Sherwin-williams Company (the) · NYSE:SHW
Sherwin-williams Company (the) — The Sherwin-Williams Company — Investor Day (October 2017)
198 slides from Sherwin-williams Company (the)'s investor day presentation, Oct 3, 2017
Slide 1: Financial Community Presentation
FINANCIAL COMMUNITY PRESENTATION MARRIOTT MARQUIS, NEW YORK OCTOBER 3, 2017 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 2: Forward-Looking Statement
Forward‐Looking Statement The presentations today will contain certain “forward‐looking statements," as defined under U.S. federal securities laws, with respect to sales, earnings and other matters. These statements can be identified by the use of forward‐looking terminology such as "believe," "expe
Slide 3: Industry Overview
INDUSTRY OVERVIEW BOB WELLS SENIOR VICE PRESIDENT, CORPORATE COMMUNICATIONS & PUBLIC AFFAIRS FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 4: Paint & Coatings Industry
Paint & Coatings Industry Global Mix by Category (Based on $) Special Architectural Purpose Paints Total Coatings Coatings 39% 20% 2016 ~ 9 Billion Gallons ~121 Billion Dollars OEM Coatings 41% Source: KNG Research The use of KNG information in this presentation is for illustrative and FINANCIAL COM
Slide 5: Paint & Coatings Demand by Region
Paint & Coatings Demand by Region Geographic Split of Global Revenue Europe North America 23% 23% 23% 24% 23% 21% 25% Asia‐Pacific 25% 45% 39% South America 5% 51% 42% 7% 3% 3% ROW ~ 4% All Coatings OEM Coatings Architectural Paints Special Purpose Coatings FINANCIAL COMMUNITY PRESENTATION – OCTOBER
Slide 6: Projected Demand by Region
Projected Demand by Region 5‐Year Growth Rate Estimates Europe North America 2% 3% 2% 3% 2% 2% 2% Asia‐Pacific 2% 6% 7% South America 2% 5% 5% 2% 2% ROW 5% 2% All Coatings OEM Coatings Architectural Paints Special Purpose Coatings FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Sources: KNG, ACA
Slide 7: Paint & Coatings Industry
Paint & Coatings Industry Global Mix by Category (Based on $) 3% Total Coatings 6% 2016 39% ~9 Billion Gallons ~121 Billion Dollars 11% ARCHITECTURAL GENERAL INDUSTRIAL 2% AUTO OEM WOOD 4% COIL PACKAGING 7% PROTECTIVE & MARINE 17% AUTO REFINISH 11% OTHER FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3,
Slide 8: Industry Breakdown by Region
Industry Breakdown by Region 2016 Sales ($) Mix by Category North America Coatings Industry Europe Coatings Industry 2% 8% 9% 39% 41% 6% 8% 10% ARCHITECTURAL 3% GENERAL INDUSTRIAL 3% 8% 15% 11% 17% AUTO OEM 4% ~1.5 Billion Gallons 3% 10% ~2.1 Billion Gallons ~27.8 Billion Dollars 3% WOOD ~28.4 Billi
Slide 9: Top Global Manufacturers
Top Global Manufacturers Coatings Industry 2016 PPG Global Market All Others Top 10 Suppliers ~55% (>5,000 firms) Masco FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Source: KNG Research
Slide 10: Top Global Manufacturers
Top Global Manufacturers Coatings Industry 2016 Architectural Market Industrial Market Top 10 Suppliers ~46% Top 10 Suppliers ~48% Sherwin‐ PPG Williams PPG AkzoNobel Sherwin‐Williams AkzoNobel All Other All Other Axalta Nippon BASF Asian Paints Masco Nippon Benjamin Kansai Moore Kansai DAW KCC, Kor
Slide 11: North America Paint & Coatings Industry
North America Paint & Coatings Industry Sales ($) Mix by Category Architectural Special Paints North America Paint & Coatings Purpose 41% 2016 22% ~ 1.5 Billion Gallons ~27.8 Billion Dollars OEM Coatings 37% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Source: KNG Research
Slide 12: North America Paint & Coatings Industry
North America Paint & Coatings Industry Sales ($) Mix by Category Comprises ~65% Architectural of SHW Direct Sales Paints Special 41% Reliable Indicator of Purpose Demand in Other 22% Coatings Categories OEM Coatings 37% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Source: KNG Research
Slide 13: U.S. Paint & Coatings Industry
U.S. Paint & Coatings Industry Architectural Paint Gallons (Millions) 850 800 750 ~ 782 Million Millions of Gallons (+3.3%) 700 650 600 550 500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Sources: ACA, Compan
Slide 14: Favorable Customer Mix
Favorable Customer Mix DIY Contractor Shift Will Continue in U.S. & Canada 39% 59% Do‐It‐Yourself Contractor 61% 41% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Sources: U.S. Commerce Department, Company Estimates
Slide 15: U.S. & Canada Architectural Paints
U.S. & Canada Architectural Paints Breakdown by Segment Residential Repaint (Pro) 28% New Non‐ (217M Gal) Non‐Residential Residential Repaint 6% 15% (50M Gal) (123M Gal) New Residential 12% (90M Gal) DIY 39% (302M Gal) 782 Million Gallons FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Sources: A
Slide 16: Sustained Household Formation Underpins Housing Demand
U.S. Paint & Coatings Industry Sustained Household Formation Underpins Housing Demand 120,000 5,000 118,000 4,500 116,000 4,000 Number of Occupied Households Quarterly Y‐o‐Y Growth 114,000 3,500 112,000 3,000 110,000 2,500 108,000 2,000 106,000 1,500 104,000 1,000 102,000 500 100,000 0 1st Qtr 3rd Q
Slide 17: Housing Supply not Keeping Pace
U.S. Paint & Coatings Industry Housing Supply not Keeping Pace Housing Surplus/ Deficit (LHS) Housing Surplus/Deficit (thousand) & Vacancy Rate (RHS) Housing Surplus/Deficit (thousand) Homeowner Vacancy Rate Cumulative Housing Surplus/Deficit (RHS) 800 0.03 800 4,000 600 600 3,000 0.025 400 400 2,00
Slide 18: Shortfall Particularly Acute in Entry Level
U.S. Paint & Coatings Industry Shortfall Particularly Acute in Entry Level 10.0 12% 9.3 11% 9.0 Price Appreciation - right Months' Supply of Resale Inventory - 10% 8.0 7.0 Historical Average 8% 7% 6.0 4.9 5.0 6% 4.0 3.2 4% 2.8 4% 3.0 2.0 2% 1.0 0.0 0% Entry Level First-Time Second-Time Luxury Low Ti
Slide 19: New Housing Activity Lags Prior Periods
