Ups and Downs Mark Sherwin-Williams’ Q3
Sherwin-Williams reported a record third quarter Friday (Oct. 25), with a lot of help from its paint stores, a little from protective and marine, and none from Brazil's tax man.
Higher architectural paint sales volume across all end markets helped deliver a 9.4 percent increase in consolidated net sales in the quarter, the Cleveland-based paint and coatings maker said in its third-quarter financial report.
At the same time, however, the company shaved its full-year earnings outlook, to $7.00 to $7.30 a share, from its earlier forecast of $7.45 to $7.55.
Chairman and CEO Christopher M. Connor credited "continued positive sales volume and strong operating results" in the Paint Stores Group with "record sales and earnings per share" in the third quarter and first nine months of 2013.
Sales Beat Forecasts
Consolidated net sales increased by 9.4 percent, to $2.85 billion, for the quarter and by 5.7 percent, or $7.73 billion, for the first nine months of the year, compared to the same periods in 2012, primarily due to higher paint sales volume in the Paint Stores Group, the company reported.
Fourteen analysts had consensus revenue estimate of $2.78 billion for the quarter, according to RTT News.
Acquisitions increased consolidated net sales by 1.1 percent in the quarter and by 0.9 percent in nine months. Unfavorable currency translation rate changes dinged sales by 0.8 percent in the quarter and by 0.7 percent over nine months.
Diluted net income per common share increased by 31 cents per share, to $2.55, in the quarter and by 74 cents per share, to $6.11, in ninth months, driven largely by gains in the Paint Stores, Consumer and Global Finishes Group, the company said.
$31.6M Tax Settlement
The company also announced that it was settling a tax case with the Brazilian government for import duties assessed from 2006 to 2012.
"Charges of $19.8 million and $31.6 million were recorded in the quarter and nine months, respectively," Sherwin-Williams reported.
"The company elected to pay the taxes through an existing voluntary amnesty program offered by the government to resolve these issues rather than contest them in court."
Segments results were reported as follows.
Paint Stores Group
Net sales in the Paint Stores Group increased by 13.5 percent to $1.76 billion in the quarter and by 9.0 percent to $4.54 billion in nine months, due primarily to higher architectural-paint sales across all end markets.
Net sales from stores open for more than 12 months increased by 10.9 percent in the quarter and by 7.4 percent in nine months over the prior-year periods.
Chairman and CEO Christopher M. Connor expressed confidence that Sherwin-Williams would complete the rest of the Comex acquisition in the fourth quarter.
Segment profit increased by $58.8 million to $359.4 million in the quarter and by $141.8 million to $822.0 million in nine months. Segment profit as a percent to net sales increased in the quarter and over nine months.
Sherwin-Williams opened 42 net new stores in the first nine months of the year, and its $90 million acquisition of Comex's North American businesses added 306 stores in September.
Connor also indicated confidence that Sherwin-Williams would complete the rest of the Comex deal, now stalled over anti-trust concerns in Mexico, saying, "Our balance sheet is positioned well for the anticipated closing of the Comex Mexico acquisition."
The Consumer Group sells a portfolio of branded and private-label products through retailers across North America and parts of Europe; it also operates a global supply chain for paint, coatings and related products.
Net sales in the group increased by 5.4 percent to $366.8 million in the quarter and by 0.3 percent to $1.07 billion in nine months.
Segment profit increased to $73.1 million in the quarter from $57.1 million last year and to $206.1 million in nine months from $193.1 million.
As a percent to net external sales, segment profit increased in the quarter to 19.9 percent from 16.4 percent and to 19.3 percent from 18.1 percent for nine months compared with the same periods in 2012.
Global Finishes Group
This group includes protective and marine coatings, OEM product finishes and automotive coatings.
The group's net sales increased by 3.2 percent to $507.3 million in the quarter and by 2.3 percent to $1.51 billion in nine months, largely due to selling price increases and acquisitions. Acquisitions increased net sales by about 1.3 percent in both the quarter and nine-month period.
Currency translation rate changes nicked net sales by 0.4 percent in the quarter and nine months. Segment profit increased to $44.5 million from $36.4 million in the quarter and to $132.9 million from $113.1 million in the first nine months, compared to the year-ago periods, driven by "improved operating efficiencies" and selling price increases, the company said.
Segment profit and net sales both increased in the Global Finishes Group for the quarter and for the first nine months of the year.
As a percent to net external sales, segment profit was 8.8 percent in the quarter versus 7.4 percent last year and 8.8 percent in nine months compared to 7.7 percent in 2012.
Latin America Coatings Group
This group sells a wide range of architectural paints, industrial coatings and related products throughout Latin America.
Unfavorable currency rate changes offset higher selling prices and higher sales volume, keeping sales flat overall, Sherwin-Williams reported. The Brazilian tax settlement also dampened the bottom line, nipping $1.0 million from segment profit in the quarter and driving the nine-month profit to $20.7 million this year from $51.1 million last year.
Looking Back and Ahead
Connor gave this assessment of the quarter.
"The Paint Stores Group architectural volume growth was strong across all end market segments. Our Consumer Group improved their operating margins through better- than- expected sales and improved operating efficiencies.
"Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies and good cost control. The Latin America Coatings Group is minimizing the impact on its core operating margins through selling price increases and good cost control, despite the difficult environment in which they are operating."
For the fourth quarter, Connor said the company was expecting a net sales increase of 5 to 7 percent over last year's fourth quarter and a share price in the range of $1.29 to $1.39, compared to $.65 per share in the fourth quarter of 2012.
The Comex acquisition is expected to increase net sales by $95 million to $105 million and trim $.20 to $.40 per share in the fourth quarter, Connor said.