The Sherwin-Williams Company announced its financial results for the year and fourth quarter ended December 31, 2021. All comparisons are to the full year and fourth quarter of the prior year, unless otherwise noted.
SUMMARY
- Consolidated net sales increased 8.6% in the year to a record $19.94 billion
- Net sales from stores in U.S. and Canada open more than twelve calendar months increased 6.0% in the year
- Raw material availability issues negatively impacted full year sales by an estimated mid-single digit percentage
- Diluted net income per share decreased to $6.98 per share in the year compared to $7.36 per share in the full year 2020
- Adjusted diluted net income per share decreased to $8.15 per share in the year compared to $8.19 per share in the full year 2020
- Fourth quarter consolidated net sales increased 6.1%; diluted net income per share was $1.15 per share and adjusted diluted net income per share was $1.34 per share
- Full year 2022 diluted net income per share guidance in the range of $8.40 to $8.80 per share, including acquisition-related amortization expense of $0.85 per share, an increase of 23.2% at the midpoint
CEO REMARKS
“Our full year and fourth quarter were marked by industry-wide supply chain disruptions, unprecedented cost inflation and ongoing challenges related to the pandemic,” said Chairman, President and Chief Executive Officer, John G. Morikis. “The 61,000 dedicated employees of Sherwin-Williams refused to use these challenges as an excuse, but rather as an opportunity to get even closer to our customers. We focused on minimizing the impact to their businesses through innovation, value-added services, and differentiated distribution. We delivered full year sales growth of 8.6%, driven by 6% U.S. and Canada same store sales growth and double-digit growth in all industrial end markets.
“While we focused on meeting customer needs, we also mitigated rising costs with pricing actions in all businesses throughout the year. Near term pressure on our margins was significant, but we remain highly confident they will recover just as they have in past cycles, as we grow the business and see commodity costs moderate over time. We also continued to invest in multiple long-term growth initiatives during the year, including opening 79 paint stores in the U.S. and Canada and hiring approximately 1,400 management trainees. We also generated strong net operating cash in the year, which enabled us to invest $2.8 billion in share repurchases, pay $587 million in dividends and announce three acquisitions.
“From a segment perspective, The Americas Group full year sales increased in all professional customer segments, including double digit percentage growth in residential repaint for the 6th consecutive year. Our Consumer Brands Group faced challenging full year comparisons but continued to focus on supporting key retail partners and growing our Pros Who Paint initiative. In the Performance Coatings Group, all businesses and all regions delivered double digit percentage full year growth.”
FOURTH QUARTER CONSOLIDATED RESULTS
| Three Months Ended December 31, | |||||||
| 2021 | 2020 | $ Change | % Change | ||||
| Net sales | $ 4,762.1 | $ 4,488.8 | $ 273.3 | 6.1 % | |||
| Income before income taxes | $ 308.9 | $ 503.9 | $ (195.0) | (38.7) % | |||
| As a % of sales | 6.5 % | 11.2 % | |||||
| Net income per share – diluted | $ 1.15 | $ 1.49 | $ (0.34) | (22.8) % | |||
| Adjusted net income per share – diluted | $ 1.34 | $ 1.70 | $ (0.36) | (21.2) % |
Consolidated net sales increased primarily due to selling price increases in all segments and higher product sales volume in the Performance Coatings Group, partially offset by lower sales volumes in The Americas Group and the Consumer Brands Group primarily due to raw material availability issues. Income before income taxes decreased primarily due to lower sales volumes in The Americas Group and the Consumer Brands Group and higher raw material costs across all three segments, partially offset by selling price increases and SG&A spending controls.
Diluted net income per share included a charge of $0.19 per share for acquisition-related amortization expense.
FOURTH QUARTER SEGMENT RESULTS
The Americas Group (“TAG”)
| Three Months Ended December 31, | |||||||
| 2021 | 2020 | $ Change | % Change | ||||
| Net sales | $ 2,653.5 | $ 2,575.7 | $ 77.8 | 3.0 % | |||
| Same-store sales (1) | 1.0 % | 9.3 % | |||||
| Segment profit | $ 400.3 | $ 558.7 | $ (158.4) | (28.4) % | |||
| Reported segment margin | 15.1 % | 21.7 % |
| (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 selling price increases in all end markets, partially offset by lower sales volume of paint products as a result of raw material availability challenges and COVID-related labor headwinds. TAG segment profit decreased due primarily to lower paint sales volume in all end markets and increased raw material costs, partially offset by selling price increases.
