10-QPeriod: Q1 FY2012

SHERWIN WILLIAMS CO Quarterly Report for Q1 Ended Mar 31, 2012

Filed April 25, 2012For Securities:SHW

Summary

Sherwin-Williams reported a strong first quarter for 2012, with net sales increasing by 15.1% to $2.136 billion compared to the same period in 2011. This growth was driven by higher paint sales volume and strategic pricing increases across its segments. Despite a slight decrease in gross profit margin due to rising raw material costs, the company managed expenses effectively, leading to a significant increase in diluted net income per common share to $0.95, up from $0.63 in the prior year. The company's financial condition remains robust, supported by improving domestic architectural paint demand and sufficient borrowing capacity. The company's operational performance was solid across its reportable segments, with the Paint Stores Group and Global Finishes Group showing particularly strong net sales growth. While facing headwinds from increased raw material costs, Sherwin-Williams demonstrated effective cost management. The company also highlighted ongoing efforts in environmental remediation and addressed various legal proceedings, which are not expected to have a material adverse effect on its financial condition. Overall, the first quarter of 2012 indicates a positive trajectory for Sherwin-Williams, driven by organic growth and effective operational execution.

Financial Highlights

51 data points
Beta

Revenue

$2.14B

42.6% Gross Margin

Net Income

$100.22M

4.7% Net Margin

EPS (Diluted)

$0.32

Total Assets

$5.46B

Cash & Equivalents

$25.49M

Free Cash Flow

-$154.84M

Financial Statements
Beta
Revenue$2.14B
Cost of Revenue$1.23B
Gross Profit$909.84M
SG&A Expenses$757.68M
Operating Income$216.54M
Interest Expense$10.34M
Net Income$100.22M
EPS (Basic)$0.32
EPS (Diluted)$0.32
Shares Outstanding (Basic)306.21M
Shares Outstanding (Diluted)313.37M

Key Highlights

  • 1Net sales increased 15.1% to $2.136 billion in Q1 2012 compared to Q1 2011.
  • 2Diluted net income per common share rose to $0.95 in Q1 2012, a significant increase from $0.63 in Q1 2011.
  • 3Gross profit margin slightly decreased to 42.6% from 43.0%, primarily due to rising raw material costs.
  • 4Selling, general, and administrative expenses as a percentage of net sales decreased to 35.5% from 37.2%, indicating effective cost control.
  • 5The Paint Stores Group reported a strong 20.9% increase in net sales, driven by volume and pricing.
  • 6The company has a strong liquidity position with $1.584 billion in remaining borrowing ability as of March 31, 2012.
  • 7The company is actively managing environmental liabilities and is engaged in several legal proceedings, with management stating these are not expected to have a material adverse effect.

Frequently Asked Questions

The 15.1% increase in net sales to $2.136 billion was primarily driven by higher paint sales volume and strategic selling price increases across the company's various segments. The Paint Stores Group, in particular, saw robust growth of 20.9% in net sales.

Sherwin-Williams effectively controlled its selling, general, and administrative (SG&A) expenses. As a percentage of net sales, SG&A decreased to 35.5% from 37.2% in the prior year's quarter. This improved efficiency helped offset the impact of rising raw material costs on gross profit margins.

The company faces potential liabilities related to environmental remediation activities and ongoing litigation, most notably concerning lead pigment and lead-based paint. While management has accrued for environmental costs, the ultimate outcome of these matters remains uncertain. For lead-based paint litigation, the company has not accrued any amounts, as it believes its defenses are strong, but acknowledges the potential for a material adverse effect if losses are significant. Additionally, the Department of Labor is investigating transactions related to the company's ESOP.

Sherwin-Williams maintains a strong liquidity position with $1.584 billion in remaining borrowing ability as of March 31, 2012. Total debt decreased slightly compared to the previous year, and the company has arranged sufficient short-term borrowing capacity. The company's current ratio remained stable at 1.03.