S-W Sales up 8.8%; Raw-Material Costs Weigh on Profits

The Sherwin-Williams Company reported an 8.8% increase in sales for the third quarter compared to 2009, driven in part by “improving domestic architectural paint sales to residential repaint customers.” Earnings for the quarter rose slightly from the prior-year period, as raw-material price increases weighed on profits.
The company reported sales of $2.172 billion for the quarter, compared to $1.997 billion for the same period a year earlier. Net income was $175.3 million, up slightly from $175.2 million in 2009.
For the first three quarters of the year, sales were $5.881 billion, a 7% increase from $5.495 billion in 2009. Net income through the first nine months was $389.6 million, up 5% from $370.5 million in 2009.
Earnings per share rose 6% for the quarter and 11.4% for the first nine months compared to 2009, the company said.
Chairman and CEO Christopher M. Connor said earnings 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.”

Christopher M. Connor S-W Chairman and CEO

The company said acquisitions accounted for a 3.4% increase in sales for the quarter and 1.9% for the nine-month period. Favorable currency translations accounted for a 0.6% gain in sales for the quarter and a 1.4% gain for the nine-month period.

 Business-Segment Results

Sales for the Paint Stores Group rose 5.4%, to $1.286 billion, in the third quarter, and increased 2.8% to $3.382 billion, for the nine-month period compared to 2009, due primarily to selling-price increases and improving domestic architectural paint sales to residential repaint contractors and DIY customers, the company said. Net sales from stores open for more than 12 months increased 5.1% in the quarter and 2.5% in the nine-month period compared to the year before.
Paint Stores Group segment profit fell to $225.1 million in the quarter from $230.2 million in 2009. For the nine months, the segment’s profit increased to $484.8 million from $480.3 million in 2009, with the results for the quarter and nine-month periods attributed primarily to stronger sales and selling-price increases, partially offset by continuing raw-material cost increases and higher selling, general and administrative expenses.
Sales for the Consumer Group rose 3.0%, to $340.4 million in the quarter and 5.9%, to $1.043 billion in the nine-month period compared to 2009, due primarily to improving demand at some of the segment's retail, industrial and institutional customers. Segment profit rose to $59.7 for the quarter from $56.5 million in 2009, and rose to $177.9 million for the nine-month period from $152.8 million the year before.
Global Finishes Group net sales stated in U.S. dollars rose 22.6%, to $544.5 million in the quarter and increased 19.4%, to $1.452 billion in the nine-month period due primarily to acquisitions, higher paint-sales volume and favorable currency translation rates. The segment’s profit in the quarter increased to $31.9 million from $29.7 million in 2009, and in the nine-month period rose to $94.9 million from $66.1 million in 2009 due primarily to increased paint-sales volume, expense control, and favorable currency rates, partially offset by dilution from acquisitions.
Connor said the company is “continuing to invest in our business,” with the opening of 25 new locations during the first three quarters by the Paint Stores Group, while 11 “redundant locations” were closed. The company’s recent acquisitions of Becker Acroma and Sayerlack “are performing to expectations,” he said.
“Even though the acquisitions had a negative impact on the quarter and nine month financial results, they strengthen our growing global platform to better serve our customers around the world with outstanding R&D, products, and people,” he said.

‘Cautiously Optimistic’ Outlook

Connor said the company remains “cautiously optimistic about the stability of end-market demand,” and is working “to mitigate the effect of rising raw-material costs.” For the fourth quarter, he said the company anticipates an increase in sales “in the mid-teens” compared to 2009, due primarily to acquisitions.
The company is forecasting fourth-quarter net income per share in the range of 59 to 69 cents, compared to 58 cents in 2009. For the year, the company is forecasting a sales increase in the “high single-digit” percent range. The company is hiking its forecast for 2010 earnings per share to a range of $4.12 to $4.22 per share, compared to $3.78 in 2009.