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The Sherwin-Williams Company Reports 2018 Second Quarter Financial Results

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The Sherwin-Williams Company Reports 2018 Second Quarter Financial Results

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CLEVELAND, July 24, 2018 /PRNewswire/ --

  • Consolidated net sales increased 27.8% in the quarter to a record $4.77 billion; Valspar increased consolidated net sales $783.9 million, or 21.0%, in the quarter, as Valspar annualized June 1st
  • Net sales from stores in U.S. and Canada open more than twelve calendar months increased 6.8% in the quarter
  • Diluted net income per share increased 26.5% to $4.25 per share in the quarter, including charges of $1.23 per share for acquisition-related costs and $.25 per share related to environmental provisions, compared to $3.36 per share in the second quarter 2017
  • Adjusted diluted net income per share, excluding acquisition-related costs and environmental provisions, increased 26.8% to a record $5.73 per share in the quarter compared to $4.52 per share in the second quarter 2017
  • Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) from continuing operations increased 29.3% in the six months to $1.33 billion
  • Raising FY18 adjusted EPS guidance to $19.05 to $19.35 per share, excluding acquisition-related costs and environmental provisions, compared to $15.07 per share on a comparable basis in FY17

The Sherwin-Williams Company Logo (PRNewsfoto/The Sherwin-Williams Company)

The Sherwin-Williams Company (NYSE:SHW) announced its financial results for the second quarter ended June 30, 2018. Compared to the same period in 2017, consolidated net sales increased $1.04 billion, or 27.8%, to $4.77 billion in the quarter and increased $2.24 billion, or 34.5%, to $8.74 billion in six months due primarily to the addition of Valspar sales, higher paint sales volume in The Americas Group and selling price increases. Incremental Valspar sales from April and May 2018 increased net sales by 21.0% in the quarter. Incremental Valspar sales from the five months ended May 2018 increased net sales 28.5% for the first six months. As a result of the new revenue standard (ASC 606) adopted in the first quarter of 2018, certain advertising support that was previously classified as selling, general and administrative expenses is now classified as a reduction of revenue with no effect on net income. The new revenue standard reduced consolidated net sales approximately 1.1% in the quarter and .6% in the first six months.

Diluted net income per share in the quarter increased to $4.25 per share from $3.36 per share in 2017. Second quarter 2018 diluted net income per share included charges of $1.23 and $.25 per share from acquisition-related costs and environmental expense provisions, respectively. Valspar operations increased diluted net income per share by $.91 per share in the quarter, including a $.40 per share charge from interest expense on new debt. Currency translation rate changes decreased diluted net income per share in the quarter by $.04 per share. Second quarter 2017 diluted net income per share included a $.72 per share charge from acquisition-related costs. Diluted net income per share in the first six months increased to $6.86 per share from $5.90 per share in 2017. First six months 2018 diluted net income per share included charges of $2.18 and $.25 per share from acquisition-related costs and environmental expense provisions, respectively. Valspar operations increased diluted net income per share by $1.59 per share in the first six months, including an $.80 per share charge from interest expense on new debt. Currency translation rate changes had a minimal impact on diluted net income per share in the first six months 2018. Diluted net income per share for the first six months 2017 included a $.44 per share charge for discontinued operations and an $.80 per share charge from acquisition-related costs.

Net sales in The Americas Group increased 7.7% to $2.63 billion in the quarter and increased 7.2% to $4.71 billion in six months due primarily to higher architectural paint sales volume across most end market segments and selling price increases. Currency translation rate changes decreased Group net sales by .5% and .3% in the quarter and six months, respectively. Net sales from stores in the U.S. and Canada open for more than twelve calendar months increased 6.8% in the quarter and 6.1% in six months over last year's comparable periods. Segment profit increased $37.2 million to $569.9 million in the quarter and increased $69.4 million to $907.3 million in six months 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 decreased in the quarter to 21.7% from 21.9% last year as improved operating margins were not enough to offset unfavorable foreign currency transaction losses and a postretirement benefit settlement gain in the second quarter 2017. In the first six months, segment profit as a percent to net sales increased to 19.3% of net sales from 19.1% last year due to higher paint sales volume and selling price increases partially offset by increased raw material costs.

