10-QPeriod: Q3 FY2010

SHERWIN WILLIAMS CO Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 28, 2010For Securities:SHW

Summary

Sherwin-Williams Co. (SHW) reported solid third-quarter and year-to-date results for the period ending September 30, 2010. The company demonstrated revenue growth across its segments, driven by acquisitions and improved demand in both domestic and global markets. Despite rising raw material costs impacting gross margins, Sherwin-Williams effectively managed selling, general, and administrative expenses, leading to an increase in diluted net income per share for both the quarter and the nine-month period. The company's financial condition remained strong, with robust operating cash flow, though slightly lower than the prior year due to increased working capital needs. Sherwin-Williams also strategically utilized its borrowing capacity and cash flow to fund acquisitions, capital expenditures, and shareholder returns through dividends and share repurchases. The company is actively managing its financial risks and maintains a strong liquidity position with significant available borrowing capacity.

Financial Highlights

55 data points
Beta

Revenue

$2.17B

44.7% Gross Margin

Net Income

$175.26M

8.1% Net Margin

EPS (Diluted)

$0.53

Total Assets

$5.18B

Cash & Equivalents

$64.95M

Free Cash Flow

$212.49M

Financial Statements
Beta
Revenue$2.17B
Cost of Revenue$1.20B
Gross Profit$971.59M
SG&A Expenses$703.67M
Operating Income$316.70M
Interest Expense$11.31M
Net Income$175.26M
EPS (Basic)$0.54
EPS (Diluted)$0.53
Shares Outstanding (Basic)319.36M
Shares Outstanding (Diluted)325.19M

Key Highlights

  • 1Consolidated net sales increased by 8.8% in Q3 2010 to $2.17 billion and by 7.0% year-to-date to $5.88 billion, driven by acquisitions and improved market demand.
  • 2Diluted net income per share rose to $1.60 in Q3 2010 and $3.53 year-to-date, an improvement from $1.51 and $3.17 in the prior year periods, respectively.
  • 3Gross profit margin decreased to 44.7% in Q3 2010 (from 46.5% in Q3 2009) due to rising raw material costs, partially offset by price increases and cost savings.
  • 4Selling, general, and administrative expenses as a percentage of net sales decreased to 32.4% in Q3 2010 (from 32.8% in Q3 2009), indicating effective cost management.
  • 5The company completed significant acquisitions, including Becker Industrial Products AB and Sayerlack Industrial Coatings, strengthening its Global Finishes Group.
  • 6Net operating cash flow for the nine months was $477.6 million, down from $615.6 million in the prior year, primarily due to increased working capital requirements.
  • 7Sherwin-Williams maintained a strong liquidity position, with $1.268 billion in remaining borrowing ability at September 30, 2010.

Frequently Asked Questions

Revenue growth was primarily driven by acquisitions, particularly the integration of Becker Industrial Products AB and Sayerlack Industrial Coatings, favorable foreign currency translation rates, and improved global demand for architectural, OEM, and automotive finishes products. Selling price increases also contributed to the growth.

Rising raw material costs negatively impacted gross profit margins. While Sherwin-Williams implemented price increases and cost savings initiatives, these measures only partially offset the impact, leading to a decrease in gross profit as a percentage of net sales compared to the prior year.

The company reported strong financial condition, liquidity, and cash flow. Despite some fluctuations, Sherwin-Williams has sufficient borrowing capacity and is actively managing its working capital to support operations, investments, and shareholder returns.

The company is involved in ongoing litigation, notably concerning lead pigment and lead-based paint. While the company believes these claims are without merit and is defending them vigorously, the ultimate outcome is uncertain and could potentially have a material impact on its financial results, liquidity, or financial condition if a significant liability is determined.