- Consolidated net sales increased 5.2% in the quarter to $5.12 billion
- Net sales from stores in U.S. and Canada open more than twelve calendar months increased 3.1% in the quarter
- Diluted net income per share increased to $7.66 per share in the quarter compared to $6.16 per share in the third quarter 2019
- Excluding the impact of acquisition-related amortization expense, diluted net income per share increased to $8.29 per share in the quarter versus $6.65 per share in the third quarter 2019, excluding the impact of acquisition-related costs and other adjustments
- Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased in the quarter to $1.11 billion, or 21.6% of sales
- Net operating cash increased 54% year-to-date to $2.56 billion, or 18.5% of sales
- Increasing FY20 diluted net income per share guidance to a range of $21.49 to $21.79 per share, including acquisition-related amortization expense of $2.51 per share. Our most recent FY20 guidance was a range of $20.96 to $21.46 per share, including acquisition-related amortization expense of $2.54 per share.
The Sherwin-Williams Company (NYSE: SHW) announced its financial results for the third quarter ended September 30, 2020. Compared to the same period in 2019, consolidated net sales increased $254.5 million, or 5.2%, to $5.12 billion in the quarter and increased $86.5 million, or 0.6%, to $13.87 billion in the first nine months. The increase in the quarter was due primarily to higher sales to most of the Consumer Brands Group’s retail customers in all regions, continued strong sales in residential repaint and DIY in North American stores in The Americas Group, and a return to growth in the Performance Coatings Group.
The estimated impact from COVID-19 on consolidated net sales during the quarter was not material, but was a decrease of approximately 3% for the first nine months. Currency translation rate changes decreased consolidated net sales by 1.3% in the first nine months. Diluted net income per share increased to $7.66 per share in the third quarter compared to $6.16 per share in the third quarter of 2019. Third quarter 2020 included a charge of $.63 per share for acquisition-related amortization expense. Third quarter 2019 included charges of $.63 per share for acquisition-related amortization expense and $.14 per share for integration costs, partially offset by a benefit from the resolution of the California litigation of $.28 per share. Diluted net income per share increased to $17.60 per share in the first nine months compared to $13.82 per share in the same period in 2019. The first nine months of 2020 included a charge of $1.87 per share for acquisition-related amortization expense.
The first nine months of 2019 included charges of $1.90 per share for acquisition-related amortization expense, $.33 per share for integration costs, $.79 per share for a tax credit investment loss and $.27 per share for pension settlement expense, partially offset by a benefit from the resolution of the California litigation of $.28 per share.
Net sales in The Americas Group increased 2.8% to $2.98 billion in the quarter and were flat at $7.81 billion in the first nine months. The increase in the quarter was due primarily to higher residential repaint, DIY and new residential paint sales in the U.S. and Canada, partially offset by the impacts of COVID-19 on demand in some end market segments served. Flat sales in the first nine months were due primarily to the impacts of COVID-19 on demand in most end markets served in the second quarter.
Net sales from stores in the U.S. and Canada open for more than twelve calendar months increased 3.1% and 0.7% in the quarter and first nine months, respectively, over last year’s comparable periods. Segment profit increased $83.8 million to $747.4 million in the quarter and $128.3 million to $1.74 billion in the first nine months due primarily to favorable customer and product mix and moderating raw material costs. Segment profit as a percent of net sales increased to 25.1% in the third quarter compared to 22.9% in the third quarter last year, and increased to 22.2% in the first nine months compared to 20.6% in the first nine months last year.
Net sales of the Consumer Brands Group increased 23.5% to $838.1 million in the quarter and increased 14.2% to $2.44 billion in the first nine months. The increase in the quarter was due primarily to higher volume sales to most of the group’s retail customers in all regions. The increase in the first nine months was due primarily to higher volume sales to most of the group’s North American and European retail customers. Segment profit increased to $198.3 million in the quarter from $114.9 million in the third quarter last year. In the first nine months, segment profit increased to $519.2 million from $343.5 million in the first nine months last year.