U.S. Paint & Coatings Industry New Housing Activity Lags Prior Periods 3,000 Manufactured Housing Shipments 2,500 Multi-Family Completions Single-Family Completions 2,000 1,500 1,000 500 0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1
Slide 20: Inventory For Sale Below Multi-Decade Norms
U.S. Paint & Coatings Industry Inventory For Sale (New & Existing) Below Multi‐Decade Norms 3.5% Seasonally-Adjusted Single-Family New and Existing Home Inventory as Percentage of Households 3.0% 2.5% 2.0% 1.5% 1.0% 1Q90 3Q90 1Q91 3Q91 1Q92 3Q92 1Q93 3Q93 1Q94 3Q94 1Q95 3Q95 1Q96 3Q96 1Q97 3Q97 1Q98
Slide 21: Residential Remodeling Market Remains Strong
U.S. Paint & Coatings Industry Residential Remodeling Market Remains Strong $425.0 10% Leading Indicator of Remodeling Activity $405.0 9% $385.0 8% 6.9% 6.9% 6.6% 6.7% $365.0 6.5% 7% 6.3% 6.1% 6.0% 6.1% 6.0% 5.9% 5.7% $345.0 5.5% 6% 5.3% 5.3% 5.1% 4.8% $324.0 $325.0 $315.6 $317.0 5% $310.9 $304.8 $3
Slide 22: Residential and Non-Residential Fixed Investment as % of GDP
U.S. Paint & Coatings Industry Residential and Non‐Residential Fixed Investment as % of GDP Residential Investment Non‐Residential Investment 3.8% of GDP in 2Q17 12.6% of GDP in 2Q17 13% Below Historical Average 4% Below Historical Average 7.00% 15.00% 6.50% 14.50% 6.00% 14.00% 5.50% 13.50% 5.00% 13
Slide 23: Positive Manufacturing & Construction Outlook
U.S. Paint & Coatings Industry Positive Manufacturing & Construction Outlook Manufacturing PMI & Architectural Billings Architectural Billings by Sector 60.0 60.0 55.0 55.0 50.0 50.0 45.0 45.0 40.0 40.0 35.0 35.0 2016‐Apr 2016‐Jul 2017‐Apr 2017‐Jul 2016‐Oct 2016‐May 2017‐May 2016‐Jan 2016‐Feb 2016‐J
Slide 24: Moderating Permits and Starts
U.S. Paint & Coatings Industry Moderating Permits and Starts – Completions likely to Continue Rising 700 625 613 Multi-Family Construction - Units in Thousands 570 557 600 465 465 500 425 415 400 395 393 375 375 373 400 355 330 322 319 308 267 263 300 247 198 195 178 165 163 158 200 138 114 100 Star
Slide 25: Positive Manufacturing Outlook
U.S. Manufacturing Activity Positive Manufacturing Outlook Aug Jul Index 2017 2017 Change Direction Rate of Change PMI 58.8 56.3 +2.5 Growing Faster New Orders 60.3 60.4 ‐0.1 Growing Slower Production 61.0 60.6 +0.4 Growing Faster Employment 59.9 55.4 +4.7 Growing Faster Inventories 55.5 50.0 +5.5 U
Slide 26: Coil Coatings & General Industrial
Coil Coatings & General Industrial U.S. Appliance Shipments 80,000 100% 90% 80% Laundry (Dryer, 60,000 Washers) 70% 60% Food Preservation '000 Units (Freezers, 40,000 Refrigerators) 50% Cooking (Cooktops, 40% Microwave Ovens) 20,000 30% Cleanup (Compactors, 20% Dishwaters, Disposers) 10% 0 0% 2000 2
Slide 27: Industrial Coatings
Industrial Coatings Forecasted U.S. & Canada Activity 4.00% 3.00% General Industrial 2.00% Packaging 1.00% Industrial Wood 0.00% Coil Manufacturing ‐1.00% ‐2.00% 2015 2016 2017p FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Sources: IHS Global Insight, Company Estimates
Slide 28: Automotive Refinish
Automotive Refinish CR/VR Indicators NORTH AMERICA EUROPE U.S. Vehicle Miles Driven Vehicles In Use ASIA‐PACIFIC Moving 12‐Month Total Vehicle Miles Driven (10 Years) Estimated Vehicles In Use 2002‐2020 LATIN AMERICA 350,000,000 3,200 300,000,000 3,160 Total U.S. Vehicle Miles Driven 3,120 250,000,0
Slide 29: Protective & Marine Coatings
Protective & Marine Coatings Forecasted U.S. & Canada Activity 10.0% 5.0% Bridge & Highway Food & Beverage 0.0% Marine Oil & Gas ‐5.0% Power Generation Rail ‐10.0% Steel Fabricator Water & Wastewater ‐15.0% 2015 2016 2017p FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Sources: IHS Global Insigh
Slide 30: Oil & Gas Infrastructure
Oil & Gas Infrastructure Capital Expenditure (in Billions $) ‐20.8% Shell ‐9.4% Exxon ‐19.2% 39.9 ‐17.4% 42.5 38.5 ‐37.9% 31.6 ‐15.3% 31.1 26.1 22.1 19.3 2013 2014 2015 2016 2013 2014 2015 2016 Chevron BP ‐6.6% ‐8.2% ‐16.7% ‐16.9% 37.9 ‐38.6% 24.5 ‐1.6% 35.4 22.5 29.5 18.7 18.4 18.1 2013 2014 2015 2
Slide 31: Global Economic Indicator: Oil and Gas
Global Economic Indicator: Oil and Gas NORTH AMERICA Global Oil & Gas Rig Count EUROPE 3,000 ASIA‐PACIFIC LATIN AMERICA 2,500 Number of Rigs 2,000 1,500 1,000 500 0 Feb Jun Sep Feb Jun Sep Feb Jun Sep Feb Jun Sep Feb Jun Mar Apr Jul Oct May Mar Apr Jul Oct Mar Apr Jul Oct Oct Nov Dec May Nov Dec May
Slide 32: Global Confidence
Global Confidence Positive Outlook WORLD NORTH AMERICA Global Manufacturing Confidence Global Consumer Confidence EUROPE PMI Consumer Outlook ASIA LATIN AMERICA 60.0 105 58.0 56.0 54.0 52.0 50.0 100 48.0 46.0 44.0 42.0 40.0 95 Sep Sep Sep Mar Jul Mar Jul Mar Jul Mar Jul May Nov May Nov May Nov May J
Slide 33: Company Overview
COMPANY OVERVIEW JOHN MORIKIS CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 34: Why SHW?
Why SHW? • Significant Upside in Core Sherwin‐Williams Business • Great Fit of Valspar Acquisition – Geographic Complement Provides Needed Scale in Asia/Pac and Europe – New Industrial Categories Beneficial to Mix – Significant Synergies (Cost, Revenue and Operating) • Experienced Management Team an
Slide 35: Company Overview: Core SHW
Company Overview: Core SHW Financial Highlights (Non‐GAAP) 2014 2015 2016 ‘14‐’15 % Chg. ‘15‐’16 % Chg. NET SALES $11.13B $11.34B $11.86B +1.9% +4.6% EBITDA $1,521M $1,809M $2,008M +18.9% +11.0% NET INCOME $866M $1,053M $1,176M (1) +21.5% +11.7% % SALES 7.8% 9.3% 9.9% EARNINGS PER SHARE $8.78 $11.16
Slide 36: Company Overview: Core SHW
Company Overview: Core SHW Financial Highlights 1H‐17 vs 1H‐16 Ex‐Revenue As Reported Reclassification 1H‐16 1H‐17 % Chg. 1H‐17 % Chg. NET SALES $5.79B $6.12B 5.6% $5.99B 3.4% GROSS MARGIN 50.0% 49.1% (90bps) 50.0% ‐‐‐ EBITDA $920.3M $1,028.1M 11.7% NET INCOME $580.9M $672.2M 15.7% % SALES 10.0% 11.
