Sherwin-williams Company (the) · NYSE:SHW
Sherwin-williams Company (the) — The Sherwin-Williams Company — Investor Day (August 2023)
49 slides from Sherwin-williams Company (the)'s investor day presentation, Aug 24, 2023
Slide 1: August 24, 2023 Cleveland, Ohio
August 24, 2023 Cleveland, Ohio
Slide 2: Welcome
SHERWIN-WILLIAMS. 2023 Financial Community Presentation Welcome
Slide 3: Agenda
1:30 p.m. Financial Community Presentation Welcome and Market Overview Jim Jaye Company Overview John Morikis 2023 Financial Community Presentation Enterprise Fireside Chat John Morikis Heidi Petz Al Mistysyn Break Paint Stores Group Discussion Justin Binns Consumer Brands Group Discussion Todd Rea
Slide 4: Forward-Looking Statements
Forward-Looking Statements This presentation includes certain “forward-looking statements,” as defined under U.S. federal securities laws. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “could,” “plan,” “g
Slide 5: Industry Overview
Industry Overview J A ME S R . J A YE S V P , C O R P C O MM S & I N V E S TO R R E L A TI O N S
Slide 6: U.S. Architectural Paint Industry
U.S. Architectural Paint Industry Architectural Paint Gallons Non-Residential & Residential Square Footage 2007-2014 FEWER NEW HOMES BUILT = FEWER NEW GALLONS 280,000 900 ~13M FORECLOSURES = REDUCED MAINTENANCE 2022 25% GROWTH SINCE PRIOR PEAK ~830 Million PRIOR PEAK 800 240,000 PRIOR PEAK Millions
Slide 7: U.S. Architectural Trends: Mixed Demand
U.S. Architectural Trends: Mixed Demand ~10-15% of market ~30-35% of market ~5-10% of market ~10-15% of market ~35-40% of market NEW RESIDENTIAL PROPERTY COMMERCIAL DIY RESIDENTIAL REPAINT MANAGEMENT Past softness in starts Slowing remodel demand Strong starts in ’21 and ’22 Apartment demand
Slide 8: U.S. Demographics
U.S. Demographics Silent Baby Boomers Gen X Millennials Gen Z 1928-1945 1946-1964 1965-1980 1981-1996 1997-2012 77-94 Years Old 58-76 Years Old 42-57 Years Old 26-41 Years Old 10-25 Years Old (As Of 2022) (As Of 2022) (As Of 2022) (As Of 2022) (As Of 2022) Transitioning to Aging in place; Move
Slide 9: New Residential Housing Starts
New Residential Housing Starts Painting Begins ~3-6 Months After Start Housing Starts in '000s (Seasonally Adjusted Annual Rate) & YoY% Change 2,000 Total Starts Multi Family YoY Change Single Family YoY Change 120% 100% 1,800 COVID-19 80% SOFTNESS IN SINGLE FAMILY STARTS Pause 1,600 60% YoY% Change
Slide 10: The Industry Has Never Been This Underbuilt
“The Industry Has Never Been This Underbuilt…” 15 Year Trailing Housing Starts (mm) 2.0 It would take almost a decade of 2m annual housing starts to make up the deficit 1.8 1.5 1.3 1.0 1960 1970 1980 1990 2000 2010 2020 There has never been such a sustained shortfall in housing starts, and household
Slide 11: Repaint & Remodel
Repaint & Remodel Leading Indicator of U.S. Remodeling Activity Historical Estimates LIRA Projections Homeowner Improvements & Repairs Four-Quarter Moving Four-Quarter Moving Totals in Billions Rate of Change $500 40% $465 $471 $471 $487 $492 $484 35% $444 $450 $458 $457 30% $414 $406 $396 25% $400
Slide 12: Residential Repaint
Residential Repaint Existing Home Sales Only One of Many Demand Drivers Existing Home Sales '000s - SAAR (YoY% Change) Existing Home Sales COVID-19 Pause 60% 6,800 50% 6,300 40% 30% 5,800 Existing Home Sales YoY% Change 20% 10% in ‘000s 5,300 0% 4,800 -10% -20% 4,300 -30% 3,800 -40% Sep Sep Sep May
Slide 13: Residential Repaint
Residential Repaint Many Demand Drivers Beyond Existing Home Sales Median Age of Housing Stock S&P/Case-Shiller U.S. National Home Price Index Index Jan 2000=100, Monthly, Seasonally Adjusted 45 350.0 300.0 40 250.0 35 200.0 30 150.0 25 100.0 20 50.0 15 0.0 1985 1987 1989 1991 1993 1995 1997 1999 20
