
he
served
as
Business
Development
Manager,
Australia
-‐
New
Zealand.
Prior

to
becoming
Business
Development
Manager,
Australia
-‐
New
Zealand,
he
worked
in
various
Graco
sales
management
positions.

Mr.
O'Shea
joined
the
Company
in
1995.

Christian
E.

Rothe,
40

VP
and
Treasurer
2011
Christian
E.
Rothe,
40,
became
Vice
President
and
Treasurer
in
June
2011.
Prior
to
joining
Graco,
he
held
various
positions
in

business
development,
accounting
and
finance,
including,
most
recently,
at
Gardner
Denver,
Inc.,
a
manufacturer
of
highly

engineered
products,
as
Vice
President,
Treasurer
from
January
2011
to
June
2011,
Vice
President
-‐
Finance,
Industrial
Products

Group
from
October
2008
to
January
2011,
and
Director,
Strategic
Planning
and
Development
from
October
2006
to
October

2008.
Mr.
Rothe
joined
the
Company
in
2011

Disclosures:

Ownership
and
material
conflicts
of
interest:

The
author(s),
or
a
member
of
their
household,
of
this
report
[does
not
hold]
a
financial
interest
in
the
securities
of
this
company.

The
author(s),
or
a
member
of
their
household,
of
this
report
[does
not
know]
of
the
existence
of
any
conflicts
of
interest
that
might
bias

the
content
or
publication
of
this
report.

Receipt
of
compensation:

Compensation
of
the
author(s)
of
this
report
is
not
based
on
investment
banking
revenue.

Position
as
a
officer
or
director:

The
author(s),
or
a
member
of
their
household,
does
not
serve
as
an
officer,
director
or
advisory
board
member
of
the
subject
company.

Market
making:

The
author(s)
does
not
act
as
a
market
maker
in
the
subject
company’s
securities.

Disclaimer:

The
information
set
forth
herein
has
been
obtained
or
derived
from
sources
generally
available
to
the
public
and
believed
by
the
author(s)

to
be
reliable,
but
the
author(s)
does
not
make
any
representation
or
warranty,
express
or
implied,
as
to
its
accuracy
or
completeness.
The

information
is
not
intended
to
be
used
as
the
basis
of
any
investment
decisions
by
any
person
or
entity.
This
information
does
not

constitute
investment
advice,
nor
is
it
an
offer
or
a
solicitation
of
an
offer
to
buy
or
sell
any
security.
This
report
should
not
be
considered

to
be
a
recommendation
by
any
individual
affiliated
with
[Bethel
University],
CFA
Institute
or
the
CFA
Institute
Research
Challenge
with

regard
to
this
company’s
stock.

GGG

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