Slide 37: New Reportable Segments
New Reportable Segments 2016 Pro Forma Paint Stores Latin America Coatings Sales: $8,377M Sales: $2,840M Sales: $4,400M Operating Profit: $1,605M(1) Operating Profit: $407.5M(1) Operating Profit: $696.4M(1) Operating Margin: 19.2%(1) Operating Margin: 14.3%(1) Operating Margin: 15.8%(1) FINANCIAL CO
Slide 38: New Reportable Segments: The Americas Group
New Reportable Segments The Americas Group 2016 Pro Forma Old Segments New Segment (% Change from 2015) North America North America Latin America Sales: $7,790M (+8.1%) Profit: $1,623M (+13.2%) Latin America Sales: $586.9M (‐7%) Profit: ($17.4M) (‐194%) Sales: $8,377M (+6.8%) Profit: $1,605M (+10.6%
Slide 39: New Reportable Segments: Consumer Brands Group
New Reportable Segments Consumer Brands Group 2016 Pro Forma Old Segments New Segment (% Change from 2015) Consumer Group Diversified Brands Sales: $1,527M (‐3.2%) Profit: $301.0M (‐2.5%) Global Supply Chain Paint Segment Architectural Sales: $1,313M (‐6.4%) Profit: $106.5M (‐7.9%) paint TM Sales: $
Slide 40: New Reportable Segments: Performance Coatings Group
New Reportable Segments Performance Coatings Group 2016 Pro Forma Old Segments New Segment (% Change from 2015) Global Finishes Sales: $1,946M (+1.6%) Profit: $257.2M (+27.4%) Protective & Automotive Product Marine Finishes Finishes Coatings Segment Sales: $2,454M (0.0%) Profit: $439.2M (‐9.5%) Pain
Slide 41: Company Overview: Growth and Synergy Opportunities
Company Overview Significant Growth and Synergy Opportunities SHW SHW + VAL 2016 Revenue & EBIT by Segment 2016 Pro Forma Revenue & EBIT by Segment (2) Segment Revenues: $11.9B Segment Revenues: $15.8B(3) 25% Segment Profit: $2.2B(1) 25% Segment Profit: $2.8B(4) Average: With Synergies: ~19.4% Profi
Slide 42: Company Overview: Broader Geographic Footprint
Company Overview Broader Geographic Footprint SHW SHW + VAL International International • Significantly Expands 13% 21% Presence in Asia‐Pacific and EMEAI • Provides Scale Platform 87% 79% to Enable Profitable Growth in Asia‐Pacific U.S./Canada U.S./Canada 2016: $11.9B Pro Forma 2016: $15.8B FINANCI
Slide 43: Company Overview: Stronger Industrial Coatings Platform
Company Overview Stronger Industrial Coatings Platform SHW SHW + VAL Industrial Coatings Industrial Coatings • Extends Capability Set 24% 34% Into Packaging and Coil With Leading Positions 66% 76% • Improves Technology Capabilities to Accelerate Architectural Paint Architectural Paint Product Innova
Slide 44: Two Proven Brand Portfolios
Company Overview Two Proven Brand Portfolios Sherwin‐Williams paint TM Valspar FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 45: Track Record of Successful Technology Development
Company Overview Track Record of Successful Technology Development • Air Dry Automotive Clear Coats Sherwin‐Williams • Surface / Temperature Tolerant Primers • OEM “Soft Feel” Technology • Purdy Power System • Ecotoner Zero VOC Color Dispersion • Duckback Deck & Dock Systems • Resin Formulation Capa
Slide 46: People Development
People Development Successful Talent Pipeline Positions Posted and Filled by Average Years of Paint & Coatings Experience Internal Candidates (2017)… Among Senior Leadership (Post Acquisition): • Supervisors: 85% • Senior Leadership: 19 Years • Managers: 93% • Directors: 16 Years • Directors: 100% •
Slide 47: First 125 Days
First 125 Days... • Shared “Performance Culture” Across Both Companies • Great Talent in Valspar Organization—Top to Bottom • Strong and Defensible Valspar Customer Relationships • Early Collaboration Between Selling and Technical Organizations • Significant Balance Sheet and Working Capital Opportu
Slide 48: Introductions
Introductions… Al Mistysyn Jay Davisson Aaron Erter David Sewell Joel Baxter Chief Financial President President President President & GM, Officer The Americas Group Consumer Brands Group Performance Coatings Global Supply Chain Group FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 49: Financial Overview
FINANCIAL OVERVIEW AL MISTYSYN SENIOR VICE PRESIDENT, FINANCE & CHIEF FINANCIAL OFFICER FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 50: Financial Priorities to Drive Shareholder Value
Financial Priorities to Drive Shareholder Value FY17 BUILDING TARGETS TO FY20 $ ACCELERATE OPTIMIZE COST IMPROVE FREE DRIVE BALANCED CLEAR ORGANIC STRUCTURE & CASH FLOW CAPITAL PORTFOLIO GROWTH MARGINS ALLOCATION CHOICES FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 | SEE PAGE 1 FOR FORWARD‐LOO
Slide 51: Balanced Revenue Mix Provides Strong Base for Growth
Balanced Revenue Mix Provides Strong Base for Growth Sherwin-Williams Revenue by Segment 13% 18% THE AMERICAS GROUP PERFORMANCE COATINGS GROUP 16% CONSUMER BRANDS GROUP 54% 71% 27% 2016 2016 SHW + VAL Pre-Acquisition Revenue $11.9B 1% 5% 5% 2% ~$16B 7% 8% US/CANADA 6% LATIN AMERICA EMEAI APAC 87% AU
Slide 52: Well-Positioned to Drive Top-Line Growth
Well‐Positioned to Drive Top‐Line Growth MEGATRENDS DRIVING GAINING MARKET SHARE DEMAND IN END MARKETS AND DRIVING GROWTH Expected CAGR GDP Growth in 2017-2020 Period DEMOGRAPHICS TECHNOLOGY HOUSEHOLD FORM ATION Asia Pacific (ex‐China) North America ~2% Eurozone ~2% ~4.5% LATAM ~2% UK ~1.5% China ~6
Slide 53: Proven History of Operational Execution
Proven History of Operational Execution EBITDA Margin* 16.6% • TAG Organic Growth 12.8% • Operational Efficiencies • Continuous Improvement Culture • Successful Acquisition Integration • Good Cost Control Across Our Businesses • Continued Investments in Core Businesses FY12 FY16 HISTORICAL PROFORMA
Slide 54: Consolidated Run Rate Synergies Progress
Consolidated Run Rate Synergies Progress 2019 Synergies Allocations ($385M) …Expected To Be Realized by 2020 Revenue Synergies 6% SG&A 43% $385M - $415M $280M Raw Material 39% $106M Manufacturing/ 2017 2018 Long-Term Distribution/R&D Annual Synergy 12% COGS Target Increased Confidence to Realize I
Slide 55: Significant EBITDA Growth
Significant EBITDA Growth Synergies & Continuous Improvement Initiatives $1.0+ Billion Cumulative Savings By FY20 SG&A • Expansion of SS Centers $65 • Corporate Costs • Sales Support $115 • Redundant Field Sales PROCUREMENT • Direct $440 • Indirect SG&A OPERATIONS • Manufacturing PROCUREMENT • Distr
Slide 56: Driving EBITDA Expansion While Investing in Growth
Driving EBITDA Expansion While Investing in Growth EBITDA % TO SALES $3.6B to $4.1B $2.6B 18.8% to 21.0% 16.6% FY16 PROFORMA FY20F ~8.5% to 11.5% EBITDA Growth with 220 to 440 bps of Margin Expansion over the next 4 years FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 | SEE PAGE 1 FOR FORWARD‐LO
