industry overview · industry overview john morikis chairman & chief executive officer 1....

F I N A N C I A L C O M M U N I T Y P R E S E N T A T I O N – J U N E 5 , 2 0 1 9

INDUSTRY OVERVIEW

JOHN MORIKIS

CHAIRMAN &

CHIEF EXECUTIVE OFFICER

1


Forward-Looking Statements

The presentations today will contain certain “forward-looking statements," within the meaning of the federal securities laws, with

respect to anticipated future performance (including sales and earnings), expected growth, future business plans and other matters.

These statements may be identified by the use of words and phrases such as "believe," "expect," "may," "will," "should," "target,"

"project," "could," "plan," "goal," "potential," "seek," "intend" or "anticipate" or the negative thereof or comparable terminology. These

statements are based upon management's current expectations, estimates, assumptions and beliefs concerning future events and

conditions. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are

necessarily subject to risks, uncertainties and other factors, many of which are outside our control that could cause actual results to

differ materially from such statements and from our 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 raw material and energy supplies and pricing; changes in our relationships with customers and suppliers; our

ability to successfully integrate past and future acquisitions into our existing operations, including Valspar, as well as the performance

of the businesses acquired; risks inherent in the achievement of additional anticipated cost synergies resulting from the acquisition of

Valspar and the timing thereof; competitive factors, including pricing pressures and product innovation and quality; the nature, cost,

quantity and outcome of pending and future litigation and other claims, including the lead pigment and lead-based paint litigation, and

the effect of any legislation and administrative regulations relating thereto; adverse weather conditions and natural disasters; and

other risks, uncertainties and factors described from time to time in our reports filed with the SEC. 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 we undertake no

obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

2


Global Paint & Coatings Industry

39%

17%11%

7%

4%

2%

12%

6%

2%

Source: KNG Global Research

The use of KNG information in this presentation is for illustrative

and consistency purposes only; SHW have not verified the accuracy of KNG Research.

Global Mix by Category (Based on $) Mix by Category (Based on $)

2018

~9.7 Billion Gallons

~130 Billion Dollars

Total Coatings

Architectural Paints39%

OEM Coatings

41%

Special Purpose Coatings

20%

3


Paint & Coatings Demand by RegionGeographic Split of Global Revenue

4

43%

25%

3%

25%

Special Purpose Coatings

52%

21%

3%

23%

OEM CoatingsArchitectural Paints

41%

24%

6%

23%

All Coatings

Asia-Pacific

46%

North America

23%

South America

4%

Europe

23%

ROW ~ 4%

Sources: KNG Global Research


and consistency purposes only; SHW have not verified the accuracy of KNG Research. Company Estimates.


All Others

(>5,000 firms)

Masco

Global Market

Top 10 Suppliers ~55%

Top Global ManufacturersCoatings Industry 2018

5





2018

~1.5 Billion Gallons

~29.9 Billion Dollars

North America

Paint & Coatings

North America Paint & Coatings IndustrySales ($) Mix by Category

6

Architectural Paints 41%

OEM Coatings

37%

Special Purpose

22%





U.S. ARCHITECTURAL COATINGS

7


500

550

600

650

700

750

800

850

900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

U.S. Paint & Coatings IndustryArchitectural Paint Gallons & Square Footage

Source: Dodge Data & Analytics U.S. Building Stock Data

Millio

ns o

f G

allo

ns

8

18% growth in square footage since prior peak should drive continued gallon growth due to larger repaint opportunity

No

nre

sid

en

tia

l &

Res

ide

nti

al S

q. F

t in

Th

ou

sa

nd

s

200,000

210,000

220,000

230,000

240,000

250,000

260,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

PRIOR PEAK

Architectural Paint Gallons Nonresidential & Residential

Square Footage

Sources: ACA, Department of Commerce, Company Estimates


U.S. Architectural PaintsEstimated Breakdown by Segment

Sources: ACA (Total Gallons), Company Estimates (Segment Breakdown)

Non-Residential

Repaint

15%

(123M Gal)

Residential

Repaint (Pro)

29%

(238M Gal)

New

Non-Residential

6%

(49M Gal)

New Residential

12%

(98M Gal)

DIY

38%

(311M Gal)

819 Million Gallons in 2018

9


U.S. Demographics

SILENT

1928-1945

27MILLION

8% OF U.S.

POPULATION

- Transitioning to Senior Living

Facilities

73-90 YEARS OLD

(AS OF 2018)

BABY BOOMERS

1946-1964

72MILLION

22% OF U.S.

POPULATION

- Aging in place; driving

remodeling spend

- Eventually will downsize

- Eventually will relocate to

active adult facilities

54-72 YEARS OLD

(AS OF 2018)

GEN X

1965-1980

66MILLION

20% OF U.S.

POPULATION

- Move up creates churn and

drives remodeling

- Most likely to hire contractors

38-53 YEARS OLD

(AS OF 2018)

MILLENNIALS

(GEN Y)

1981-1996

73MILLION

22% OF U.S.

