The Sherwin-Williams Company has reported an 8.8% increase in consolidated net sales for the third quarter and a 7% increase for the year thus far, with mixed segment performance.
Global Finishes Makes Gains
Net sales by the company’s Global Finishes Group increased 22.6% to $544.5 million for the quarter and by 19.4% to $1.452 billion in nine months, due primarily to acquisitions, higher paint sales volume and favorable currency translation rate changes, the company reported Tuesday (Oct. 26).
Segment profit for the Global Finishes Group increased to $31.9 million from $29.7 million for the quarter and to $94.9 million from $66.1 million for the nine-month period over last year.
The Global Finishes Group includes Protective and Marine, Automotive and Chemical Coatings, as well as the Latin American market, said company spokesman Mike Conway. The company does not release numbers for each division, but Conway said the Protective and Marine sector “had a good third quarter and saw positive momentum in three areas: bridge and highway, wastewater treatment facilities, and oil and gas facilities.”
Paint Stores Q3 Profit Dips
On the other hand, the Paint Stores Group segment profit decreased to $225.1 million in the quarter from $230.2 million last year, due primarily to continuing raw material cost increases and increases in selling, general and administrative expenses. These were partially offset by selling price increases.
For the nine months, Paint Stores Group segment profit increased slightly, to $484.8 million from $480.3 million last year. However, segment profit as a percent to net sales decreased in the quarter to 17.5% from 18.9% last year and decreased in nine months to 14.3% from 14.6% in 2009.
Net sales in the Paint Stores Group increased by 5.4% to $1.286 billion for the quarter and by 2.8% to $3.382 billion in nine months, due primarily to selling price increases and improving domestic architectural paint sales to residential repaint contractors and DIY customers.
Consumer Group Increases
Net sales of the Consumer Group increased by 3.0% to $340.4 million for the quarter and by 5.9% to $1.043 billion in nine months, due primarily to improving demand by some of the segment’s retail, industrial and institutional customers. Segment profit increased to $59.7 million for the quarter from $56.5 million last year and to $177.9 million in nine months from $152.8 million last year.
Segment profit in the quarter increased as a percent to net external sales to 17.5% from 17.1% last year and increased in nine months to 17.1% from 15.5%, due primarily to increased sales and cost savings realized from previous year site rationalizations partially offset by increasing raw material costs.
‘Earnings Leverage Fell Short’
“Our sales and earnings-per-share in the third quarter, adjusted for the acquisition of Becker Acroma, finished in the middle of our guidance range,” said chairman and CEO Christopher M. Connor.
“Earnings leverage fell short of what we would normally expect to generate on a sales increase of this magnitude due to persistently high raw material costs, the timing of our price increases and higher SG&A expenses required to ensure product availability and good customer service.”
“We are continuing to invest in our business," Connor said. “In the first nine months, Paint Stores Group opened 25 new locations, while closing 11 redundant locations.”
The Becker Acroma and Sayerlack acquisitions “are performing to expectations. Even though the acquisitions had a negative impact on the quarter and nine months financial results, they strengthen our growing global platform ….”
Overall, acquisitions increased consolidated net sales 3.4% in the quarter and 1.9% in nine months, the company said. Favorable currency translation rate changes increased consolidated net sales by 0.6% in the quarter and 1.4% in nine months.
Shares and Buybacks
Diluted net income per common share in the quarter increased to $1.60 per share from $1.51 in 2009. In nine months, diluted net income per common share increased to $3.53 per share from $3.17. In the quarter and nine months, acquisitions reduced diluted net income per common share by $.02 per share and $.05 per share, respectively.
Favorable currency translation rate changes increased diluted net income per common share by $.01 per share in the quarter and $.04 per share in nine months. Purchases of treasury stock and a lower tax rate increased diluted net income per common share by approximately $.11 per share in the quarter and $.28 per share in nine months.
The company acquired 1.13 million shares of its common stock through open market purchases in the quarter, bringing its total to 3.48 million shares in nine months. The company had remaining authorization as of Sept. 30 to purchase 7.28 million shares.
“We remain cautiously optimistic about the stability of end market demand and are working hard to mitigate the effect of rising raw material costs,” Connor said. “During the fourth quarter of 2010, we anticipate consolidated net sales will increase in the mid-teens, compared to last year’s fourth quarter, primarily due to acquisitions.”
Diluted net income per common share for the fourth quarter is expected to be in the range of $.59 to $.69 per share, compared to $.58 per share in 2009. For the full year 2010, consolidated net sales should "increase above 2009 levels by a high single-digit percentage," Connor said.
The company updated its July 22 full-year guidance for diluted net income per common share for 2010 to be in the range of $4.12 to $4.22 per share, compared to $3.78 per share earned in 2009.