Slide 57: Working Capital Performance
Working Capital Performance % to Sales SHW Core $2,135 VAL Core $1,971 $664 $706 $1,139 $1,070 $1,017 $1,030 $952 $975 $896 $925 $760 $1,471 $1,265 12.7% 11.9% 12.5% 11.2% 10.7% 10.9% 10.8% 10.5% 11.3% 10.2% 8.6% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020F FINANCIAL COMMUNITY PRESENTATIO
Slide 58: Adjusted Free Cash Flow Performance
Adjusted Free Cash Flow Performance* % TO SALES ~$1.9B to $2.1B $1,404 10.0% to 10.5% 8.9% FY16 PROFORMA FY20F TARGETING STEADY STATE FUTURE FREE CASH FLOW OF 10%+ OF SALES FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 | SEE PAGE 1 FOR FORWARD‐LOOKING STATEMENTS DECLARATION *Net Operating Cash
Slide 59: Consolidated Net Operating Cash & Uses of Cash
Consolidated Net Operating Cash & Uses of Cash 5-Year Net Operating Cash: $7.0B 5-Year Net Operating Cash: ~$9.7B 2011‐2015 DEBT REPAYMENT 2016‐2020 CAPITAL EXPENDITURES SHW + VAL CASH DIVIDENDS ACQUISITIONS TREASURY STOCK PURCHASE $1.8B $1.3B $0.8B $3.9B $5.8B $1.9B $1.4B USES OF CASH $1.4B $1.6B $
Slide 60: Significant Items Affecting Cash Flow
Significant Items Affecting Cash Flow SIGNIFICANT CASH OUTFLOWS FUTURE DRIVERS OF IMPROVED FCF • Costs to Achieve with Cash Outflows Tapering in • Core Operating Margin Expansion FY19 • Synergy Realization • Tax Impact of Valspar North American Industrial Wood Divestiture • Working Capital Improveme
Slide 61: Consistent Capital Allocation Philosophy
Consistent Capital Allocation Philosophy CONSISTENT CAPITAL ALLOCATION PHILOSOPHY WE WILL NOT HOLD CASH BALANCED CAPITAL • Reduce Debt to EBITDA Leverage Below KEY OBJECTIVES ALLOCATION GOALS 3.0x - FY18 • BBB+ Target CAPEX Invest • Reduce CAPEX to Below 2% of Sales Rating – FY19 • Debt to EBITDA Di
Slide 62: Debt to EBITDA Leverage
Debt to EBITDA Leverage $11.8B DEBT EBITDA Debt to EBITDA • EBITDA Excludes Acquisition Costs & Costs to Achieve $7.2B – $10.3B 4.46 $3.6B-$4.1B $2.6B $2.0B $2.0B $1.9B $1.8B 2.0-2.5 1.08 1.00 DEBT EBITDA DEBT EBITDA DEBT EBITDA DEBT EBITDA 2015 2016 2017 @ Close 2020 FINANCIAL COMMUNITY PRESENTATIO
Slide 63: Capital Expenditures
Capital Expenditures DISCIPLINED APPROACH TO CAPEX $380M $356 2.3% $300M 1.6% to 2.0% FY16 PROFORMA FY20F FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 | SEE PAGE 1 FOR FORWARD‐LOOKING STATEMENTS DECLARATION
Slide 64: Dividends Per Share
Dividends Per Share 1979 – 2020 $6.00 $5.20‐5.82 $5.00 $4.00 $3.44 $3.36 $3.40 $3.00 2.68 2.20 2.00 $2.00 1.56 1.40 1.42 1.44 1.46 1.26 1.00 $1.00 .68 .82 .54 .58 .60 .62 .40 .45 .48 .28 .32 .35 .18 .19 .21 .22 .25 .08 .10 .12 .13 .14 .16 .01 .04 .05 .06 $0.00 FINANCIAL COMMUNITY PRESENTATION – OCTO
Slide 65: Strategic M&A
Strategic M&A TARGET CRITERIA VALUE DRIVERS • Improve Technology Portfolio • Fit Core Competencies • Leverage Acquisitions Across Our Global Businesses • Strengthen Global Reach • Leadership in Key Technologies, Markets, • Supply Products Across • Fills Product or Capability Gap or Regions Target Di
Slide 66: Treasury Stock Acquired
Treasury Stock Acquired 2010‐2020 Average Price Avg. Diluted Shares Shares Per Share Total Dollars Outstanding (000) 2010 5,000,000 75.14 375,700,000 108,786 2011 4,700,000 78.16 367,371,981 105,672 2012 4,600,000 121.25 557,765,791 103,930 2013 4,300,000 178.90 769,271,010 103,049 2014 6,925,000 22
Slide 67: Summary Capitalization
Summary Capitalization Strong Financial Profile Provides Flexibility PRO FORMA • Significant Liquidity Cash $0.0B • Expect to Maintain BS Flexibility to Pursue Growth Opportunities Debt $10.85B • Annual Cash Generation Comfortably Revolving Credit Facilities $1.35B Supports Anticipated Funding Needs
Slide 68: Third Quarter Outlook
Third Quarter Outlook PRIOR + PRIOR FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 | SEE PAGE 1 FOR FORWARD‐LOOKING STATEMENTS DECLARATION
Slide 69: Third Quarter Guidance Update
Third Quarter Guidance Update • Revised Consolidated Excluding Valspar - Sales & EPS Guidance 3Q Guidance Sales EPS Revised Low Single Digits $4.10 - $4.20 Previous Low to Mid-Single Digits $4.40 - $4.60 • Unfavorable Impact of Hurricanes Harvey, Irma, & Maria • Business Disruption, Raw Material Inc
Slide 70: Third Quarter Guidance Update
Third Quarter Guidance Update Three Months Ended Three Months Ended 30-Sep-17 30-Sep-17 Revised Guidance Previous Guidance Low High Low High DILUTED NET INCOME PER COMMON SHARE FROM $3.40 $3.70 $3.70 $4.10 CONTINUING OPERATIONS VALSPAR-RELATED COSTS: - TRANSACTION AND INTEGRATION COSTS 0.10 0.10 0.1
Slide 71: FY17–FY20 Financial Outlook Assumptions
FY17 – FY20 Financial Outlook Assumptions FY16 FY20F EBITDA MARGIN PRO FORMA TARGETS • Leverage From Growth 4%-6% Net Sales $15.8B CAGR Growth • Merger/Productivity Cost Savings • Incremental ~$1.0B of Gross Savings Over EBITDA Margin 16.6% 18.8%-21.0% Margin Expansion 4 Year Period BELOW-THE-LINE I
Slide 72: Committed to Delivering 9.0% to 12.0% EPS CAGR Through 2020
A FOUNDATION OF STRENGTH • Track Record of Financial Performance & Focused Execution • Large, Stable Revenue Base with Improving EBITDA Margins • Strong Balance Sheet that Provides Liquidity & Flexibility • SHW & VAL Experienced & Determined Management Team …ON WHICH WE WILL CONTINUE TO BUILD • Grow
Slide 73: Appendix
APPENDIX FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 74: Appendix 1A: 2016 Pro Forma
Appendix 1A: 2016 PRO FORMA (In Millions) SHW VAL SHW + VAL Pro Forma Consolidated As Reported (A) As Reported (B) As Reported (C) Adjustments (D) Pro Forma December 31, 2016 October 26, 2016 Year End 2016 Year End 2016 NET SALES $11,856 $4,191 $16,047 ($224) $15,823 INCOME BEFORE INCOME TAXES $1,59
Slide 75: Appendix 1B: 2016 Pro Forma
Appendix 1B: 2016 PRO FORMA (In Millions) SHW VAL SHW + VAL Pro Forma Consolidated As Reported (A) As Reported (B) As Reported (C) Adjustments (D) Pro Forma December 31, 2016 October 26, 2016 Year End 2016 Year End 2016 EBITDA NET INCOME $1,133 $353 $1,486 $80 $1,566 INCOME TAXES $462 $81 $543 $50 $
Slide 76: Appendix 1C: 2016 Pro Forma
Appendix 1C: 2016 PRO FORMA (In Millions) SHW VAL SHW + VAL Pro Forma Consolidated As Reported (A) As Reported (B) As Reported (C) Adjustments (C) Pro Forma December 31, 2016 October 26, 2016 Year End 2016 Year End 2016 WORKING CAPITAL TOTAL $1,265 $736 $2,000 ($29) $1,971 % TO SALES 10.7% 17.6% 12.
