shw_ir_slides_5_08
TRANSCRIPT
Christopher M. Connor Sean P. Hennessy Chairman & CEO Senior Vice President, Finance & CFO
Robert J. Wells Vice President, Corporate Communications & Public Affairs
The Sherwin-Williams Company – 1st Quarter 2008
Forward-Looking Statements
This presentation today will contain certain “forward-looking statements”, as defined under U.S. federal securities laws, with respect to sales, earnings and other matters. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements and from the Company’s historical results and experience. These risks, uncertainties and other factors include such things as: general business conditions, strengths of retail and manufacturing economies and the growth in the coatings industry; changes in the Company’s relationships with customers and suppliers; changes in raw material availability and pricing; unusual weather conditions; and other risks, uncertainties and other factors described from time to time in the Company’s reports filed with the Securities and Exchange Commission. Since it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, the above list should not be considered a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
The Sherwin-Williams Company – 1st Quarter 2008
Discussion Outline
• Coatings Market Overview
• Sherwin-Williams Overview
• Sherwin-Williams Investment Rationale– Diversified Customer Base– Controlled Distribution– Channel/Brand Strategy– Leading Technology– People Development & Retention– Growth from Acquisitions– Financial Strength
The Sherwin-Williams Company – 1st Quarter 2008
Coatings IndustryGlobal Demand
7.3 Billion Gallons81 Billion Dollars
United States 26%
Latin America 11%
Europe 32%
Asia Pacific 23%
Canada 4%
Other 4%
Source: U.S. Census Bureau, July 2007/CHEMARK
The Sherwin-Williams Company – 1st Quarter 2008
Coatings IndustryTop Manufacturers
Source: Coatings World
1 Sherwin-Williams 2 PPG 3 Valspar 4 Masco 5 ICI 6 DuPont 7 RPM 8 Comex 9 Akzo Nobel 10 Benjamin Moore
1 Akzo Nobel/ICI 2 PPG/SigmaKalon 3 Sherwin-Williams 4 Dupont 5 Valspar 6 RPM 7 BASF 8 Kansai 9 Nippon10 Sika
Worldwide United States
Source: Paint & Coatings Industry
The Sherwin-Williams Company – 1st Quarter 2008
U.S. Coatings IndustrySales ($) Mix by Category
Source: U.S. Department of Commerce; Segment Percents Based on Dollars
ArchitecturalCoatings
48%
Special Purpose
29%
OEM Finishes
23%
2007 1.28 Billion Gallons20.07 Billion Dollars
The Sherwin-Williams Company – 1st Quarter 2008
Source: McGraw-Hill Construction – spring 2008
-30%
-20%
-10%
0%
10%
20%
30%
Residential Commercial/Ind. Institutional
% I
ncre
ase/
Dec
reas
e
2003
U.S. Construction MarketAnnual Growth Rates by Market (sq. ft.)