Slide 14: Residential Repaint
Residential Repaint Many Demand Drivers Beyond Existing Home Sales Aging in Place Remote Office Trend Continues 80% 78% 77% 75% 71% 87% 70% Of workers changing jobs 67% are interested in hybrid/remote 65% 28% Of new job postings advertised as remote 60% 2010 2014 2018 2021 Adults Aged 50+ Who Want T
Slide 15: Residential Repaint
Residential Repaint Many Demand Drivers Beyond Existing Home Sales More People Are Moving Into Than Out of The Disaster Reconstruction Market Has Grown Disaster-Prone Places Net inflow to U.S. counties with largest share of homes 25 25 facing fire, flood and heat risk 700,000 20 20 600,000 Billions
Slide 16: Commercial Construction Starts
Commercial Construction Starts Painting Begins ~12-24 Months After Start T3M Avg - Sq Ft in '000s and YoY% Change POST PANDEMIC REBOUND IN COMMERICAL STARTS 110,000 80% 100,000 90,000 60% 80,000 T3M Avg. – Sq. Ft. in ‘000s 40% 70,000 YoY% Change 60,000 20% 50,000 40,000 0% 30,000 20,000 -20% 10,000
Slide 17: Commercial Construction Trajectory
Commercial Construction Trajectory Architectural Billings Index (ABI) (50+ = expansion) 60.0 55.0 50.0 45.0 40.0 35.0 30.0 STRONG BILLINGS Leads to Strong Completions in 2023 and into 2024 25.0 2019 2020 2021 2022 2023 Positive ABI readings for in 2021 and most of 2022 leads to strong project comple
Slide 18: Pro Momentum returns after Pandemic-Driven DIY Spike
Pro Momentum returns after Pandemic-Driven DIY Spike 36% 59% DIY/ Remodeler Paint Contractor 64% 41% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Slide 19: Industrial Demand by Region
Industrial Demand by Region Purchasing Managers Index (PMI) - Manufacturing US PMI – S&P GLOBAL (50+ = expansion) EUROZONE PMI – S&P GLOBAL (50+ = expansion) 65 70 60 55 60 50 50 45 40 40 35 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 30 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec BRAZIL PMI
Slide 20: Resilient End Markets
Resilient End Markets Packaging Automotive Refinish Near Term – choppy end-user destocking Near Term & Long Term – strong Long Term – strong U.S. miles driven near pre-COVID levels Shift from plastic to cans: environmental concerns Industry consolidation creating opportunity New categories
Slide 21: Opportunities in New Residential and Commercial
Opportunities in New Residential and Commercial Industrial Wood Coil Near Term – soft Near Term – mixed Soft starts in U.S. new res impacting cabinets, Europe and Asia softer than the Americas flooring & furniture Commercial construction solid Long Term – strong Long Term – strong U.S. housi
Slide 22: Construction and Infrastructure
Construction and Infrastructure General Industrial Protective & Marine Near Term – mixed Heavy equipment stronger than general finishing Near Term & Long Term – strong Long Term – strong Strong manufacturing facility starts in U.S. driven by onshoring Residential, commercial & infrastructure c
Slide 23: Summary: "Built to Thrive"
Summary: “Built to Thrive” In choppy and difficult macro environments… …we will focus on serving existing customers, growing share of wallet, and winning new accounts In robust and growing macro environments… ...we will focus on serving existing customers, growing share of wallet, and winning ne
Slide 24: Company Overview
Company Overview J O H N MO R I K I S C H A I R MA N A N D C E O
Slide 25: $22.1 billion
$22.1 billion 7,000 64,000+ 5,000+ Of our employees have 2022 Net Sales Employees Stores and 20+ years of service Branches 31% 120+ 136 ~1,500 PERFORMANCE Countries Manufacturing & College graduates COATINGS GROUP 54% Distribution Facilities recruited annually 15% PAINT STORES GROUP 7-9% CONSUMER BR
