The Sherwin-Williams Company Reports 2017 First Quarter Financial Results

Ein Geschäft von Sherwin-Williams. © RiverNorthPhotography / iStock Unreleased / Getty Images

PR Newswire

CLEVELAND, April 20, 2017

CLEVELAND, April 20, 2017 /PRNewswire/ --

Consolidated net sales increased 7.3% in the quarter to a record $2.76 billion, including the change in revenue classification, which increased sales in the quarter 2.2%
Net sales from stores open more than twelve calendar months increased 7.5% in the quarter
Diluted net income per common share increased 44.6% to $2.53 per share in the quarter, including a $.34 per share increase from a reduction in the income tax provision partially offset by an $.08 per share charge for acquisition costs
Establishing 2Q17 EPS range of $4.15 to $4.35, including approximately $.25 per share for acquisition costs
Updating FY17 EPS guidance to $13.65 to $13.85 per share, including approximately $.40 per share charge for acquisition costs, vs. $11.99 per share in 2016, which included an $.86 per share charge for acquisition costs

The Sherwin-Williams Company (NYSE: SHW) announced its financial results for the first quarter ended March 31, 2017. Compared to the same period in 2016, consolidated net sales increased $187.4 million, or 7.3%, to $2.76 billion in the quarter due primarily to higher paint sales volume in our Paint Stores Group and the previously announced change in revenue classification which increased sales in the quarter 2.2%. This change primarily impacted the Paint Stores and Global Finishes Groups. This change had no impact on segment profit, but reduced the segment profit as a percent to net sales of the affected Groups.

Diluted net income per common share in the quarter increased to $2.53 per share from $1.75 per share in 2016, as restated due to the adoption of a new accounting standard (ASU 2016-09). First quarter 2017 diluted net income per common share includes an increase of $.34 per share related to a reduction in the income tax provision partially offset by an $.08 per share charge from costs associated with the anticipated acquisition of Valspar. First quarter 2016 diluted net income per common share included a $.24 per share charge from acquisition costs partially offset by an increase of $.18 per share related to a reduction in the income tax provision. The increase in first quarter 2017 diluted net income per common share was due primarily to improved operating results of the Paint Stores and Global Finishes Groups. Currency translation rate changes did not have a significant impact on diluted net income per common share in the quarter.

Net sales in the Paint Stores Group increased 12.1% to $1.81 billion in the quarter due primarily to higher architectural paint sales volume across all end market segments, selling price increases, and the impact of the change in revenue classification. Net sales from stores open for more than twelve calendar months, excluding the change in revenue classification, increased 7.5% in the quarter over last year's comparable period. Paint Stores Group segment profit increased $50.5 million to $304.1 million in the quarter from $253.5 million last year due primarily to higher paint sales volume and selling price increases partially offset by increased raw material costs. Segment profit as a percent to net sales increased in the quarter to 16.8% from 15.7% last year.

Net sales of the Consumer Group decreased 10.7% to $337.5 million in the quarter due primarily to lower volume sales to most of the Group's retail and commercial customers. Segment profit decreased to $60.6 million in the quarter from $64.0 million last year primarily due to lower sales and increasing raw material costs partially offset by improved operating efficiencies, good cost control, and selling price increases. As a percent to net external sales, segment profit increased in the quarter to 18.0% from 16.9% last year due primarily to improved operating efficiencies and reduced SG&A expenses.

The Global Finishes Group's net sales stated in U.S. dollars increased 3.6% to $470.3 million in the quarter primarily due to higher paint sales volume and selling price increases. Stated in U.S. dollars, segment profit increased in the quarter to $52.4 million from $48.6 million last year due primarily to higher paint sales volume and selling price increases partially offset by raw material cost increases. Currency translation rate changes had a minimal impact on segment profit in the quarter. As a percent to net external sales, segment profit increased in the quarter to 11.1% from 10.7% last year.

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The Latin America Coatings Group's net sales stated in U.S. dollars increased 12.9% to $141.4 million in the quarter due primarily to selling price increases and favorable foreign currency translation rate changes. Favorable currency translation rate changes increased net sales by 5.7% in the quarter. Stated in U.S. dollars, segment profit increased in the quarter to a profit of $1.2 million from a loss of $0.9 million last year due primarily to selling price increases partially offset by increasing raw material costs. Currency translation rate changes had a minimal impact on segment profit in the quarter. As a percent to net external sales, segment profit increased in the quarter to 0.8% from a loss of 0.7% last year.

The Company made no open market purchases of its common stock in the three months ended March 31, 2017. At March 31, 2017, the Company had cash on hand of $1.02 billion that will be utilized to fund the Valspar acquisition.

Commenting on the financial results, John G. Morikis, Chairman, President and Chief Executive Officer, said, "We are pleased to report record sales and earnings per share from the continued positive sales volume and strong operating results of our Paint Stores Group and operating margin improvement in our Global Finishes Group. Our Paint Stores Group posted another quarter of improved operating results and architectural volume growth. The Consumer Group improved their operating margins through improved operating efficiencies. Our Global Finishes Group improved their operating results through higher paint sales volume and selling price increases. The Latin America Coatings Group continues to see the positive impact of previous investments partially offsetting weak end market demand in some geographies. All of our operating segment management teams continue to control costs and implement price increases to offset rising raw material costs."