POPULATION

- Forming households

- First time homebuyers

- Demand for entry level homes

- Driving multifamily and rentals

22-37 YEARS OLD

(AS OF 2018)

iGEN (GEN Z)

1997-2012

78MILLION

24% OF U.S.

POPULATION

- Will further extend household

formation

- Always connected, eComm

6-21 YEARS OLD

(AS OF 2018)

Sources: PewResearch.org

Please Note: above are estimates based Census projections for 2019 US population

Percentages exclude those born before 1928 and after 2012. No chronological end date has been set for Gen-Z10


(4,000)

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

800

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

Cu

mu

lati

ve

Su

rplu

s/D

efi

cit

(T

ho

us

an

ds

)

An

nu

al

Su

rplu

s/D

efi

cit

(T

ho

us

an

ds

)

Housing Supply Not Keeping Pace

11

Housing Surplus/Deficit (thousands) &

Homeowner Vacancy RateHousing Surplus/Deficit (thousands)

Sources: Wells Fargo Securities, U.S. Commerce Department

We have underbuilt since the Great Recession and inhabitable vacancies have largely been absorbed

Housing Surplus/

Deficit (LHS)

Vacancy Rate (RHS)

Cumulative Housing

Surplus/Deficit (RHS)

0

0.005

0.01

0.015

0.02

0.025

0.03

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

800

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013

2017


Notes: Household Growth Data are three-year trailing averages.

Source: Harvard Joint Center for Housing Studies, 2019, www.jchs.harvard.edu. All rights reserved.

0

500

1,000

1,500

2,000

2,500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

HVS Household Growth (3-Year Rolling Average) Completions & Placements

Thousand of Housing Units

Household Growth vs. Completions & Placements

12

New construction not keeping up with historic demand


Repaint & RemodelLeading Indicator of U.S. Remodeling Activity

13 Source: Harvard Joint Center for Housing Studies

$299$305

$309$315 $316

$323

$330$336

$339$345

$352

$353

6.9% 6.9%6.4% 6.3% 6.5%

7.3% 7.3% 7.3% 7.0% 6.9% 6.9%5.2%

-10%

-5%

0%

5%

10%

$250

$270

$290

$310

$330

$350

$370

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2p Q3p Q4p

2017 2018 2019

4-Quarter Moving Totals (Bils. $) (Revised) 4-Quarter Moving Rate of Change (Revised)

U.S. residential remodeling remains SOLID

F I N A N C I A L C O M M U N I T Y P R E S E N T A T I O N – J U N E 5 , 2 0 1 9 14

Existing Home Sales uneven recently, but not the only factor driving remodeling

Remodeling DriversExisting Home Sales & Monthly Housing Turnover

Existing Home Sales Monthly Housing Turnover

Source: Census, NAR, Wells Fargo Securities, LLC Estimates

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Tax Credit Expiration

-30%

-20%

-10%

0%

10%

20%

30%

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Y/Y

% C

ha

ng

e


The median age of the nation’s 137 million homes is 40 years old

3%

16%

15%

13%

15%

38%

Remodeling DriversAging Housing Stock

Sources: Wells Fargo Securities, LLC, Estimates, Census Bureau

Share of Owner-Occupied Housing

by Year Structure BuiltMedian Age of Housing Stock

Source: NAHB

23

25 25

2728 28

30 3031

32 32

34 35

3738

39 40

15

20

25

30

35

40

198

5

198

7

198

9

199

1

199

3

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

201

7

Median Age Housing Stock

15


Remodeling DriversChange in U.S. Home Values

16

Price appreciation gives homeowners confidence to remodel

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8Index

Source: Harvard Joint Center for Housing Studies, 2019, www.jchs.harvard.edu. All rights reserved.


Repaint & RemodelBaby Boomers Aging in Place

17

Older homeowners now account for fully half of improvement spending nationally

Share of Home Improvement Spending (Percent)

Source: Harvard Joint Center for Housing Studies, Improving America’s Housing 2019,

www.jchs.harvard.edu. All rights reserved.

Age of

Homeowners

Under 35

35-54

55 & Over


Employment and consumer confidence remain high

U.S. Monthly Unemployment Rate Consumer Sentiment Index

50

60

70

80

90

100

110

120

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

19

89

19

90

19

92

19

94

19

95

19

97

19

99

20

00

20

02

20

04

20

05

20

07

20

09

20

10

20

12

20

14

20

15

20

17

20

19

Repaint & RemodelEmployment & Consumer Sentiment

Source: Census Bureau


198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

41%

59%

62%

38%

Repaint & RemodelDIY Contractor Shift Will Continue in U.S. & Canada

DIY/ Remodeler

Paint Contractor

Sources: U.S. Commerce Department, Company Estimates

Sherwin-Williams well positioned to serve both segments

19


COMMERCIAL CONSTRUCTION

20


Commercial Construction Put in Place

21

Accumulated construction put in place drives maintenance opportunities

$100

$150

$200

$250

$300

$350

$400

$450

$500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

An

nu

al

U.S

. C

om

me

rcia

l C

on

str

uc

tio

n C

om

ple

tio

ns

($

bn

)