Net sales of the Consumer Brands Group increased 45.0% to $777.7 million in the quarter and increased 66.8% to $1.43 billion in six months due primarily to the inclusion of Valspar sales and selling price increases, partially offset by lower volume sales to some of the Group's retail customers. Incremental Valspar sales from April and May 2018 increased Group net sales 42.7% in the quarter. Incremental Valspar sales from the five months ended May 2018 increased Group net sales 67.4% for the first six months. Currency translation rate changes increased Group net sales by .7% and 1.1% in the quarter and six months, respectively. The new revenue standard reduced Group net sales by 5.1% in the quarter and 3.7% in six months.  Segment profit increased to $90.9 million in the quarter from $76.1 million last year due primarily to the inclusion of Valspar operations and selling price increases, partially offset by increased raw material costs and acquisition-related impacts. As a percent of net external sales, segment profit decreased in the quarter to 11.7% from 14.2% last year due primarily to acquisition-related impacts and higher raw material costs, partially offset by selling price increases. In the quarter, segment profit was increased by incremental Valspar operations profit for April and May of $19.5 million. Purchase accounting net expense in the quarter was $28.5 million, an increase of $8.0 million over the prior year. Segment profit increased to $165.1 million in the first six months from $132.0 million last year. Segment profit for the first six months was increased by incremental Valspar operations profit for the first five months of $75.8 million. Purchase accounting net expense through six months was $60.4 million, an increase of $39.8 million. As a percent of net external sales, segment profit decreased in the first six months to 11.5% from 15.4% last year due primarily to acquisition-related impacts.

The Performance Coatings Group's net sales stated in U.S. dollars increased 79.9% to $1.37 billion in the quarter and  increased 108.5% to $2.60 billion in six months due primarily to the inclusion of Valspar sales and selling price increases. Incremental Valspar sales from April and May 2018 increased Group net sales 72.9% in the quarter. Incremental Valspar sales from the five months ended May 2018 increased Group net sales 102.2% for the first  six months. Currency translation rate changes increased Group net sales by .7% and 1.9% in the quarter and six months, respectively. Stated in U.S. dollars, segment profit increased in the quarter to $144.2 million from $62.3 million last year due primarily to the inclusion of Valspar operations and selling price increases, partially offset by increased raw material costs. Currency translation rate changes decreased segment profit $2.5 million in the quarter. As a percent to net external sales, segment profit increased in the quarter to 10.5% from 8.2% last year. In the quarter, segment profit was increased by incremental Valspar operations profit for April and May of $86.3 million. Purchase accounting net expense in the quarter was $47.6 million, an increase of $9.3 million over the prior year. Stated in U.S. dollars, segment profit increased in the first six months to $235.0 million from $119.5 million last year due primarily to the inclusion of Valspar operations. Currency translation rate changes increased segment profit by $2.1 million in the first six months. Segment profit for the first six months was increased by incremental  Valspar operations profit for the first five months of $184.3 million. Purchase accounting net expense through six months was $105.1 million, an increase of $66.8 million. As a percent of net external sales, segment profit decreased in the first six months to 9.0% from 9.6% last year.

The Company purchased 850,000 shares of its common stock in the six months ended June 30, 2018. At June 30, 2018, the Company had remaining authorization to purchase 10.80 million shares of its common stock through open market purchases. In the first six months, the Company opened 22 net new store locations in The Americas Group. The Valspar acquisition valuation was finalized in the second quarter 2018 resulting in depreciation of $44 million and amortization of $300 million on an annual basis.

Commenting on the second quarter, John G. Morikis, Chairman, President and Chief Executive Officer, said, "The Company posted record results in net sales, gross profit, and profit before taxes in the second quarter, aided by the Valspar acquisition which continues to build momentum. Consolidated earnings per share expanded by 26.8% percent in the quarter, excluding acquisition-related costs and environmental expense provisions impacts in both years. Underlying demand remained solid across most of our end market segments during the quarter. At the same time, raw material costs continued to inflate during the quarter at a rate slightly higher than anticipated. We continue to focus on offsetting these escalating costs by controlling spending and implementing price increases.

