10-QPeriod: Q3 FY2003

SHERWIN WILLIAMS CO Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 12, 2003For Securities:SHW

Summary

Sherwin-Williams Company (SHW) reported solid third-quarter and year-to-date results for the period ending September 30, 2003. Net sales showed a healthy increase, driven primarily by strengthening domestic architectural paint sales, particularly within the Paint Stores segment. This top-line growth translated into improved profitability, with net income rising in both the quarter and year-to-date periods. Investors will note the company's continued focus on returning capital to shareholders through share repurchases and dividends, alongside disciplined capital expenditures. While the company faces ongoing litigation related to lead-based paints and environmental matters, management believes these issues will not materially impact its financial condition. Overall, the report indicates a company experiencing sales growth and managing its operations effectively, with a positive outlook for the remainder of the year.

Key Highlights

  • 1Consolidated net sales increased by 5.4% for the third quarter of 2003, reaching $1.50 billion, and by 2.3% for the first nine months, totaling $4.12 billion, driven by strong architectural paint sales.
  • 2Net income for the third quarter of 2003 increased by 8.1% to $120.3 million, with diluted EPS rising to $0.82 from $0.73 in the prior year.
  • 3The Paint Stores segment showed robust performance with a 5.4% increase in net sales for the quarter, supported by a 4.5% increase in comparable-store sales.
  • 4The company repurchased 5.0 million shares of common stock in the first nine months of 2003 and received a new authorization to purchase up to an additional 20.0 million shares.
  • 5Gross profit margin remained stable at 45.2% for the quarter and improved slightly to 44.8% year-to-date, indicating effective cost management.
  • 6Despite ongoing legal proceedings related to lead pigments and lead-based paints, management continues to believe these will not have a material adverse effect on the company's financial condition.

Frequently Asked Questions

The primary driver of Sherwin-Williams' sales growth in the third quarter of 2003 was the strengthening domestic architectural paint sales, particularly within the Paint Stores segment. This was further supported by increased sales of aerosol and wood care products in the Consumer segment and gains in international operating units of the Automotive Finishes segment.

Sherwin-Williams is actively returning capital to shareholders through dividend payments, with dividends of $0.155 per common share in the first three quarters of 2003. The company also engaged in significant share repurchases, buying back 5.0 million shares in the first nine months of 2003 and authorized an additional 20.0 million share repurchase program.

The company is involved in numerous legal proceedings related to the manufacture and sale of lead pigments and lead-based paints, seeking damages for personal injury, property damage, and abatement costs. Additionally, Sherwin-Williams is managing environmental compliance, investigation, and remediation activities at current and former sites, and is designated as a potentially responsible party at third-party Superfund sites. While management is unable to predict the exact outcome or cost, they currently do not believe these liabilities will have a material adverse effect on the company's financial condition, liquidity, or cash flow.

The adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002, required the company to stop amortizing goodwill and other indefinite-lived intangible assets and subject them to impairment testing. During the first quarter of 2002, Sherwin-Williams recognized a transitional impairment charge of $247.6 million ($183.1 million after tax, or $1.21 per share) as a cumulative effect of this change in accounting principle. This charge was primarily due to impairment of certain indefinite-lived intangible assets and goodwill.