Sherwin-Williams sales hit new high, but costs continue to pinch profits

The Sherwin-Williams Company reported a 12.7 percent increase in 2011 sales, as the company finished with a 9.2 percent fourth-quarter gain in sales compared to the same period a year earlier.

Net income, however, declined for the year and was down sharply in the fourth quarter as continued escalation of raw-material costs cut into earnings.

Sales for the year totaled $8.77 billion, an increase of $989.3 million from 2010, while fourth-quarter sales rose 9.2 percent to $2.07 billion from the same period a year earlier.

Net income for the year was $442.86 million, down from $462.38 million in 2010. Fourth-quarter net income was $14.55 million, compared to $72.92 million in the fourth quarter of 2010.

The company said stronger sales were driven by a combination of selling-price increases, acquisitions and higher paint sales volume in the Global Finishes and Latin America Coatings groups. The company’s sprawling Paint Stores Group also contributed to sales growth, as architectural paint sales strengthened and selling-price increases were implemented. Acquisitions accounted for a 4.5 percent sales gain for the year.

The company also announced that, effective with the fourth quarter of 2011, it has expanded its reports on operating segments from three to four with the addition of the Latin America Coatings Group. The new segment’s results were previously included in the Global Finishes Group.

The company said the move reflects “continued revenue growth and geographic expansion of our Global Finishes Group,” and added that the change “allows for a clearer view of our business results.”

Chairman and chief executive Christopher Connor said the company was able to post record-high sales and earnings per share in 2011 despite “an environment of soft demand and rapidly escalating raw-material costs. Our operating segments continue to control costs and implement price increases in an effort to keep pace with rising raw material increases.”

Connor said the company’s immense Paint Stores Group “continued to focus on gaining market share in all markets and product lines, while maintaining customer service in a difficult raw-material environment.” He also said the company is seeing  “continued sales development in the Global Finishes Group and the corresponding improvement in the Group’s core operating profit.”

Connor added that sales have been boosted by the acquisition of the UK company Leighs Paints, while “acquisitions completed over the past 18 months are performing to expectations, and provide important assets to support the future growth in our world-wide business. Our Latin America Coatings Group increased gallons across all product lines, controlled costs, and delivered strong profit growth in the year.”

Sales for the Paint Stores Group increased 9.1 percent to $4.78 billion for the year, and rose 13.5 percent to $1.13 billion in the quarter due primarily to selling-price increases and improving domestic architectural paint sales volume across most segments.

Paint Stores Group profit was $645.7 million, up from $619.6 million in 2010, but declined $1.4 million, to $133.4 million, in the fourth quarter compared to the same period a year earlier.

Net sales from stores open for more than 12 calendar months rose 8.3 percent in the year and 12.7 percent in the quarter compared to the same periods a year earlier.

The increase in profits for the year was the result of selling-price increases, partially offset by raw material cost increases and other expenses related to maintaining customer service, the company said. The same factors were cited as contributors to the fourth-quarter profit dip.

Consumer Group sales declined 1.8 percent, to $1.27 billion for the year, and fell 1.1 percent, to $252.1 million, for the quarter compared to 2010, primarily due to elimination of a portion of a paint program with a large retail customer said the company. Segment profit decreased to $173.7 million in the year from $204.0 million in 2010 due primarily to higher raw-material costs and the impact of the retail-customer program reduction.

For the fourth quarter, Consumer Group profit increased to $30.2 million from $26.1 million in 2010, due primarily to selling-price increases and cost controls, the company said.

Global Finishes Group sales stated in U.S. dollars increased 32.5 percent to $1.88 billion in the year, due primarily to acquisitions, selling-price increases, higher paint sales volume and favorable currency translations. For the quarter, Global Finishes Group sales increased 8.1 percent to $463.3 million.

Global Finishes Group profit for the year rose to $90.3 million from $64.7 million in 2010, and for the quarter increased to $13.0 million from $9.2 million in the same period a year earlier.

Latin America Coatings Group net sales increased 22.7 percent to $828.5 million in the year, and rose four percent to $220.1 million in the quarter. Segment profit for the year was $75.5 million, up from $59.0 million in 2010, and for the quarter rose to $26.4 million from $19.6 million in 2010.

Connor said the company is “continuing to invest in our business” by expanding its Paint Stores operations, with a net increase of 60 new stores in 2011, to a total of 3,450 stores. In the fourth quarter, the company topped 4,000 total stores and branches, counting all business segments.