"All three operating segments delivered year-over-year improvement in net sales and profit. The Americas Group posted another strong quarter of volume growth and profit improvement. The Consumer Brands Group is executing well on its expanded partnership with one of its largest customers. The Performance Coatings Group had sales and volume growth across most of its businesses and improved their operating margin on good cost control and effective pricing actions. The Valspar acquisition passed the one year anniversary on June 1, 2018, and both the Consumer Brands and Performance Coatings Groups are ahead of schedule in integrating their respective businesses.

"For the third quarter, we anticipate our consolidated net sales will increase a mid-to-high single digit percentage compared to last year's third quarter. For the full year 2018, we expect our consolidated net sales will increase by a high teens to low twenty percentage, including incremental Valspar sales of $1.85 billion for the first five months of 2018, compared to the full year 2017. With annual sales at this level, we are updating our full year 2018 diluted net income per share to be in the range of $15.00 to $15.20 per share, including charges of $3.80 to $3.90 per share for acquisition-related costs and $.25 per share for environmental expense provisions. Diluted net income per share in 2017 was $18.67 per share, including a one-time benefit of $7.04 per share from deferred income tax reductions, a one-time charge of $.44 per share for discontinued operations and a charge of $3.00 per share for acquisition-related costs. We are raising our full year 2018 adjusted diluted net income per share to be in the range of $19.05 to $19.35 per share, excluding acquisition costs and environmental expense provisions, compared to $15.07 per share on a comparable basis in 2017. We now expect our 2018 effective tax rate to be in the low twenty percent range."

The Company will conduct a conference call to discuss its financial results for the second quarter, and its outlook for the third quarter and full year 2018, at 11:00 a.m. EDT on Tuesday, July 24, 2018. 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 July 24th 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 August 13, 2018 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 paints, coatings and related products to professional, industrial, commercial, and retail customers. Sherwin-Williams manufactures products under well-known brands such as Sherwin-Williams®, Valspar®, HGTV HOME® by Sherwin-Williams, Dutch Boy®, Krylon®, Minwax®, Thompson's® Water Seal®, Cabot® and many more. With global headquarters in Cleveland, Ohio, Sherwin-Williams® branded products are sold exclusively through a chain of more than 4,900 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 Performance Coatings Group supplies a broad range of highly-engineered solutions for the construction, industrial, packaging and transportation markets in more than 110 countries around the world. Sherwin-Williams shares are traded on the New York Stock Exchange (symbol: SHW). 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 share excluding the Valspar acquisition-related 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 share computed in accordance with U.S. GAAP to adjusted diluted net income per share.

 

 


Three Months


Six Months


Year Ended


Ended


Ended


December 31, 2018


June 30,


June 30,


(guidance)


2018


2018


Low


High









Diluted net income per share

$

4.25



$

6.86



$

15.00



$

15.20










Environmental expense provision

.25



.25



.25



.25










Transaction and integration costs

.62



.86



1.10



1.20


Purchase accounting impacts

.61



1.32



2.70



2.70


Total acquisition costs

1.23



2.18



3.80



3.90










Consolidated excluding Valspar acquisition costs
and one-time items

5.73



9.29



$

19.05



$

19.35










Valspar operations income

1.31



2.39
















New debt interest expense

(.40)



(.80)






Total Valspar income contribution (1)

.91



1.59
















Adjusted diluted net income per share

$

4.82



$

7.70


















(1) Valspar income contribution is not presented separately in the full year guidance as the acquisition annualized on June 1, 2018.


 

 


Three Months


Three Months


Six Months


Year


Ended


Ended


Ended


Ended


March 31,


June 30,


June 30,


December 31,


2017


2017


2017


2017









Diluted net income per share

$

2.53



$

3.36



$

5.90



$

18.67


One-time charge related to discontinued operations



.44



.44



.44


Diluted net income per share from continuing operations

2.53



3.80



6.34



19.11










One-time benefit from deferred income tax reductions







7.04










Transaction and integration costs

.08



.30



.38



.88


Purchase accounting impacts



.42



.42



2.12


Total acquisition costs

.08



.72



.80



3.00










Consolidated excluding Valspar acquisition costs
and one-time items

2.61



4.52



7.14



15.07










Valspar operations income



.29



.29



1.72













New debt interest expense



(.19)



(.19)



(.92)


Total Valspar income contribution



.10



.10



.80










Adjusted diluted net income per share

$

2.61



$

4.42



$

7.04



$

14.27


 

 

Management of the Company believes that investors' understanding of the Company's operating performance is enhanced by the disclosure of earnings before interest, taxes, depreciation and amortization (EBITDA). This measurement is not in accordance with U.S. GAAP. It should not be considered a substitute for net income or net operating cash. The following table reconciles net income from continuing operations computed in accordance with U.S. GAAP to EBITDA from continuing operations.

