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Ups and Downs at Sherwin-Williams

Friday, April 18, 2014

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Mother Nature’s wrath and currency issues bedeviled Sherwin-Williams in the first quarter of 2014, dampening profits despite record sales.

Increased architectural paint sales and acquisition activity in the Paint Stores Group propelled the largest U.S. paint retailer to a 9.2 percent sales increase in the quarter ended March 31, the company reported Thursday (April 17).

Despite a record $2.37 billion in consolidated net sales, however, the company's first-quarter profit dropped to $115.46 million from the year-ago figure of $116.19 million.

Paint Stores Group
The Sherwin-Williams Company

First-quarter net sales in the Paint Stores Group jumped 16.4 percent, to $1.36 billion.

Acquisitions increased net sales by 4.5 percent in the quarter, offsetting unfavorable currency translation rate changes, the Cleveland, OH-based company said.

“We are pleased to report record sales and earnings per share from the continued positive sales volume and strong operating results of our Paint Stores Group and the operating margin improvement of our Global Finishes Group,” Chairman and CEO Christopher M. Connor said in a statement.

He added that the company’s “balance sheet remains flexible and is positioned well for future acquisitions and other investments in our business.”

Earlier this month, the paint maker announced that it was terminating its long-running $2.34 billion plan to acquire Consorcio Comex’s Mexico operations, after Mexican anti-trust regulators rejected the deal twice.

The company completed its purchase of Comex’s North American businesses in September 2013.

Paint Stores Group Gains

Sherwin-Williams’ Paint Stores Group saw a 16.4 percent hike in net sales to $1.36 billion in the quarter, due to higher architectural paint sales volume across all end market segments and acquisitions, the company reported.

Acquisitions increased net sales 7.2 percent in the quarter. Net sales from stores open for more than 12 calendar months increased 7.9 percent in the quarter over last year's comparable period.

Group segment profit increased $16.6 million, to $146.3 million, in the quarter from last year, due primarily to higher paint sales volume partially offset by the loss from acquisitions and increases in selling, general and administrative expenses.

Segment profit as a percent to net sales decreased in the quarter to 10.8 percent from 11.1 percent last year, due to the impact of acquisitions.

“We continued to invest in our business by opening seventeen net new locations in the Paint Stores Group,” Connor said.

“For the year, we expect our Paint Stores Group to open 80 to 90 new stores.”

Sherwin-Williams is the largest specialty retailer of paint and painting supplies in the U.S., with a fleet of more than 3,500 stores.

Consumer Group Mixed

Net sales of the Consumer Group also increased during the first quarter, gaining 5.4 percent to reach $325.3 million. The growth was due primarily to the impact of acquisitions and the timing of seasonal shipments to some customers, the company said.

snow
Zink Dog / Wikimedia Commons

Harsh weather this quarter had an effect on supply chain operations and service for Sherwin-Williams' Consumer Group.

Segment profit, however, decreased to $51.1 million in the quarter from $54.0 million last year due to higher distribution costs to maintain customer service due to inclement weather and the loss from acquisitions.

While acquisition activity increased net sales 3.9 percent in the quarter, it caused a decrease in segment profit of $0.6 million in the quarter.

“Although the impact of harsh weather on domestic sales in the quarter was modest, it did disrupt supply chain operations and service, driving up costs in the Consumer Group,” Connor added.

As a percent to net external sales, segment profit decreased in the quarter to 15.7 percent from 17.5 percent last year.

Global Finishes Growth

Sherwin-Williams’ Global Finishes Group posted a slight uptick in net sales for the quarter.

Net sales increased 2.2 percent, to $497.6 million, in the quarter due to selling price increases partially offset by lower paint sales volume. In addition, unfavorable currency translation rate changes decreased net sales by 1.6 percent in the quarter.

Segment profit increased in the quarter to $46.5 million from $33.9 million last year due to improved operating efficiencies and selling price increases. Unfavorable currency translation rate changes reduced segment profit $1.8 million in the quarter.

The segment is comprised of protective and marine, OEM product finishes and automotive finishes.

ship
The Sherwin-Williams Company

The Global Finishes Group, which includes marine coatings, continues to improve its operating margins, according to Chairman and CEO Christopher Connor.

“Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies,” Connor commented.

As a percent to net external sales, segment profit was 9.3 percent in the quarter versus 7.0 percent last year.

Latin America Sales Down

Meanwhile, the company saw a double-digit drop in net sales for its Latin America Coatings Group in the first quarter due to unfavorable currency translation rate changes and lower paint sales volume partially offset by selling price increases.

Net sales decreased 10.0 percent to $182.4 million in the quarter. Unfavorable currency translation rate changes decreased net sales by 16.5 percent in the quarter, the company reported.

“Despite the continued difficult environment [, the Latin America Coatings Group] is minimizing the impact on its core operating margins through selling price increases and good cost control,” according to Connor.

Profit also decreased for the segment, dropping to $10.0 million from $20.8 million last year due primarily to lower volume sales, increasing raw material costs and unfavorable currency translation rate changes partially offset by selling price increases, the company explained.

Foreign currency translation rate changes decreased segment profit $3.8 million in the quarter.

As a percent to net external sales, segment profit decreased in the quarter to 5.5 percent from 10.3 percent last year.

Looking Ahead

For the second quarter, the company expects consolidated net sales will jump eight to 14 percent compared to last year's second quarter.

At that anticipated sales level, Sherwin-Williams estimates diluted net income per common share in the second quarter of 2014 to be in the range of $2.80 to $3.00 per share, compared to $2.46 per share earned in the second quarter of 2013.

“This guidance includes our expectation that the Comex [North American] acquisition will increase net sales $125 million to $135 million and reduce diluted net income per common share by approximately $.10 per share in the second quarter,” said Connor.

For the full year 2014, the company expects consolidated net sales to increase eight to 13 percent compared to full year 2013.

“With annual sales at that level, we are reaffirming our guidance that diluted net income per common share for 2014 is expected to be in the range of $8.12 to $8.32 per share, compared to $7.26 per share earned in 2013,” said Connor.

“This annual guidance includes our expectation that the Comex acquisition will increase net sales by a low single digit percentage in the year and negatively impact diluted net income per common share $.45 to $.55 per share in 2014.”

   

Tagged categories: Acquisitions; Business matters; Coatings manufacturers; Earnings reports; Economy; Finance; Market; Paint and Coating Sales; Sherwin-Williams

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