Slide 77: Appendix 2: 2012 Pro Forma
Appendix 2: 2012 PRO FORMA (In Millions) SHW VAL SHW + VAL Pro Forma Consolidated As Reported (A) As Reported (B) As Reported (C) Adjustments (C) Pro Forma December 31, 2012 October 26, 2012 Year End 2012 Year End 2012 Net Sales $9,534 $4,021 $13,555 ($199) $13,356 EBITDA NET INCOME $631 $292 $923 $
Slide 78: The Americas Group
THE AMERICAS GROUP JAY DAVISSON PRESIDENT, THE AMERICAS GROUP FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 79: The Americas Group
The Americas Group FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 80: The Americas Group Financial Highlights
The Americas Group Financial Highlights 1H‐17 vs 1H‐16 First Half 1H‐2016 1H‐2017 % Chg. Net Sales $3.98B $4.39B 10.2%(1) Segment Profit $752.0M $837.9M 11.4% % Sales 18.8% 19.1% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 (1) Revenue Reclassification Increased Sales 3.4%
Slide 81: North America Store Locations
North America Store Locations FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 82: North America Financial Highlights
North America Financial Highlights 1H‐17 vs 1H‐16 Full Year 2015 2016 % Chg. Net Sales $7.21B $7.79B 8.1%(1) Segment Profit $1.43B $1.62B 13.2% % Sales 19.9% 20.8% First Half 1H‐2016 1H‐2017 Net Sales $3.72B $4.11B 10.4%(2) Segment Profit $762.5M $848.6M 11.4% % Sales 20.4% 20.6% (1) Revenue Reclass
Slide 83: Brand Recognition
Brand Recognition AMERICA’S MOST RATED HIGHEST IN #1 #1 TRUSTED PAINT CUSTOMER IN PAINT BRAND PREFERRED BRAND BRAND SATISFACTION AWARENESS BY PROFESSIONAL AMONG INTERIOR PAINTERS PAINTS BY JD POWER *Sherwin‐Williams received the highest numerical score among interior paints in the J.D. Power 2017 Pa
Slide 84: North America Stores
North America Stores 4,268 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 2017 Estimated Year End
Slide 85: Store Count Comparison
Store Count Comparison 4,500 US 4,000 Canada 3,500 3,000 2,500 2,000 1,500 1,000 500 0 SW PPG Kelly‐ Dunn‐ Rodda/ Spectrum Diamond Miller Paint Vista Farrell‐ Ricciardi Hirshfield’s Aboff’s McCormick Florida Hallman/ BLP Paint Moore Edwards Cloverdale Paint Vogel Calhoun Brothers Paint Paint Paints
Slide 86: North America Reps
North America Reps 2,873 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 2017 Estimated Year End
Slide 87: E-Commerce
E‐Commerce FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 88: The Sherwin-Williams Difference
The Sherwin‐Williams Difference CUSTOMER RELATIONSHIPS TRADEMARK SERVICE COLOR LEADERSHIP EXCEPTIONAL PRODUCTS STORE LOCATIONS DIGITAL EXPERIENCE FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 89: Customer Commitment
Customer Commitment COMMERCIAL NEW RESIDENTIAL ARCHITECT - DESIGNER PROTECTIVE & MARINE DIY PROPERTY MANAGEMENT RESIDENTIAL REPAINT PRODUCT FINISHES FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 90: Innovative Targeted Products
Innovative Targeted Products RESIDENTIAL REPAINT COMMERCIAL NEW RESIDENTAL PROPERTY MANAGEMENT FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 91: SKU Rationalization
SKU Rationalization Architectural Coatings SKU COUNT ‐14% ‐14% ‐5% ‐5% ‐33% ‐33% 2014 2015 2016 2017 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 92: Customer Obsessed
Customer Obsessed FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 93: North America Segment Sizes
North America Segment Sizes PROTECTIVE PROPERTY & MARINE MANAGEMENT NEW RESIDENTIAL RESIDENTIAL REPAINT COMMERCIAL DIY FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 94: Focus On Our People
Focus On Our People FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 95: Hurricane Impact
Hurricane Impact FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 96: Latin America
Latin America FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 97: Latin America Financial Highlights
Latin America Financial Highlights 1H‐17 vs 1H‐16 Full Year 2015 2016 % Chg. Net Sales $631.0M $586.9M ‐7.0% Segment Profit $18.5M ‐$17.4M ‐194% % Sales 2.9% ‐3.0% First Half 1H‐2016 1H‐2017 Net Sales $258.5M $276.3M 6.9% Segment Profit ‐$10.5M ‐$10.7M ‐1.5% % Sales ‐3.8% ‐3.8% FINANCIAL COMMUNITY P
Slide 98: Brand Recognition
Brand Recognition BEST PRODUCT MATERIAL ENTERPRISE FINALIST FOR DEALERS DEALERS WITH SOCIAL RESPONSIBLE CARE AWARD 1ST PLACE AWARD RESPONSIBILITY AWARD (WINNER COLORGIN SPRAY PAINT MASTER SPRAY PAINT AWARD SELECTED IN NOVACOR FLOOR PAINT NOVACOR FLOOR PAINT OCTOBER) Responsible Care is the global ch
Slide 99: Latin America Distribution
Latin America Distribution 356 STORES 705 DEALERS FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 2017 Estimated Year End
Slide 100: Latin America Reps
Latin America Reps 539 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 2017 Estimated Year End
Slide 101: Customer Commitment
Customer Commitment DIY RESIDENTIAL REPAINT COMMERCIAL PROPERTY MGMT PROTECTIVE & MARINE FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 102: Customer Obsessed
Customer Obsessed FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 103: Channel Management: Controlled Distribution
Channel Management CONTROLLED DISTRIBUTION FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 104: Channel Management: Homecenters
Channel Management HOMECENTERS FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 105: Innovative National Products
Innovative National Products FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 106: SKU Rationalization
SKU Rationalization Architectural, P&M, Aerosol & Woodcare SKU COUNT ‐23% ‐22% ‐10% ‐23% ‐56% ‐22% ‐56% 2014 2015 2016 2017 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 107: Focus On Our People
Focus On Our People FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 108: Success By Design
Success By Design FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 109: Consumer Brands Group
CONSUMER BRANDS GROUP AARON M. ERTER PRESIDENT CONSUMER BRANDS GROUP FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 110: What is the Consumer Brands Group?
