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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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
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
U.S. ARCHITECTURAL COATINGS
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
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
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
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
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
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
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
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
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
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
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
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
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
$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
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
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
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
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
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
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
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
-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
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
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
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
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
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
COMMERCIAL CONSTRUCTION
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
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
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
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
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
INDUSTRIAL COATINGS
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
30
40
50
60
70
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
30
40
50
60
70
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
30
40
50
60
70
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
30
40
50
60
70
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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
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
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
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
Industrial Coatings
Pace of Global RecoverySlower Faster
Technology Driven, Specialty Solutions That Drive Customer Throughput and Productivity
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 – S E P T E M B E R 2 9 , 2 0 2 0
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
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
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
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
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