NEW YORK, Aug 20, 2009 (BUSINESS WIRE) ----Fitch Ratings has affirmed The Sherwin-Williams Company's (NYSE:SHW) Issuer Default Ratings (IDRs) and debt ratings as follows:

--IDR at 'A';

--Senior unsecured debt rating at 'A';

--Revolving bank credit facilities at 'A';

--Commercial paper at 'F1';

--Short-term IDR at 'F1'.

The Rating Outlook is Stable.

The ratings and Outlook for SHW are based on the company's leading market position in the architectural coatings industry, the company's unique distribution platform, the breadth and depth of its product offerings, the company's focus on painting contractors and property maintenance managers, solid free cash flow generation and strong management team. Risk factors include the effects of the sluggish housing, home improvement and commercial market sectors on the company's architectural paint segment, volatile raw material costs, the company's relatively aggressive growth strategy and lead-based paint litigation cases against SHW,.

SHW's credit metrics and cash flow generation continue to be strong despite the sharp drop in revenues during 2009. Revenues for the six months ended June 30, 2009 are down $512.7 million or 12.8% compared with the same period last year. Leverage as measured by the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) remains below 1.0 times (x) for the latest twelve months (LTM) from June 30, 2009, consistent with the levels achieved during the past three fiscal years. FFO adjusted leverage was 2.8x for the LTM from June 30, 2009, up slightly from 2.7x during 2008 and 2.5x during 2007. Interest coverage was 18.0x for the June 30, 2009 LTM period, compared with 16.2x during 2008 and 16.8x during 2007. FFO interest coverage was 14.8x during the LTM period versus 12.9x for 2007 and 2008. Currently, cash flow generation is also at its highest level - with free cash flow of $627.5 million for the LTM from June 30, 2009. Free cash flow totaled $593.9 million in 2008, $546.3 million in 2007 and $470.5 million in 2006. Fitch expects free cash flow to be substantial for all of 2009 but well below the levels of 2008.

During the second quarter of 2009, SHW's gross margins benefited from pricing increases implemented last year, lower raw material prices and cost reduction initiatives. Gross margins improved 240 basis points (bps) to 46% during the second quarter of 2009 compared with 43.6% in 2008. Absent a significant spike in energy prices, SHW's margins should continue to show year-over-year improvements during the second half of 2009 as lower raw material prices and cost reductions help offset the impact of lower paint volumes.

SHW seeks to expand its distribution platform by opening new stores and pursuing acquisition opportunities. Management plans to expand its store base at an average of 3% per year (100+ stores annually). The rate of store expansion will be less this year as the company expects to open 40-50 new store locations and slow the rate of redundant store consolidation to finish 2009 with about 25 additional net stores compared to year-end 2008. The company was active with acquisitions in 2007, completing seven acquisitions for a total investment of $282 million. In 2008, the company spent $68.7 million on four acquisitions. Through the first six months of 2009, acquisition spending totaled $14.1 million. Fitch expects SHW to continue to pursue acquisitions that would enhance its domestic controlled distribution platform, provide the company with new technologies and grow its presence in international markets.

SHW has a network of 3,340 company-operated paint stores and 533 company-operated branches. The company is unique in that most of its competitors distribute their products through 'Big Box' retailers, hardware stores and mass merchandisers. The networks of competitor paint companies that distribute through company-owned stores are not as extensive as that of SHW. Fitch views this as an advantage, as the company can directly control marketing, merchandising, service, and price decisions. Additionally, SHW also distributes through 'Big Box' Home Centers and mass merchandisers, primarily reaching the do-it-yourself (DIY) customer segment. The company estimates that about 75% of its sales are through its controlled distribution platform, with the remaining 25% through independent retailers.

SHW's strong brand and captive distribution network should continue to give the company a competitive advantage in the growing professional contractor market. Within the industry's architectural coatings segment, it is estimated that sales to professional contractors accounted for approximately 59% of the unit volume in 2008, compared to 55% in 1998 and 48% in 1988. The DIY share within the industry architectural coatings segment increased during the past year as the new construction market, which is 100% professional contractor, has declined at a greater rate compared to the repaint market. Over the past few quarters, there also seems to be a tendency of trading down toward lower-priced products within the DIY segment. In an effort to attract more DIY customers into its paint stores, SHW recently introduced a lower, entry-level price point product (in the $20 range) within its stores group. In the long-term, it is expected that the sales to professional contractors will continue to advance at a faster rate than do-it-yourselfers.

