Paints and coatings manufacturer Sherwin-Williams Co. (SHW) Tuesday reported an increase in fourth quarter net profit, reflecting effective cost management, despite lower revenues due to weak paint sales volume. The company also provided sales and earnings guidance for the first quarter and full year 2010. Sherwin-Williams shares are currently trading up more than 8% on the NYSE.
For the fourth quarter, the Cleveland, Ohio-based company's net earnings were $65.34 million compared with $50.17 million in the prior-year period. On a per share basis, earnings increased 38.1% to $0.58 from $0.42 a year earlier.
On average, 16 analysts polled by Thomson Reuters expected Sherwin-Williams to earn $0.52 per share for the quarter. Analysts' estimates typically exclude special items.
The company noted that asset impairment charges and a loss on dissolution of a foreign subsidiary in the 2009 fourth quarter reduced net income by nearly $0.13 per share.
Net sales for the quarter dropped 5.9% to $1.60 billion from $1.70 billion in the fourth quarter last year, primarily due to weak paint sales volume. Sherwin-Williams noted that currency translation rate changes increased net sales by 2% in the quarter. Analysts expected the company to generate revenues of $1.55 billion for the quarter.
Sherwin-Williams mainly operates in three segments: Paint Stores Group, Consumer Group and Global Finishes Group. At Paint Stores Group, net sales slumped 11.4% to $920.2 million, negatively impacted by decreased paint volume sales. Net sales from Consumer Group was down 2.2% at $240.1 million in the quarter, reflecting lower volume sales to most of the company's retail customers. The company noted that many of the steps Consumer Group has taken to bring fixed costs into line with volumes have started to show results, and Sherwin-Williams said the business will continue to control operating costs until manufacturing volumes return to levels that will support more normal profitability for the group.
However, Global Finishes Group net sales rose 5.5% to $437.1 million in the quarter when stated in US dollars, primarily due to favorable currency translation rate changes, but the company noted that demand in the industrial segments of the business remains weak.
Quarterly, gross profit slumped to $758.24 million from $784.90 million in the comparable period prior year.
During the three-month period, selling, general and administrative costs were $618.68 million compared to $633.54 million a year ago, and other general expenses slumped to $13.30 million from $19.39 million in the same quarter last year. Impairment of trademarks and goodwill dropped to $14.14 million compared with $30.69 million last year.
In the 2009 fourth quarter, Sherwin-Williams incurred a one-time loss of $21.92 million on dissolution of a foreign subsidiary. Fourth quarter cost of goods sold were $840.60 million versus $914.94 million in the year-earlier period. Other expenses for the period slumped to $626 thousand from $9.07 million in the fiscal 2008-year period.
Commenting on the results, Chairman and Chief Executive Officer Christopher Connor said, "we are encouraged by our earnings performance in the last half of the year resulting primarily from the appropriate steps taken by our operating segments to control costs and improve efficiencies."
In the preceding third quarter, the company reported earnings of $175.21 million compared to $177.08 million last year. On a per share basis, earnings improved to $1.51 from $1.50 in the year-ago quarter. Quarterly net sales dropped 12% to $2 billion from $2.27 billion in the third quarter of fiscal 2008.
For fiscal 2009, Sherwin-Williams' net income declined to $435.85 million or $3.78 per share from $476.88 million or $4.00 per share in the same period last year. Full year net sales were $7.09 billion compared with $7.98 billion in fiscal 2008. Analysts expected the company to earn $3.69 per share on revenues of $7.04 billion for the quarter.
Going forward, Sherwin-Williams stated that it has begun to see stability in its sales to certain market segments, although demand in most end markets remains weak and industry-wide volume is down significantly from peak levels achieved a few years ago. The company said it continues to focus on volume growth opportunities, mainly through share gain, by capitalizing on its controlled distribution network and strong brands.
In addition to this, Sherwin-Williams purchased 4.12 million shares of its common stock through open market purchases in the fourth quarter and 9 million shares in the full-year period. At December 31, 2009, the company had remaining authorization to purchase 10.75 million shares.
Looking ahead, Connor added that, "We anticipate that the stabilization we are beginning to experience in some segments of the U.S. and global economies will continue, although not at a sufficient pace to offset continued softness in many other areas of the global economy. Therefore, in the first quarter of 2010, we anticipate that consolidated net sales will be flat to down slightly versus the first quarter of 2009."
The company stated that, at the anticipated sales level, it expects net profit in the 2010 first quarter to be between $0.30 and $0.40 per share as compared to $0.32 per share earned in the first quarter of 2009. Analysts currently expect the company to earn $0.42 per share on revenues of $1.53 billion for the first quarter.
For the full year 2010, Sherwin-Williams anticipates net sales to increase above 2009 levels by a low-to-middle single-digit percentage. With annual sales at that level, the company estimates net earnings for 2010 to be in the range of $4.05 to $4.45 per share compared to $3.78 per share earned in fiscal 2009. Analysts expect the company to report earnings of $4.05 per share on revenues of $7.13 billion for full year 2010.
In 2009, Sherwin-Williams added 53 new stores while closing 45 redundant stores for a net addition of 8 stores, finishing the year with 3,354 stores in operation. The company stated that, during the year, it continued to buy shares of its stock and paid an annual cash dividend of $1.42 per share.
Among peers, coating, glass and chemical products company PPG Industries Inc. (PPG) reported on January 21, 2009 a sharp increase in fourth quarter, helped primarily by lower costs, notwithstanding a 2% decline in revenues. Pittsburgh, Pennsylvania-based PPG's attributable net income for the quarter more than doubled to $14 million or $0.85 per share from $71 million or $0.43 per share in the previous-year period, and net sales were down 2% to $3.1 billion from $3.19 billion a year earlier.
SHW is currently trading on the New York Stock Exchange at $63.79 per share, up $4.87 or 8.26%, on a volume of 2.64 million shares. In the past 52-week period, the shares have been trading in a range of $42.19 to $64.30.
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