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Valspar Boosts Up Sherwin-Williams' Q2

Friday, July 21, 2017

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The Sherwin-Williams Company (Cleveland) released its second-quarter earnings report on Thursday (July 20), reporting an increase in overall net sales and unveiling a new structure in the wake of its acquisition of Valspar Corp., which closed this spring.

The company cited a 4.9 percent net sales bump overall, largely bolstered by sales growth in the Americas Group and Performance Coatings. The company’s Consumer Brands Group saw a decrease in net sales year over year (when taking into consideration both Sherwin-Williams and Valspar sales numbers from Q2 2016).

Overall Numbers

Sales numbers for Sherwin-Williams were up in the second quarter of 2017 in comparison with prior-year figures, which comes as no surprise given the addition of Valspar’s products and businesses to the mix. Consolidated net sales were reported at a record $3.74 billion, up $516.3 million, or 16 percent, over the second quarter of 2016.

According to Sherwin-Williams, Valspar sales were responsible for an 11.8 percent increase in sales in the quarter.

Floor coating
Images courtesy of Sherwin-Williams unless otherwise noted

Sherwin-Williams' protective and marine coatings business is now classed under the company's Performance Coatings segment.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased 11.7 percent in six months, the company says, to $1.03 billion. Without taking the Valspar acquisition into account, Sherwin-Williams’ EBITDA still increased 9.3 percent in that time period.

Diluted net income per common share decreased 15.8 percent on the quarter, to $3.36 per share, a drop Sherwin-Williams attributes to the divestiture of Valspar’s industrial wood coatings business to Axalta Coating Systems in June (a regulatory condition of the larger acquisition) and a $0.72 per share charge for acquisition-related expenses.

New Organizational Model

The second-quarter report is the first since the close of the Valspar acquisition, which took place June 1 and carried a total purchase price of $8.9 billion. (Earlier figures pricing the deal at $11.3 billion accounted for $2 billion in assumed debt, which does not figure into the cash amount; the price also decreased by $400 million with the wood coatings divestiture.)

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

Under Sherwin-Williams new organizational model, paint stores in the U.S. and Canada are part of the Americas Group segment, joining with the company's Latin America business.

The addition of Valspar’s business units engendered a full reorganization of Sherwin-Williams’ structure. Sherwin-Williams’ reportable segments are now:

Consumer Brands Group: This segment includes what had been Sherwin-Williams’ Consumer Group, along with Valspar’s Paint Segment. That means Valspar’s architectural paints, including Valspar Paint and Cabot stains, join Sherwin-Williams brands, which include Krylon, Dutch Boy, Thompson’s WaterSeal and Pratt & Lambert.

The Americas Group: This includes Sherwin-Williams paint stores and the company’s Latin American business. Sherwin-Williams’ residential, commercial, do-it-yourself and property management business handled through its stores is included in this segment.

Performance Coatings Group: This segment includes what had been Sherwin-Williams’ Global Finishes Group—protective and marine coatings, automotive finishes and product finishes. Those businesses are now combined with Valspar’s Coatings Segment, which includes packaging coatings, protective and marine coatings, coil coatings and other general industrial coatings and Valspar’s auto refinish business.

Numbers by Segment

The Consumer Brands Group reported a 16 percent jump in sales, to $536.4 million, owing largely to the inclusion of Valspar sales, balanced by what Sherwin-Williams calls lower volume sales to most of the group’s retail and commercial customers. Valspar accounted for 27.9 percent growth in the segment’s sales on the quarter, the company says.

The Americas Group reported $2.44 billion in sales in the second quarter, up 8.7 percent from Q2 2016. Profits for the segment are reported at $532 million, also up year-over-year, by 6.7 percent. The growth in the segment included increases in sales in Latin America (up 1.2 percent in the quarter) and in U.S. and Canada stores (up 4.9 percent in the quarter, not counting stores open less than 12 months).

Consumer brands

The Consumer Brands Group, which includes HGTV Home by Sherwin-Williams, saw an increase in sales, owing to the addition of Valspar brands, but a drop in profits.

Profits for the group were down 26.2 percent on the quarter, however, to $76.1 million, a lag the company lays to lower organic sales volumes, increasing raw-materials costs and acquisition-related costs. Sherwin-Williams says the flagging numbers in the segment were offset partly by improved operating efficiencies, good expense control and selling price increases.

The Performance Coatings Group saw a notable increase in net sales, up 48 percent on the quarter, to $761.1 million, due to the addition of Valspar sales as well as higher sales volumes in the segment overall. Segment profit still decreased slightly, though, down 11.5 percent to $62.3 million on the quarter, a drop Sherwin-Williams attributes largely to acquisition-related costs.

Looking Ahead

Sherwin-Williams Chairman, President and CEO John G. Morikis said in a statement that he is pleased to finally be able to include Valspar in the company’s figures, after the year-plus merger process.

“The combination of these two companies forms a world-class brand portfolio, expanded product range, premier technology and innovation platforms and an extensive global footprint,” Morikis said.

John G. Morikis

Sherwin-Williams CEO John G. Morikis says the company will focus on strengthening its core business while integrating Valspar in the coming quarter.

Looking into the next quarter, Morikis said the company anticipates core net sales to increase “a low- to mid-single-digit percentage compared to last year’s third quarter.”

“Our focus is on strengthening the performance of our core businesses while completing the integration of the two companies with speed and precision,” Morikis added. “The former will require us to drive stronger architectural paint sell-through across all retail channels and capture raw material cost increases through appropriate pricing initiatives, particularly in our industrial coatings businesses.

“The latter means implementing the integration plans we have developed over the past 15 months, and recognizing when course correction is required.”

   

Tagged categories: Coatings manufacturers; Earnings reports; Finance; Paint and Coating Sales; Sherwin-Williams; Valspar

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