The Sherwin-Williams Company's (SHW) adjusted earnings rose 34% year over year to $1.53 per share in the fourth quarter of 2014 from $1.14 per share earned in the year-ago quarter. This came on the back of improved operating results in its Paint Stores, Global Finishes and Consumer Groups. Earnings beat the Zacks Consensus Estimate of $1.36 per share by a wide margin.
Including charges of 16 cents per share related to environmental provisions, earnings in the quarter stood at $1.53 per share.
Sherwin-Williams, whose well-known brands include Dutch Boy, Minwax and Krylon, recorded net sales of around $2,569.4 million in the fourth quarter, a 4.6% year-over-year rise. Increased paint sales volumes of Sherwin-Williams’ Paint Stores Group and the favorable impact of acquisitions led to the improvement. However, it fell short of the Zacks Consensus Estimate of $2,607 million.
Currency swings had an unfavorable impact of 2.3% in the quarter.
The Paint Stores Group unit registered net sales of $1.58 billion in the fourth quarter, up 8% from the year-ago quarter. The gain was driven by increased architectural paint sales volumes across all end-market segments. Net store sales recorded for more than twelve months rose 7.5% from the prior-year quarter. The segment led with higher operating results owing to increased sales volumes.
Net sales of the Consumer Group unit rose 1.6% to $276.9 million on the back of acquisitions and higher volume sales made to most of the company’s retail customers. The segment improved its operating results through increased sales volumes and operating efficiencies, which were partly offset by operating costs owing to advance of the HGTV HOME by Sherwin-Williams paint program at Lowe's.
Net sales from the Global Finishes Group segment went up 1.1% to $502.4 million in the fourth quarter due to higher selling prices and higher paint sales volumes. Unfavorable currency translation reduced sales by 4.1% in the quarter. This group continues to increase its operating margins through improved operating efficiencies and selling prices, partly offset by unfavorable currency translation rate changes.
The Latin America Coatings Group’s net sales fell 6.7% to $207.4 million as higher selling prices were offset by unfavorable currency translation, which reduced sales by 13.5% and lowered paint sales volumes. This segment experienced higher operating results in the reported quarter owing to the Brazil tax assessments in 2013 and increased selling prices, partly offset by unfavorable currency translation rate changes.
Fiscal 2014 Performance
Full year 2014 adjusted earnings were at $9.05, up 21% year over year and ahead of the Zacks Consensus Estimate of $8.78. This excludes charges of 22 cents related environmental provisions, a loss of 18 cents related to Comex acquisition and a gain of 13 cents from a titanium dioxide settlement. Including these items, earnings stood at $8.78 per share, up 21% from $7.26 in 2013.
Sales for full year 2014 were registered as $11.13 billion, up 9.3% versus $10.19 billion in 2013. This however missed the full year Zacks Consensus Estimate of $11.17 billion. Contributions from acquisitions of 3.1% were offset by unfavorable currency impact of 1.4%.
Financials and Shareholder Returns
Sherwin-Williams’ working capital ratio as of Dec 31, 2014, was 10.1% compared with 10.5% in the same period last year. The company’s net operating cash flow in 2014 was around $1.08 billion.
Sherwin-Williams bought back 1.6 million shares through open market purchases in the reported quarter. The company had remaining authorization to repurchase 5.23 million shares as of Dec 31, 2014. Moreover, Sherwin-Williams is financially well positioned for future acquisitions and investments.
During 2014, Sherwin-Williams hiked its cash dividend by 10% to $2.20 per common share.
Outlook
Sherwin-Williams, which is among the leading paint companies, along with PPG Industries Inc. (PPG), The Valspar Corporation (VAL) and Akzo Nobel NV (AKZOY), expects consolidated net sales in the first quarter of 2015 to increase in the mid-single-digit percentage range year over year. The company anticipates earnings in the band of $1.30-$1.45 per share versus $1.15 earned in the first quarter of 2014. The Zacks Consensus Estimate for first-quarter 2015 stands at $1.42.
For full-year 2015, Sherwin-Williams expects consolidated net sales to rise in a high single-digit percentage compared to full-year 2014. Sherwin-Williams predicts net earnings for full-year 2015 in the band of $10.90-$11.10 per share versus $8.78 per share earned in 2014. The Zacks Consensus Estimate for net earnings for full-year 2015 stands at $10.98 per share.
Sherwin-Williams is a Zacks Rank #2 (Buy) stock.
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