Sherwin-Williams Co. (SHW) Valspar Adds a New Dimension Significant Accretion Positive for Shares

Transcription

1 March 21, 2016 Baird Equity Research Packaging & Coatings Sherwin-Williams Co. (SHW) Valspar Adds a New Dimension Significant Accretion Positive for Shares Reiterate Outperform rating. We believe that the shares of Sherwin-Williams should react favorably to the announced acquisition of Valspar, noting that the transaction is financially (conservatively $3+ in EPS including synergies according our calculations) and strategically accretive to the company. In addition, we believe that the news is a positive for the entire Coatings group, especially the mid-cap Coaters under our coverage (AXTA/RPM). As such we reiterate our Outperform rating on SHW's shares. Valspar transaction announced. Yesterday, Sherwin-Williams announced its intent to acquire Valspar (VAL) for ~$11.3B ($113/share + assumption of VAL s debt), or ~15x Valspar s FY16E EV:EBITDA (~11x including synergies), which will catapult Sherwin over PPG/AkzoNobel as the leading coatings player globally. Strong strategic fit. We believe the deal is a strong strategic fit, noting that Valspar s packaging coatings business is a crown jewel within the space (global leader/high-margin), while the acquisition also expands Sherwin s exposure in U.S. DIY (Lowe s/ace), international (Europe/Australia/China) and industrial (coil/wood/general industrial) businesses. Attractive synergy profile. Moreover, the deal is expected to generate ~$280M in synergies within two years after completion ($320M long-term) or ~6% of sales slightly below Sherwin s historical synergy capture (21 acquisitions over the last 10 years). Divestiture protection. In addition, we note that the largest overlap between Sherwin/Valspar is in U.S. paints and while Sherwin currently expects divestitures to be minimal, the deal is structured in a tiered-pricing format as protection with the acquisition price declining to $105/share if divestitures exceed $650M in sales and SHW can walk away if divestitures exceed $1.5B. $3+ EPS accretive. Considering these details, we estimate that Valspar should be $3+ EPS accretive by year-two (assuming no sales growth/debt pay-down), noting that Sherwin expects to finance the deal with cash and various borrowings (revolvers/term loans). Massive FCF generation reduces leverage risk. Also, given that Sherwin s PF FCF generation will likely exceed $1.4B (ex-dividend) annually, we believe that leverage risk is minimal even despite the company levering to ~5x FY16E net debt:ebitda (~4.5x post synergies) with ~1x in deleveraging annually achievable, in our opinion. Positive for shares. As such, we believe that the shares will react favorably, especially considering prior speculation on Sherwin making a large acquisition. Key questions for the call include: 1) why the robust purchase price, 2) what the blended cost of debt will be, 3) what the PF share in N.A. paints will be, and 4) what the strategy will be for the Valspar brand. Sherwin-Williams is a global leader in the manufacture, development, distribution, and sale of coatings and related products to professional, commercial, and retail customers. RESEARCH UPDATE 1-Year Price Chart A-15 M J-15 Stock Data J-15 A-15 S-15 Rating: Outperform Suitability: Average Risk Price Target: $300 Price (3/18/16): $ Market Cap (mil): $26,906 Shares Out (mil): 93.2 Average Daily Vol (mil): 0.86 Dividend Yield: 0.5% '16E EV:EBITDA: 14.1x '16E FCF Yield: 4.2% Estimates 219 FY Dec 2015A 2016E 2017E Q A 1.59 E Q A 4.04 E Q A 4.33 E Q A 2.44 E Fiscal EPS A E E Fiscal P/E 25.9x 23.3x 20.8x Chart/Table Sources: FactSet and Baird Data. Price chart reflects most recent closing price. EPS (Net): Quarterly EPS may not sum to FY EPS due to rounding. O-15 N-15 D-15 J-16 F-16 [Please refer to Appendix - Important Disclosures and Analyst Certification] M-16 Ghansham Panjabi, Ph.D. gpanjabi@rwbaird.com Mehul M. Dalia mdalia@rwbaird.com Matthew T. Krueger mtkrueger@rwbaird.com

2 March 21, 2016 Sherwin-Williams Co. Details Attractive Combination $3+ Accretive Assuming Minimal Divestitures Reiterate Outperform Rating While Sherwin-Williams and Valspar management understandably released limited details surrounding the announced acquisition, the announcement of a large transaction supports our view that the cycle of secular consolidation amongst the Coaters remains ongoing. We continue to believe that the various Coatings end markets are attractive but mixed from a growth standpoint, with pockets of strength (N.A. construction/global automotive/etc.) offsetting areas of weakness (oil & gas/emerging markets/etc.). Given the mixed growth dynamic, consolidation and diversification at the end-market level on a secular basis is inevitable, noting that the Coaters have already begun this process via numerous bolt-on style and larger acquisitions. As such, we believe that the round of consolidation remains ongoing, and the SHW/VAL deal reaffirms our view that the sector is looking forward to counteract a choppy global macroeconomic environment and to retain supply chain positioning strength in the context of a highly consolidated supplier base. Now, switching to SHW/VAL, we note that the strategic merits are unquestionable and that anti-trust scrutiny appears to be minimal, with the only likely conflict being within the North American architectural paints market. Regardless, what is also clear is Sherwin has prioritized an expansion of both its end-market and geographic exposure, noting that SHW had clearly been focused on the North American architectural paints market previously. More specifically, we estimate that Valspar generates ~44% of its sales abroad, with Asia (16%), EMEAI (16%), Australia/New Zealand (7%), and Latin America (5%) comprising the non-north American businesses, resulting in SHW s North American exposure moving from 84% to 76% post the acquisition. Additionally, Sherwin s announced acquisition would expand its end market exposure into the attractive packaging and coil coatings markets, remembering that these two franchises are the crown jewels of Valspar s product portfolio. Valspar Corporation - Revenue Breakdown by Segment, Product Line, and Geography Segment Product Lines Revenues (in % of North Australia & Latin EMEAI Asia millions of $) Revenues America New Zealand America Packaging $820 19% X X X X X General Industrial $735 17% X X X X Coil $500 11% X X X X Wood $425 10% X X North America $930 21% X Australia / New Zealand $255 6% X China $235 5% X Europe $55 1% X Auto Refinish $195 4% X X X Other $235 5% Global Sales $4,385 56% 17% 16% 7% 5% Coatings Paints Sources: Company presentation and estimates Meanwhile, SHW/VAL released a number of high-level details regarding the deal including the proforma 2015 sales ($15.6 billion) EBITDA ($2.8 billion), with the latter including the estimated annual synergies from the deal. Sherwin estimates that $280 million in synergies are achievable within the first two years of the deal in the areas of sourcing, SG&A, and process and efficiency savings, while SHW s long-term synergy target is slightly higher at $320 million. Also, management has targeted a closure date for the deal of 1Q17, with an acquisition price of $113 per Valspar share assuming minimal divestitures. Moreover, if the required divestiture total exceeds $650 million in 2015 VAL sales the acquisition price drops to $105, with Sherwin-Williams retaining the option to walk away from the deal if the divestitures required exceed $1.5 billion in 2015 VAL revenues. Factoring in the above, as depicted in our table below, we estimate that the combined entity would generate ~$1,400+ of free cash flow excluding dividend payments, with SHW on a 2016E pro-forma basis and including the full $280 million in synergies at ~$15-$16 / share from an earnings power 2

