Sherwin-Williams Co.’s (SHW) fourth-quarter 2012 adjusted earnings of $1.17 per share surpassed the Zacks Consensus Estimate of $1.15. The adjusted earnings exclude asset impairment charges of 2 cents a share and a negative acquisitions and currency translation impact of 3 cents a share. Including that impact, earnings were $1.12 per share in the reported quarter compared with 14 cents a year ago.
For full-year 2012, adjusted earnings (excluding one time items) came in at $6.64 per share exceeding the Zacks Consensus Estimate of $6.52.
Reported earnings were $6.49 per share, up 56.8% from $4.14 a year ago.
Net sales for the quarter increased 7.3% year over year to $2.22 billion, and exceeded the Zacks Consensus Estimate of $2.20 billion. The growth was driven by an increase in paint sales volume and selling price, partly offset by the negative impacts of currency translation.
For the full year, net sales increased 8.8% year over year to $9.53 billion, surpassing the Zacks Consensus Estimate of $9.51 billion.
Performance by Segment
The Paint Stores Group posted net sales of $1.25 billion in the reported quarter, up 9.8% from the year-ago period. The improvement largely stemmed from the increase in paint sales volume across all market segments as well as higher selling prices.
Segment profit increased 36.1% to $181.5 million due to higher paint sales volume and selling price, partly offset by soaring raw material prices as well as selling, general and administrative expenses.
Net sales of the Consumer Group unit went up 1.4% to $255.8 million due to acquisitions, partly offset by lower volume sales to most of the Group's retail customers.
Segment profit plunged 22.8% to $23.3 million in the quarter due to normal seasonal decline in the internal finished goods inventory, increased raw material costs, partly offset by selling price increases.
Net sales from the Global Finishes Group segment jumped 5.1% to $487.1 million in the quarter as a result of selling price increases and higher paint sales volume, partly offset by unfavorable currency translation.
The segment’s profit in the quarter more than doubled to $34.1 million from $13 million in the year ago quarter. The growth was fueled by increased selling price, increased paint sales volume, good expense control, and efficiencies gained from the continued integration of prior year acquisitions.
The Latin America Coatings Group sales increased 5.2% to $231.5 million in the quarter due to selling price increases and higher paint sales volume.
Segment profit jumped 14% to $30.1 million in the quarter from $26.4 million in the previous year quarter, primarily due to selling price increases and higher paint sales volume, partly offset by increases in raw materials costs and unfavorable foreign currency translation rate changes.
Share Repurchase
Sherwin-Williams acquired 0.8 million shares through open market purchases in the reported quarter. The company had remaining authorization to purchase 16.45 million shares as of Dec 31, 2012.
Financial Position
In 2012, Sherwin-Williams generated net operating cash flow of $887.9 million. The company’s balance sheet is well positioned to accommodate the closing of Comex acquisition and other investments in its business. The company borrowed approximately $1 billion in the fourth quarter at an average rate of 2.1%.
Outlook
For the first quarter of 2013, the company expects consolidated sales to increase in the low single-digits year over year. It expects earnings per share in the band of $1.03 to $1.13 for the quarter.
For 2013, the company anticipates that consolidated net sales would increase by a mid single-digit clip over 2012. It forecasts net income per common share to be in the range of $7.45 to $7.55 per share.
Our View
Sherwin-Williams’ philosophy is to diversify its customer base and expand its operations into various geographies. The company follows a strategy of growing through acquisitions and also through internal initiatives such as efficient working capital management and innovation. This policy enables the company to somewhat reduce its dependency upon prevailing market conditions.
However, Sherwin-Williams is facing higher raw material costs, primarily acrylic latex and titanium dioxide (a key paint pigment) in the Consumer group segment. The segment purchases raw materials for the company.
Another coatings company, PPG Industries Inc. (PPG), recently released its fourth quarter results. The company posted fourth quarter earnings per share of $1.53, excluding one-time charges, which matched the Zacks Consensus Estimate. The company holds a Zacks Rank #2 (Buy).
Other coatings companies with favorable Zacks Rank are Akzo Nobel NV (AKZOY) and The Valspar Corporation (VAL) with both carrying a Zacks Rank #2 (Buy).
AKZO NOBEL NV (AKZOY): Free Stock Analysis Report
PPG INDS INC (PPG): Free Stock Analysis Report
SHERWIN WILLIAM (SHW): Free Stock Analysis Report
VALSPAR CORP (VAL): Free Stock Analysis Report
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