 


Six Months


Six Months






Ended


Ended






June 30, 2018


June 30, 2017


$ Change


% Change









Net income from continuing operations

$

653,731



$

599,803



$

53,928



9.0

%

Interest expense

185,054



82,424



102,630



124.5

%

Income taxes

187,941



215,805



(27,864)



-12.9

%

Depreciation

144,133



94,965



49,168



51.8

%

Amortization

158,942



35,088



123,854



353.0

%

EBITDA  from continuing operations

$

1,329,801



$

1,028,085



$

301,716



29.3

%

 

 

This press release contains certain "forward-looking statements," as defined under U.S. federal securities laws, with respect to sales, earnings and other matters. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "could," "plan," "goal," "potential," "seek," "intend" or "anticipate" or the negative thereof or comparable terminology. These forward-looking statements are based upon management's current expectations, estimates, assumptions and beliefs concerning future events and conditions. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company that could cause actual results to differ materially from such statements and from the Company's historical results and experience. These risks, uncertainties and other factors include such things as: general business conditions; the Company's ability to successfully integrate past and future acquisitions into its existing operations, including Valspar, as well as the performance of the businesses acquired; risks inherent in the achievement of anticipated cost synergies resulting from the acquisition of Valspar and the timing thereof; strengths of retail and manufacturing economies and the growth in the coatings industry; changes in the Company's relationships with customers and suppliers; changes in raw material availability and pricing; unusual weather conditions; and other risks, uncertainties and factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. Since it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, the above list should not be considered a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

 

The Sherwin-Williams Company and Subsidiaries

Statements of Consolidated Income (Unaudited)




Three Months Ended June 30,


Six Months Ended June 30,

Thousands of dollars, except per share data


2018


2017


2018


2017














Net sales


$

4,773,796


$

3,735,817


$

8,738,802


$

6,497,204

Cost of goods sold



2,735,168



2,001,200



5,013,327



3,419,534

Gross profit



2,038,628



1,734,617



3,725,475



3,077,670

  Percent to net sales



42.7%



46.4%



42.6%



47.4%

Selling, general and administrative expenses



1,307,861



1,153,779



2,522,426



2,164,800

  Percent to net sales



27.4%



30.9%



28.9%



33.3%

Other general expense - net



26,979



1,775



29,969



2,051

Amortization



73,893



28,918



158,942



35,088

Interest expense



93,507



56,729



185,054



82,424

Interest and net investment income



(559)



(3,091)



(2,177)



(4,371)

Other income - net



(1,139)



(12,496)



(10,411)



(17,930)

Income from continuing operations before income taxes


538,086



509,003



841,672



815,608

Income taxes



134,482



148,352



187,941



215,805

Net income from continuing operations



403,604



360,651



653,731



599,803














Loss from discontinued operations













Income taxes






41,540






41,540

Net loss from discontinued operations





(41,540)





(41,540)














Net income


$

403,604


$

319,111


$

653,731


$

558,263














Basic net income per share:













Continuing operations


$

4.34


$

3.89


$

7.02


$

6.47

Discontinued operations






(.45)






(.45)

Net income per share - basic


$

4.34


$

3.44


$

7.02


$

6.02














Diluted net income per share:













Continuing operations


$

4.25


$

3.80


$

6.86


$

6.34

Discontinued operations






(.44)





(.44)

Net income per share - diluted


$

4.25


$

3.36


$

6.86


$

5.90



























Average shares outstanding - basic



92,926,421



92,841,148



93,132,993



92,695,853














Average shares and equivalents outstanding - diluted


94,884,187



94,968,636



95,258,956



94,697,439

 