Sources: Deutsche Bank, Census Bureau


$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

Ju

n 2

016

Se

p 2

01

6

Dec

20

16

Ma

r 2

017

Ju

n 2

017

Se

p 2

01

7

Dec

20

17

Ma

r 2

018

Ju

n 2

018

Se

p 2

01

8

Dec

20

18

Ma

r 2

019

Co

mm

erc

ial

Co

nstr

ucti

on

Sta

rts (

$b

n, S

A)

Commercial Construction StartsPainting is one of the last trades into projects

22

Strong commercial construction starts in back half of 2018 leading to completions over next 12-18 months

Strong Starts

Sources: Deutsche Bank, Dodge Commercial Analytics

Completions

12-18 Months


INDUSTRIAL & SPECIAL PURPOSE COATINGS

23


PMI is a weighted average of five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%)

and Stocks of Purchases (10%). A reading above 50 indicates an overall increase compared to the previous month. 50 = stagnation.

Up or down from prior month indicates acceleration or moderation. Sources: 2019 IHS Markit, Caixin

’06 ’08 ’10 ’12 ’14 ’16 ’18 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ‘19

Industrial Demand by RegionPurchasing Managers Index (PMI) - Manufacturing

24

’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ‘19

UNITED STATES BRAZIL EUROZONE CHINA

US Manufacturing PMI Brazil Manufacturing PMI Eurozone Manufacturing PMI China Manufacturing PMI


Industrial Coatings

Technology driven, specialty solutions that drive customer throughput and productivity


Population shift to urban areas supports long-term growth across multiple end markets

Urban vs. Rural Global Population, 1950 - 2050

Urbanization

Source: United Nations Department of Economics & Social Affairs, Population Division

% of Population Living in Urban Areas

55%

43%

50%

68%

74%

81% 82%

68%

59%

66%

72%

84%88% 89%

20%

40%

60%

80%

100%

World Africa Asia Oceania Europe LatinAmerica

NorthAmerica

2018 2030 2050

Source: United Nations Department of Economics & Social Affairs

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

195

5

196

0

196

5

197

0

197

5

198

0

198

5

199

0

199

5

200

0

200

5

201

0

201

5

202

0

202

5

203

0

203

5

204

0

204

5

205

0


Significant global backlog of infrastructure projects

Global Infrastructure Spending

Source: Oxford Economics, Global Infrastructure Investment Needs (2017).

Infrastructure Investment Gap by Region, 2016-2040

47%

39%

16%

10% 10%

19%

0%

10%

20%

30%

40%

50%

60%

AMERICAS AFRICA EUROPE OCEANIA ASIA WORLD

Extent to which estimated investment need is greater than

investment expected under current trends


Oil & Gas InfrastructureCapital Expenditures (In billions of dollars)

28

Chevron BP

ExxonShell

31.7

26.122.1 20.8

23.0

2014 2015 2016 2017 2018

-18%

-15%

-6%+11%

33.0

26.5

16.2 15.419.6

20182014 2015 2016 2017

-20%

-39%

-5%

+27%

35.4

29.5

18.1

13.4 13.8

2014 20172015 2016 2018

-17%

-39%

-26%3%

22.5

18.616.7 16.6 16.7

2014 2015 20182016 2017

-17%

-10%-1% +1%

Source: Public Company Reports

Anadarko

Occidental

8.9

5.3

2.73.6

5.0

20172014 20162015 2018

-40%

-49%+33%

+39%

9.5

6.1

3.5

5.06.2

20162014 201820172015

-36%

-43% +43%+24%

Oil & gas infrastructure capex spending is up, driving coating opportunities


Global Beverage Cans

29

NAR Beverage Cans Market Size 93.5 Billion Units*

Market Growth -1% CAGR**

*2017 Est.

**CAGR% 2017-2021

Sources: Euromonitor, CMI, SW Internal Est

LAR Beverage Cans Market Size 39.3 Billion Units*

Market Growth 2% CAGR**

EMEAI Beverage Cans Market Size 72.8 Billion Units*


APR Beverage Cans Market Size 120.0 Billion Units*


Solid international growth to continue


Auto Refinish Demand

30 Source: Federal Reserve Bank of St. Louis Economic Data

Miles driven continues to increase steadily, driving demand for automotive refinish

2,800

2,850

2,900

2,950

3,000

3,050

3,100

3,150

3,200

3,250

3,300

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

U.S

. M

on

thly

Mil

es D

riven

(th

ou

san

ds

)

industry overview · industry overview john morikis chairman & chief executive officer 1....

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