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Letter to the Editor

Sherwin-Williams Reports Good Q1 2005 Earnings Results

The net sales gain in the quarter was due primarily to continuing strong domestic architectural paint sales to contractor and do-it-yourself (DIY) customers as well as improved industrial maintenance and product finishes sales in the Paint Stores Segment. Included in the consolidated net sales increase were four acquisitions completed since the first quarter of 2004, including Duron, Inc. and Paint Sundry Brands Corporation acquired in September 2004. The four acquisitions added $120.9 million, or 9.2 percent, to net sales in the quarter.

Consolidated gross profit as a percent to net sales declined to 42.9 percent in the quarter from 43.3 percent in the first quarter 2004 due primarily to raw material cost increases partially offset by price increases and better factory utilization resulting from higher volume. Consolidated net income increased 61.8 percent versus the first quarter of 2004 and improved as a percent to net sales to 5.4 percent in the quarter from 3.9 percent last year.

Net sales in the Paint Stores Segment increased $183.9 million, or 22.9 percent, to $987.6 million in the quarter. Paint Stores Segment operating profit increased $25.7 million, or 49.0 percent, to $78.2 million during the quarter. Net sales of the Consumer Segment in the quarter increased $10.6 million, or 3.3 percent, to $327.8 million. Net sales in the International Coatings Segment increased $15.1 million, or 19.7 percent, to $91.4 million in the quarter.

First quarter net sales in the Automotive Finishes Segment increased $9.6 million, or 8.0 percent, to $129.9 million. The sales increase was due primarily to the impact of favorable currency exchange rates, selling price increases and an acquisition. The impact of favorable currency exchange rates increased net sales of this Segment by 1.3 percent in the quarter and the April 2004 acquisition of a majority interest in an automotive coatings company in China added 3.0 percent to net sales. Operating profit of this Segment for the quarter improved $3.0 million, or 25.2 percent, to $15.0 million and increased as a percent to net sales to 11.5 percent from 9.9 percent last year. The Refinishes Segment's operating profit was favorably impacted by increased sales and expense control. There was no significant impact on operating profit in the quarter due to currency exchange fluctuations. The Chinese acquisition was slightly accretive to this Segment's operating profit in the quarter.

Commenting on the first quarter results, Christopher M. Connor, Chairman and Chief Executive Officer, said, "... We are encouraged with the strengthening of the 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 achieving a percentage increase in second quarter consolidated net sales in the low-to-mid-teens over last year's second quarter. With sales at that level, we expect diluted net income per common share for the second quarter to be in the range of $.99 to $1.04 per share compared to $.87 per share last year. We anticipate that the percentage increase in our annual consolidated net sales for 2005 will be in the low-to-mid-teens over 2004 and, with annual sales at that level, we anticipate diluted net income per common share for the year 2005 in the range of $3.10 to $3.20 per share compared to $2.72 per share earned in 2004."

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