10-QPeriod: Q2 FY2012

SHERWIN WILLIAMS CO Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 25, 2012For Securities:SHW

Summary

Sherwin-Williams Company (SHW) reported a strong second quarter and first half of 2012, driven by improved domestic architectural paint demand and sales volume increases. Net sales rose by 9.3% for the quarter and 11.9% year-to-date, with significant growth across most segments, particularly the Paint Stores Group. Gross profit margin improved due to higher selling prices and volume, while SG&A expenses as a percentage of sales decreased due to increased revenue. Net income saw a substantial increase, with diluted earnings per share rising to $2.17 for the quarter and $3.13 year-to-date. The company generated robust operating cash flow, utilized for acquisitions, capital expenditures, share repurchases, and dividends. Financial condition remains strong with sufficient borrowing capacity. Management highlighted continued focus on cost control and operational efficiency as key drivers for sustained performance.

Financial Highlights

52 data points
Beta

Revenue

$2.57B

44.7% Gross Margin

Net Income

$227.81M

8.9% Net Margin

EPS (Diluted)

$0.72

Total Assets

$5.63B

Cash & Equivalents

$46.62M

Free Cash Flow

$356.95M

Financial Statements
Beta
Revenue$2.57B
Cost of Revenue$1.42B
Gross Profit$1.15B
SG&A Expenses$810.21M
Operating Income$405.05M
Interest Expense$10.23M
Net Income$227.81M
EPS (Basic)$0.74
EPS (Diluted)$0.72
Shares Outstanding (Basic)304.34M
Shares Outstanding (Diluted)312.01M

Key Highlights

  • 1Consolidated net sales increased by 9.3% in Q2 2012 to $2.57 billion and by 11.9% in the first six months of 2012 to $4.71 billion, driven by higher sales volume and pricing.
  • 2Gross profit margin improved to 44.7% in Q2 2012 from 43.4% in Q2 2011, and to 43.8% for the first six months from 43.2% in the prior year, attributed to selling price increases and higher paint volume.
  • 3Diluted net income per common share rose significantly to $2.17 in Q2 2012 from $1.66 in Q2 2011, and to $3.13 for the first six months from $2.29 in the prior year.
  • 4Net operating cash flow increased substantially to $202.1 million for the first six months of 2012, up from $108.2 million in the same period of 2011, despite a significant ESOP settlement payment.
  • 5The company completed the acquisition of Geocel Corporation, strengthening its Consumer Group's position in the sealant and adhesive market.
  • 6Sherwin-Williams generated $829.8 million in net operating cash from July 1, 2011, to June 30, 2012, supporting capital investments, acquisitions, share repurchases, and dividend payments.
  • 7SG&A expenses decreased as a percentage of sales, indicating improved operational leverage with higher revenue.

Frequently Asked Questions

The primary drivers of Sherwin-Williams' sales growth in the second quarter of 2012 were increased paint sales volume and higher selling prices across its various segments, particularly within the domestic architectural paint market.

Sherwin-Williams experienced improved profitability. Gross profit margin increased due to higher prices and volumes, and SG&A expenses as a percentage of sales decreased. This led to a significant increase in net income and diluted earnings per share for both the second quarter and the first six months of 2012 compared to the prior year.

The company reported a strong financial condition and liquidity, supported by improving domestic demand and robust operating cash flow. They have sufficient borrowing capacity to meet operating needs and have been able to secure short-term borrowing at reasonable rates.

The company is involved in several legal proceedings, most notably the ongoing lead pigment and lead-based paint litigation. While the company believes these claims are without merit, the outcome is uncertain and could potentially have a material adverse effect on its results of operations, liquidity, or financial condition if significant liabilities are determined. Environmental-related liabilities are also ongoing but are not expected to have a material adverse effect on the company's financial condition, liquidity, or cash flow due to the extended resolution period.