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Sherwin-Williams Posts Record Sales, Merger Plans

Friday, January 27, 2017

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Sherwin-Williams' Paint Stores Group helped propel the Cleveland-based coatings company to hit record net sales in 2016, the company announced Thursday (Jan. 26).

The manufacturer also noted that it expects its acquisition of Valspar to close within 90 days, but anticipates a divestiture being necessary before the government grants approval.

Sherwin and Valspar leaders
Sherwin-Williams

John G. Morikis (left), president and CEO of Sherwin-Williams, and Gary E. Hendrickson, chairman and CEO of Valspar, expect the acquisition to go through during the first quarter of 2017, but Sherwin-Williams says it is working on a divestiture that will be required before the Federal Trade Commission will approve the deal.

The company’s 2016 fourth quarter earnings report also includes information on the manufacturer’s year-end financials.

The report indicates that consolidated net sales were up 4.6 percent in 2016, to a record $11.86 billion. Sales increased 1.1 percent as a result of a revenue reclassification, the company says.

2016 Sales

Sherwin-Williams’ Paint Stores Group and Consumer Group both posted higher sales numbers in 2016 than in 2015. The Paint Stores Group reported a net sales increase of 8 percent, from $7.2 billion in 2015 to $7.79 billion in 2016, partly accounted for by the revenue reclassification. The Consumer Group showed a more modest increase: up 0.4 percent, to $1.58 billion.

Global Finishes, which includes protective and marine, product finishes and automotive, reported a slight drop in net sales on the year—down 1.4 percent, to $1.89 billion in 2016—but an increase in profits of 18 percent, from $201.9 million in 2015 to $239 million in 2016.

ship
Sherwin-Williams

The company's Global Finishes group reported an 18 percent increase in profits in 2016, compared to the year before.

The company’s Latin American Coatings Group posted a dip in external sales and a loss on the year in 2016, due in part to more than $10 million in goodwill and trademark impairment in that segment. Sales were down 6.9 percent for the group, to $586.9 million for the year. Sherwin-Williams notes that unfavorable currency translation and lower volumes earlier in the year took a toll on sales numbers for the segment in 2016.

In addition to reaching the record $11.86 billion mark in net sales on the year, Sherwin-Williams reported gross profits of $5.9 billion on the year, up 6.5 percent from 2015. The company’s net income for the year was also up from 2015: $1.13 billion, an increase of 7.4 percent.

Sherwin-Williams also reports that full-year diluted net income per common share increased in 2016, to a record $11.99 per share.

2016 Fourth Quarter

Sherwin-Williams also posted increases in sales and profits across the board in the fourth quarter of 2016 versus the same quarter in the prior year, with the exception of the Latin American Coatings Group.

The Paint Stores Group posted sales of $1.84 billion on the quarter, up 9.7 percent from prior-year fourth quarter numbers. The Consumer Group reported $315.9 million in sales in the fourth quarter, up 0.4 percent from prior-year numbers. And the company’s Global Finishes Group posted a slight increase in sales—$455 million in the fourth quarter of 2016, as opposed to $454.8 million in Q4 of 2015, up less than .01 percent.

paint store
Photo courtesy of Sherwin-Williams / Bright Eye Photography

In November, Sherwin-Williams opened its 100th store in the Chicago area.

The Latin American Coatings Group reported an increase in net external sales—up 8.2 percent, to $171.7 million in the fourth quarter of 2016. That number includes increases in volumes in the quarter and increases in selling prices. The group reported a loss of $7.8 million on the quarter, though, owing to the goodwill and trademark impairment costs.

Valspar Deal Requires Divestiture

The company says it expects its acquisition of Minneapolis-based coatings manufacturer Valspar should go through during the first quarter of 2017, but it is working on a divestiture that will be required before the Federal Trade Commission will approve the deal.

The acquisition was announced in March 2016 at an estimated value of $11.3 billion, or $113 per share. Sherwin-Williams reserved the right to terminate the deal if more than $1.5 billion in divestitures were required in order for the deal to get regulators’ approval.

In the new financial report, Sherwin-Williams president and CEO John G. Morikis said the anticipated divestiture is far below that threshold.

"We now expect a divestiture will be required to gain approval from the FTC to complete the acquisition of Valspar,” Morikis said. “We are moving forward on a divestiture that we believe will allow us to gain approval from the FTC. The expected divestiture has revenues below the $650 million threshold, and we expect to negotiate the divestiture and complete the Valspar transaction at $113 per common share within 90 days.”

The anticipated first-quarter 2017 closing is in line with the schedule originally proposed by the companies when the deal was announced.

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Tagged categories: Architectural coatings; Business matters; Coatings manufacturers; Earnings reports; Finance; Marine Coatings; Market; Retail; Sherwin-Williams

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