What is the Consumer Brands Group? Diversified Brands Paint Segment Architectural paint TM FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 111: Integration Update
Integration Update First 125 Days In Progress Leadership Systems Consolidation Sales & Marketing Vendor Consolidation R&D Support Functions Locations Optimized Project Prioritization Global Product Transfer Strategic Planning Business Rationalization No Disruption to Our Customers FINANCIAL COMMUNIT
Slide 112: Consumer Brands Group: Global Architectural Paint Sales
Consumer Brands Group Global Architectural Paint Sales NORTH AMERICA ANZ CHINA EUROPE 77% Interior and exterior latex paint, 8% Interior and exterior paints, stains 8% Interior and exterior paints and 7% Interior and exterior paints, stains PRODUCTS stains and specialty products and specialty produc
Slide 113: DIY Contractor Shift Will Continue in U.S. & Canada
DIY Contractor Shift Will Continue in U.S. & Canada 39% 59% Do‐It‐Yourself Contractor 61% 41% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Source: USDOC, Company Estimates
Slide 114: Consumer Brands Group Financial Highlights
Consumer Brands Group Financial highlights 1H‐17 vs 1H‐16 1H‐16 1H‐17 % Chg. Net Sales $827.1M $859.8M 3.9% Segment Profit $163.0M $132.0M (19.1%) % Sales 19.7% 15.3% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 115: Consumer Brands Group Solid Growth Potential
Consumer Brands Group Solid Growth Potential • $47.2B Total Global Architectural Paint Market ARCHITECTURAL PAINTS SECTOR IS • 4% Historical CAGR LARGE, GROWING AND FRAGMENTED • Europe & Asia‐Pacific Largest Decorative Paint Markets • Painting is Still #1 in DIY Activity Lowe’s, Home Depot, Ace, B&Q
Slide 116: Strong Global Retail Partnerships
Strong Global Retail Partnerships FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 117: Stable of Brands
Stable of Brands FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 118: Innovation In and Out of the Can
Innovation In and Out of the Can Product Quality & Simplification Solutions Paint Department Innovation Solutions Exclusive at Ace Twist & Pour Colorant Exclusive at Lowe’s Expansion Technology FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 119: HGTV HOME Video
HGTV HOME™ VIDEO FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 120: Global CBG Growth Drivers
Global CBG Growth Drivers North America Strong Retail Partnerships and Complete Portfolio Solutions Drive “Hero” Brands Across All Channels Australia/New Zealand Leverage the Americas Group Controlled Distribution Expertise Increase Penetration in the Independent Hardware Channel Product T
Slide 121: North American Architectural Paint Industry
North American Architectural Paint Industry MARKET DYNAMICS • DIY ‐ Driven by Disposable Income, Wealth Effect, Strong Remodeling Activity and Existing Home Turnover; Stable Growth • Painting Remains #1 DIY Activity • Certain Professional Trades Prefer Multi‐Category Retail KEY GROWTH DRIVERS 1. Exp
Slide 122: Strong Retail Partnership Operating Model
Strong Retail Partnership Operating Model Product Marketing HGTV HOMe In‐Store color display FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 123: Strong Retail Partnership Platform Model
Strong Retail Partnership Platform Model BEST‐IN‐CLASS Every Day at Our Retail Partners Across North America, We are Driving Sales Sales Strategy Training and Building the Stable of • In‐Store Consumer • Helping Our Partners • Reaching Hundreds of Brands Through Best‐in‐Class engagement – Convert Gr
Slide 124: Driving Hero Brands Across Retail
Driving Hero Brands Across Retail FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Source: SW Proprietary Quarterly Brand Health Tracker Q2 2017 + Vista 2017
Slide 125: History of Building DIY Hero Brands
History of Building DIY Hero Brands Purchase Intent Rank Years in Market 1 30 2 10 Valspar 4 141 10,000 6 133 Points of Distribution More Than any Other North American Brand Source: Stevenson June 2014 vs. June 2008; Traqline Q3 2014 vs. Q3 2008. FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Ne
Slide 126: North American Architectural Paint Growth Drivers
North American Architectural Paint Growth Drivers: Optimize CBG Retail Model to Drive Portfolio of Brands CONSUMER BRANDS GROUP IN ~10,000 + HIGHLIGHTS LOCATIONS • ~10,000+ Points of Distribution • Dedicated Sales & Service Teams • Proven Retail Model • Opportunity to Expand Portfolio with Brands li
Slide 127: Australia/New Zealand Architectural Paint Industry
Australia/New Zealand Architectural Paint Industry MARKET DYNAMICS • Housing is Stable – Housing Approvals Holding – Remodeling Activity Growing KEY GROWTH DRIVERS 1. Growth in Paint Store Channel: Leverage TAG’s Controlled Distribution Expertise 2. Increase Penetration in the Hardware Channel: Expa
Slide 128: ANZ Architectural Paint Growth Driver #1
ANZ Architectural Paint Growth Driver #1 Growth in Paint Stores Channel Customer Segmentation Portfolio Focus with Controlled Sales Excellence Program People, Product, Service and Distribution Platform Integrated Program to Support a High Promotion Proposition That is Optimal Metro and Regional Plat
Slide 129: ANZ Architectural Paint Growth Driver #2
ANZ Architectural Paint Growth Driver #2 Increase Penetration into Hardware Channel Utilize CBG Brand and Product Portfolio Utilizing our Local Brand Strength Focused Approach to Optimize Extensive Portfolio with Wattyl Local Brand Strength Enhanced with Technology Existing Core Customer Base as Pri
Slide 130: China Architectural Paint Industry Overview
China Architectural Paint Industry Overview MARKET DYNAMICS • Mid Single Digit GDP Growth • Fragmented Industry; Top 4 Players Approximately 40% Share • Government Factors Have Impacted Industry Since 2014 • Huarun the Top Selling Chinese National Brand (#3 Overall) KEY GROWTH DRIVERS 1. Retail Chan
Slide 131: China Architectural Paint Channel Overview
China Architectural Paint Channel Overview RETAIL > 70% PROJECT < 30% HOME HOME DECORATION BRANDED STORES NON‐BRANDED IMPROVEMENT COMPANIES STORES PROJECT CENTERS 30‐35% 25‐30% 3‐5% 10‐15% 25‐30% Target Target Target Target Target • Contractors • Contractors • Consumers • Consumers • Property Develo
Slide 132: China Architectural Paint Growth Driver #1
China Architectural Paint Growth Driver #1 Growth in Retail Channel Highlights A+ Branded Store • Safety and Healthy Assurance are #1 Consumers Needs • Shifting From ‘Buy It Yourself’ to ‘Do It For Me’/ Pro Increasing Emphasis on Packaging Product and Labor (“Installed Sale”) Opportunities • Continu
Slide 133: China Architectural Paint Growth Driver #2
China Architectural Paint Growth Driver #2 Expand in the Project Channel Residential Commercial Highlights • Residential Real Estate Developer Consolidation Via M&A • Energy Efficiency Construction Mandate by Government • Pre‐Decorated Housing Policy a Boost for Interior Emulsion Opportunities • Cap
Slide 134: Europe Architectural Paint Industry Overview
Europe Architectural Paint Industry Overview MARKET DYNAMICS • Largest Decorative Paint Market in the World • Vast Majority of Paints are “Pre-Tinted” (Packaged Colors) KEY GROWTH DRIVERS 1. Grow in UK with B&Q 2. Expansion Opportunity in Continental Europe 3. Take Advantage of Color Resources and E
Slide 135: European Architectural Paint Growth Driver: B&Q/Kingfisher
European Architectural Paint Growth Driver: B&Q/Kingfisher With expansion opportunity in continental Europe • 300 Stores Set Across the UK • Tinting has Increased Significantly • Operating Model Fully in Place Since 2015 • Legacy Valspar Service Model Supporting Legacy Diversified Brands Products FI
Slide 136: Consumer Brands Group Solid Growth Potential
Consumer Brands Group Solid Growth Potential • $47.2B Total Global Architectural Paint Market ARCHITECTURAL PAINTS SECTOR IS • 4% Historical CAGR LARGE, GROWING AND FRAGMENTED • Europe & Asia‐Pacific Largest Decorative Paint Markets • Painting is Still #1 in DIY Activity Lowe’s, Home Depot, Ace, B&Q
Slide 137: Performance Coatings Group
PERFORMANCE COATINGS GROUP DAVID SEWELL PRESIDENT, PERFORMANCE COATINGS GROUP FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 138: Overview of the Industrial Business Segments