3 March 21, 2016 Sherwin-Williams Co. standpoint. Given the pro-forma leverage (4.4x net debt:ebitda including SHW s $280 million synergy target), we believe that the company will focus on accelerating debt paydown to a more normalized level (~2.0x), unleashing accelerated shareholder value in the process, at which point SHW could return to the M&A market or engage in further share buybacks. As such, while the assumptions above are plentiful, at a minimum we believe that the merger news supports our view that SHW is focused on deploying its healthy balance sheet, which has historically unleashed significant shareholder value. On a fundamental basis, while 2015 margin comparisons are tough due to previous declines in raw material costs, the North American architectural paint market appears poised for a solid 2016 rebound in our view, underlying our Outperform rating on the shares regardless of the SHW / VAL combo. Sherwin-Williams - Valspar Acquisition Transaction Details VAL Shares 82 Acquisition Price $113 VAL Market Cap. $9,311 VAL Net Debt $1,895 VAL EV $11,206 VAL '16E EBITDA $740 VAL Takeout Multiple (Before Synergies) 15.1x VAL Takeout Multiple (After Synergies) 11.0x Cash ($113/share + Assumed Debt) $11,206 Total EV $11,206 Cash ($113/share) $9,311 Assumption of Debt $1,895 Total Cash Consideration $11,206 SHW '15 Net Debt $1,757 Incremental Debt $11,206 PF Net Debt $12,963 PF EBITDA (including $280M in synergies) $2,916 PF Net Debt:EBITDA (Before Synergies) 4.9x PF Net Debt:EBITDA (After Synergies) 4.4x Current SHW Share Price $ Source: Company filings, company presentations, FactSet, and estimates * Most estimates in $M Potential Transaction Details Total Consideration: Cash Consideration: PF Debt PF Net Debt:EBITDA Current SHW Share Price 3

4 March 21, 2016 Sherwin-Williams Co. Sherwin-Williams - Valspar Corp. Acquisition EPS Accretion Analysis SHW VAL Total '16E Sales $11,607 $4,397 $16,003 Divestitures ($440) PF Net Sales - - $15,564 '16E EBITDA $1,970 $740 $2,710 Divestitures ($74) Synergies $280 PF EBITDA - - $2,916 EBITDA Margins 17.0% 16.8% 18.7% '16E D&A $223 $98 $321 Divestitures ($8) Synergies PF D&A - - $312 '16E EBIT $1,747 $642 $2,390 Divestitures ($66) Synergies $280 PF EBIT - - $2,604 EBIT Margins 15.1% 14.6% 16.7% '16E Interest $73 - $73 Incremental Debt 4,5 - - $448 Divestiture Proceeds 4,6 - - ($30) Debt Paydown (FCF) 5,8 - - ($45) PF Interest - - $447 Pretax Income - - $2,157 % Margin % Income taxes - - $690 Tax Rate (%) % Net Income to Restricted Shareholders ($5) $0 ($5) Equity In Earnings $0 $0 $0 Net Income - - $1,461 % margin % '16E Diluted EPS $ $15.68 Diluted Shares Assumptions: 1 Divestitures (% of VAL Sales) 10.0% Divestitures EBIT Margins 15.0% Synergies (in $M), 2 Year Target $280 Assumed Interest Rate 4.0% Incremental Net Debt (in $M) $11,206 Assumed Divestiture EBITDA $74 Assumed Divestiture Multiple 10.0x Divestiture Proceeds (in $M, Used for Debt Paydown) $740 Assumed Tax Rate 32.0% PF '16E FCF (in $M, Used for Debt Paydown) $1,115 9 SHW '16E Annual Dividend $3.28 Source: Company filings, company presentations, FactSet, and estimates 4

5 March 21, 2016 Sherwin-Williams Co. Sherwin-Williams - VAL Acquisition FCF Accretion Analysis (in $M) SHW VAL Total '16E PF EBITDA $1,970 $740 $2,916 - Interest $73 $86 $447 - CapEx $240 $115 $355 - Working Capital Needs $50 $0 $50 - Taxes $537 $169 $690 - Deferred Taxes & Other $50 ($10) $40 - Dividends 9 $300 $105 $306 Adjusted Free Cash Flow $820 $257 $1,108 Source: Company filings, company presentations, FactSet, and estimates Investment Thesis Top-three global coatings player and dominant N.A. franchise. In our opinion, Sherwin-Williams has emerged as a strong No. 3 in the attractive global coatings niche, with outsized exposure toward the N.A. architectural coatings market (~45% share). Products include coatings used in construction (paints and sealants) and product manufacturing (autos/wood furniture), with N.A. architectural coatings encompassing ~70% of the sales portfolio differentiating SHW from its more global peers (75% sales from N.A.). 70% sales base housing biased. In following, Sherwin-Williams is clearly exposed to U.S. housing fundamentals, noting that architectural coatings usage in the U.S. is down roughly 15% since the 2005 peak. Regardless, built on considerable brand equity and a differentiated controlled distribution model (70% of sales through retail stores), SHW has consistently gained share across N.A., while exhibiting pricing power via six price increases since 2010 (to offset rapid propylene and TiO2 increases). Near-term outlook attractive. Regardless, we believe that SHW fundamentals are attractive near term, with improving end-market dynamics boosted by a stable to declining raw material cost environment. Valuation. Our $300 price target is based on 14.5x '16E EV:EBITDA, above the company's historical average of 8.5x LTM EV:EBITDA, which we believe is justified given the Sherwin s strong brand equity, significant free cash flow generation, pricing power, and cash flow allocation track record. Risks & Caveats Outsized exposure to U.S. architectural coatings. Continued weakness in the U.S. housing market and U.S. architectural coatings market (~70% of Sherwin's sales) is a major risk. Volatile raw material costs. Though raw material inflation is weakening, spikes in propylene and TiO2 costs (both major cost inputs) could hurt Sherwin's profitability. Significant operating leases. At current, Sherwin-Williams has ~$700 million in operating leases (NPV), as 93% of its stores are leased, which we believe could become a risk if leasing terms become unfavorable in the future. Lead-based paint litigation. Sherwin-Williams is an easy target for lead-based paint related litigation given its dominance in the U.S. architectural coatings market, its significant FCF generation, and the relatively low number of existing prior lead-based paint producers left in business at current (most have gone bankrupt). Environmental liabilities. Sherwin-Williams mentions environmental litigation as an ongoing concern in their filings, and accrues potential liabilities from adverse rulings when it is increasingly probable that a liability will materialize and an amount can be determined. 5

6 March 21, 2016 Sherwin-Williams Co. Company Description Founded in 1866, The Sherwin-Williams Company is a global leader in the manufacture, development, distribution, and sale of coatings and related products to professional, industrial, commercial, and retail customers. The company manufactures products under well-known brands such as Sherwin-Williams, Dutch Boy, Krylon, Minwax, Thompson s WaterSeal, and many more. With global headquarters in Cleveland, Ohio, Sherwin-Williams branded products are sold exclusively through a chain of more than 4,000 company-operated stores and facilities, while the company s other brands are sold through leading mass merchandisers, home centers, independent paint dealers, hardware stores, automotive retailers, and industrial distributors. The Sherwin-Williams Global Finishes Group distributes a wide range of products in more than 109 countries around the world. 6