Slide 26: 64,000+ Employees Aligned on Our Strategy
64,000+ Employees Aligned on Our Strategy Provide Differentiated Solutions That Drive Customer Productivity and Profitability To Create… Value and Opportunities for Key Stakeholders Customers Shareholders Employees Communities Measured By… Above Market Growth ROS Cash Generation RONAE Guided By… Our
Slide 27: Paint Stores Group
Paint Stores Group $12.0 billion PRIMARY END MARKETS 2022 Net Sales • Residential Repaint • Commercial 4,600+ 3,600+ 2,450+ • New Residential Stores across Sales Reps Drivers the US, Canada • Property Maintenance and Caribbean • DIY 3,175+ ~1,400 • Protective & Marine Delivery vehicles Management tr
Slide 28: Strategic Channel Partners and Brands
$3.4 billion STRATEGIC CHANNEL PARTNERS AND BRANDS 2022 Net Sales GLOBAL REACH • North America • Europe • Latin America KEY DIFFERENTIATORS Hero brands, premier channel partners, category management, training and field support and digital leadership 28
Slide 29: Businesses
$6.8 billion BUSINESSES 2022 Net Sales • Automotive Refinish • Coil 120+ • • General Industrial Industrial Wood Countries • Packaging • Protective & Marine KEY DIFFERENTIATORS Local service model, highly specified coatings, global expertise, product innovation, color solutions and customer-focused 2
Slide 30: Why Invest in SHW?
Why Invest in SHW? Strong Organic Depth of Talent & Customer Industry Innovative Products Growth Opportunities Unique Culture Intimacy & Data Leading Brands & Services Controlled Distribution Margin Expansion Strong Balance Sheet Disciplined Sustainability & Supply Chain Opportunities & Cash Generat
Slide 31: Enterprise Discussion
Enterprise Discussion John Morikis Heidi Petz Al Mistysyn Chairman and CEO President and COO SVP – Finance and CFO
Slide 32: Enterprise Strategic Priorities
Enterprise Strategic Priorities Talent & Culture Supply Chain Resilience Above Market Growth Digitization Simplification Sustainability Continue Driving Profitable Growth While Investing in Our Business 32
Slide 33: Talent & Culture
Talent & Culture Our Greatest Solution is Our People ~ 1,500 ~ 10,000 7,000 College graduates Management Trainee Of our employees have recruited annually Program graduates currently 20+ years of service throughout the Company 80% 7-9% 85% Of PSG and Industrial Best in class annual Of employees respo
Slide 34: Drive Above Market Growth
Drive Above Market Growth Relentless Customer Focus Unique Distribution Driving productivity Global scale and profitability with local support Industry Leading Innovation Value-Added Services Tailored to articulated “In and out” and unmet customer of the can and end market needs Differentiated Solut
Slide 35: End to End Global Supply Chain Resilience
End to End Global Supply Chain Resilience Customer Logistics Research & Development Distribution Procurement Manufacturing Supply Chain Planning 35
Slide 36: Accelerate Simplification and Digitization
Accelerate Simplification and Digitization Continuously improve cost position and speed to market Continuously improve ease and visibility of data Drive faster and better decision making 36
Slide 37: Execute Our Sustainability Strategy
Execute Our Sustainability Strategy Clear Goals – Committed Leadership Environmental Footprint Doing Our Part for the Planet Product Blueprint Driving Sustainability Through Innovation Social Imprint Elevating a Culture of Safety, Inclusion and Community Governance & Ethics Strong Board Engagement a