Consumer Brands Group (“CBG”)
| Three Months Ended December 31, | |||||||
| 2021 | 2020 | $ Change | % Change | ||||
| Net sales | $ 565.3 | $ 612.8 | $ (47.5) | (7.8) % | |||
| Segment profit | $ 16.1 | $ 60.4 | $ (44.3) | (73.3) % | |||
| Reported segment margin | 2.8 % | 9.9 % | |||||
| Adjusted segment profit (1) | $ 35.4 | $ 83.4 | $ (48.0) | (57.6) % | |||
| Adjusted segment margin | 6.3 % | 13.6 % |
| (1) | Adjusted segment profit excludes the impact of acquisition-related amortization expense. Acquisition-related amortization expense in CBG was $19.3 million and $23.0 million in the fourth quarter of 2021 and 2020, respectively. |
Net sales in CBG decreased due primarily to lower sales volumes to all of our retail customers as a result of raw material availability issues and the Wattyl divestiture, partially offset by selling price increases. CBG segment profit decreased primarily due to lower sales volume, increased raw material costs and supply chain inefficiencies, partially offset by selling price increases and good cost control. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 350 basis points compared to 370 basis points in the fourth quarter of 2020.
Performance Coatings Group (“PCG”)
| Three Months Ended December 31, | |||||||
| 2021 | 2020 | $ Change | % Change | ||||
| Net sales | $ 1,542.5 | $ 1,299.7 | $ 242.8 | 18.7 % | |||
| Segment profit | $ 87.2 | $ 133.7 | $ (46.5) | (34.8) % | |||
| Reported segment margin | 5.7 % | 10.3 % | |||||
| Adjusted segment profit (1) | $ 138.0 | $ 187.6 | $ (49.6) | (26.4) % | |||
| Adjusted segment margin | 8.9 % | 14.4 % |
| (1) | Adjusted segment profit excludes the impact of acquisition-related amortization expense. Acquisition-related amortization expense in PCG was $50.8 million and $53.9 million in the fourth quarter of 2021 and 2020, respectively. |
Net sales in PCG increased due primarily to higher sales in all end markets and selling price increases. PCG segment profit decreased due primarily to increased raw material costs, partially offset by higher sales volume and selling price increases. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 320 basis points compared to 410 basis points in the fourth quarter of 2020.
LIQUIDITY AND CASH FLOW
The Company generated $2.24 billion in net operating cash during the year. This strong cash generation, along with an increase in our short-term borrowings and long-term debt, allowed the Company to return cash of approximately $3.34 billion, or an increase of approximately 14.0%, to our shareholders in the form of dividends and share repurchases. The Company purchased 10.1 million shares of its common stock during the year. At December 31, 2021, the Company had remaining authorization to purchase 48.6 million shares of its common stock through open market purchases.
2022 GUIDANCE
| First Quarter | Full Year | ||||
| 2022 | 2022 | ||||
| Net sales | Up low to mid-single digit % | Up high-single digit % to low- double digit % | |||
| Effective tax rate | Low twenty percent | ||||
| Diluted net income per share | $ 8.40 | – | $ 8.80 | ||
| Adjusted diluted net income per share (1) | $ 9.25 | – | $ 9.65 | ||
| (1) Excludes $0.85 per share of acquisition-related amortization expense. |
“We are introducing full year adjusted diluted net income per share guidance of $9.25 – $9.65 per share, which represents 16.0% growth from 2021 at the mid-point,” said Mr. Morikis. “As we indicated in our mid-January announcement of preliminary results, demand remains strong across our end markets, though we expect raw material availability and COVID-related issues to persist through the first quarter. Given these near-term headwinds, we expect first quarter 2022 consolidated net sales will be up a low to mid-single digit percentage compared to the first quarter 2021. For the full-year 2022, we anticipate our consolidated net sales will increase by a high single digit to low double digit percentage from 2021. We expect full year raw material costs to remain elevated but to moderate sequentially, and we will continue to implement pricing actions as appropriate to offset increased costs.
“We remain confident in our strategy, our capabilities and the differentiated product and service solutions we bring to customers, and we expect to outgrow the market long-term. Our business remains extremely well positioned, and we are emerging as an even stronger company following the challenges we faced in 2021. Our strong cash generation will enable us to continue to make strategic growth investments in our business, return cash to our shareholders via dividends and share repurchases and acquire growth businesses that fit our strategy. We remain steadfast in our focus on maximizing shareholder value.”
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Source: The Sherwin-Williams
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