7 Figure 1. Sherwin-Williams Quarterly Income Statement ($ in millions except per share data) Q1 Q2 Q3 Q E E E E 2016E Paint Stores Group $1,461.5 $1,509.0 $1,985.0 $2,071.4 $2,087.3 $2,198.9 $1,675.2 $1,744.9 $7,524.2 EBIT $176.6 $211.0 $433.4 $477.1 $507.4 $538.9 $316.1 $331.0 $1,558.1 % margin 12.1% 14.0% 21.8% 23.0% 24.3% 24.5% 18.9% 19.0% 20.7% Consumer Group $351.7 $365.8 $490.0 $509.6 $421.6 $438.5 $314.6 $327.2 $1,641.1 EBIT $55.4 $62.0 $114.2 $122.4 $88.3 $94.4 $50.9 $53.9 $332.8 % margin 15.8% 17.0% 23.3% 24.0% 20.9% 21.5% 16.2% 16.5% 20.3% Global Finishes Group $469.6 $453.1 $505.8 $493.1 $486.1 $478.8 $454.8 $452.6 $1,877.7 EBIT $38.9 $38.4 $57.3 $56.8 $55.1 $55.3 $50.6 $49.9 $200.4 % margin 8.3% 8.5% 11.3% 11.5% 11.3% 11.5% 11.1% 11.0% 10.7% Latin America Coatings Group $166.2 $129.7 $150.1 $125.3 $156.0 $146.7 $158.7 $157.1 $558.7 EBIT $9.5 $3.9 $4.0 $3.1 $2.1 $2.9 $2.8 $3.1 $13.0 % margin 5.7% 3.0% 2.7% 2.5% 1.4% 2.0% 1.8% 2.0% 2.3% Administrative $1.3 $1.3 $1.3 $1.3 $1.2 $1.2 $1.3 $1.2 $5.0 EBIT -$74.8 -$80.0 -$88.3 -$90.0 -$85.2 -$90.0 -$ $97.0 -$357.0 % margin Total External Sales $2,450.3 $2,458.8 $3,132.1 $3,200.8 $3,152.3 $3,264.1 $2,604.6 $2,683.0 $11,606.6 EBIT $205.6 $235.3 $520.7 $569.4 $567.7 $601.5 $316.8 $340.9 $1,747.2 % margin 8.4% 9.6% 16.6% 17.8% 18.0% 18.4% 12.2% 12.7% 15.1% Interest Expense $12.4 $19.0 $12.9 $18.5 $17.0 $18.0 $19.6 $17.5 $73.0 Pretax Income $193.2 $216.3 $507.8 $550.9 $550.7 $583.5 $297.2 $323.4 $1,674.2 % Margin 7.9% 8.8% 12.8% 17.2% 17.5% 17.9% 11.4% 12.1% 14.4% Income taxes $61.8 $69.2 $157.8 $176.8 $176.2 $187.3 $99.2 $103.2 $536.6 Tax Rate (%) 32.0% 32.0% 31.1% 32.1% 32.0% 32.1% 33.4% 31.9% 32.0% Net Income $131.4 $147.1 $349.9 $374.1 $374.5 $396.2 $198.0 $220.3 $1,137.7 % Margin 5.4% 6.0% 11.2% 11.7% 11.9% 12.1% 7.6% 8.2% 9.8% Net Income to Restricted Shares -$0.2 -$0.5 -$2.0 -$2.0 -$2.0 -$2.0 -$0.5 -$0.5 -$5.0 Net Income to Common Shares $131.2 $146.6 $347.9 $372.1 $372.5 $394.2 $197.5 $219.8 $1,132.7 % Margin 5.4% 6.0% 11.1% 11.6% 11.8% 12.1% 7.6% 8.2% 9.8% Dil EPS $1.38 $1.59 $3.70 $4.04 $3.97 $4.33 $2.11 $2.44 $12.40 Dil Shares Notes: 1Q 2015: N/A 2Q 2015: 3Q 2015: 4Q 2015: 1Q 2016: N/A 2Q 2016: 3Q 2016: 4Q 2016: Analysis: Yr/Yr Paint Stores Group 7.5% 3.2% 5.4% 4.4% 2.9% 5.3% 5.9% 4.2% 4.4% Yr/Yr Consumer Group 8.1% 4.0% 13.1% 4.0% 9.4% 4.0% 13.6% 4.0% 4.0% Yr/Yr Global Finishes Group (5.6%) (3.5%) (7.1%) (2.5%) (9.3%) (1.5%) (9.5%) (0.5%) -2.0% Yr/Yr Latin America Coatings Group (8.9%) (22.0%) (17.2%) (16.5%) (22.1%) (6.0%) (23.5%) (1.0%) -11.5% Yr/Yr Administrative 6.1% 0.0% 3.9% 0.0% 1.5% (3.0%) (1.6%) (5.3%) -2.0% Total Yr/Yr Sales 3.5% 0.3% 2.9% 2.2% 0.1% 3.5% 1.4% 3.0% 2.4% EBIT Margin (Paint Stores Group) 12.1% 14.0% 21.8% 23.0% 24.3% 24.5% 18.9% 19.0% 20.7% EBIT Margin (Consumer Group) 15.8% 17.0% 23.3% 24.0% 20.9% 21.5% 16.2% 16.5% 20.3% EBIT Margin (Global Finishes Group) 8.3% 8.5% 11.3% 11.5% 11.3% 11.5% 11.1% 11.0% 10.7% EBIT Margin (Latin America Coatings Group) 5.7% 3.0% 2.7% 2.5% 1.4% 2.0% 1.8% 2.0% 2.3% Total EBIT Margin 8.4% 9.6% 16.6% 17.8% 18.0% 18.4% 12.2% 12.7% 15.1% Pretax margin 7.9% 8.8% 12.8% 17.2% 17.5% 17.9% 11.4% 12.1% 14.4% Net Margin (Common) 5.4% 6.0% 11.1% 11.6% 11.8% 12.1% 7.6% 8.2% 9.8% Yr/Yr EPS Growth 21.0% 14.5% 25.8% 9.4% 18.3% 9.2% 54.2% 15.7% 11.0% EBITDA $255.0 $291.0 $569.6 $625.1 $616.4 $657.2 $368.4 $396.6 $1,969.7 EBITDA Margin 10.4% 11.8% 18.2% 19.5% 19.6% 20.1% 14.1% 14.8% 17.0% D&A $49.4 $55.6 $48.9 $55.6 $48.6 $55.6 $51.6 $55.6 $222.5 Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

8 Figure 2. Sherwin-Williams Segment Results Reconciliation YOY Q1 Q2 Q3 Q E E E E 2016E Model Assumptions Paint Stores Group SSS Volume (est) 6.4% 3.0% 5.4% 4.0% 3.1% 4.0% 6.2% 3.0% 3.5% Price:Mix 0.0% (1.0%) (1.5%) (1.0%) (1.0%) 0.0% (1.0%) 0.0% (0.5%) SSS Estimate 6.4% 2.0% 3.9% 3.0% 2.1% 4.0% 5.2% 3.0% 3.0% Store Count 4,010 4,110 4,025 4,134 4,048 4,157 4,086 4,181 4,146 Net New Stores Store Growth (YOY) 2.2% 2.5% 2.1% 2.7% 2.2% 2.7% 2.1% 2.3% 2.6% New Store Sales 1.1% 1.2% 1.5% 1.4% 0.8% 1.3% 0.7% 1.2% 1.3% Acq / Div 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FX / Other 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 7.5% 3.2% 5.4% 4.4% 2.9% 5.3% 5.9% 4.2% 4.3% EBIT Margins D 1.3% 1.9% 1.9% 1.2% 3.0% 0.2% 3.2% 0.1% 0.9% Consumer Group Vol (est) 8.1% 4.0% 13.1% 4.0% 9.4% 4.0% 13.6% 4.0% 4.0% Price:mix (est) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Acq / Div 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FX 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 8.1% 4.0% 13.1% 4.0% 9.4% 4.0% 13.6% 4.0% 4.0% EBIT Margins D 0.0% 1.2% 2.0% 0.7% 0.4% 0.6% 5.2% 0.3% 0.7% Global Finishes Group Vol (est) 1.0% 0.0% 0.6% 0.0% (1.0%) 0.0% 0.0% 0.0% 0.0% Price:mix (est) 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% (2.4%) 0.0% 0.0% Acq / Div 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FX (6.9%) (3.5%) (7.7%) (2.5%) (8.3%) (1.5%) (7.1%) (0.5%) (2.0%) Total (5.6%) (3.5%) (7.1%) (2.5%) (9.3%) (1.5%) (9.5%) (0.5%) (2.0%) EBIT Margins D (1.1%) 0.2% 1.2% 0.2% 0.0% 0.2% 3.3% (0.1%) 0.1% Latin America Coatings Group Vol (est) 0.0% (3.0%) (1.0%) (2.0%) 0.0% (1.0%) (3.6%) 0.0% (1.5%) Price:mix (est) 5.0% 1.0% 1.2% 0.5% 1.5% 0.0% 1.5% 0.0% 0.4% Acq / Div 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FX (13.9%) (20.0%) (17.4%) (15.0%) (23.6%) (5.0%) (21.4%) (1.0%) (10.3%) Total (8.9%) (22.0%) (17.2%) (16.5%) (22.1%) (6.0%) (23.5%) (1.0%) (11.4%) EBIT Margins D 0.2% (2.7%) (0.4%) (0.2%) (4.5%) 0.6% (4.5%) 0.2% (0.5%) Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

