2020 F I NANCI AL COM M UNI TY P RE S E NTATI ON INDUSTRY … · 2020. 9. 28. · 2020 F I NANCI AL...

2 0 2 0 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

INDUSTRY OVERVIEW

JOHN MORIKIS

CHAIRMAN &

CHIEF EXECUTIVE OFFICER

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 – S E P T E M B E R 2 9 , 2 0 2 0

This presentation may contain certain "forward-looking statements," as defined under U.S. federal securities laws. These forward-looking

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 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 and economic conditions; the Company's ability to successfully integrate past and future acquisitions into its existing operations, as well

as the performance of the businesses acquired; 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; adverse weather conditions or

impacts of climate change, natural disasters and public health crises, including the COVID-19 pandemic; the duration, severity and scope of the

COVID-19 pandemic and the actions implemented by international, federal, state and local public health and governmental authorities to contain

and combat the outbreak and spread of COVID-19, which may exacerbate one or more of the aforementioned and/or other risks, uncertainties and

factors more fully described in the Company's reports filed with the Securities and Exchange Commission (SEC); and other risks, uncertainties and

factors described from time to time in the Company's 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 the Company undertakes no obligation to update or revise any forward-looking

statement, whether as a result of new information, future events or otherwise.

INDUSTRY DATA: In addition, industry information included in this presentation is not intended to be comprehensive. The coatings industry is

global and diversified. The Company believes the multiple data sources cited in connection with industry market sizes, segments and other

information are directionally helpful as of the date of this presentation, but may not be comprehensive, including from an absolute volume or

industry size standpoint or otherwise. Generally, these sources tend to understate the size of the industry for all geographies.

Forward-Looking Statements

2


U.S. ARCHITECTURAL COATINGS


Architectural Paint Gallons

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

2019

U.S. Architectural Paint Industry

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

Millio

ns o

f G

allo

ns

PRIOR PEAK

Sources: ACA, Department of Commerce, Dodge Data & Analytics & Company Estimates

2019

~831 Million(~2.0% YoY)

200,000

210,000

220,000

230,000

240,000

250,000

260,000

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

PRIOR PEAK

Non-Residential & Residential

Square Footage

No

n-R

esid

en

tial

& R

esid

en

tial

Sq

. F

t in

Th

ou

san

ds

~19% Growth in Square Footage Since Prior Peak Should Drive Continued Gallon Growth Due to Larger Repaint Opportunity

4


U.S. Architectural Paint Industry

Sources: ACA, Department of Commerce, Dodge Data & Analytics, & Company Estimates

Non-Residential

Repaint (Pro)15%

(126M Gal)

Residential

Repaint (Pro)30%

(247M Gal)

New

Non-Residential6%

(50M Gal)

New Residential12%

(100M Gal)

DIY37%

(308M Gal)

~831 Million Gallons in 2019

SHW is Well-Positioned in All Architectural Coating Segments

5


DIY

• Unprecedented demand

driven by consumers

nesting

• Expect return to

historical low-single-digit

growth rate

U.S. Architectural Paint Industry Trends

COMMERCIAL

• Projects resuming –

pace of completions

choppy

• Pace of new starts

uncertain in near-term

NEW

RESIDENTIAL

• Robust recovery in starts

• Strong household

formations drive long-

term demand

RESIDENTIAL

REPAINT (PRO)

• Rapid return of exterior

projects; interior gaining

momentum

• Demographic and

economic indicators

favorable long-term

PROPERTY

MANAGEMENT

• Slower recovery

• Expect apartment turns,

hospitality and other

drivers to eventually

return

6


U.S. Demographics

SILENT

1928-1945

23MILLION

8% OF U.S.

POPULATION

- Transitioning to Senior Living

Facilities

75-92 YEARS OLD

(AS OF 2020)

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

56-74 YEARS OLD

(AS OF 2020)

GEN X

1965-1980

65MILLION

20% OF U.S.

POPULATION

- Move up creates churn and

drives remodeling

- Most likely to hire

contractors

40-55 YEARS OLD

(AS OF 2020)

MILLENNIALS

(GEN Y)

1981-1996

72MILLION

22% OF U.S.

POPULATION

- Forming households

- First time homebuyers

- Demand for entry level homes

- Driving multifamily and rentals

24-39 YEARS OLD

(AS OF 2020)

iGEN (GEN Z)

1997-2012

78MILLION

24% OF U.S.

POPULATION

- Will further extend

household formation

- Always connected, eComm

8-23 YEARS OLD

(AS OF 2020)

Source: PewResearch.org. Please Note: above estimates based on Census projections for 2019 US population.

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

Boomers, Gen X and Millennials Driving Demand, With Largest Generation in History (Gen Z) on the Way

7


7.6%

2.2%

11.0%

13.9%

42.1% 27.1%37.8%

5.5%

-26.3%

-18.1%

2.4%

23.1%2.8%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

New Residential Housing StartsPainting Begins ~3-4 Months After Start

Painting of Homes Started in 1Q Delayed by COVID-19 into 2020 Second Half. New Starts Recovering from April trough.

