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Letter to the Editor

Sherwin-Williams Reports 2004 Year-End Financial Results

Diluted net income per common share increased 18.8 percent in the fourth quarter and increased 20.4 percent to $2.72 per share for the full year 2004 from $2.26 per share a year ago.

Net income increased 16.5 percent in the fourth quarter of 2004 to $82.5 million from $70.8 million in last year's fourth quarter and increased 18.4 percent for the full year 2004 to $393.3 million from $332.1 million in 2003. A reduction in the annual effective tax rate resulting from the favorable effects of recent tax legislation increased fourth quarter net income by approximately $11.6 million. Acquisitions increased consolidated net income $.7 million, or 1.0 percent, in the fourth quarter and $4.7 million, or 1.4 percent, for the full year 2004.

The Automotive Finishes Segment net sales increased 15.7 percent in the fourth quarter to $131.7 million and 12.6 percent for the year to $514.3 million versus comparable periods last year. Currency exchange fluctuations in 2004 relative to last year had only a minor impact on net sales of this Segment in the fourth quarter and full year. Increased net sales in the fourth quarter were primarily due to improving domestic sales and the April 2004 acquisition of a majority interest in an automotive coatings company in China. The net sales gain for the year was primarily due to new product introductions, improving international sales and the China acquisition.

Operating profit in this Segment increased 3.1 percent in the quarter to $15.0 million and 10.8 percent for the year to $58.1 million. There was no significant impact on operating profit in the fourth quarter or the year due to currency exchange fluctuations. Operating profit for the fourth quarter and the year improved despite rising raw material costs, particularly in the fourth quarter. The operating profit improvements were primarily due to the sales volume increases, sales of higher margin new products and profits of the China acquisition along with improvements in the international business units earlier in the year and the domestic business units in the fourth quarter.

International Coatings Segment net sales, stated in U.S. dollars, decreased 5.5 percent to $85.5 million in the fourth quarter but increased 11.7 percent to $318.6 million for the year compared to a year ago.

Commenting on the results for the fourth quarter and year 2004, Christopher M. Connor, Chairman and Chief Executive Officer, said, "We are pleased that we were able to report record earnings of $2.72 per share in spite of rapidly rising raw material costs. This improvement was due to significant volume gains, control of operating expenses and the benefits of effective tax planning. Though significant raw material cost increases have adversely impacted our gross margins, in the fourth quarter we have announced and are implementing price increases and have taken other actions that will stabilize our margins for the 2005 year. Operating results will be further enhanced by the launching of new products, pursuit of new customers, opening paint stores and automotive branches and increasing the productivity of our operations to improve sales and operating income in all segments of our business."

Connor continued, "We are encouraged with the strengthening of both the domestic and international automotive markets in which our Automotive Finishes Segment does business and with their new product introductions and new branch openings. We continue to be pleased with the steady improvements in sales and operational performance of our International Coatings business units.

"We anticipate that first quarter 2005 net sales will increase in the low double digits versus the first quarter of 2004, partially due to the recently completed acquisitions. We estimate diluted net income per common share in the first quarter will be in the range of $.48 to $.53 per share compared to $.35 per share earned in the first quarter of 2004. A lower effective tax rate in the first quarter of 2005 compared to the rate used in last year's first quarter and a favorable tax ruling expected in the first quarter of 2005 will increase diluted net income per common share approximately $.07 per share for the quarter. We expect that the recently completed acquisitions will be accretive to first quarter diluted net income per common share. For the full year 2005, we expect net sales will also increase in the low double digits over 2004. With annual sales at that level, we estimate diluted net income per common share for 2005 will be in the range of $3.00 to $3.10 per share compared to $2.72 per share earned in 2004. For the full year 2005, we expect the annual effective tax rate to approximate the annual rate recognized in 2004 and the recent acquisitions will contribute to full year diluted net income per share."

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