SHW has a strong balance sheet and typically generates solid free cash flow. SHW's debt to EBITDA was 0.84x at June 30, 2009 compared to 0.79x at Dec. 31, 2008. SHW is targeting debt to EBITDA in the 1.0x range, although the company may be slightly above this level during certain periods when the company increases short-term borrowings to fund working capital. SHW generates significant free cash flow (over $450 million for each of the last four years and $627 million for the LTM from June 30, 2009), which has allowed the company to fund certain acquisitions and stock repurchases. Through the first half of 2009, SHW repurchased 1 million shares of its common stock for approximately $49.4 million. This compares to about $338 million in share repurchases during the first half of 2008. Fitch believes that the company will continue to be disciplined in its uses of cash, balancing share repurchases with acquisition opportunities. SHW maintains ample liquidity with cash of $49.3 million and $1.2 billion of availability under the commercial paper program that is backed by the company's revolving credit agreements.

Fitch's rating takes into account the cyclicality of SHW's end markets. Residential, commercial and industrial construction are each cyclical and can be influenced by economic trends. SHW's historic earnings stability has been driven by its diversification; historically, weakness in residential demand has been offset by strength in the commercial and industrial sectors. This is not expected to be the case in 2009, wherein most of SHW's end markets are in decline simultaneously, although at different stages of correction. Based on Fitch's forecast, existing home sales are projected to be flat in 2009 after falling by 13.1% in 2008. Fitch projects total housing starts to fall 43.3% and for new single-family home sales to decline 29.9% in 2009. Fitch projects private non-residential construction spending to fall 10% while public construction spending is anticipated to increase 4% in 2009. SHW has demonstrated that it is capable of managing working capital and lowering expenses to generate strong cash flow and build liquidity during periods of economic pressure.

On July 1, 2008, the Rhode Island Supreme Court overturned a February 2006 verdict wherein a Rhode Island jury found that SHW and two other companies (NL Industries and Millennium Holdings) were liable for creating a public nuisance in a lead-based paint lawsuit brought by the State of Rhode Island. The decision of the Rhode Island Supreme Court is important, because it reverses the first and only successful public nuisance claim against the paint industry, and, for that matter, the first successful lead-based paint lawsuit of any kind against the paint industry. While the February 2006 jury verdict against SHW and the other defendants opened the possibility for new lead-based paint cases across the country, the subsequent reversal of the jury verdict by the Rhode Island Supreme Court may potentially discourage other states from suing paint manufacturers or, more specifically, suing and using public nuisance theory as the basis for potential lawsuits. While the reversal of the Rhode Island jury verdict was based on state law, the decision could influence court opinions in other jurisdictions where lead-based paint lawsuits are pending. In February 2009, the State of Ohio voluntarily dismissed its April 2007 lawsuit asserting a claim for public nuisance against SHW. A lawsuit asserting a claim for public nuisance is currently pending in Santa Clara, California.

In addition to public nuisance claim litigation, SHW and other companies are also defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries. Most recently, a Mississippi jury ruled that SHW was liable for the illnesses of a Mississippi boy who allegedly ingested lead-contaminated paint chips. The Jefferson County Circuit Court jury awarded $7 million in damages. While the monetary award is not by itself significant, this may set some precedence for future cases. The company is in the process of filing post-trial motions seeking a judgment in its favor, or failing that, a new trial. Two other lawsuits brought by minors are pending in Mississippi.

Founded in 1866, The Sherwin-Williams Company is one of the world's leading companies engaged in the manufacture, distribution, and sale of coatings and related products to professional, industrial, commercial and retail customers. The company is structured in three business segments: the Paint Stores Group (61% of 2008 sales), the Consumer Group (16%), and the Global Group (23%). The Paint Stores Group is the exclusive North American distributor of Sherwin-Williams branded paints and related products. The Consumer Group sells paints, coatings and related products under various branded names (Dutch Boy, Pratt & Lambert, Martin-Senour, Thompson, Minwax, etc.); licensed products (Martha Stewart); and private labels (Wal-Mart, Sears). The Global Group develops, manufactures, distributes and sells a variety of paint and coatings products worldwide

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

   Fitch Ratings 
   Robert Curran, +1-212-908-0515 (New York) 
   Robert Rulla, CPA, +1-312-606-2311 (Chicago) 
   Cindy Stoller, +1-212-908-0526 (Media Relations, New York) 
   cindy.stoller@fitchratings.com
   

Copyright Business Wire 2009
   
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   an automated pattern recognition system, indicated a DOWNTREND on 
   10-28-2008 for SHW @ $50.34.
   
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