9 Figure 3. Sherwin-Williams Quarterly Income Statement ($ in millions except per share data) Q1 Q2 Q3 Q Paint Stores Group $1,360.0 $1,461.5 $1,882.6 $1,985.0 $2,027.5 $2,087.3 $1,581.5 $1,675.2 $7,209.0 EBIT $146.3 $176.6 $375.9 $433.4 $431.8 $507.4 $247.5 $316.1 $1,433.5 % margin 10.8% 12.1% 20.0% 21.8% 21.3% 24.3% 15.6% 18.9% 19.9% Consumer Group $325.3 $351.7 $433.4 $490.0 $385.2 $421.6 $276.9 $314.6 $1,578.0 EBIT $51.1 $55.4 $92.5 $114.2 $79.0 $88.3 $30.3 $50.9 $308.8 % margin 15.7% 15.8% 21.3% 23.3% 20.5% 20.9% 11.0% 16.2% 19.6% Global Finishes Group $497.6 $469.6 $544.6 $505.8 $536.3 $486.1 $502.4 $454.8 $1,916.3 EBIT $46.5 $38.9 $54.9 $57.3 $60.8 $55.1 $39.0 $50.6 $201.9 % margin 9.3% 8.3% 10.1% 11.3% 11.3% 11.3% 7.8% 11.1% 10.5% Latin America Coatings Group $182.4 $166.2 $181.2 $150.1 $200.4 $156.0 $207.4 $158.7 $631.0 EBIT $10.0 $9.5 $5.7 $4.0 $11.8 $2.1 $13.0 $2.8 $18.5 % margin 5.5% 5.7% 3.1% 2.7% 5.9% 1.4% 6.3% 1.8% 2.9% Administrative $1.2 $1.3 $1.2 $1.3 $1.2 $1.2 $1.3 $1.3 $5.1 EBIT -$71.3 -$74.8 -$83.3 -$88.3 -$93.3 -$85.2 -$ $ $352.0 % margin Total External Sales $2,366.6 $2,450.3 $3,043.0 $3,132.1 $3,150.6 $3,152.3 $2,569.4 $2,604.6 $11,339.3 EBIT $182.5 $205.6 $445.6 $520.7 $490.1 $567.7 $204.3 $316.8 $1,610.8 % margin 7.7% 8.4% 14.6% 16.6% 15.6% 18.0% 8.0% 12.2% 14.2% Interest Expense $16.4 $12.4 $16.4 $12.9 $16.0 $17.0 $15.4 $19.6 $61.8 Pretax Income $166.1 $193.2 $429.2 $507.8 $474.0 $550.7 $188.9 $297.2 $1,549.0 % Margin 7.0% 7.9% 12.8% 16.2% 15.0% 17.5% 7.4% 11.4% 13.7% Income taxes $50.6 $61.8 $137.8 $157.8 $147.8 $176.2 $56.1 $99.2 $495.1 Tax Rate (%) 30.5% 32.0% 32.1% 31.1% 31.2% 32.0% 29.7% 33.4% 32.0% Net Income $115.5 $131.4 $291.4 $349.9 $326.2 $374.5 $132.7 $198.0 $1,053.8 % Margin 4.9% 5.4% 9.6% 11.2% 10.4% 11.9% 5.2% 7.6% 9.3% Net Income to Restricted Shares $0.0 -$0.2 -$2.0 -$2.0 -$2.0 -$2.0 -$0.2 -$0.5 -$4.7 Net Income to Common Shares $115.5 $131.2 $289.4 $347.9 $324.2 $372.5 $132.5 $197.5 $1,049.1 % Margin 4.9% 5.4% 9.5% 11.1% 10.3% 11.8% 5.2% 7.6% 9.3% Dil EPS $1.14 $1.38 $2.94 $3.70 $3.35 $3.97 $1.37 $2.12 $11.16 Dil Shares Notes: 1Q 2014: N/A 2Q 2014: 3Q 2014: 4Q 2014: 1Q 2015: N/A 2Q 2015: 3Q 2015: 4Q 2015: Analysis: Yr/Yr Paint Stores Group 16.4% 7.5% 17.2% 5.4% 15.0% 2.9% 8.0% 5.9% 5.2% Yr/Yr Consumer Group 5.4% 8.1% 10.1% 13.1% 5.0% 9.4% 1.6% 13.6% 11.1% Yr/Yr Global Finishes Group 2.2% (5.6%) 6.1% (7.1%) 5.7% (9.3%) 1.1% (9.5%) -7.9% Yr/Yr Latin America Coatings Group (10.0%) (8.9%) (8.9%) (17.2%) (4.0%) (22.1%) (6.7%) (23.5%) -18.2% Yr/Yr Administrative 2.5% 6.1% 2.4% 3.9% (1.6%) 1.5% 19.5% (1.6%) 2.4% Total Yr/Yr Sales 9.2% 3.5% 12.1% 2.9% 10.6% 0.1% 4.6% 1.4% 1.9% EBIT Margin (Paint Stores Group) 10.8% 12.1% 20.0% 21.8% 21.3% 24.3% 15.6% 18.9% 19.9% EBIT Margin (Consumer Group) 15.7% 15.8% 21.3% 23.3% 20.5% 20.9% 11.0% 16.2% 19.6% EBIT Margin (Global Finishes Group) 9.3% 8.3% 10.1% 11.3% 11.3% 11.3% 7.8% 11.1% 10.5% EBIT Margin (Latin America Coatings Group) 5.5% 5.7% 3.1% 2.7% 5.9% 1.4% 6.3% 1.8% 2.9% Total EBIT Margin 7.7% 8.4% 14.6% 16.6% 15.6% 18.0% 8.0% 12.2% 14.2% Pretax margin 7.0% 7.9% 12.8% 16.2% 15.0% 17.5% 7.4% 11.4% 13.7% Net Margin (Common) 4.9% 5.4% 9.5% 11.1% 10.3% 11.8% 5.2% 7.6% 9.3% Yr/Yr EPS Growth 2.7% 21.0% 15.7% 25.8% 25.0% 18.3% 20.4% 54.2% 27.1% EBITDA $231.4 $255.0 $495.3 $569.6 $539.8 $616.4 $254.9 $368.4 $1,809.3 EBITDA Margin 9.8% 10.4% 16.3% 18.2% 17.1% 19.6% 9.9% 14.1% 16.0% D&A $49.0 $49.4 $49.7 $48.9 $49.7 $48.6 $50.6 $51.6 $198.6 Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

