INDUSTRY OVERVIEW · INDUSTRY OVERVIEW JOHN MORIKIS CHAIRMAN & CHIEF EXECUTIVE OFFICER 1. FINANCIAL...
Transcript of INDUSTRY OVERVIEW · INDUSTRY OVERVIEW JOHN MORIKIS CHAIRMAN & CHIEF EXECUTIVE OFFICER 1. FINANCIAL...
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
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
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
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
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 $)
2018
~9.7 Billion Gallons
~130 Billion Dollars
Total Coatings
Architectural Paints39%
OEM Coatings
41%
Special Purpose Coatings
20%
3
F I N A N C I A L C O M M U N I T Y P R E S E N T A T I O N – J U N E 5 , 2 0 1 9
Paint & Coatings Demand by RegionGeographic Split of Global Revenue
4
43%
25%
3%
25%
Special Purpose Coatings
52%
21%
3%
23%
OEM CoatingsArchitectural Paints
41%
24%
6%
23%
All Coatings
Asia-Pacific
46%
North America
23%
South America
4%
Europe
23%
ROW ~ 4%
Sources: KNG Global Research
The use of KNG information in this presentation is for illustrative
and consistency purposes only; SHW have not verified the accuracy of KNG Research. Company Estimates.
F I N A N C I A L C O M M U N I T Y P R E S E N T A T I O N – J U N E 5 , 2 0 1 9
All Others
(>5,000 firms)
Masco
Global Market
Top 10 Suppliers ~55%
Top Global ManufacturersCoatings Industry 2018
5
Source: KNG Global Research
The use of KNG information in this presentation is for illustrative
and consistency purposes only; SHW have not verified the accuracy of KNG Research.
F I N A N C I A L C O M M U N I T Y P R E S E N T A T I O N – J U N E 5 , 2 0 1 9
2018
~1.5 Billion Gallons
~29.9 Billion Dollars
North America
Paint & Coatings
North America Paint & Coatings IndustrySales ($) Mix by Category
6
Architectural Paints 41%
OEM Coatings
37%
Special Purpose
22%
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.
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
U.S. ARCHITECTURAL COATINGS
7
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
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
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
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
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
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
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
(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
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
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
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
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
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
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
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
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.
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
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
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 18
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
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
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
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
COMMERCIAL CONSTRUCTION
20
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
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
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
$-
$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
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
INDUSTRIAL & SPECIAL PURPOSE COATINGS
23
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
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
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 25
Industrial Coatings
Technology driven, specialty solutions that drive customer throughput and productivity
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 26
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
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 27
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
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
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
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
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*
Market Growth 3% CAGR**
APR Beverage Cans Market Size 120.0 Billion Units*
Market Growth 4% CAGR**
Solid international growth to continue
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
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
)