10-QPeriod: Q2 FY2020

SHERWIN WILLIAMS CO Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 28, 2020For Securities:SHW

Summary

Sherwin-Williams reported a net sales decrease of 5.6% to $4.604 billion for the second quarter of 2020, primarily due to the impacts of COVID-19 on demand in certain end markets and unfavorable currency translation rates. Despite the sales decline, diluted net income per share saw a significant increase to $6.48, up from $5.03 in the prior year's second quarter. This improvement was driven by a stronger gross profit margin (48.0% vs. 44.7%) resulting from favorable customer and product mix, and moderating raw material costs. The company maintained a strong liquidity position with $188.1 million in cash and significant unused capacity under its credit facilities, and is actively managing its operations and finances in the evolving economic landscape due to the pandemic. For the first six months of 2020, net sales decreased by 1.9% to $8.75 billion, while diluted net income per share rose to $9.93 from $7.65 in the comparable period of 2019. Net operating cash improved significantly by 42% year-to-date, demonstrating strong cash flow generation. The company is focused on cost control and has implemented enhanced safety protocols across its operations in response to COVID-19, while also managing capital expenditures and share repurchases. Sherwin-Williams remains compliant with its financial covenants and expects to maintain compliance, indicating financial resilience amidst economic challenges.

Financial Highlights

54 data points
Beta

Revenue

$4.60B

48.0% Gross Margin

Net Income

$595.90M

12.9% Net Margin

EPS (Diluted)

$2.16

Total Assets

$20.49B

Cash & Equivalents

$188.10M

Free Cash Flow

$1.02B

Financial Statements
Beta
Revenue$4.60B
Cost of Revenue$2.40B
Gross Profit$2.21B
SG&A Expenses$1.29B
Operating Income$934.50M
Interest Expense$88.10M
Net Income$595.90M
EPS (Basic)$2.20
EPS (Diluted)$2.16
Shares Outstanding (Basic)271.40M
Shares Outstanding (Diluted)275.90M

Key Highlights

  • 1Consolidated net sales decreased 5.6% to $4.604 billion in Q2 2020, primarily impacted by COVID-19 and currency fluctuations.
  • 2Diluted net income per share increased significantly to $6.48 in Q2 2020, up from $5.03 in Q2 2019, driven by improved gross profit margins.
  • 3Gross profit margin improved to 48.0% in Q2 2020 from 44.7% in Q2 2019, attributed to favorable product mix and lower raw material costs.
  • 4Net operating cash increased 42% year-to-date to $1.075 billion, demonstrating strong cash flow generation.
  • 5The company reported $188.1 million in cash and cash equivalents and $2.96 billion in unused credit facility capacity as of June 30, 2020, indicating a strong liquidity position.
  • 6Sales in The Americas Group and Performance Coatings Group declined, while Consumer Brands Group saw an increase in sales, partly due to retail demand.
  • 7Sherwin-Williams is actively managing COVID-19 impacts through enhanced safety measures, cost controls, and selective capital expenditure management.

Frequently Asked Questions

The primary driver for the decrease in net sales in the second quarter of 2020 was the impact of the COVID-19 pandemic, which led to softened demand in certain end markets within The Americas Group and the Performance Coatings Group. Unfavorable currency translation rates also contributed to the decline. Partially offsetting these factors were higher sales to most of the Consumer Brands Group's retail customers.

Sherwin-Williams achieved a significant increase in diluted net income per share due to improved profitability. This was driven by an expansion in gross profit margin to 48.0% from 44.7% in the prior year's quarter. This improvement stemmed from a favorable customer and product mix, along with moderating raw material costs. Additionally, Selling, General, and Administrative (SG&A) expenses decreased due to effective cost control and reduced or deferred discretionary spending, partially offset by COVID-19 related expenses.

The company's liquidity position remains strong, with $188.1 million in cash and cash equivalents and $2.96 billion in unused capacity under its credit facilities as of June 30, 2020. Sherwin-Williams is in compliance with its financial covenants and expects to remain so. The company is actively managing its financial resources by limiting capital expenditures, temporarily suspending share repurchases, and reducing discretionary spending to preserve liquidity and generate cash flow during the ongoing economic uncertainty related to the COVID-19 pandemic.

The Americas Group saw a 8.4% decrease in net sales, primarily due to COVID-19 impacts. The Consumer Brands Group experienced a notable 21.8% increase in net sales, driven by higher volume sales to retail customers. The Performance Coatings Group's net sales decreased by 16.5%, also affected by softer end-market demand and currency fluctuations.