10 Figure 4. Sherwin-Williams Segment Results Reconciliation YOY Q1 Q2 Q3 Q Model Assumptions Paint Stores Group SSS Volume (est) 7.9% 6.4% 8.8% 5.4% 9.6% 3.1% 7.5% 6.2% 5.3% Price:Mix 0.0% 0.0% 1.0% (1.5%) 0.0% (1.0%) 0.0% (1.0%) (0.9%) SSS Estimate 7.9% 6.4% 9.8% 3.9% 9.6% 2.1% 7.5% 5.2% 4.4% Store Count 3,925 4,010 3,941 4,025 3,959 4,048 4,003 4,086 4,042 Net New Stores Store Growth (YOY) 11.2% 2.2% 11.3% 2.1% 2.4% 2.2% 2.4% 2.1% 2.2% New Store Sales 1.3% 1.1% 0.9% 1.5% 0.8% 0.8% 0.5% 0.7% 1.0% Acq / Div 7.2% 0.0% 6.5% 0.0% 4.6% 0.0% 0.0% 0.0% 0.0% FX / Other 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 16.4% 7.5% 17.2% 5.4% 15.0% 2.9% 8.0% 5.9% 5.4% EBIT Margins D (0.4%) 1.3% (0.8%) 1.9% 0.9% 3.0% 4.1% 3.2% 2.4% Consumer Group Vol (est) 1.5% 8.1% 4.6% 13.1% 1.1% 9.4% 1.6% 13.6% 11.1% Price:mix (est) 0.0% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Acq / Div 3.9% 0.0% 5.0% 0.0% 3.9% 0.0% 0.0% 0.0% 0.0% FX 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 5.4% 8.1% 10.1% 13.1% 5.0% 9.4% 1.6% 13.6% 11.1% EBIT Margins D (1.8%) 0.0% 1.3% 2.0% 0.6% 0.4% (2.2%) 5.2% 1.9% Global Finishes Group Vol (est) (1.0%) 1.0% 3.0% 0.6% 3.1% (1.0%) 2.2% 0.0% 0.2% Price:mix (est) 4.8% 0.3% 3.4% 0.0% 3.0% 0.0% 3.0% (2.4%) (0.5%) Acq / Div 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FX (1.6%) (6.9%) (0.3%) (7.7%) (0.4%) (8.3%) (4.1%) (7.1%) (7.5%) Total 2.2% (5.6%) 6.1% (7.1%) 5.7% (9.3%) 1.1% (9.5%) (7.9%) EBIT Margins D 2.4% (1.1%) (0.5%) 1.2% 2.5% 0.0% 0.2% 3.3% 0.9% Latin America Coatings Group Vol (est) (2.0%) 0.0% (4.0%) (1.0%) (3.2%) 0.0% 0.0% (3.6%) (1.2%) Price:mix (est) 8.5% 5.0% 6.4% 1.2% 7.0% 1.5% 6.8% 1.5% 2.3% Acq / Div 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FX (16.5%) (13.9%) (11.3%) (17.4%) (7.8%) (23.6%) (13.5%) (21.4%) (19.1%) Total (10.0%) (8.9%) (8.9%) (17.2%) (4.0%) (22.1%) (6.7%) (23.5%) (17.9%) EBIT Margins D (4.8%) 0.2% (3.2%) (0.4%) (3.1%) (4.5%) (1.8%) (4.5%) (2.3%) Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