Housing Starts in '000s (Seasonally Adjusted Annual Rate) & YoY% Change

2018 2019 2020

Strong Starts

Wave 1

Strong Starts

Wave 2

COVID-19

Pause

Rapid

Recovery

Source: U.S. Census Bureau 8


Housing Supply Not Keeping Pace

Sources: Wells Fargo Securities, LLC, Census

Housing Surplus/

Deficit

Vacancy Rate (RHS)

We have Underbuilt Since the Great Recession and Inhabitable Vacancies have Largely Been Absorbed

Housing Surplus/Deficit (thousands) &

Homeowner Vacancy Rate

9


$292$296

$301$308

$312 $315$320

$325 $327 $325 $328

6.1% 6.0% 6.3%6.7% 6.8% 6.5% 6.2%

5.6%

4.5%

3.3%2.4%

1.5%2.2%

4.2%

1.5%

-10%

-5%

0%

5%

10%

$250

$300

$350

$400

$450

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

2018 2019 2020 2021

Repaint & RemodelLeading Indicator of U.S. Remodeling Activity

Source: Joint Center for Housing Studies of Harvard University

Painting Remains More Resilient than Big Ticket Projects

2017

Historical Estimates

LIRA Projections: Standard Methodology

LIRA Projections: Downside

$332

$333

$330

$330

$320

$334

$339

$333

Four-Quarter Moving

Rate of Change

Homeowner Improvements & Repairs

Four-Quarter Moving Totals

Billions

Notes: The downside projections incorporate forecasted data for coincident model inputs: retail sales at building materials and supplies dealers, CoreLogic’s Home Price Index, and GDP. Forecasted data provided

by Moody’s Analytics Forecasted, Baseline Scenario, July 2020. Historical estimates since 2017 are produced using the LIRA model until American Housing Survey benchmark data become available.

10


3.2% 4.2%3.1%

10.4%

8.8%

7.1%

0.8%

-17.2%

-26.6%

-11.7%

8.7%

10.5%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

3,800

4,300

4,800

5,300

5,800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Existing Home Sales '000s - SAAR (YoY % Change)

2018

Remodeling DriversExisting Home Sales

Source: National Association of Realtors

COVID-19 Paused Strong Existing Home Sales Momentum; Activity Recovering

2019 2020

COVID-19

Pause

Existing Home

Sales Momentum

Rapid

Recovery

11


2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

National Association of Home Builders (NAHB) Remodeling Index

10

20

30

40

50

60

70

80

Current and Future Indicators Quickly Returned to Positive

NAHB Remodel Index - Quarterly (50+ = expansion)

12


Repaint DriversAging Housing Stock

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

The Median Age of the Nation’s 137 Million Homes is 40 Years Old

Median Age of Housing Stock

23

25 25

2728 28

30 3031

32 32

3435

3738

3940

41

15

20

25

30

35

40

45

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

13


-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Repaint DriversChange in U.S. Home Values

Source: S&P / Case Shiller

Price Appreciation Gives Homeowners Confidence to Remodel

S&P/Case-Shiller Home Price Appreciation Index - YoY % Change

14


Repaint & RemodelBaby Boomers Aging in Place

Source: AARP, Chase, Pulsenomics

Older Homeowners Staying in Place and Remodeling

41%29%

55%69%

23%

24%

21%

17%

All 18-49 Years 50+ Years 65+ Years

“What I’d really like to do is stay in my current

residence for as long as possible”

64%

53%

76%

86%

OF BABY BOOMERS

OWN THEIR HOME

76%

ARE LOOKING TO

RENOVATE(and borrowing an

average of $18K)

88%BELIEVE HOME

VALUES ARE

GOING UP

66%

15


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

201

9

41%

59%

63%

37%

DIY to Contractor Shift Expected to Continue in U.S. & Canada

DIY/ Remodeler

Paint Contractor

Sources: U.S. Commerce Department, Company Estimates

Sherwin-Williams is Well Positioned to Serve Pro and DIY

16


COMMERCIAL CONSTRUCTION


9.6%

12.8%

11.0%11.5%

10.5%

7.1%

11.4% 22.6%

13.3%

7.3%10.8%

15.0%

13.2%

6.7%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Commercial Construction StartsPainting Begins ~12-18 Months After Start

Strong Starts

Wave 1

Strong Starts

Wave 2

T3M Avg - Sq Ft in '000s and YoY% Change

2018 2019 2020

Source: Dodge Data & Analytics. Includes Stores & Restaurants, Warehouses (excl. manufacturer owned),

Office & Bank Buildings, Parking Garages & Automotive Services, Hotels & Motels

Significant Wave of Existing Projects Should be Reaching Painting Phase Now Through End of 2021