The increases in the quarter and first nine months were due primarily to higher volume sales, favorable product mix, moderating raw material costs, and actions taken over the past year to improve our international operating margins. Segment profit as a percent of net external sales increased in the quarter to 23.7% from 16.9% in the third quarter last year. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 270 basis points in the third quarter 2020 compared to 340 basis points in the third quarter of 2019. Segment profit as a percent of net external sales in the first nine months was 21.3% compared to 16.1% in the first nine months last year. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 270 basis points in the first nine months compared to 320 basis points in the first nine months of 2019.
The Performance Coatings Group’s net sales increased 1.2% to $1.31 billion in the quarter and decreased 5.6% to $3.62 billion in the first nine months. The increase in the quarter was due primarily to higher sales volume and improving demand in most businesses and regions, led by our Packaging and Industrial Wood divisions. The decrease in the first nine months was due primarily to softer end market demand in most businesses, mostly due to the impacts of COVID-19, and unfavorable currency translation rate changes, partially offset by increased sales in the Packaging and Coil divisions in all regions.
Currency translation rate changes decreased the group’s net sales by 1.4% and 2.2% in the quarter and first nine months, respectively. Segment profit increased in the third quarter to $155.3 million from $137.5 million in the third quarter last year due primarily to moderating raw material costs and higher sales volumes. Segment profit decreased to $366.4 million in the first nine months from $386.5 million in the first nine months last year due primarily to sales volume decreases, partially offset by moderating raw material costs and good cost control. Currency translation rate changes decreased segment profit by 4.1% in the quarter. Segment profit as a percent of net external sales increased in the quarter to 11.9% from 10.7% in the third quarter last year.
Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 410 basis points in the third quarter 2020 compared to 420 basis points in the third quarter of 2019. Segment profit as a percent of net external sales in the first nine months was flat to the first nine months last year at 10.1%. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 440 basis points in the first nine months compared to 420 basis points in the first nine months of 2019.
The Company generated $2.56 billion in net operating cash during the first nine months of 2020, an increase of 54% compared to the same period in 2019, primarily driven by an increase in earnings and improved working capital management. The Company’s liquidity position remained strong with $619.9 million in cash and $3.50 billion of unused capacity under its revolving credit facilities at September 30, 2020.
Our leverage ratio measured as total debt to adjusted EBITDA improved to 2.5 times in the third quarter of 2020 compared to 3.0 times in the third quarter of 2019. The Company purchased 2,300,000 shares of its common stock in the first nine months, and at September 30, 2020, had remaining authorization to purchase 6.15 million shares of its common stock through open market purchases.
“Continued and unprecedented strength in our DIY business, solid demand across our residential repaint and new residential segments, and improving demand in our industrial coatings businesses and regions drove our strong third quarter results,” said Chairman and Chief Executive Officer, John G. Morikis. “I am extremely proud of our 61,000 employees, who continue to demonstrate resiliency and determination while providing our customers with differentiated solutions.
Improving sales, coupled with favorable customer and product mix, lower input costs and ongoing continuous improvement efforts, drove strong double-digit growth in EBITDA and diluted net income per share. Strong cash flow generation in the quarter enabled us to continue making strategic investments across the business while returning over $500 million to our shareholders in the form of treasury share purchases and dividends, an over 100% increase compared to the third quarter of 2019.
“In The Americas Group, our residential repaint, DIY, and new residential market segments delivered strong year-over-year growth, while our other market segments improved on a sequential basis. Growth remained strongest in exterior paint while interior paint continued to improve faster than expected. In Consumer Brands Group, strong DIY demand from our North American retail partners throughout the quarter drove our performance. In Performance Coatings Group, our Packaging division remained our best performer, while our Coil,
Automotive Refinish and Industrial Wood businesses returned to growth. Recovery in our General Industrial business remains variable by geography, with Asia and Europe recovering at a faster pace than North America.
Source: Sherwin-Williams
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