Mexico!
Sherwin does have some cards up its sleeve, one of them being the soon-to-happen acquisition of Comex, Mexico’s largest paint and coatings company. Sherwin is undoubtedly placing a lot of faith in this deal, which it is anticipating to close sometime during the next quarter. Admittedly, Comex and Mexico are sounding great, as far as opportunities go.
The do-it-yourself (DIY) stores chain, The Home Depot, Inc. (NYSE:HD), recently boasted 35 consecutive quarters of comparable-store sales in Mexico. As a result, the company has put more efforts into nurturing growth over on the Mexican side. In the latest quarter, The Home Depot, Inc. (NYSE:HD) launched six new retail shops and celebrated a round total number of a 100 stores in the U.S. Now it is planning seven new retail stores in Mexico this year and only two back home.
What Sherwin has got going for itself is its specialism, though. Stores like The Home Depot, Inc. (NYSE:HD) sell paints at general DIY stores, but paint and coating cans often get lost amongst all the various home-improvement tools, materials, gardening equipment and discount products. Sherwin’s niche paint-only stores give shoppers a focused and far more complete experience.
Lower sales costs
Sherwin-Williams Company (NYSE:SHW) earnings had another positive, which was its ~2% decrease in sales costs. This shows that its prices remain stable, in particular for its main products, for instance titanium dioxide. Input costs had been predicted to rise by a small amount, according to Sherwin’s earlier prediction, but they retracted this.
Sherwin now estimates that its costs will stay flat, and this in turn might bump its margins up a bit. Several titanium-oxide producers did make noises about a price increase for the TiO2 pigment, but the outcome is still uncertain right now because the industry still has high levels of inventory.
A better year forecast
Finally, the reduction of costs has assisted Sherwin-Williams in bettering its net profit within the first quarter by 17% – impressive, considering the flat year-over-year sales. This has resulted in Sherwin-Williams keeping its forecast for the full year. It still expects around 6% sales growth and per-share earnings growth of approximately 15%. The company’s per-share earnings in 2012 were $6.49 – a Sherwin-Williams’ record.
It also bumped up its dividends in the first quarter by 30%. The result per share was $0.50. Sherwin can rest easier now, knowing that it has enjoyed dividend increases during 34 continuous years. RPM, of course, has beaten Sherwin-Williams to the post with 39 continuous years and its dividend yield is better than Sherwin’s: RPM’s was 2.8%, while Sherwin only showed a yield of 1%.
So what now?
Sherwin needs to jump on the commercial-construction bandwagon, now that the industry is waking up again. Sherwin simply isn’t getting the profits it needs to from the current revival in this particular market, plus its competitors are strong to say the least.
Sherwin-Williams Company (NYSE:SHW) has obvious weaknesses, even if investors are reading its dividend increase as positive news. The main question remains, whether Sherwin-Williams shares are worth the risk in the light of recent developments and whether people should be looking at selling the stock.
The article The Paint Market: Competitors Fiercely Elbowing for Space originally appeared on Fool.com.
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