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Letter to the Editor

The Sherwin-Williams Company Reports Second Quarter 2001 Earnings Results

CLEVELAND -- The Sherwin-Williams Company announced its financial results for the second quarter and six months ended June 30, 2001.

Consolidated net sales decreased 1.5 percent for the quarter to $1.41 billion from $1.43 billion in the same quarter last year and decreased 3.2 percent for six months to $2.57 billion from $2.65 billion in the first six months of 2000.

The largest impacts on sales came from the continuing poor U.S. and South American economic conditions, weakening foreign currency exchange rates and previously announced discontinued paint programs at certain customers.

Net income in the quarter declined to $90.5 million from $115.8 million in 2000 and in six months declined to $127.4 million from $156.8 million last year due primarily to lower sales and raw material cost increases. Diluted net income per common share for the quarter decreased to $0.58 per share from $0.71 per share in 2000 and for six months decreased to $0.80 per share from $0.96 per share a year ago.

The Automotive Finishes Segment's net sales decreased 3.4 percent to $124.7 million in the quarter and 3.8 percent to $240.5 million in six months. The negative impact of the soft domestic economy continued to adversely impact this Segment's OEM sales that were partially offset by stronger collision repair sales. Operating profit in this Segment decreased to $14.3 million from $20.1 million in the quarter and to $25.8 million from $34.5 million in six months. This Segment's operating profit was negatively impacted by lower sales, lower production volume and costs associated with the Segment's new research and administrative facility.

Net sales in the International Coatings Segment were down 6.5 percent to $70.6 million in the quarter and down 3.4 percent to $143.9 million in six months compared to a year ago. The sales decreases in U.S. dollars were due primarily to unfavorable currency exchange rates. Excluding the effect of currency exchange fluctuations relative to last year, net sales for the Segment increased 7.1 percent and 6.9 percent for the quarter and six months, respectively. Operating profit in U.S. dollars for the Segment fell to $0.6 million from $2.7 million a year ago in the quarter and to $5.2 million from $9.6 million in the first six months of 2000. The operating profit declines were due primarily to currency rate fluctuations, raw material cost increases, price competition and an unfavorable product sales mix to lower margin products putting pressure on margins that adversely affected operating profits throughout South America.

The Company purchased 2.2 million shares of its' common stock in the second quarter bringing the total purchased to 3.7 million shares for the first six months of 2001. At a meeting last week, the Board of Directors rescinded the remaining 9.5 million share purchase authorization and issued a new authorization for the Company to purchase, in the aggregate, 20.0 million shares of its' common stock from time to time for general corporate purposes.

Commenting on the Company's operating results for the second quarter and first six months of 2001, Christopher M. Connor, Chairman and Chief Executive Officer said, "The continuing soft economic activity negatively impacted our sales and operating profits in the second quarter and first six months of the year. We have continued to invest in our business through the opening of new stores and the introduction of new products. Though sales in the Automotive Finishes Segment were impacted by the ongoing softness in the OEM and class 8 truck portion of that business, the strengthening in our collision repair business encouraged us. The International Coatings Segment continued to improve its sales in local currencies in spite of mixed economic activity and heavy competitive pressures.

Although disappointed in the results, we have maintained our working capital levels in line with sales performance while remaining poised for any increase in customer demand. In addition, our total SG&A expenses through the first half of the year were below last year's level even with the ongoing investments in our business.

We expect that year-over-year sales and profit comparisons for our Company will continue to be challenging throughout the remainder of 2001 as we believe spending may be deferred, especially in the industrial and commercial sectors, due to the uncertain economic conditions. We anticipate that third quarter sales may be down slightly to as much as 3.0 percent versus last year's third quarter due to soft industrial and commercial sales and the uncertain economic conditions. With sales at that level, we expect diluted net income per common share for the third quarter will be in the range of $0.50 to $0.65 per share compared to last year's third quarter diluted net income per common share of $0.66 per share. For the year 2001, we are currently anticipating that sales may finish 1.0 to 3.0 percent below last year due to the continued uncertainty of the domestic economy and deferred industrial spending. Thus, our current expectation for diluted net income per common share for the year is in the range of $1.65 to $1.85 per share compared to $1.90 per share earned last year. This range is lower than our most recent previous guidance of $1.75 to $1.90 per share for the year due to the continuing uncertainty that we are seeing in consumer and industrial purchasing."

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