"In the first three months, we opened 10 net new store locations in the Paint Stores Group. During the quarter, we increased the dividend rate to $.85 from $.84 last year. Our balance sheet remains flexible and is positioned well for the anticipated Valspar acquisition and other investments in our business.

"On April 12, 2017, the Company and Valspar announced that we have entered into a definitive agreement with Axalta Coating Systems to sell the assets related to Valspar's North American Industrial Wood Coatings business to Axalta for $420 million in cash. Valspar's North American Industrial Wood Coatings business had revenues of approximately $225 million in 2016. The companies are divesting the business in connection with the reviews by the Federal Trade Commission (FTC) and Canadian Competition Bureau (CCB) of the proposed acquisition of Valspar by Sherwin-Williams. The sale of Valspar's North American Industrial Wood Coatings business to Axalta is subject to the closing of the Valspar and Sherwin-Williams merger, as well as customary closing conditions and regulatory approvals, including the approval of the FTC and the CCB.

"For the second quarter, we anticipate our consolidated net sales will increase a mid to high single digit percentage compared to last year's second quarter. At that anticipated sales level, we estimate diluted net income per common share in the second quarter of 2017 to be in the range of $4.15 to $4.35 per share, including a $.25 per share charge from costs associated with the anticipated acquisition of Valspar, compared to $3.99 per share earned in the second quarter of 2016. Second quarter 2016 earnings per share includes costs related to the anticipated acquisition of Valspar totaling $.16 per share. For the full year 2017, we expect consolidated net sales to increase by a mid single digit percentage compared to full year 2016. With annual sales at that level, we are updating our guidance for full year 2017 diluted net income per common share to be in the range of $13.65 to $13.85 per share compared to $11.99 per share earned in 2016. Full year 2017 diluted net income per common share guidance includes a $.40 per share charge from costs associated with the anticipated acquisition of Valspar. The 2017 diluted net income per common share guidance improved by $.65 per share due to a $.40 per share reduction in acquisition costs and an additional $.25 per share benefit to the income tax provision from the accounting change. Full year 2016 earnings per share included $.86 per share related to the Valspar acquisition."

The Company will conduct a conference call to discuss its financial results for the first quarter, and its outlook for the second quarter and full year 2017, at 11:00 a.m. EDT on Thursday, April 20, 2017. The conference call will be webcast simultaneously in the listen only mode by Issuer Direct. To listen to the webcast on the Sherwin-Williams website, www.sherwin.com, click on About Us, choose Investor Relations, then select Press Releases and click on the webcast icon following the reference to the April 20th release. The webcast will also be available at Issuer Direct's Investor Calendar website, www.investorcalendar.com. An archived replay of the live webcast will be available at www.sherwin.com beginning approximately two hours after the call ends and will be available until May 10, 2017 at 5:00 p.m. EDT.

Founded in 1866, The Sherwin-Williams Company is a global leader in the manufacture, development, distribution, and sale of coatings and related products to professional, industrial, commercial, and retail customers. The company manufactures products under well-known brands such as Sherwin-Williams^®, HGTV HOME^® by Sherwin-Williams, Dutch Boy^®, Krylon^®, Minwax^®, Thompson's^® Water Seal^®, and many more. With global headquarters in Cleveland, Ohio, Sherwin-Williams^® branded products are sold exclusively through a chain of more than 4,100 company-operated stores and facilities, while the company's other brands are sold through leading mass merchandisers, home centers, independent paint dealers, hardware stores, automotive retailers, and industrial distributors. The Sherwin-Williams Global Finishes Group distributes a wide range of products in more than 115 countries around the world. For more information, visit www.sherwin.com.

Regulation G Reconciliation

Management of the Company believes that investors' understanding of the Company's operating performance is enhanced by the disclosure of diluted net income per common share excluding the Valspar acquisition costs. This adjusted earnings per share measurement is not in accordance with U.S. generally accepted accounting principles (GAAP). It should not be considered a substitute for earnings per share computed in accordance with U.S. GAAP and may not be comparable to similarly titled measures reported by other companies. The following tables reconcile diluted net income per common share computed in accordance with U.S. GAAP to diluted net income per common share excluding the Valspar acquisition costs.

			Three Months Ended				Year Ended
	Three Months		June 30, 2017				December 31, 2017
	Ended		(guidance)				(guidance)
	March 31, 2017		Low		High		Low		High


Consolidated diluted net income per common share	$	2.53	$	4.15	$	4.35	$	13.65	$	13.85
Valspar acquisition costs diluted net charge per common share	$	.08	$	.25	$	.25	$	.40	$	.40
Diluted net income per common share excluding Valspar acquisition costs	$	2.61	$	4.40	$	4.60	$	14.05	$	14.25

	Three Months		Three Months		Year Ended
	Ended		Ended		December 31,
	March 31, 2016		June 30, 2016		2016

Consolidated diluted net income per common share	$	1.75	$	3.99	$	11.99
Valspar acquisition costs diluted net charge per common share	$	.24	$	.16	$	.86
Diluted net income per common share excluding Valspar acquisition costs	$	1.99	$	4.15	$	12.85

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