10-KPeriod: FY2018

SHERWIN WILLIAMS CO Annual Report, Year Ended Dec 31, 2018

Filed February 22, 2019For Securities:SHW

Summary

The Sherwin-Williams Company's 2018 10-K filing highlights a robust business operating across three primary segments: The Americas Group, Consumer Brands Group, and Performance Coatings Group. The company demonstrates a strong market presence in North and South America, with expanding international operations. The filing emphasizes the company's strategy of growth through both organic store expansion and strategic acquisitions, notably the integration of Valspar, which continues to be a significant factor. Despite a strong operational performance, the company faces various risks, including economic downturns, raw material price volatility, increased competition, and ongoing litigation, particularly concerning historical lead pigment and lead-based paint sales. Investors should note the company's financial performance is sensitive to economic conditions and raw material costs. The significant debt load, largely from the Valspar acquisition, remains a point of consideration for financial leverage and liquidity. Sherwin-Williams' competitive strengths lie in its brand recognition, extensive distribution network, and product innovation. The company's forward-looking statements indicate management's confidence in continued growth, but also caution about inherent risks and uncertainties, including those related to global economic factors, regulatory changes, and successful integration of acquired businesses.

Financial Highlights

53 data points
Beta

Revenue

$17.53B

42.3% Gross Margin

Net Income

$1.11B

6.3% Net Margin

EPS (Diluted)

$3.89

Total Assets

$19.13B

Cash & Equivalents

$155.50M

Free Cash Flow

$1.94B

Financial Statements
Beta
Revenue$17.53B
Cost of Revenue$10.12B
Gross Profit$7.42B
R&D Expenses$51.92M
SG&A Expenses$5.03B
Operating Income$2.61B
Interest Expense$366.70M
Net Income$1.11B
EPS (Basic)$3.97
EPS (Diluted)$3.89
Shares Outstanding (Basic)278.98M
Shares Outstanding (Diluted)284.96M

Key Highlights

  • 1Sherwin-Williams operates through three main reportable segments: The Americas Group, Consumer Brands Group, and Performance Coatings Group, serving diverse customer bases globally.
  • 2The company continues to integrate the acquisition of Valspar, a significant strategic move impacting its market position and financial structure.
  • 3A substantial portion of sales occurs in the second and third quarters, with inventory built up in the first quarter to meet seasonal demand.
  • 4The company faces numerous risks including economic slowdowns, raw material price fluctuations (especially titanium dioxide and petrochemicals), competitive pressures, and currency exchange rate volatility.
  • 5Significant legal proceedings exist, most notably related to historical lead pigment and lead-based paint litigation, with potential material impact on financial results.
  • 6Sherwin-Williams has a strong brand portfolio and an extensive distribution network, which are key competitive advantages.
  • 7The company's financial leverage increased due to debt financing for acquisitions, with total debt around $9.3 billion at the end of 2018.

Frequently Asked Questions

Sherwin-Williams operates through three principal reportable segments: The Americas Group (primarily North and South America), Consumer Brands Group (North America, Australia, New Zealand, China, Europe), and Performance Coatings Group (worldwide). The company focuses on the development, manufacture, distribution, and sale of paint, coatings, and related products.

Key risks identified include adverse changes in general economic conditions, volatility in raw material and energy prices, increased competition, challenges in integrating acquisitions like Valspar, significant debt levels, currency fluctuations, and ongoing litigation, particularly the historical lead pigment and lead-based paint litigation. These factors could materially affect the company's business, financial condition, and results of operations.

The Valspar acquisition is a significant factor for Sherwin-Williams. The company is focused on integrating Valspar's operations to realize anticipated growth opportunities and cost synergies. However, the integration process carries inherent risks and management distraction, and the full benefits are not guaranteed. The acquisition also contributed to the company's substantial debt load.

Sherwin-Williams experiences seasonal sales, with peak demand in the second and third quarters. To manage this, the company typically builds its inventory during the first quarter. Working capital needs, including inventories and accounts receivable, are generally financed through short-term borrowings, such as lines of credit and commercial paper.