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The Sherwin-Williams to Report 2021 Second Quarter Financial Results

The Sherwin-Williams Company announced its financial results for the second quarter ended June 30, 2021. All comparisons are to the second quarter of the prior year, unless otherwise noted.

SUMMARY

  • Consolidated net sales increased 16.9% in the quarter to $5.38 billion
    • Net sales from stores in U.S. and Canada open more than twelve calendar months increased 19.3% in the quarter
  • Diluted net income per share increased to $2.42 per share in the quarter
    • Adjusted diluted net income per share increased 11.8% in the quarter to $2.65 per share
  • Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased in the quarter to $1.05 billion, or 19.5% of sales
  • Reaffirming FY21 diluted net income per share in the range of $8.01 to $8.31 per share, including a loss of $0.34 per share from a divestiture and acquisition-related amortization expense of $0.80 per share

CEO REMARKS

“We delivered solid performance in the second quarter driven by robust architectural paint demand in The Americas Group and strong demand across our industrial end markets, which more than offset the return to more normal DIY end market demand levels,” said Chairman, President and Chief Executive Officer, John G. Morikis. “Along with the strong demand, we also implemented pricing actions to offset the significant, sustained raw material inflation that pressured our gross margin in the quarter.  Despite the near-term gross margin compression, we delivered 11.8% adjusted diluted net income per share growth and 7.4% EBITDA growth in the quarter. Our cash generation remained strong, which enabled us to continue investing in long-term strategic growth initiatives, repurchase 3.1 million shares in the second quarter, and open 25 new stores.

“In The Americas Group, sales in all of our end markets, except DIY, were up double-digit percentages in the quarter, led by residential repaint. As expected, sales to our DIY customers were down double-digits, driven by difficult comparisons to the prior year as consumer demand returned to more normal levels. These lower North America DIY demand trends also impacted our Consumer Brands Group in the quarter. Supply chain constraints in the quarter impacted our architectural businesses similarly in The Americas and Consumer Brands Groups. In Performance Coatings Group, all divisions delivered strong double-digit growth, led by industrial wood and general industrial.”

SECOND QUARTER CONSOLIDATED RESULTS

Three Months Ended June 30,
20212020$ Change% Change
Net sales$5,379.8$4,604.0$775.816.9%
Income before income taxes$819.2$747.4$71.89.6%
As a % of sales15.2%16.2%
Net income per share – diluted$2.42$2.16$0.2612.0%
Adjusted net income per share – diluted$2.65$2.37$0.2811.8%

Consolidated net sales increased primarily due to higher product sales volume in The Americas Group and the Performance Coatings Group, partially offset by lower product sales volume in the Consumer Brands Group. Income before income taxes increased primarily due to higher sales volumes and selling price increases, partially offset by increased raw material costs across all three segments.

Diluted net income per share included a charge of $0.23 per share for acquisition-related amortization expense.

SECOND QUARTER SEGMENT RESULTS

The Americas Group (“TAG”)

Three Months Ended June 30,
20212020$ Change% Change
Net sales$3,093.4$2,523.7$569.722.6%
Same-store sales (1)19.3%(6.9)%
Segment profit$727.3$599.7$127.621.3%
Reported segment margin23.5%23.8%
(1)Same-store sales represents net sales from stores in U.S. and Canada open more than twelve calendar months.

Net sales in TAG increased due primarily to higher architectural sales across all professional end markets, led by residential repaint, commercial and property maintenance that more than offset the decrease in DIY, and selling price increases. TAG segment profit increased due primarily to higher paint sales volume and selling price increases, partially offset by increased raw material costs.

Consumer Brands Group (“CBG”)

Three Months Ended June 30,
20212020$ Change% Change
Net sales$731.5$980.2$(248.7)(25.4)%
Segment profit$122.8$237.4$(114.6)(48.3)%
Reported segment margin16.8%24.2%
Adjusted segment profit (1)$144.1$259.8$(115.7)(44.5)%
Adjusted segment margin19.7%26.5%
(1)Adjusted segment profit excludes the impact of acquisition-related amortization expense. Acquisition-related amortization expense in CBG was $21.3 million and $22.4 million in the second quarter of 2021 and 2020, respectively.

Net sales in CBG decreased due primarily to lower sales volumes to most of our retail customers and the Wattyl divestiture, partially offset by selling price increases. CBG segment profit decreased primarily due to lower sales volume and increased raw material costs, partially offset by selling price increases and good cost control. Currency translation rate changes increased the group’s net sales by 1.5%. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 290 basis points compared to 230 basis points in the second quarter of 2020.

Performance Coatings Group (“PCG”)

Three Months Ended June 30,
20212020$ Change% Change
Net sales$1,554.5$1,099.8$454.741.3%
Segment profit$144.8$97.4$47.448.7%
Reported segment margin9.3%8.9%
Adjusted segment profit (1)$201.4$150.1$51.334.2%
Adjusted segment margin13.0%13.6%
(1)Adjusted segment profit excludes the impact of acquisition-related amortization expense. Acquisition-related amortization expense in PCG was $56.6 million and $52.7 million in the second quarter of 2021 and 2020, respectively.

Net sales in PCG increased due primarily to higher sales volumes in all end markets and selling price increases. Currency translation rate changes increased the group’s net sales by 6.0%. PCG segment profit increased due primarily to higher sales and selling price increases, partially offset by increased raw material costs. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 370 basis points compared to 470 basis points in the second quarter of 2020.

LIQUIDITY AND CASH FLOW

The Company generated $1.20 billion in net operating cash during the first six months of 2021, an increase of 11.8% compared to the same period in 2020. This, along with the seasonal increase in our short-term borrowings, allowed the Company to return cash of approximately $1.94 billion to our shareholders in the form of dividends and share repurchases. The Company purchased 6.4 million shares of its common stock during the first six months. At June 30, 2021, the Company had remaining authorization to purchase 52.25 million shares of its common stock through open market purchases.

2021 GUIDANCE

Third QuarterFull Year
20212021
Net salesUp mid-to-high single digit %Up high-single to low-double digit %
Effective tax rateLow twenty percent range
Diluted net income per share$8.01$8.31
Adjusted diluted net income per share (1)$9.15$9.45
(1)Excludes $0.34 per share loss from the divestiture and $0.80 per share of acquisition-related amortization expense.

Commenting on the Company’s outlook, Mr. Morikis noted, “While demand remains robust across nearly all of our end markets, industry raw material inflation is more significant and sustained than originally anticipated. We continue to have great confidence we will offset these higher costs with the incremental price increases we have announced, and we are prepared to implement additional increases should they become necessary. While our industry is operating in a challenging environment, our team has repeatedly demonstrated its ability to manage through these types of pressures just as we have done in many past cycles. We will continue to manage through disruptions in the supply chain and focus on controlling what we can control while providing differentiated solutions and excellent service to our customers.”

Source: Sherwin-Williams

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