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Sherwin-Williams Q2 Results Miss View, Says Mexico Rejects Consorcio Comex Deal

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7/18/2013 10:13 AM ET

Paint maker Sherwin-Williams Co. (SHW: Quote) on Thursday reported a 13 percent increase in profit for the second quarter, primarily reflecting higher sales at its paint stores group. However, both revenue and earnings per share missed analysts' estimates. Looking ahead, the company forecast earnings for the third quarter below Street expectations, but reiterated its financial outlook for the fiscal year 2013.

In a separate statement, Sherwin-Williams said it has been informed by the Federal Competition Commission of Mexico that the company's acquisition of Consorcio Comex, S.A. De C.V. has not been authorized by the regulator. The deal was rejected by a 3-2 vote.

The company said it is reviewing the rationale for the Mexico Competition Commission's decision and expects to respond to the Commission's concerns in the near future. The company's shares are down more than 8 percent in the regular trading session.

In November 2012, Sherwin-Williams had agreed to buy privately-held Mexican peer Consorcio Comex, S.A. de C.V. in an all-cash deal valued at about $2.34 billion, including assumed debt.

Second-quarter sales at Sherwin-Williams' paint stores group, the major contributor to total revenues, rose 8 percent to $1.61 billion, due mainly to higher architectural paint sales volume across all end market segments. Net sales from stores open for more than a year increased 7.0 percent in the quarter.

Meanwhile, consumer group division sales declined 1.0 percent to $393.7 million due primarily to lower volume sales to most of the company's retail customers and the elimination of a portion of a paint program with a large retail customer partially offset by acquisitions.

Sales of global finishes group rose 3 percent to $513.5 million and Latin America coatings group's net sales stated in U.S. dollars increased 6.3 percent to $199.0 million.

Cleveland, Ohio-based Sherwin-Williams' second-quarter net income rose to $257.29 million or $2.46 per share from $227.81 million or $2.17 per share in the year-ago period. On average, thirteen analysts expected the company to report earnings of $2.59 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter grew 6 percent to $2.71 billion from $2.57 billion in the same period last year. Analysts had a consensus revenue estimate of $2.79 billion.

The increase in sales was due primarily to higher paint sales volumes in the company's paint stores group. Acquisitions increased net sales by about 0.7 percent in the quarter, while unfavorable currency translation rate changes decreased consolidated net sales by 0.3 percent.

Gross margin, or gross profit as a percent of sales, improved to 45.5 percent from 44.7 percent.

Looking ahead to the third quarter, Sherwin-Williams forecasts earnings of $2.55 to $2.65 per share, with sales increase of 6 to 9 percent. Analysts currently expect earnings of $2.80 per share for the quarter on revenues of $3.18 billion.

For fiscal 2013, Sherwin-Williams reaffirmed its outlook for earnings of $7.45 to $7.55 per share on sales growth by a mid-single digit percentage. Analysts expect earnings of $8.08 per share for the year on revenues of $10.87 billion.

SHW is currently trading at $167.70, down $15.49 or 8.46 percent on a volume of 1.79 million shares.

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by RTT Staff Writer

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