Overview of the Industrial Business Segments Sherwin‐Williams Pre‐Deal Divisions Valspar Additions Packaging Protective & Commercial Bridge & Hwy Infrastructure Food & Bev Marine General Packaging Beverage Food Marine General Industrial Mining Oil & Gas Power Waste Water Heavy Machinery Infrastructu
Slide 139: Performance Coatings Group
Performance Coatings Group INDUSTRIAL WOOD COATINGS GENERAL INDUSTRIAL COATINGS AUTOMOTIVE FINISHES PROTECTIVE & MARINE COATINGS PACKAGING COATINGS COIL COATINGS ENGINEERED POLYMER SOLUTIONS FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 140: Divisional Leadership
Performance Coatings Group Divisional Leadership Dennis Karnstein Bruce Irussi Tom Hablitzel Karl Jorgenrud Industrial Wood General Industrial Automotive Protective & Marine Colin Davie Sam Shoemaker Mike Bourdeau Coating Resins & Packaging Coil Coatings Colorants FINANCIAL COMMUNITY PRESENTATION –
Slide 141: Location Map: SHW + VAL
Location Map: SHW + VAL RUSSIA CANADA UNITED STATES CHINA INDIA BRAZIL SHW Facilities SHW R&D Labs SHW MFG Plants AUSTRALIA VAL Facilities SOUTH AFRICA VAL R&D Labs VAL MFG Plants FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 142: Performance Coatings Group Focus
Performance Coatings Group Focus CUSTOMER CENTRICITY & SPEED INNOVATIVE CUSTOMER SOLUTIONS DEVELOP THE BEST GLOBAL TALENT UTILIZE GLOBAL ASSETS OPTIMIZE EFFICIENCIES & BUILD PROFITABILITY FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 143: Performance Coatings Group Sales
Performance Coatings Group Global Finishes Group Pre‐Close Sales Performance Coatings Group Post‐Close Sales FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 144: Complete Development Support
Complete Development Support Differentiated Solutions COLOR & DESIGN APPLICATION CENTERS CUSTOMER LINE TRIAL Color Studio Humidity Local Tech Service OEM Matching Tools Temperature Drop‐In Solutions Trends & Innovation Curing Methods Qualification On Line DESIGN ENGINEERING PRODUCT TESTING FINISHED
Slide 145: Performance Coatings Group Financial Highlights
Performance Coatings Group Financial Highlights 1H‐17 vs 1H‐16 1H‐16 1H‐17 % Chg. Net Sales $981.8M $1.25B 26.9% Segment Profit $123.1M $119.5M ‐2.8% % Sales 12.5% 9.6% FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 146: Industrial Wood Coatings
Industrial Wood Coatings Global Segments Kitchen Building Furniture Cabinets Products Expanding Global Footprint Innovative Technologies Specialty Flooring Global Color & Design Local Support Technologies Color Solutions Waterborne Pigmented UV Tintable Color & Design Complete Distribution
Slide 147: Industrial Wood Coatings Value Proposition
Industrial Wood Coatings Industrial Wood Value Proposition Facility service, lab speed, small batch, Service as a Differentiator transition teams Global Innovation Global reach with local technology solutions Executed Locally Global design footprint, state of the art Color & Design design centers in
Slide 148: Industrial Wood Coatings Growth Opportunities
Industrial Wood Coatings Integration Growth Opportunities Growth in Flooring Segment UV Coatings Technology Regional Solutions Tech Service to Aid Conversion Waterborne in China Color & Design Excellence Lower VOC with Look of Solventborne Consumer Preference – Color Customization FINANCIAL COMMUNIT
Slide 149: Industrial Wood Coatings Waterborne Coatings
Industrial Wood Coatings Innovations Waterborne Coatings Sayerlack Hydroplus 51% • Italian Premium Performance Manufactured Locally Of responses to our “Waterborne Challenge” at AWFS could not tell if a Sher‐Wood Universal Primer panel was finished with • Drop‐In Replacement Compatible with any Topc
Slide 150: Industrial Wood Coatings Video
Industrial Wood Coatings Video FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 151: Industrial Wood Coatings Waterborne Coatings
Industrial Wood Coatings Innovations Waterborne Coatings Sayerlack Hydroplus 51% • Italian Premium Performance Manufactured Locally Of responses to our “Waterborne Challenge” at AWFS could not tell if a Sher‐Wood Universal Primer panel was finished with • Drop‐In Replacement Compatible with any Topc
Slide 152: General Industrial Coatings
General Industrial Coatings Global Segments Heavy Transportation Metal Building Electronics Expanding Global Footprint Equipment Products Global OEMs Growth Synergy Segments Passenger Appliance Growth Synergy Segments Commuter Rail HVAC Container Aftermarket Solutions Complete Product Soluti
Slide 153: General Industrial Coatings Value Proposition
General Industrial Coatings General Industrial Value Proposition Support Across the OEM specifications to tier suppliers Value Chain Global Innovation Multi‐channel distribution across regions Executed Locally Segment Expertise Dedicated teams on focused segments and Focus Innovative Technology Prov
Slide 154: General Industrial Coatings Growth Opportunities
General Industrial Coatings Integration Growth Opportunities Support Throughout the Value Chain Global Innovation Executed Locally OEM Specifications to Tier Suppliers Distribution and Scale in EMEAI Segmented, Dedicated Sales Expansion to Brazil & Europe Sign Finishing Emerging Segments Transportat
Slide 155: General Industrial Coatings AquaGuard
General Industrial Coatings Innovations AquaGuard One‐Component Waterborne Technology • Up to 94% Reduction in Emissions 60% Onset of corrosion from container damage is reduced at least 60% with Global Container Industry Aquaguard compared to zinc coatings • Zinc‐Free, Lower‐Weight Product Formulati
Slide 156: Automotive Finishes
Automotive Finishes Collision Repair Centers Dealerships Independents Multi Shop Owners Expanding Global Footprint OEM Certifications Distribution S‐W Branches Warehouse Jobbers Custom OE Interior GM Approval Waterborne Technology Specification Driven Influencers OE Interior Aerospace Auto O
Slide 157: Automotive Finishes Value Proposition
Automotive Finishes Automotive Value Proposition Global Product Brands Global brands, product & service & Service Local execution Distribution / Multi‐channel Customer Proximity Local technical support Segment Focused Product and color innovation specific to Innovation segment needs Innovative Techn
Slide 158: Automotive Finishes Growth Opportunities
Automotive Finishes Integration Growth Opportunities Support Throughout the Value Chain Global Innovation Executed Locally Multi‐Channel Brand Portfolio Distribution in EMEA and ANZ Innovations to Meet Industry Needs Total Solutions Waterborne Technology Associated Products & Customer Training FINAN
Slide 159: Automotive Finishes CC200 Dynamic Clearcoat
Automotive Finishes Innovations CC200 Dynamic Clearcoat 2 Component Waterborne Technology • Increased Shop Productivity & Profitability 1/2 CC200 achieves a glamour finish in half the time of competitive products* Creates A New Category • Speed Glamour Clearcoats Energy Savings • Lower Cure Temp: 14
Slide 160: Automotive Finishes Video
Automotive Finishes Video FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 161: Protective & Marine Coatings
Protective & Marine Coatings Global Segments Oil & Gas Mining Marine Expanding Global Footprint Core Global Product Line Water / Waste Flooring Bridge & Highway Water Specialized Sales & Technical Support Innovative Technology Food & Beverage Power Functional Coatings Utilizing The America
Slide 162: Protective & Marine Value Proposition
Protective & Marine Coatings Protective & Marine Value Proposition Differentiated product portfolio with wide Product Performance specification position Segment Expertise & Segment dedicated sales and technical Customer Focus support Cool P&M PIC Global Innovation Sherwin‐Williams TAG distribution p
Slide 163: Protective & Marine Divisions Growth Opportunities
Protective & Marine Divisions Integration Growth Opportunities Complementary Technologies Global Innovation Executed Locally Rebar Footprint in ANZ Emerging Segments Integration of Functional Coatings Rail Growth Synergy w/ General Industrial FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 164: PipeClad Fusion-Bonded Epoxy Powder for Pipelines
