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Letter to the Editor

Sherwin-Williams Company Reports Q2 Consolidated Net Sales Up Slightly

In the first quarter of 2002, the company recorded an after-tax transitional impairment charge of $183.1 million, or $1.21 per share, as a cumulative effect of change in accounting principle for indefinite lived intangible assets and goodwill. The net loss after cumulative effect of change in accounting principle for the first six months of 2002 was $40.8 million, or $.27 per common share.

The Automotive Finishes Segment's net sales decreased 1.9 percent to $121.3 million in the second quarter and 3.2 percent to $227.7 million in the first six months versus the comparable periods last year. Excluding the negative effect of unfavorable currency exchange fluctuations relative to last year, net sales for the Segment increased 0.5 percent and 0.3 percent for the second quarter and first six months, respectively.

Domestically, a reduction in the number of repairable vehicles continues to restrain growth in collision repair sales while the slowly recovering automotive market continued to hamper OEM sales improvements. Operating profit in this Segment decreased to $15.3 million from $17.7 million in the second quarter and to $25.4 million from $29.2 million in the first six months. This Segment's operating profit was negatively impacted in the second quarter and first six months primarily by lower sales volume, related manufacturing absorption and the reduction in net pension credit compared to last year.

Net sales in the Paint Stores Segment increased 2.4 percent to $933.8 million in the quarter and 2.6 percent to $1.65 billion in the six months versus the comparable periods last year. For the first six months, operating profit for this Segment decreased 6.8 percent to $152.6 million due primarily to reduction in the net pension credit, increased utility costs and incremental expenses associated with new stores.

Net sales of the Consumer Segment decreased 1.4 percent to $346.0 million in the second quarter and 2.8 percent to $612.1 million in the first six months versus the comparable periods last year. The second quarter sales shortfall was due primarily to the readjustment of store count by a major retailer and the impact of harsh late spring weather in certain regions of the U.S. on sales of architectural paint and exterior stains. Operating profit of this Segment was flat at $66.3 million in the quarter and decreased to $105.4 million in the first six months from $109.4 million last year. Operating profit remained flat in the quarter compared to last year despite a reduction in the net pension credit due to tight expense control.

Net sales in the International Coatings Segment increased 5.2 percent to $68.8 million in the second quarter and decreased 0.2 percent to $126.6 million in the first six months versus the comparable periods last year. Excluding the negative effect of unfavorable currency exchange fluctuations relative to last year, net sales for the Segment increased 15.0 percent in the second quarter and 15.9 percent in the first six months.

The operating profit for the Segment during the first six months of 2003 was negatively impacted by dollar-denominated raw material cost increases and a shift in the sales mix to lower margin products in addition to competitive pricing pressures. The Sherwin-Williams Company purchased 975,955 shares of its common stock during the second quarter of 2003 bringing the total purchased to 3,527,955 shares for the first six months. The Company had remaining authorization at June 30, 2003 to purchase 6,772,045 shares.

Commenting on the company's operating results for the second quarter and first six months of 2003, Christopher M. Connor, Chairman and Chief Executive Officer, said, "We continue to be encouraged by the strength of the Paint Stores Segment's architectural paint sales. We are disappointed by the ongoing weakness in the industrial maintenance, marine coatings and product finishes markets that we had expected would improve during the second quarter. The Paint Stores Segment will continue to incur higher operating expenses relating to its ongoing investment in new stores, its investment in the Asia/Pacific market and a reduced net pension credit.

"Domestically, our Automotive Finishes Segment is beginning to see some signs of strengthening in selected product lines and distribution channels although their sales continue to be hampered by soft economic and industry conditions. In the International Coatings Segment, we are pleased with the operational performance of our U.K. subsidiary. We are encouraged by the sales progress of our South American subsidiaries, stated in local currencies, and our local management teams initiation of actions to improve profitability.

"We anticipate that third quarter consolidated sales increases will be in the low single-digits versus last year's third quarter. With sales increases at that level, we expect diluted net income per common share in the third quarter will be in the range of $.75 to $.80 per share compared to $.73 per share earned in last year's third quarter. We commented on April 22, 2003 that we expected our annual sales would increase 2.0 to 3.5 percent over 2002. However, due to the lingering soft domestic economic conditions, slowly recovering manufacturing sector and the increasing uncertainty of the timing and strength of the eventual economic recovery, we are reducing our estimate of annual sales improvement to 1.5 to 3.0 percent over 2002. Representative of our commitment to improve profitability through cost savings and operating efficiencies, we are maintaining our expectations established on April 22, 2003 for diluted net income per common share for the year to be in the range of $2.08 to $2.24 per share compared to $2.04 per share earned last year before cumulative effect of change in accounting principle."

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