11 Figure 5. Sherwin-Williams Annual Income Statement ($ in millions except per share data) E 2017E Paint Stores Group $2,790.0 $2,937.0 $3,092.0 $3,547.0 $4,352.0 $4,844.6 $4,955.3 $4,834.9 $4,209.4 $4,381.2 Paint Stores Group $4,209.4 $4,381.2 $4,779.8 $5,409.9 $6,002.1 $6,851.6 $7,209.0 $7,524.2 $7,911.6 EBIT $371.0 $386.0 $417.0 $476.0 $568.7 $719.9 $766.5 $690.8 $611.2 $619.7 EBIT $611.2 $619.7 $650.4 $865.2 $990.5 $1,201.4 $1,433.5 $1,558.1 $1,662.0 % margin 13.3% 13.1% 13.5% 13.4% 13.1% 14.9% 15.5% 14.3% 14.5% 14.1% % margin 14.5% 14.1% 13.6% 16.0% 16.5% 17.5% 19.9% 20.7% 21.0% Consumer Group $1,142.0 $1,178.0 $1,190.0 $1,293.0 $1,391.0 $1,364.2 $1,311.6 $1,272.1 $1,225.2 $1,297.7 Consumer Group $1,225.2 $1,297.7 $1,274.3 $1,321.9 $1,341.7 $1,420.8 $1,578.0 $1,641.1 $1,706.7 EBIT $111.0 $195.0 $204.0 $190.0 $170.8 $214.2 $228.3 $151.1 $157.4 $204.0 EBIT $157.4 $204.0 $173.7 $216.4 $242.1 $252.9 $308.8 $332.8 $349.5 % margin 9.7% 16.6% 17.1% 14.7% 12.3% 15.7% 17.4% 11.9% 12.8% 15.7% % margin 12.8% 15.7% 13.6% 16.4% 18.0% 17.8% 19.6% 20.3% 20.5% Global Finishes Group $1,127.0 $1,063.0 $1,119.0 $1,266.0 $1,440.0 $1,593.2 $1,731.2 $1,866.0 $1,653.5 $2,092.3 Global Finishes Group $1,116.8 $1,417.1 $1,878.3 $1,960.7 $2,004.5 $2,080.9 $1,916.3 $1,877.7 $1,896.4 EBIT $72.0 $59.0 $41.0 $78.0 $102.9 $130.4 $171.7 $153.0 $90.0 $130.2 EBIT $39.1 $71.2 $91.1 $147.9 $170.6 $201.1 $201.9 $200.4 $208.1 % margin 6.4% 5.6% 3.7% 6.2% 7.1% 8.2% 9.9% 8.2% 5.4% 6.2% % margin 3.5% 5.0% 4.8% 7.5% 8.5% 9.7% 10.5% 10.7% 11.0% Latin America Coatings Group $536.6 $675.2 $828.5 $836.1 $832.5 $771.4 $631.0 $558.7 $564.3 EBIT $50.9 $59.0 $75.5 $81.2 $70.2 $40.5 $18.5 $13.0 $19.9 % margin 9.5% 8.7% 9.1% 9.7% 8.4% 5.2% 2.9% 2.3% 3.5% Administrative $7.0 $7.0 $7.0 $8.0 $8.0 $7.7 $7.1 $6.8 $6.3 $5.1 Administrative $6.3 $5.1 $4.8 $5.9 $4.7 $5.0 $5.1 $5.0 $5.0 EBIT -$51.9 -$ $ $ $ $ $ $ $ $204.1 EBIT -$ $ $ $ $ $ $ $ $370.0 % margin % margin Total External Sales $5,066.0 $5,185.0 $5,408.0 $6,114.0 $7,191.0 $7,809.8 $8,005.3 $7,979.7 $7,094.2 $7,776.4 Total External Sales $7,094.2 $7,776.4 $8,765.7 $9,534.5 $10,185.5 $11,129.5 $11,339.3 $11,606.6 $12,084.0 EBIT $502.1 $537.0 $561.0 $620.0 $705.0 $901.5 $999.7 $834.8 $698.9 $749.7 EBIT $698.9 $749.7 $789.5 $1,034.2 $1,180.3 $1,322.4 $1,610.8 $1,747.2 $1,869.5 % margin 9.9% 10.4% 10.4% 10.1% 9.8% 11.5% 12.5% 10.5% 9.9% 9.6% % margin 9.9% 9.6% 9.0% 10.8% 11.6% 11.9% 14.2% 15.1% 15.5% Interest Expense $54.0 $40.0 $38.0 $40.0 $50.0 $67.2 $71.6 $65.7 $40.0 $46.4 Interest Expense $40.0 $46.4 $42.5 $42.8 $62.7 $64.2 $61.8 $73.0 $70.0 Pretax Income $448.1 $497.0 $523.0 $580.0 $655.0 $834.3 $928.1 $769.1 $658.9 $703.3 Pretax Income $658.9 $703.3 $747.0 $991.4 $1,117.6 $1,258.2 $1,549.0 $1,674.2 $1,799.5 % Margin 8.8% 9.6% 9.7% 9.5% 9.1% 10.7% 11.6% 9.6% 9.3% 9.0% % Margin 9.3% 9.0% 8.5% 10.4% 11.0% 11.3% 13.7% 14.4% 14.9% Income taxes $161.3 $186.5 $190.9 $185.7 $191.6 $258.3 $302.4 $256.6 $208.6 $216.3 Income taxes $208.6 $216.3 $227.1 $308.2 $343.3 $392.3 $495.1 $536.6 $575.8 Tax Rate (%) 36.0% 37.5% 36.5% 32.0% 29.3% 31.0% 32.6% 33.4% 31.7% 30.8% Tax Rate (%) 31.7% 30.8% 30.4% 31.1% 30.7% 31.2% 32.0% 32.0% 32.0% Net Income $286.8 $310.5 $332.1 $394.3 $463.4 $576.1 $625.7 $512.5 $450.3 $487.0 Net Income $450.3 $487.0 $520.0 $683.2 $774.3 $865.9 $1,053.8 $1,137.7 $1,223.7 % Margin 5.7% 6.0% 6.1% 6.4% 6.4% 7.4% 7.8% 6.4% 6.3% 6.3% % Margin 6.3% 6.3% 5.9% 7.2% 7.6% 7.8% 9.3% 9.8% 10.1% Net Income to Restricted Shares $3.3 -$5.0 Net Income to Restricted Shares -$3.3 -$5.0 -$4.8 -$5.8 -$3.0 -$4.2 -$4.7 -$5.0 -$5.0 Net Income to Common Shares $286.8 $310.5 $332.1 $394.3 $463.4 $576.1 $625.7 $512.5 $447.0 $482.1 Net Income to Common Shares $447.0 $482.1 $515.2 $677.4 $771.3 $861.7 $1,049.1 $1,132.7 $1,218.7 % Margin 5.7% 6.0% 6.1% 6.4% 6.4% 7.4% 7.8% 6.4% 6.3% 6.2% % Margin 6.3% 6.2% 5.9% 7.1% 7.6% 7.7% 9.3% 9.8% 10.1% Dil EPS $1.83 $2.04 $2.26 $2.72 $3.28 $4.19 $4.78 $4.29 $3.89 $4.42 Dil EPS $3.89 $4.42 $4.88 $6.50 $7.48 $8.78 $11.16 $12.40 $13.85 Dil Shares Dil Shares Notes: Notes: FY 2001: Stripped out $24.1M in AT amortization expense FY 2009: Stripped out $36.1M (0.13/share) in asset impairment charges and loss on dissolution of a foreign subsidiary FY 2002: Stripped out AT transitional impairment charge and excludes cumulative effect of a change in accounting principles FY 2010: Stripped out $11.4M taxes due to healthcare reg., $24.2M ($0.12) for LT bond purchase, $6.5M impair. charge ($0.04) and $5.3M gain on disp. of closed assets ($0.04) FY 2007: Stripped out $15.2M (pre-tax) in impairment charges ($0.08/share) FY 2011: Stripped out $5.5M in impairment of trademarks ($0.03/share) and $75M in taxes due to IRS settlement FY 2008: Stripped out $54.6M (pre-tax) in impairment charges ($0.30/share) FY 2012: Stripped out $80M ESOP settlement payment ($49.2 million AT or $.47 in EPS) FY 2009: Stripped out $36.1M (0.13/share) in asset impairment charges and loss on dissolution of a foreign subsidiary FY 2010: Stripped out $11.4M taxes due to healthcare reg., $24.2M ($0.12) for LT bond purchase, $6.5M impair. charge ($0.04) and $5.3M gain on disp. of closed assets ($0.04) Analysis: Analysis: E 2017E Yr/Yr Paint Stores Group - 5.3% 5.3% 14.7% 22.7% 11.3% 2.3% (2.4%) (12.9%) 4.1% Yr/Yr Paint Stores Group (12.9%) 4.1% 9.1% 13.2% 10.9% 14.2% 5.2% 4.4% 5.1% Yr/Yr Consumer Group - 3.2% 1.0% 8.7% 7.6% (1.9%) (3.9%) (3.0%) (3.7%) 5.9% Yr/Yr Consumer Group (3.7%) 5.9% (1.8%) 3.7% 1.5% 5.9% 11.1% 4.0% 4.0% Yr/Yr Global Finishes Group - (5.7%) 5.3% 13.1% 13.7% 10.6% 8.7% 7.8% (11.4%) 26.5% Yr/Yr Global Finishes Group % 32.5% 4.4% 2.2% 3.8% (7.9%) (2.0%) 1.0% Yr/Yr Latin America Coatings Group % 22.7% 0.9% (0.4%) (7.3%) (18.2%) (11.5%) 1.0% Yr/Yr Administrative - 0.0% 0.0% 14.3% 0.0% (3.2%) (7.7%) (4.8%) (8.0%) (17.8%) Yr/Yr Administrative (8.0%) (17.8%) (6.3%) 21.9% (19.7%) 5.3% 2.4% (2.0%) 0.4% Total Yr/Yr Sales - 2.3% 4.3% 13.1% 17.6% 8.6% 2.5% (0.3%) (11.1%) 9.6% Total Yr/Yr Sales (11.1%) 9.6% 12.7% 8.8% 6.8% 9.3% 1.9% 2.4% 4.1% EBIT Margin (Paint Stores Group) 13.3% 13.1% 13.5% 13.4% 13.1% 14.9% 15.5% 14.3% 14.5% 14.1% EBIT Margin (Paint Stores Group) 14.5% 14.1% 13.6% 16.0% 16.5% 17.5% 19.9% 20.7% 21.0% EBIT Margin (Consumer Group) 9.7% 16.6% 17.1% 14.7% 12.3% 15.7% 17.4% 11.9% 12.8% 15.7% EBIT Margin (Consumer Group) 12.8% 15.7% 13.6% 16.4% 18.0% 17.8% 19.6% 20.3% 20.5% EBIT Margin (Global Finishes Group) 6.4% 5.6% 3.7% 6.2% 7.1% 8.2% 9.9% 8.2% 5.4% 6.2% EBIT Margin (Global Finishes Group) 3.5% 5.0% 4.8% 7.5% 8.5% 9.7% 10.5% 10.7% 11.0% EBIT Margin (Latin America Coatings Group) 9.5% 8.7% 9.1% 9.7% 8.4% 5.2% 2.9% 2.3% 3.5% Total EBIT Margin 9.9% 10.4% 10.4% 10.1% 9.8% 11.5% 12.5% 10.5% 9.9% 9.6% Total EBIT Margin 9.9% 9.6% 9.0% 10.8% 11.6% 11.9% 14.2% 15.1% 15.5% Pretax margin 8.8% 9.6% 9.7% 9.5% 9.1% 10.7% 11.6% 9.6% 9.3% 9.0% Pretax margin 9.3% 9.0% 8.5% 10.4% 11.0% 11.3% 13.7% 14.4% 14.9% Net Margin (Common) 5.7% 6.0% 6.1% 6.4% 6.4% 7.4% 7.8% 6.4% 6.3% 6.2% Net Margin (Common) 6.3% 6.2% 5.9% 7.1% 7.6% 7.7% 9.3% 9.8% 10.1% Yr/Yr EPS Growth % 10.9% 20.6% 20.6% 27.5% 14.1% (10.2%) (9.5%) 13.6% Yr/Yr EPS Growth (9.5%) 13.6% 10.4% 33.4% 15.0% 17.4% 27.1% 11.0% 11.7% EBITDA , , , EBITDA , , , , , ,084.5 EBITDA Margin 12.8% 12.6% 12.5% 12.2% 11.8% 13.4% 14.5% 12.5% 12.3% 11.9% EBITDA Margin 12.3% 11.9% 11.1% 12.7% 13.4% 13.7% 16.0% 17.0% 17.3% D&A D&A Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