Slide 38: 2019-2022 – Driving Performance and Investing in a Volatile Environment
2019-2022 – Driving Performance and Investing in a Volatile Environment Sales Adjusted EPS Net Operating Cash Share Repurchases Dividends 6% CAGR 9% CAGR $9.9B $6.9B $2.1B (+4.6B) (+$2.55) (12.6% of sales) (30.15M shares) (17.6% CAGR) Net New Stores New Sales Reps Management Trainees New Capacity Ne
Slide 39: Midterm Financial Targets
Midterm Financial Targets Sales Gross Margin EBITDA Margin +MSD Over Cycle 45% to 48% PSG: +MSD to +HSD 19% to 21% CBG: +LSD Current goal PCG: +MSD Working Capital* Net Operating Cash Leverage Ratio 13% to 14% 2.0x to 2.5x 11.0% to 11.5% Strong cash generation Net debt to EBITDA * as % to sales 39 L
Slide 40: Consistent Capital Allocation
Consistent Capital Allocation Consistent Capital Allocation Philosophy: We Will Not Hold Cash CAPEX Dividend Strategic M&A Share Investment Target 30% of Clearly Defined Repurchase Modest PY GAAP Criteria Absent Strategic Requirements Earnings M&A <2.0%* 44 16 79.1 Target As Consecutive Transactions
Slide 41: Comparison of Cumulative Ten-Year Total Return
Comparison of Cumulative Ten-Year Total Return $800 $700 $600 $500 $400 $300 $200 $100 $0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Peer group of companies comprised of the following: Akzo Nobel N.V., Axalta Coating Systems Ltd., BASF SE, Genuine Parts Company, H.B. Fuller Company, The
Slide 42: Driving Shareholder Value
Driving Shareholder Value DRIVE DRIVE DRIVE DRIVE GROWTH ROS CASH GENERATION RONAE 42
Slide 43: BREAK
BREAK We will resume momentarily
Slide 44: Paint Stores Group
Paint Stores Group Justin Binns – President DISCUSSION TOPICS Store Business Model Residential Repaint Strong and getting stronger Largest business, largest opportunity Innovation Products and services that New Residential drive customer success Long-term outlook outweighs near-term choppiness Growt
Slide 45: Consumer Brands Group
Consumer Consumer Brands Brands Group Group Todd Rea – President DISCUSSION TOPICS North America DIY Portfolio Well positioned with right partners Executing on optimization Pros Who Paint High Teens / Low 20s Margin Continue driving outsize growth Achievable and on-track International Growth and mar
Slide 46: Performance Coatings Group
Performance Coatings Group Karl Jorgenrud – President DISCUSSION TOPICS Differentiation Innovation / Sustainability Unique core competencies Solutions that customers value High-Teens / Low 20s Margin Acquisitions Achievable and on-track Disciplined process adding value Talent Drives Tailored Differe
Slide 47: Why Invest in SHW?
Why Invest in SHW? Strong Organic Depth of Talent & Customer Industry Innovative Products Growth Opportunities Unique Culture Intimacy & Data Leading Brands & Services Controlled Distribution Margin Expansion Strong Balance Sheet Disciplined Sustainability & Supply Chain Opportunities & Cash Generat
Slide 48: Regulation G Reconciliation – Adjusted EPS
Regulation G Reconciliation – Adjusted EPS ($ in millions) 2018 2019 2020 2021 2022 Diluted net income per share $ 3.89 $ 5.50 $ 7.36 $ 6.98 $ 7.72 Adjustments: Loss on divestiture 0.34 Trademark impairment 0.33 Brazil indirect tax credit (0.12) California litigation expense provision (0.09) Califor
Slide 49: Regulation G Reconciliation – Adjusted EBITDA
Regulation G Reconciliation – Adjusted EBITDA ($ in millions) 2018 2019 2020 2021 2022 Net income $ 1,108.8 $ 1,541.3 $ 2,030.4 $ 1,864.4 $ 2,020.1 Interest expense 366.7 349.3 340.4 334.7 390.8 Income taxes 250.9 440.5 488.8 384.2 553.0 Depreciation 278.2 262.1 268.0 263.1 264.0 Amortization 318.1
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