2004 2005 2006 2007e 2008f
The Sherwin-Williams Company – 1st Quarter 2008
U.S. Existing Home SalesSeasonally Adjusted
Source: National Association of Realtors
0
1000
2000
3000
4000
5000
6000
7000
8000
. Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Sal
es in
Tho
usan
ds o
f Uni
ts
% C
hang
e ov
er P
revi
ous
Yea
r
The Sherwin-Williams Company – 1st Quarter 2008
U.S. Architectural CoatingsGallons in Millions
2007 696 Million Gallons
DIY
39%PC
61%
1987527 Million Gallons
DIY
51%PC
49%
1997647 Million Gallons
DIY
42%PC
58%
Source: U.S. Dept of Commerce MA28F Report/Internal Estimates
The Sherwin-Williams Company – 1st Quarter 2008
DIY Channel Share, U.S.Most Recent Purchase by Store Type
Source: Proprietary Paint Industry Data, S-W Marketing
2007
The Sherwin-Williams Company – 1st Quarter 2008
Contractor Channel Share, U.S.Primary Outlet by Store Type
Source: National Marketing Measures: 2007
2007
The Sherwin-Williams Company – 1st Quarter 2008
Company OverviewFinancial Highlights
Net Sales $8.01M $7,810M
EBITDA $1,148M $1,050M
Income $616M $576M
% Sales 7.7% 7.4%
Earnings Per Share $4.70 $4.19
Net Operating Cash $875M $816M
Dividend Per Share $1.26 $1.00
Return on Assets 12.7% 11.5%
2007 2006
The Sherwin-Williams Company – 1st Quarter 2008
Company OverviewRevenue & Profit by Segment - 2007
Sales: $4.96 BillionProfit: $767 MillionProfit %: 15.5%
Sales: $1.31 BillionProfit: $224.2 MillionProfit %: 17.1%
Sales: $1.73 BillionProfit: $160.7 MillionProfit %: 9.3%
Paint StoresGlobal
Consumer
Controlled Distribution Accounts for 75% of Sales
The Sherwin-Williams Company – 1st Quarter 2008
Architectural Coatings
• Residential DIY• Residential Repaint (Pro)• New Residential• New Commercial & Institutional• Property Maintenance• Architects & Designers
Diversified Customer BaseResidential-Commercial-Industrial
Special Purpose Coatings
• Industrial Maintenance • Traffic Marking• Automotive Refinish• Marine• Aerosol Paints• Miscellaneous Special Purpose
OEM Finishes
• Kitchen Cabinets• Residential Furniture• Office Furniture• Wood Building Products• Metal Building Products• Heavy Equipment• Electronics• Military
The Sherwin-Williams Company – 1st Quarter 2008
Controlled Distribution Competitive Advantages
• Direct Relationship with Customer / End-User
• Control Over Brands, Pricing, Inventory, Staffing
• Control Pace and Place of Growth
The Sherwin-Williams Company – 1st Quarter 2008
3,325 2,643
ICI/Glidden 662 718PPG 450 250Comex/Pro Paint, Inc. 372 308Kelly-Moore 164 160Benjamin Moore 154 68 Cloverdale/Rodda 109 101Dunn Edwards 83 71Diamond Vogel 77 85Vista 46 46
Gap: +1,208 +836
Source: Company Websites, Rauch Guide & Chain Store Guide
Controlled DistributionTop 10 Paint Store Chains – North America
2007 Est. 2002 Est.
2,117 1,807
The Sherwin-Williams Company – 1st Quarter 2008
Controlled Distribution Global Group
• Company-Operated Branches for Architectural, Automotive and OEM Finishes
• Added 50 Net New Locations in 2007 for a Total of 519 Branches
The Sherwin-Williams Company – 1st Quarter 2008
Paint
Aerosols
Wood Care
Applicators
Channel-Brand Strategy Leading Brands by Category and Channel
Sherwin-Williams Paint Store
Paint Dealer/Hardware
Mass Merchant/Department Specialty
PAINT STORES GROUP CONSUMER GROUP
The Sherwin-Williams Company – 1st Quarter 2008
53.462.6
73.478.2
83.6 86.2 88.7 88.3 91.3 95.4101.0 102.0
0
10
20
30
40
50
60
70
80
90
100
110
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Leading TechnologyTotal Technical Expenditures$
Mill
ions
% of Sales 1.3 1.3 1.5 1.6 1.6 1.7 1.7 1.6 1.5 1.3 1.3 1.3
The Sherwin-Williams Company – 1st Quarter 2008