Protective & Marine Coatings Innovations PipeClad Fusion‐Bonded Epoxy Powder for Pipelines • Flexible Performance • Extreme Temperatures and “Reel Barge” Pipe Laying 3-4% Corrosion consumes 3‐4% of gross national product in the developed countries • Global product platform of the world* • Technical
Slide 165: Packaging Coatings
Packaging Coatings Global Segments Household Products Global Footprint Technology Shift to Non‐BPA Food Beverage Products Value Chain Global Regulatory Approvals Canmaker/ Brand Owner Retailer Coil Coater Technology Innovation Safety-by-Design, Regulatory Compliance, Public Acceptance, Pack
Slide 166: Packaging Coatings Value Proposition
Packaging Coatings Packaging Coatings Value Proposition Differentiated Differentiated technology platforms Technology 170 patents (49 non‐BPA) Regulatory International regulations, independent Expertise researchers, and >100 global approvals Technical Product application expertise Service on‐site te
Slide 167: Packaging Coatings Integration and Growth Opportunities
Packaging Coatings Integration and Growth Opportunities Growth in Global Regions Changing Requirements Emerging Segments Non‐BPA Conversion Expertise Across the Value Chain Integration Synergy Segments Can Manufacturers, Coil Coaters, Brands and Influencers Utilize Patented Resin Technology Across D
Slide 168: valPure V70 First Non-BPA Epoxy for Food and Beverage
Packaging Coatings Innovations valPure V70 First Non‐BPA Epoxy for Food and Beverage Unique Patented Technology 50% In the next three years, 50% • Epoxy‐Like Application and Performance of specifications will require Non‐BPA coatings Waterborne Technology • Lower Emissions and Increased Line Speed F
Slide 169: Coil & Extrusion Coatings
Coil & Extrusion Coatings Global Segments Expanding Global Footprint Construction Appliance / HVAC Focus Across Value Chain Value Chain Dedicated Marketing / Support for Architects & Specifiers Coater/ Steel Producer/ Consulting/ Architect/ Applicator Extruder Construction OEM Innovative Tec
Slide 170: Coil & Extrusion Value Proposition
Coil & Extrusion Coatings Coil & Extrusion Value Proposition Innovation Differentiated innovation serving the total value chain Locally supported / fast lead times Service / Responsiveness Coil Division Color Customization / Investing in technical service Custom/unique color development Specified Pr
Slide 171: Coil & Extrusion Growth Opportunities
Coil & Extrusion Coatings Integration Growth Opportunities Combined Technology Portfolio Global Innovation Executed Locally Liquid and Powder Specifications Utilize Blending Facilities and Stores Specifications Across OEM Segments Solutions for Architects & Specifiers Appliance, HVAC, and Constructi
Slide 172: Fluropon Effects Nova
Coil & Extrusion Coatings Innovations Fluropon(R) Effects Nova Color Innovation 70% • Patent‐Pending Color Space for Architects to Deliver Breakthrough Projects PVDF content in Fluropon to meet or exceed AAMA and ASTM performance specifications Lasting Performance • Outstanding Durability Versatilit
Slide 173: Summary
Summary Highly Customized Solutions High Touch Support Relentless Customer Focus Innovative Technology Company‐Owned Locations Connectivity Across Value Chain Global Color Program Global Distribution Platform Innovation OEM Specifications Brand Portfolio Segmented Teams FINANCIAL C
Slide 174: Global Supply Chain
GLOBAL SUPPLY CHAIN JOEL BAXTER PRESIDENT & GENERAL MANAGER FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 175: Global Footprint
Global Footprint RUSSIA CANADA UNITED STATES CHINA INDIA BRAZIL AUSTRALIA SHW SOUTH AFRICA VAL FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 176: Global Supply Chain
Global Supply Chain • One Focused Organization • Share Best Practices Worldwide • End‐to‐End Supply Chain FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 177: End-to-End Supply Chain
End‐to‐End Supply Chain Research & Planning Manufacturing Distribution Transportation Customer Development Global Customer Procurement Service SUPPLIER FACTORY DISTRIBUTION TRANSPORTATION CUSTOMER DRIVE CONTINUOUS IMPROVEMENT FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 178: Global Business Management System
Global Business Management System Management Continuous Accelerated Time Management Review Improvement Root Cause End‐to‐End Supply Chain PEOPLE SYSTEMS TOOLS PROCESSES FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 179: What This Accomplishes
What This Accomplishes • Drives Customer Satisfaction • Cost Reduction • Accelerated Growth FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 180: Focus Areas
Focus Areas • Operational Excellence • Global Procurement • Innovation Excellence FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 181: Safety
Safety Recordable Case Rate Paint & Coatings Industry SHW VAL 2014 2015 2016 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017 Source: Bureau of Labor Statistics, NAICS code 32551 (Paint & Coating Mfg)
Slide 182: First Pass Quality
First Pass Quality • Right the First Time • Precision • Consistency • Reduce Cost & Capital FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 183: First Pass Quality
First Pass Quality SHW 2014 2015 2016 Valspar Base Line Being Established FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 184: Service
Service Product Availability 2014 2015 2016 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 185: Fleet Operations
Fleet Operations FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 186: Working Capital % to Sale
Working Capital % to Sale 2014 2015 2016 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 187: Net Fixed Assets
Net Fixed Assets Value in Dollars 2014 2015 2016 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 188: Operational Excellence Savings
Operational Excellence Savings 2008 2009 2010 2011 2012 2013 2014 2015 2016 Valspar Base Line Being Established FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 189: Global Procurement
Global Procurement • Global Visibility • Portfolio Simplification • Improved Working Capital Management FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 190: Global Procurement Year Over Year Trends
Global Procurement Year Over Year Trends Favorable To Be Determined Unfavorable Synergy Opportunities Natural Disasters Foreign Exchange Rates TiO2 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 191: Typical Coatings Product
Typical Coatings Product 2017 est. vs. 2016 Industry * Resins/Latex (44%) 3 to 5% Acrylic (Latex Paints) Alkyd (Oil Paints) Epoxy (Epoxy Paints) Pigments (26%) 4 to 7% Titanium Dioxide Pigments Paint Fillers Extenders Containers (12%) 3 to 5% Metal or Plastic Additives (10%) ‐2 to ‐3% Solvents (8%)
Slide 192: Global Procurement Benefits
Global Procurement Benefits • Alternate Supply • Internal Development • Efficiency Projects FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 193: TiO2 Sulphate vs. Chloride
TiO2 Sulphate vs. Chloride Efficiency Projects TiO2 Crystal High Hide Technologies specular diffuse reflection reflection FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 194: Resin/Latex Dual Sourcing Strategy
Resin/Latex Dual Sourcing Strategy – Internal vs. External • Internal Development • External Suppliers 2012 2013 2014 2015 2016 Controlled Production (lbs.) FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 195: Innovation Resource Center
Innovation Resource Center FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 196: New Architectural Product Launches
New Architectural Product Launches 11 23 40 25 2012 2014 2016 2011 2013 2015 2017 16 21 24 FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 197: Innovation Pipeline
Innovation Pipeline Stage 1 Stage 2 Stage 3 Stage 4 Concept Definition Technology Assessment Technology Development Commercialization Maintenance & Durability Visual Appearance Custom Solutions Sustainability The Painting Process Time & Labor FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
Slide 198: Summary
Summary • Focused Global Supply Chain Organization • Leveraging Systems, Tools & Processes • Accelerate Continuous Improvement • Valspar Integration • Deliver Best in Class Service FINANCIAL COMMUNITY PRESENTATION – OCTOBER 3, 2017
The Sherwin-Williams Company — Investor Day (October 2017) on 6ix