Sherwin-Williams’ Comex Deal Hits Snag; Q2 Profit Up
The Sherwin-Williams Company announced that its planned $2.34 billion acquisition of Comex Group was not approved by regulators in Mexico and also reported a 13 percent increase in profit for the second quarter.
Sherwin-Williams said Thursday (July 18) it has been informed by The Federal Competition Commission of Mexico that the company’s acquisition of Consorcio Comex, S.A. de C.V., had not been authorized.
The deal, which was first announced last November, was rejected by a 3-2 vote.
“We are disappointed by this decision, but remain hopeful that we can adequately address the commission’s objections and proceed with the transaction,” said Christopher M. Connor, chairman and CEO.
The Cleveland, OH-based paint maker said it is reviewing the rationale for the Commission’s decision and expects to respond to the Commission’s concerns in the near future.
Comex Group, headquartered in Mexico City, manufactures and sells architectural and industrial coatings throughout Latin America, the U.S. and Canada. Sales generated about $1.4 billion in 2011.
Q2 Sales Hit Record Level
Sherwin-Williams also reported Thursday that its second-quarter net sales reached $2.71 billion, up 5.5 percent from the same period a year ago. Net sales for the first six months of 2013 hit a record $4.88 billion, according to the company.
Net income for the quarter was $257.29 million, up from $227.81 million in the year-ago period.
Strong architectural paint sales in its Paint Stores Group contributed to the increase in sales, the company reported.
Figuring in the year-over-year increase in net income was a $11.8 million expense related to the company’s Brazilian operations.
Paint Stores Group on a Roll
For the company’s sprawling Paint Stores Group, second-quarter sales rose 8 percent to $1.61 billion, from the second quarter of 2012, while segment profit was $333.0 million compared to $267.0 million a year earlier.
Paint Stores Group results benefited from higher architectural paint sales volume across all end market segments which were partially offset by increase in selling, general and administration expenses.
Paced by the company's giant Paint Stores Group, Sherwin-Williams powered its way to record-high sales and earnings in the second quarter.
For stores open more than 12 calendar months, sales increased 7 percent.
Conner said the company plans to continue to invest in the segment.
“In the first six months, Paint Stores Group opened 22 net new stores. For the year, we expect our Paint Stores Group to open 70 to 80 new stores,” he said.
Consumer Segment Slip, Global Finishes Up
Consumer Group decreased 1 percent, to $393.7 million in the quarter, due primarily to lower volume sales to most of the segment’s retail customers and the previously disclosed elimination of a portion of a paint program with a large retail customer partially offset by acquisitions, the company reported.
The segment’s profit dropped to $79.0 million in the quarter from $80.8 million last year due primarily to lower volume sales.
Global Finishes Group net sales edged up 3 percent to $513.5 million in the quarter.
Segment profit increased to $54.5 million from $48.0 million last year, primarily due to selling price hikes and improved operating efficiencies.
Selling-price increases and improved operating efficencies have helped the company's Global Finishes Group profit rise.
Unfavorable currency translation rate changes reduced segment profit $2.4 million in the quarter.
The segment is comprised of protective and marine, OEM product finishes and automotive finishes.
Charge in Brazil Hit Profit
The company’s net sales in its Latin America Coatings Group rose 6.3 percent to $199.0 million in the quarter due primarily to price increases and higher paint sales volume partially offset by unfavorable currency translation rate changes.
However, segment profits decreased to $0.9 million in the quarter from $9.3 million last year, due primarily to charges related to the Brazil import duty assessment, the company said.
Charges of $11.8 million were recorded to cost of goods sold due to the Brazil import duty assessment, Sherwin-Williams reported.
“The assessment was issued by the Brazilian government related to the handling of import duties on products brought into the country for the years 2006 through 2008,” the company said.
Sherwin-Williams said it elected to accept a voluntary amnesty program offered by the government to resolve this issue rather than contest it in court.
The company is forecasting a third quarter sales increase of six to nine percent from the third quarter of 2012.
For the full year 2013, the company expects consolidated net sales to increase from 2012 levels by “a mid-single digit percentage,” Connor said, adding that the company is “positioned well for the anticipated closing of the Comex acquisition and other investments.”