Leading TechnologyNew Product Development
• Productivity Enhancing
• Sustainability
• Color Technology
• Safety and Security
The Sherwin-Williams Company – 1st Quarter 2008
People Development & RetentionRecognized Employer of Choice
FORTUNE FORTUNE ““100 Best Companies 100 Best Companies
to Work For”to Work For”
2005, 2006 & 20082005, 2006 & 2008
The PrincetonThe PrincetonReviewReview
““Best Entry LevelBest Entry LevelJobs” Jobs”
2005, 2006, 20072005, 2006, 2007& 2008& 2008
BusinessWeekBusinessWeek““100 Best Places to 100 Best Places to Launch A Career”Launch A Career”
2007 & 20082007 & 2008
The Sherwin-Williams Company – 1st Quarter 2008
New MTP Hires in 2007:
• Paint Stores Group 707
• Automotive Finishes 55
• Chemical Coatings Division 18
• Paint & Coatings Division 2
Total 782
People Development & RetentionSuccessful Recruiting Effort
The Sherwin-Williams Company – 1st Quarter 2008
Manager 4.4%
Assistant Mgr. 9.3%
Sales Rep 6.9%
People Development & RetentionVoluntary Turnover
The Sherwin-Williams Company – 1st Quarter 2008
Growth by Acquisition
• Completed 7 Transactions in 2007 for a Total Investment of $282 Million Generating Over $258 Million in Sales
• Completed 13 Transactions Over Last Five Years for a Total Investment of $940 Million Generating Over $870 Million in Sales
The Sherwin-Williams Company – 1st Quarter 2008
1,728
2,097 2,130 2,249 2,308 2,2202,339 2,455
2,701
3,080
3,4133,598
-300
200
700
1,200
1,700
2,200
2,700
3,200
3,700
$ M
illio
ns
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
$ Gross Profit
44.943.742.8
44.245.445.1
43.844.344.943.243.0
41.8
% to Sales
Consolidated Gross Profit
The Sherwin-Williams Company – 1st Quarter 2008
1,730 1,7851,882
2,069
2,3262,513 2,597
0
500
1,000
1,500
2,000
2,500
3,000
$ M
illio
ns
2001 2002 2003 2004 2005 2006 2007
$ SG&A
Selling, General & Admin Expense
32.432.232.433.834.834.434.1
% to Sales
The Sherwin-Williams Company – 1st Quarter 2008
Working Capital Ratio(Accounts Receivable + Inventory – Payables)/Sales
16.3%
13.8%
11.5% 11.0%
13.8%12.5%
11.7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2000 2001 2002 2003 2004 2005 2006 2007
12.7%
The Sherwin-Williams Company – 1st Quarter 2008
Net Operating Cash
Uses of Cash
• Acquisitions
• Capital Expenditures
• Buy Back Stock
• Manage Debt
• Pay Dividends
0100200300400500600700800900
2003 2004 2005 2006 2007
Net Operating Cash less Cap. Ex. & Dividends
Net Operating Cash
($ in
Mill
ions
)
558.9 544.7
716.7
351.7 340.9
460.0 460.0
815.8874.8
546.6
The Sherwin-Williams Company – 1st Quarter 2008
Stock Repurchase
6.70 6.707.98
6.60
8.10
5.60
13.2
4.1
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00M
illio
ns
of S
har
es
2001 2002 2003 2004 2005 2006 2007 2008
Avg. Common Shares Outstanding 156.9 152.4 147.0 144.7 141.1 137.3 130.9 122.1 (fully diluted / in millions)
(1Q)
The Sherwin-Williams Company – 1st Quarter 2008
Debt : EBITDA Ratio
678 745848
10471148
514
738621
875965
0
500
1000
1500
2003 2004 2005 2006 2007
Debt EBITDA
($ in
Mill
ions
)
76% 99% 73%83%
84%
The Sherwin-Williams Company – 1st Quarter 2008
Dividends Per Share1979 – 2008E
.01 .04 .05 .06 .08 .10 .12.13 .14 .16 .18 .19 .21 .22 .25 .28.32.35
.40.45 .48.54 .58 .60 .62
.68.82
1.00
1.26
1.40
$0.00$0.10$0.20$0.30$0.40$0.50$0.60$0.70$0.80$0.90$1.00$1.10$1.20$1.30$1.40$1.50
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E
The Sherwin-Williams Company – 1st Quarter 2008
Summary
• Sherwin-Williams Investment Rationale
– Diversified Customer Base
– Controlled Distribution
– Channel/Brand Strategy
– Leading Technology
– People Development & Retention
– Growth from Acquisitions
– Financial Strength