12 Figure 6. Sherwin-Williams Cash Flow Statement E 2017E Net Income $286.8 $310.5 $332.1 $394.3 $463.4 $576.1 $625.7 $512.5 $447.0 $482.1 Net Income $447.0 $482.1 $515.2 $677.4 $771.3 $861.7 $1,049.1 $1,132.7 $1,218.7 D&A $148.0 $116.0 $117.0 $126.0 $143.0 $145.9 $163.5 $165.5 $170.9 $175.3 D&A $170.9 $175.3 $180.9 $179.2 $187.8 $198.9 $198.6 $222.5 $223.0 Deferred Taxes $15.7 $19.7 $39.9 $17.2 ($16.0) ($11.4) $27.7 $32.2 ($8.6) $20.1 Deferred Taxes ($8.6) $20.1 $16.9 $20.0 $27.8 $20.0 $20.0 $20.0 $20.0 Other $303.5 $197.0 $74.4 ($83.3) $123.9 $86.8 ($9.4) $168.7 $339.4 ($51.8) Other $339.4 ($51.8) ($25.3) $89.6 ($14.1) ($15.0) $30.0 $30.0 $30.0 Operating Cash flow $754.0 $643.3 $563.4 $454.3 $714.3 $797.4 $807.4 $878.8 $948.6 $625.7 Operating Cash flow $948.6 $625.7 $687.8 $966.2 $972.7 $1,065.6 $1,297.7 $1,405.2 $1,491.7 Op Cash / Share $4.81 $4.22 $3.83 $3.14 $5.06 $5.80 $6.17 $7.36 $8.25 $5.73 Op Cash / Share $8.25 $5.73 $6.51 $9.28 $9.43 $10.86 $13.81 $15.38 $16.95 Capital expenditures $82.6 $126.5 $116.5 $106.8 $143.1 $209.9 $165.9 $117.2 $91.3 $125.2 Capital expenditures $91.3 $125.2 $153.8 $157.1 $166.7 $200.5 $234.3 $240.0 $230.0 Dividends $91.0 $91.0 $90.7 $96.9 $113.6 $135.4 $162.3 $165.1 $162.6 $156.4 Dividends $162.6 $156.4 $153.5 $160.9 $205.0 $215.3 $249.1 $300.0 $320.0 Working capital needs $192.4 $84.4 $4.5 ($90.4) ($2.4) ($18.5) ($67.1) $2.6 $92.8 ($76.0) Working capital needs $92.8 ($76.0) ($43.3) $78.3 ($111.0) $55.0 ($150.0) $50.0 $50.0 Free cash flow $388.1 $341.4 $351.7 $340.9 $460.0 $470.5 $546.4 $593.9 $602.0 $420.1 Free cash flow $602.0 $420.1 $423.7 $569.9 $712.1 $594.8 $964.3 $815.2 $891.7 Free cash flow (excluding dividend) $479.1 $432.4 $442.4 $437.9 $573.6 $605.9 $708.7 $759.0 $764.6 $576.5 Free cash flow (excluding dividend) $764.6 $576.5 $577.3 $730.8 $917.1 $810.1 $1,213.4 $1,115.2 $1,211.7 FCF / Share $2.47 $2.24 $2.39 $2.36 $3.26 $3.42 $4.17 $4.98 $5.23 $3.85 FCF / Share $5.23 $3.85 $4.01 $5.47 $6.91 $6.06 $10.26 $8.92 $10.13 FCF / Share (ex-dividend) $3.05 $2.84 $3.01 $3.03 $4.07 $4.41 $5.42 $6.36 $6.65 $5.28 FCF / Share (ex-dividend) $6.65 $5.28 $5.46 $7.02 $8.89 $8.25 $12.91 $12.20 $13.77 EBITDA $650.1 $653.0 $678.0 $746.0 $848.0 $1,047.4 $1,163.2 $1,000.3 $869.8 $925.0 EBITDA $869.8 $925.0 $970.4 $1,213.4 $1,368.1 $1,521.4 $1,809.3 $1,969.7 $2,092.5 Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

13 Figure 7. Sherwin-Williams Balance Sheet FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Q Q Q Q Q Q Q Q Q Q Q Assets Cash & Cash Equivalents $27.3 $26.2 $69.3 $58.6 $32.7 $862.6 $744.9 $40.7 $613.9 $741.1 $1,035.7 $744.9 $366.5 $267.2 $261.3 $40.7 $64.0 $75.1 $91.0 Short-Term Investments Accounts receivable (net) , , , ,130.9 $1, , , ,174.1 $1, , , ,234.6 $1, ,413.9 Inventories (net) , , , , , , , , , ,052.8 Deferred Income Taxes Other Current Assets Total Current Assets $2,069.6 $1,909.2 $1,770.0 $2,213.7 $2,261.6 $3,149.2 $3,158.7 $2,566.8 $3,086.8 $3,342.4 $3,770.7 $3,158.7 $2,967.5 $3,108.1 $3,079.7 $2,566.8 $2,765.8 $3,005.1 $2,924.2 Goodwill , , , , , , , , , , , , , , , , , ,146.7 Intangible Assets Deferred Pension Asset Other Assets Property, Plant & Equipment (net) , , , , , , , , , ,015.2 Total Assets $4,855.3 $4,415.8 $4,323.9 $5,169.2 $5,229.3 $6,234.7 $6,382.5 $5,706.1 $6,166.2 $6,408.5 $6,921.6 $6,382.5 $6,189.2 $6,341.0 $6,317.0 $5,706.1 $5,859.3 $6,134.7 $6,102.0 Liabilities & Shareholder's Equity Short Term Borrowings , , Accounts Payable , , , , , , , , , , ,216.3 Compensation and Taxes Withheld Accrued Taxes Current Portion of LT Debt Other Accruals Total Current $2,141.4 $1,936.7 $1,393.7 $2,063.9 $2,162.7 $1,876.4 $2,528.6 $2,680.7 $1,782.6 $1,967.5 $2,406.3 $2,528.6 $2,452.6 $2,725.3 $2,868.4 $2,680.7 $3,379.0 $3,357.2 $2,294.2 LT Debt , , , , , , , , , , , , , ,920.2 Postretirement Benefits Other Than Pension Other LT Liabilities Shareholders Equity 1, , , , , , , , , , , , , , Total Liabilities & Equity $4,855.3 $4,415.8 $4,323.9 $5,169.2 $5,229.3 $6,234.7 $6,382.5 $5,706.1 $6,166.2 $6,408.5 $6,921.6 $6,382.5 $6,189.2 $6,341.0 $6,317.0 $5,706.1 $5,859.3 $6,134.7 $6,102.0 Cash , Total Debt , , , , , , , , , , , , , , ,960.1 Net Debt , , , , , , , , ,869.1 Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

