How did Sherwin-Williams perform financially in 1993?

Net sales grew 7.3% to $2.95 billion, and net income reached $165.2 million, or $1.85 per share. Gross margin improved slightly to 42.5%, and operating profit increased 11.2%, showing steady growth with stable pricing.

What drove the growth in 1993?

The Paint Stores Segment drove most of the growth, with sales up 8.8% and comparable-store sales up 8.5%, mainly from paint gallon volume rather than price increases. The Coatings Segment grew sales 5.0%, led by the Dutch Boy brand, Automotive Division steady growth, and Krylon products.

How strong is the company's balance sheet and financial flexibility?

The balance sheet is very conservative. Long-term debt was $37.9 million at year-end, the debt-to-capitalization ratio was 3.7%, and cash plus short-term investments totaled $269.8 million. The company had $280 million in bank credit and a $280 million commercial paper program available with no borrowings outstanding.

What are the main legal and environmental risks?

The company faces environmental accruals of $61.4 million and an EPA lawsuit over its southeast Chicago facility, where management warns costs could be significantly higher than accrued. It also faces lead paint lawsuits that management considers without merit, and a California Proposition 65 settlement with a penalty capped at about $675,000 after credits.

Will the dividend continue to grow, and what affects future earnings?

The board declared a $.14 quarterly dividend in February 1994, the fifteenth straight annual increase, and the company targets a payout of about 30% of prior-year earnings. Future earnings face modest headwinds from the higher 1993 federal tax rate, a lower pension discount rate, and a lower expected return on plan assets, which management estimated would add about $2.5 million and reduce earnings by about $4.3 million, respectively.

SHW 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 15, 1994. Cited figures are marked; the original filing is the authoritative source.

The Sherwin-Williams Company (SHW) reported a solid 1993 with net sales up 7.3% to $2.95 billion^a and net income of $165.2 million, or $1.85 per share, up 14.2% from income before accounting changes in 1992 ($145 million).

Growth was driven mainly by the Paint Stores Segment, which contributed about 74% of the sales increase on an 8.8% sales gain, comparable-store sales up 8.5%, and a 28.5% jump in segment operating profit to $117 million^b. The Coatings Segment grew sales 5.0% and operating profit 11.9%, supported by volume gains, stable raw material costs, and cost containment. Gross margin edged up to 42.5% from 42.2%, while SG&A held flat at 33.3% of sales.

The balance sheet is conservative. Long-term debt fell to $37.9 million^c from $60.1 million after the company retired $20 million of its 9.875% debentures, and the debt-to-capitalization ratio was 3.7%. Cash and short-term investments reached $269.8 million, operating cash flow was $254.3 million, and shareholders' equity rose to $1.03 billion.

Capital expenditures of $63 million^d were funded internally, and management does not expect external financing needs in 1994. Key risks include environmental exposure (accruals of $61.4 million), an EPA lawsuit over the southeast Chicago facility where the company warns the ultimate liability could be significantly higher than accrued, and lead-paint litigation that management believes is without merit.

A higher federal tax rate and a lower pension discount rate (8.5% to 7.25%) pressure future earnings modestly. The dividend was raised to $.14 per quarter, the fifteenth consecutive annual increase.

02—Key points

Key Highlights

Net sales rose 7.3% to $2.95 billion in 1993, with Paint Stores accounting for about 74% of the increase.
Net income was $165.2 million ($1.85 per share), up from $145 million (before accounting changes) in 1992, an increase of 14.2%.
Paint Stores operating profit rose 28.5% to $117 million, driven by volume gains and a re-merchandising program across 2,030 company-operated stores.
Long-term debt was cut to $37.9 million from $60.1 million; the debt-to-capitalization ratio fell to 3.7%.
Operating cash flow of $254.3 million funded $63 million of capital spending, debt reduction, share repurchases, and a higher dividend.
Environmental exposure is significant: $61.4 million in accruals, plus an EPA lawsuit over the southeast Chicago facility where liability could exceed current accruals.
The quarterly dividend was increased to $.14 per share, the fifteenth consecutive annual increase, and the payout ratio target of about 30% was maintained.

03—Questions

Frequently Asked Questions

How did Sherwin-Williams perform financially in 1993?
Net sales grew 7.3% to $2.95 billion, and net income reached $165.2 million, or $1.85 per share. Gross margin improved slightly to 42.5%, and operating profit increased 11.2%, showing steady growth with stable pricing.
What drove the growth in 1993?
The Paint Stores Segment drove most of the growth, with sales up 8.8% and comparable-store sales up 8.5%, mainly from paint gallon volume rather than price increases. The Coatings Segment grew sales 5.0%, led by the Dutch Boy brand, Automotive Division steady growth, and Krylon products.
How strong is the company's balance sheet and financial flexibility?
The balance sheet is very conservative. Long-term debt was $37.9 million at year-end, the debt-to-capitalization ratio was 3.7%, and cash plus short-term investments totaled $269.8 million. The company had $280 million in bank credit and a $280 million commercial paper program available with no borrowings outstanding.
What are the main legal and environmental risks?
The company faces environmental accruals of $61.4 million and an EPA lawsuit over its southeast Chicago facility, where management warns costs could be significantly higher than accrued. It also faces lead paint lawsuits that management considers without merit, and a California Proposition 65 settlement with a penalty capped at about $675,000 after credits.
Will the dividend continue to grow, and what affects future earnings?
The board declared a $.14 quarterly dividend in February 1994, the fifteenth straight annual increase, and the company targets a payout of about 30% of prior-year earnings. Future earnings face modest headwinds from the higher 1993 federal tax rate, a lower pension discount rate, and a lower expected return on plan assets, which management estimated would add about $2.5 million and reduce earnings by about $4.3 million, respectively.

04—Continue

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