 

The Sherwin-Williams Company and Subsidiaries

Business Segments (Unaudited)





































Thousands of dollars

2018


2017


Net


Segment


Net


Segment


External


Profit


External


Profit


Sales


(Loss)


Sales


(Loss)

Three Months Ended June 30:












The Americas Group

$

2,625,057



$

569,897



$

2,437,655



$

532,687


Consumer Brands Group


777,746




90,903




536,441




76,064


Performance Coatings Group


1,369,324




144,194




761,094




62,345


Administrative


1,669




(266,908)




627




(162,093)


Consolidated totals

$

4,773,796



$

538,086



$

3,735,817



$

509,003


























Six Months Ended June 30:












The Americas Group

$

4,705,472



$

907,289



$

4,389,401



$

837,911


Consumer Brands Group


1,434,125




165,131




859,807




131,978


Performance Coatings Group


2,597,099




234,960




1,245,548




119,457


Administrative


2,106




(465,708)




2,448




(273,738)


Consolidated totals

$

8,738,802



$

841,672



$

6,497,204



$

815,608


 

 

The Sherwin-Williams Company and Subsidiaries

Consolidated Financial Position (Unaudited)







Thousands of dollars

June 30,



2018



2017

Cash

$

154,973



$

210,049


Accounts receivable


2,625,066




2,377,874


Inventories


1,874,651




1,854,937


Other current assets


402,932




411,141


Short-term borrowings


(650,718)




(51,904)


Current portion of long-term debt


(1,179)




(701,101)


Accounts payable


(2,049,123)




(1,783,648)


Other current liabilities


(1,489,067)




(1,615,260)


Working capital


867,535




702,088


Net property, plant and equipment


1,776,378




1,889,917


Deferred pension assets


301,664




224,695


Goodwill and intangibles


12,457,724




13,180,647


Other non-current assets


581,761




568,138


Long-term debt


(9,722,918)




(10,751,284)


Postretirement benefits other than pensions


(276,796)




(253,434)


Deferred income taxes


(1,380,370)




(2,467,348)


Other long-term liabilities


(837,472)




(702,159)


Shareholders' equity

$

3,767,506



$

2,391,260


 

 

Selected Information (Unaudited)













Thousands of dollars

Three Months Ended June 30,


Six Months Ended June 30,


2018


2017


2018


2017

The Americas Group - net new stores


18




20




22




33


The Americas Group - total stores


4,642




4,552




4,642




4,552


Performance Coatings Group - net new branches


(4)







(3)





Performance Coatings Group - total branches


287




290




287




290














Depreciation

$

72,542



$

50,370



$

144,133



$

94,965


Capital expenditures


59,573




42,156




101,826




83,635


Cash dividends


80,613




79,484




161,641




158,934


Amortization of intangibles


73,893




28,918




158,942




35,088














Significant components of Other general expense - net:







Provision for environmental related matters - net


31,253




1,110




32,018




1,629


(Gain) loss on sale or disposition of assets


(4,274)




665




(2,049)




422














Significant components of Other income - net:







Dividend and royalty income


(1,521)




(1,198)




(2,972)




(3,042)


Net expense from banking activities


2,450




2,513




4,686




4,985


Foreign currency transaction related losses (gains)


5,626




976




3,164




(2,610)


Other (1)


(7,694)




(14,787)




(15,289)




(17,263)














Intersegment transfers:












    Consumer Brands Group


955,270




864,337




1,721,333




1,560,175


    Performance Coatings Group


6,570




7,232




12,414




11,031


    The Americas Group


220




2,021




273




4,361


    Administrative


3,182




3,356




6,461




6,535














(1)  Consists of items of revenue, gains, expenses and losses unrelated to the primary business purpose of the Company. No items are individually significant.

 

CONTACTS

For The Sherwin-Williams Company:
Investor Relations Contact:
Bob Wells
Senior Vice President, Corporate Communications and Public Affairs
Sherwin-Williams
(216) 566-2244
rjwells@sherwin.com

Media Contacts:
Mike Conway
Director, Corporate Communications
Sherwin-Williams
(216) 515-4393 
mike.conway@sherwin.com

 

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SOURCE The Sherwin-Williams Company

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