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Sherwin-Williams’ Revenues Rise

Wednesday, October 26, 2016

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The Sherwin-Williams Company reported consolidated net sales of $3.28 billion for its third quarter and $9.07 billion for the nine-month period, driven in part by high paint sales volumes in its Paint Stores Group.

A change in revenue classification related to grossing up third-party service revenue also helped the Cleveland-based paint maker to deliver the 4 percent increase in net sales from the same quarter a year ago and 3.9 percent growth in nine months, the company announced in its earnings report released Tuesday (Oct. 25).

Taupe Bathroom
Images: Sherwin-Williams

Net sales in the company's Paint Stores Group increased 6.7 percent to $2.23 billion in the quarter and increased 7.5 percent to $5.95 billion in nine months, Sherwin-Williams announced.

Unfavorable currency translation rates decreased consolidated net sales by 0.8 percent in the quarter and 1.6 percent in the nine-month period.

CEO Comments, New CFO

“Revenue growth on a comparable basis slowed sequentially in the third quarter across most of our reportable segments,” said John G. Morikis, president and chief executive officer. “Despite this slowdown we remain bullish on future demand across most of our end markets, and we continue to invest in areas that will drive growth and productivity in the quarters and years ahead.”

“[…] Our balance sheet remains flexible and is positioned well for the anticipated Valspar acquisition and other investments in our business,” he added.

The day prior to the earnings report release, Sherwin-Williams announced that its board elected a new chief financial officer, effective Jan. 1, 2017. Allen J. Mistysyn will serve as senior vice president-Finance and CFO.

The company’s current CFO, Sean Hennessy, will transition to senior vice president-Corporate Planning, Development and Administration, where “he will provide support for the Valspar acquisition integration planning process,” according to Sherwin-Williams.

new CFO

Sherwin-Williams' board has elected Allen J. Mistysyn as its new chief financial officer, effective Jan. 1, 2017.

The Valspar acquisition, valued at $11.3 billion, is expected to close by the end of the first quarter of 2017. Sherwin-Williams reported that the combined company would have sales of approximately $15.6 billion, adjusted earnings of $2.8 billion, with approximately 58,000 employees.

Income Increases

Diluted net income per common share in the quarter increased to $4.08 per share from $3.97 per share in 2015; the nine-month figure increased to $9.85 per share from $9.03 per share last year. The company credited improved operating results of the Paint Stores and Global Finishes Groups.

Unfavorable currency rates nicked nearly a nickel from the per-share price for the quarter and $0.11 from the nine-month share price.

The company reported the following segment results.

Paint Stores Ring Up

Net sales in the Paint Stores Group increased 6.7 percent to $2.23 billion in the quarter and increased 7.5 percent to $5.95 billion in nine months, the company said. The company says the increases were due primarily to higher architectural paint sales volume across most end market segments and the impact of the change in revenue classification.

The group opened 55 new net store locations in the first nine months.

Net sales from the stores open for more than 12 calendar months, excluding the change in revenue classification, increased by 2.1 percent in the quarter and by 5.2 percent in nine months over last year’s comparable periods. Paint Stores Group segment profit increased $10.9 million to $518.3 million in the quarter and by $163.5 million to $1.28 billion for nine months.

Consumer Group Dips

The Consumer Group saw net sales dip 2.1 percent to $412.9 million in the quarter. The company said lower volume sales to most of the Group’s retail and commercial customers impacted the quarter.

However, net sales increased 0.4 percent to $1.27 billion in nine months, compared to the same period in 2015, according to the company. This was due to higher volume sales to customers partially offset by unfavorable currency translation rate changes.

Profit increased to $264.3 million in nine months from $257.9 million, thanks in part to improved operating efficiencies and higher volume sales, the company said.

Global Finishes Group

The company’s Global Finishes Group posted net sales of $480.7 million in the third quarter, a 1.1 percent decrease from the same period a year ago. Net sales in the segment dipped 1.9 percent to $1.43 billion in nine months.

Heathrow project
Screenshot via Sherwin-Williams Protective & Marine Coatings Youtube

Global Finishes Group's net sales inched up 1.1 percent in the third quarter to $480.7 million.

Segment profit increased in the quarter to $63.2 million from $55.1 million last year and increased in nine months to $177 million from $151.3 million last year, due to decreasing raw material costs and good cost control, partially offset by unfavorable currency translation rate changes.

The company’s Latin America Coatings Group’s net sales increased 0.4 percent to $156.6 million in the quarter due primarily to selling price increases partially offset by unfavorable foreign currency translation rate changes and declining volumes.

Nine month net sales dropped 12 percent to $415.1 million. Unfavorable currency translation rate changes decreased net sales by 8.2 percent in the quarter and 15.7 percent in nine months.

Segment profit decreased to $1.0 million from $2.1 million last year and decreased to a loss of $9.6 million from a profit of $15.7 million last year. The company says increasing raw material costs and unfavorable currency translation impacted the segment profit.

Looking Ahead

For the fourth quarter, Morikis forecast a consolidated net sales increase a “low single digit percentage” compared to the fourth quarter of 2015. That would put diluted net income per common share in the fourth quarter of 2016 to be in the range of $1.45 to $1.55 per share compared to $2.12 per share earned in the fourth quarter of 2015.

“For the full year 2016, we expect core consolidated net sales to increase by a low single digit percentage compared to the full year 2015,” said Morikis. “With annual sales at that level, we are updating our guidance for full year 2016 diluted net income per share to be in the range of $11.30 to $11.40 per share, compared to $11.16 per share earned in 2015.”

Morikis said full year earnings per share will include costs related to the anticipated acquisition of Valspar totaling $1.35 per share and an increase of earnings per share of approximately $0.40 per share related to the decrease in the income tax provision.

   

Tagged categories: Architectural coatings; Business matters; Coatings manufacturers; Coatings Technology; Earnings reports; Finance; Marine Coatings; Paint and Coating Sales; Sherwin-Williams

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