Mr. Connor: I think when we look at our portfolio of businesses we see some segments that continue to struggle, particularly in the industrial areas. These are business units that supply coatings to the manufacturing base of our country, either to coat products that are manufactured in those plants, or to coat the plants and the facilities themselves. Our sales in these markets have been sluggish through the first half of the year, and we expect that to continue through the second half. Conversely, we've seen that our architectural coatings, which represent the majority of our sales, products that are used to paint architectural structures ' houses, hotels, office buildings ' have had a nice rebound here in the second quarter, and we're optimistic that we'll see strong performance through the remainder of the year.
TWST: Where are you making your internal investments and what is
the focus of those investments at this point?
Mr. Connor: To begin with, I would like to talk about our paint
stores segment, which is the largest operating segment, and our
continued commitment to strengthening that side of the company.
We currently operate 2,611 company-owned paint stores in North
America, and it is our intention to have 3,000 paint stores by
the end of the decade. We are well on track to achieving that
goal and we will continue to invest in new stores. Currently
we're in all 50 states, Mexico, Canada, Puerto, Rico, and parts
of the Caribbean, and in many of those markets we expect to
continue to fill in and strengthen our distribution platform.
Beyond the investments we're making in real estate, to put new
facilities in, we're investing in technology. We are bringing
innovative new products to market that enhance the user's ability
to get on and off a job more quickly, more profitably in the case
of our professional customers, and provide a better coating
finish. We're investing in new technology in our stores by
updating our POS systems and equipment across the entire 2,600
store chain. And this year we launched a store refresh
initiative. From time to time it's appropriate to walk in there
and put a fresh coat of paint on the wall and redo the interior,
and over the next three years we'll complete a total refresh of
our entire store network. This year we launched a new color
system. Color trends, while they don't move quickly, do move, and
it's been 10 years since we last introduced and updated our color
palette. This process includes not only coming up with the colors
and identifying them, but developing all the color features and
merchandizing aids that help consumers make color choices in our
store or in an architect's office. So we've made a significant
investment this year to completely updated our color program.
Moving on to our other segments, our consumer segment is the
predominant manufacturing arm of our company. They make all the
paint that we sell through our Sherwin-Williams Stores
organization, as well as manufacture all the other brands of the
company ' Dutch Boy, Pratt & Lambert, Martin Senour, Thompson's,
Minwax and Krylon. Investments in this segment are often made in
manufacturing and distribution facilities. These investments
would focus on enhancing productivity and improving the
measurement criteria and capabilities used by those facilities so
that we can continue to generate and improve service at lower
operating costs. One exciting investment that we're making this
year on that side is a new package. The paint industry has not
seen a change in the package of a gallon of paint probably in
some 70 years. To open the container you first of all have to
find a screwdriver. You pry the lid off. Frequently you're using
it in a roller tray, so you grab it on the side, you pour it into
a tray, and you slop paint over the top. It drips down the side.
That chine, which is the groove on top that the lid sits in,
fills up with paint, and then when you go to close it and you
pound it on, it splats. Recently ' July 8, to be exact ' we began
a national rollout of the first dynamic change in paint packaging
in over 70 years. This package is being launched under the Dutch
Boy brand and label, which is the main flagship brand of the
consumer segment. It's a plastic container that's square in
shape, and it has a molded, integrated handle and a screw-off
cap. Once the cap is off, you have a molded, integrated pour
spout that allows for a very smooth, drip-free pour into a tray.
The mouth is still wide enough to get a four-inch paintbrush in
there. It reseals very easily, and retailers love it because it
provides an extra facing on the shelf. They can get 14 facings of
this new container in an eight foot run versus 13 facings of a
conventional paint can. So it's receiving tremendous press.
Everywhere we've shown it, whether it's with consumers or
retailers, it's created quite a stir, and there is a serious
investment we're making this year to retool some factories to
develop the package and get it to market. Beyond those
investments, we look to our international segment, and there we
have a really solid stable of companies and brands, predominantly
in South America. Given the economic strife that part of the
world is suffering from, we've really curtailed investments down
there and looked to those operations to manage their businesses
with their own internal cash generation. So we're not looking to
invest a lot of money outside of the United States at the moment.
The final segment then would be our automotive segment, and
perhaps our investments there could best be characterized, again,
in terms of product technology. We've moved into a brand new
World Technical Center in the Cleveland area, and we'll continue
to invest in that facility to get it up to speed.
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