Painting the Town Red… and More
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Sherwin-Williams Company (NYSE: SHW) is certainly enjoying their time out and about, conducting business profitably as concerns paints and coatings. Researching and analyzing the particulars of the Company can provide you the information you need to make an informed investment decision for adding some color to your portfolio.
The Sherwin-Williams Company is a worldwide leader in the manufacture, development, distribution, and sale of coatings and related products (e.g. Sherwin-Williams®, Dutch Boy®, Krylon®, Minwax®, Thompson's® Water Seal ®, and more).
At the end of January 2013, they announced their financial results for the year and fourth quarter ended December 31, 2012. The Company had several results with a nice sheen to them:
Colorful Records Achieved
All of The Sherwin-Williams Company operating segments contributed to the record year with increases in sales and operating profit. This was lead by the Company's Paint Stores Group. Consolidated net sales for the year increased 8.8% to a record $9.53 billion.
EBITDA increased $244.4 million in the year to $1.21 billion – a record. Net operating cash increased $152.1 million to $887.9 million – again, a record. Their diluted net income per common share increased to a record $6.49 per share in twelve months 2012 compared to $4.14 per share the year prior.
Net sales in the Paint Stores, Consumer, Global Finishes, and Latin America Coatings Groups increased. Investors can take away that the Company has strength in all their segments. They're not relying on one element of their business for growth. Like a good stock portfolio, the Company's diversified.
Bright Dabs of Dividends
The Company's Board of Directors announced in February an increase in their quarterly dividend from $0.39 per common share to $0.50 per common share. Prior to this announcement the Company had 34 consecutive years of dividend increases. Investors should consider that dividend growth is preferred because it usually ensures that one will receive more income than investing in a fixed income stream.
Acquisitions, Efficiency and Effective Marketing
Concerning efficiency, investors should note the Company's dedication to cost savings. Their Consumer Group improved operating results via operating efficiencies and selling price increases. Their Global Finishes Group continued improving segment profit as a percent to sales via increased selling prices and efficiencies gained from continued integration of the Company's year-ago acquisitions. In November 2012, Sherwin-Williams announced that they signed a definitive agreement to acquire Consorcio Comex, S.A. de C.V., a leader in the paint and coatings market in Mexico.
Investors should also note Sherwin-Williams' commitment to effective marketing. For example, their Latin America Coatings Group improved their operating results. They accomplished this even though there were unfavorable currency effects and less demand in their end markets. Therefore, they marketed effectively to build sales in a tough business climate.
The Lackluster
Consolidated net sales decreased 1.8% in the year and 1.0% in the quarter due to unfavorable currency translation rate changes. Investors should consider the extent of a company's global operations and the effect currencies have on their financial results. Many companies have hedging strategies using derivatives to lessen the effect of these exchange rate changes on their financial statements.
Factory Tour: Sherwin-Williams
How did other companies perform in the Specialty Chemicals industry in the Basic Materials sector? The Valspar Corporation (NYSE: VAL) experienced less-than-bright results for the first quarter ended January 25, 2013. The Company is an international leader in the paint and coatings industry.
Their first-quarter sales totaled $875.2 million in comparison to $885.6 million in the first quarter of 2012. First-quarter net income per share was $0.60 in 2013, in comparison to adjusted net income per share of $0.62 in the prior year. This excludes a $0.04 per share restructuring charge. Net income for the first quarter of 2013 was $55.0 million. Net income for the first quarter of 2012 was $55.8 million and reported earnings per share were $0.58.
What should investors consider pertaining to Valspar? Mainly, the weakness in worldwide markets and its effect on the Company. Mr. Gary E. Hendrickson, Company Chairman and CEO, said, "… weak demand in certain international markets is expected to continue and thus we are adjusting our full-year guidance to $3.60 to $3.80 to reflect these market conditions."
However, a positive for investors is that Valspar' Board of Directors declared a quarterly dividend of $0.23 per share on the Company's common stock.
PPG Industries Inc. (NYSE: PPG) is a coatings and specialty products company. They're diversified globally and they improved full year 2012 earnings in each major worldwide region. The Company had fourth quarter 2012 sales of $3.6 billion. Annual sales for 2012 were $15.2 billion. This represents an increase of 2 percent versus 2011 sales of $14.9 billion.
What dab of paint can investors take away concerning PPG? The Company, overall, has strength in their diverse segments. Performance Coatings, Industrial Coatings, Architectural Coatings – EMEA (Europe, Middle East and Africa), Optical and Specialty Materials, and Commodity Chemicals segment sales for the quarter were up. The only decrease in sales in the fourth quarter was in the Glass segment - down $15 million from the prior year.
The Sherwin-Williams Company is enjoying their days and nights painting the town red… and more. The Company has a palette of products that can add a nice patina and profits to a stock portfolio. The Company's increased efficiency and the continued quality performance of their Paint Stores could have investors flipping dollars along with those small wall color samples.
Michael Ugulini has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