14 Figure 8. Sherwin-Williams Balance Sheet Analysis Balance Sheet Analysis: FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Current ratio (X) 1.0x 1.0x 1.3x 1.1x 1.0x 1.7x 1.2x 1.0x Cash per share ($) $0.21 $0.22 $0.60 $0.54 $0.31 $8.28 $7.22 $0.42 Cash less total debt ($) ($938.1) ($807.5) ($748.3) ($986.2) ($960.7) ($842.3) ($977.0) ($1,764.7) Receivables O/S (days) Receivables/sales (%) 10.9% 9.6% 9.8% 11.8% 11.3% 10.8% 10.8% 10.2% Inventory turnover (X) 5.0x 5.2x 5.2x 4.7x 5.4x 4.5x 5.7x 5.8x Inventory/sales (%) 11.1% 10.8% 10.4% 11.8% 10.6% 9.7% 9.5% 9.3% Sales - % change 2.5% (0.3%) (11.1%) 9.6% 12.7% 8.8% 6.8% 9.3% Receivables - % change 0.7% (11.6%) (9.6%) 31.7% 8.0% 4.3% 6.3% 3.0% Inventory - % change 7.5% (2.6%) (14.5%) 24.3% 1.0% (0.7%) 5.5% 6.5% Debt / total cap. (%) 35.1% 34.2% 35.4% 39.4% 39.6% 48.8% 49.2% 64.4% Debt / equity (%) 19.9% 18.9% 18.9% 20.2% 19.0% 27.3% 27.0% 31.6% Net Debt / EBITDA 0.8x 0.8x 0.9x 1.1x 1.0x 0.7x 0.7x 1.2x Assets/equity (X) 2.7x 2.8x 2.9x 3.2x 3.4x 3.5x 3.6x 5.7x Interest coverage (X) 14.0x 12.7x 17.5x 16.1x 18.6x 24.2x 18.8x 20.6x Book value per share ($) $13.65 $13.45 $12.96 $14.74 $14.36 $17.20 $17.21 $10.15 Fixed asset turnover (X) 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x Total asset turnover (X) 1.6x 1.8x 1.6x 1.5x 1.7x 1.5x 1.6x 2.0x Average asset turnover (X) Return average assets (%) 12.7% 11.1% 10.2% 10.2% 9.9% 11.8% 12.2% 14.3% Return average equity (%) 33.1% 30.2% 28.9% 31.1% 33.0% 40.9% 43.3% 62.2% Return total capital (%) 24.5% 22.8% 20.5% 19.4% 21.7% 20.2% 23.3% 32.3% Shares outstanding Sales $8,005 $7,980 $7,094 $7,776 $8,766 $9,534 $10,186 $11,130 COGS $4,407 $4,481 $3,831 $4,295 $5,021 $4,102 $5,569 $5,965 Pretax Margin 11.6% 9.6% 9.3% 9.0% 8.5% 10.4% 11.0% 11.3% Int Expense $71.6 $65.7 $40.0 $46.4 $42.5 $42.8 $62.7 $64.2 Pretax $928.1 $769.1 $658.9 $703.3 $747.0 $991.4 $1,117.6 $1,258.2 Tax Rate 32.6% 33.4% 31.7% 30.8% 30.4% 31.1% 30.7% 31.2% Net Income (Common) $625.7 $512.5 $447.0 $482.1 $515.2 $677.4 $771.3 $861.7 A-Tax Int $48.3 $43.8 $27.4 $32.2 $29.6 $29.5 $43.4 $44.2 Dividend $162.3 $165.1 $162.6 $156.4 $153.5 $160.9 $205.0 $215.3 Retention Rate 74.1% 67.8% 63.6% 67.6% 70.2% 76.2% 73.4% 75.0% Please refer to Appendix - Important Disclosures and Analyst Certification. Source: Company reports and estimates Ghansham Panjabi, Ph.D. Mehul M. Dalia Matthew T. Krueger gpanjabi@rwbaird.com mdalia@rwbaird.com mtkrueger@rwbaird.com (214) (646) (414)

15 March 21, 2016 Sherwin-Williams Co. Appendix - Important Disclosures and Analyst Certification Covered Companies Mentioned All stock prices below are the March 20, 2016 closing price. Axalta Coating Systems (AXTA - $ Outperform) Lowe's Companies, Inc. (LOW - $ Outperform) PPG Industries, Inc. (PPG - $ Outperform) RPM International Inc. (RPM - $ Neutral) Valspar Corp. (VAL - $ Neutral) (See recent research reports for more information) Rating and Price Target History for: Sherwin-Williams Co. (SHW) as of /26/13 N:$180 05/24/13 O:$205 03/19/14 O:$225 10/02/14 O:$240 12/11/14 O:$260 01/14/15 O:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix Rating and Price Target History for: Axalta Coating Systems (AXTA) as of /12/15 I:O:$33 05/07/15 O:$38 02/11/16 O:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix 15

16 March 21, 2016 Sherwin-Williams Co. Rating and Price Target History for: Lowe's Companies, Inc. (LOW) as of /22/13 O:$48 08/21/13 O:$53 11/20/13 O:$56 02/26/14 O:$57 08/21/14 O:$60 11/17/14 O:$68 11/19/14 O:$70 12/12/14 O:$75 02/18/15 O:$80 02/25/15 O:$83 08/19/15 O:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix Rating and Price Target History for: PPG Industries, Inc. (PPG) as of /17/13 O:$83 07/19/13 O:$88 10/18/13 O:$100 01/17/14 O:$108 07/01/14 O:$113 01/14/15 O:$125 01/22/16 O:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix Rating and Price Target History for: RPM International Inc. (RPM) as of /03/13 I:N:$36 09/24/13 N:$40 01/09/14 N:$45 04/04/14 N:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix 16

17 March 21, 2016 Sherwin-Williams Co. Rating and Price Target History for: Valspar Corp. (VAL) as of /03/13 I:N:$80 08/13/13 N:$70 11/20/13 N:$75 01/09/14 O:$80 02/13/14 O:$85 11/26/14 O:$90 01/14/15 N:$90 08/26/15 N:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Created by BlueMatrix 1 Incorporated makes a market in the securities of SHW, AXTA, LOW, PPG, RPM and VAL. Incorporated and/or its affiliates expect to receive or intend to seek investment banking related compensation from the company or companies mentioned in this report within the next three months. Incorporated may not be licensed to execute transactions in all foreign listed securities directly. Transactions in foreign listed securities may be prohibited for residents of the United States. Please contact a Baird representative for more information. Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges. Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12 months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by a subjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific information regarding the price target and recommendation is provided in the text of our most recent research report. Distribution of Investment Ratings. As of February 29, 2016, Baird U.S. Equity Research covered 711 companies, with 51% rated Outperform/Buy, 48% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 15% of Outperform/Buy-rated and 5% of Neutral/Hold-rated companies have compensated Baird for investment banking services in the past 12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months. Analyst Compensation. 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