10-QPeriod: Q1 FY2011

SHERWIN WILLIAMS CO Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 26, 2011For Securities:SHW

Summary

The Sherwin-Williams Company reported a strong first quarter for 2011, demonstrating significant year-over-year growth in net sales and net income. Net sales surged by 18.5% to $1.86 billion, largely driven by strategic acquisitions in 2010 and implemented selling price increases. Despite facing rising raw material costs, the company effectively managed its expenses, leading to a decrease in SG&A as a percentage of sales. This operational efficiency, coupled with a favorable tax rate compared to the prior year, resulted in a substantial increase in diluted net income per common share, which more than doubled from $0.30 in Q1 2010 to $0.63 in Q1 2011. The company's financial condition remained stable, supported by adequate short-term borrowing capacity, though net working capital saw a decrease due to increased current liabilities. Management highlighted continued improvement in global demand across various product lines and a focus on expense control as key drivers of performance. While facing some challenges like raw material cost inflation, Sherwin-Williams appears well-positioned to navigate the economic landscape, bolstered by its recent acquisitions and strategic pricing initiatives.

Financial Highlights

52 data points
Beta

Revenue

$1.86B

43.0% Gross Margin

Net Income

$68.32M

3.7% Net Margin

EPS (Diluted)

$0.21

Total Assets

$5.44B

Cash & Equivalents

$53.95M

Free Cash Flow

-$180.12M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$1.06B
Gross Profit$797.41M
SG&A Expenses$691.12M
Interest Expense$10.68M
Net Income$68.32M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)314.97M
Shares Outstanding (Diluted)322.09M

Key Highlights

  • 1Consolidated net sales increased by 18.5% to $1.86 billion, driven by acquisitions and price increases.
  • 2Net income significantly improved, growing to $68.3 million from $32.6 million in the prior year's quarter.
  • 3Diluted earnings per share more than doubled, reaching $0.63 compared to $0.30 in Q1 2010.
  • 4Selling, General, and Administrative (SG&A) expenses decreased as a percentage of net sales to 37.2% from 39.1%, indicating improved operational efficiency.
  • 5The effective income tax rate decreased to 27.9% from 45.2%, partly due to a one-time tax charge in the prior year.
  • 6The Global Finishes Group segment experienced robust growth with a 49.6% increase in net sales, primarily due to acquisitions.
  • 7The company maintained sufficient total available borrowing capacity to fund current operating needs despite an increase in short-term borrowings.

Frequently Asked Questions

The primary drivers for the 18.5% increase in consolidated net sales to $1.86 billion were the strategic acquisitions completed in 2010, specifically Pinturas Condor, Acroma, and Sayerlack, which contributed to growth, particularly within the Global Finishes Group, and implemented selling price increases across various segments.

While the company experienced increasing raw material costs, which impacted gross profit margins (decreasing to 43.0% from 44.2%), it partially offset this through selling price increases and strong expense control. SG&A expenses, as a percentage of sales, decreased to 37.2% from 39.1%, demonstrating effective cost management and contributing to the overall increase in net income.

Management reported continued improvement in global end-market demand for architectural, OEM, and automotive finishes, as well as positive sales trends in domestic DIY and protective coatings. The company believes it is well-positioned to capitalize on these improving market conditions, supported by its recent acquisitions and ongoing focus on operational efficiency and pricing strategies.

The company is involved in ongoing litigation, most notably related to lead pigment and lead-based paint. While the company believes these claims are without merit, they are subject to inherent uncertainties, and adverse outcomes could potentially have a material impact on future financial results. Additionally, the company accrues for environmental-related liabilities, with four sites accounting for the majority of the current accruals, though management does not currently expect these liabilities to have a material adverse effect on financial condition or liquidity due to the extended remediation timelines.