COVID-19

Pause

Slower

Recovery

18


U.S. Commercial Construction Put in PlaceProjects Will Resume as Maintenance Cannot be Delayed Indefinitely

Sources: Census Bureau

Note: Commercial projects include lodging, office, commercial, health care, educational and religious

$3.0T in Accumulated Commercial Construction Put in Place Since 2008 Drives Maintenance Opportunities

201420092008 2012 20132010 2011 20182015

$227,961

2016 2017

$328,362

2019

$349,597

$273,611$286,383

$222,622 $217,384$227,033

$247,875

$309,635

$342,707$352,846

Annual Commercial Construction Put in Place(Millions of Dollars)

19


INDUSTRIAL COATINGS


30

40

50

60

70

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

30

40

50

60

70


30

40

50

60

70


30

40

50

60

70


Industrial Demand by RegionPurchasing Managers Index (PMI) - Manufacturing

Improving Industrial Indicators in All regions Signal Additional Momentum

US PMI - IHS MARKIT (50+ = expansion)

BRAZIL PMI - IHS MARKIT (50+ = expansion)

EUROZONE PMI - IHS MARKIT (50+ = expansion)

CHINA PMI - IHS MARKIT (50+ = expansion)

Source: 2020 IHS Markit21


All Others(Thousands

of Firms)

Masco

Architectural Paints40%

OEM Coatings

40%

Special Purpose Coatings

20%

Paint & Coatings Industry

Global Mix by Category (Based on $)

Top Global Manufacturers

Coatings Industry 2019

Total Coatings 2019

~ 9.8 Billion Gallons

~132 Billion Dollars

Source: KNG Research

The use of KNG information in this presentation is for illustrative and

consistency purposes only; SHW has not verified accuracy of KNG Research.

Global Paints & Coatings Industry

Global Market

Top 10 Suppliers ~51%

Significant Organic and Acquisitive Growth Opportunities in Industrial Coatings

22


Industrial Coatings

Pace of Global RecoverySlower Faster

Technology Driven, Specialty Solutions That Drive Customer Throughput and Productivity

23


Industrial CoatingsFaster Recovery

• Shift from plastic to cans – environmental concerns

• Growing new categories – spiked seltzer and energy drinks

• Shift to non-BPA technology

• Customer investments in capacity expansion

“Up-cycle for beverage cans to be robust and supply/demand to likely

remain tight at least through the next 3-4 years”1

• Recovery of commercial construction - similar drivers as architectural

• Appliance, HVAC, trailer truck to regain momentum in 2021

• New business wins in all regions

“Following this year’s steep drop, commercial starts are expected to begin

to recover in 2021 as the economy slowly re-opens. The current

commercial construction forecast faces greater-than-normal risks as a

result of continued uncertainties about the future of COVID-19.”2

Source: 1Barclays 8/6/2020 2Dodge Data & Analytics May 2020

COIL &

EXTRUSION

PACKAGING

COATINGS

24


Industrial CoatingsModerate Recovery

• Strong recovery of new residential construction a driver for key end markets:

furniture, flooring, cabinetry, doors, molding

• Heightened consumer interest in customized finishes and colors

• Manufacturers relocating from China to SE Asia beginning to ramp up

“July (domestic) cabinet industry sales returned to growth as

economies reopened and consumers become increasingly

comfortable with contractors in their homes.”1

• Collision rates and pace of recovery tied to miles driven, urban congestion

levels and gasoline consumption among others

• New customer wins should aid SHW recovery

“Vehicle accidents in 2020 could fall by a high single digit percentage and

only rise gradually as congestion levels return to normal…. Vehicle miles

driven should bounce back more quickly, but absolute levels are not

expected to return to those seen in 2019 until 2022.”2AUTO

REFINISH

INDUSTRIAL

WOOD

Source: 1Kitchen Cabinet Manufacturers Association 2Bank of America25


Industrial CoatingsSlower Recovery

• Asia-Pacific showing strongest recovery

• Long-supply chains slowing some larger OEM recovery

• COVID-19 limiting access to some facilities

• Focus on deeper segmentation, new account activity

“Industrial production improving sequentially in most major regions

with return to year-over-year growth forecast for 2021.”1

• Oil and gas maintenance cannot be delayed indefinitely

• COVID-19 limiting access to some facilities

• Capture share in other segments - water treatment, food & beverage, flooring.

• Infrastructure bill would add momentum – bridge & highway etc.

“U.S. non-building starts expected to rebound in 2021.”2

PROTECTIVE

& MARINE

GENERAL

INDUSTRIAL

Source: 1Factset, Trading Economics, 2Dodge Data & Analytics June 202026

2020 F I NANCI AL COM M UNI TY P RE S E NTATI ON INDUSTRY … · 2020. 9. 28. · 2020 F I NANCI AL...

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