Financial Performance

Valspar Costs Weigh on Sherwin-Williams Profit

The paint maker reports record quarterly sales of $3.74 billion but net income, even adjusted for the Valspar deal, misses analysts' estimates.
Matthew HellerJuly 20, 2017

Paint maker Sherwin-Williams reported sales soared to an all-time quarterly high but costs related to its acquisition of Valspar weighed on its bottom line.

The company has benefited from strong consumer spending and that continued in the second quarter as sales jumped 16% to $3.74 billion, beating analysts’ estimates of $3.72 billion.

But net income fell by more than 15% to $319 million, and even after excluding extraordinary items related to the Valspar acquisition and other items, adjusted earnings of $4.52 per share missed the consensus forecast among those following the stock for $4.57 per share.

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On news of the earnings, Sherwin-Williams shares fell 2.4% to $350.78 in trading Thursday. The company also lowered its full-year adjusted earnings guidance to a range of $12.30 to $12.70 per share.

“Costs of $2.50 per share due to the acquisition will wipe out the $0.75 to $0.95 in incremental earnings from Valspar’s operations throughout the full 2017 year,” it explained in a news release.

All segments of Sherwin-Williams business posted sales gains during the second quarter, including a 16% increase in the consumer brands division. That segment’s profit fell by about a quarter from the year-ago period, reflecting lower organic sales volumes and higher raw material costs combined with acquisition-related charges.

For the third quarter, the company expects core net sales growth in the low- to mid-single digits and incremental sales from Valspar to be about $1 billion.

“Looking ahead, our focus is on strengthening the performance of our core businesses while completing the integration of the two companies with speed and precision,” CEO John Morikis said in a news release, adding that “Our success in these two areas will create a highly differentiated enterprise better equipped to serve paint and coatings customers around the corner and around the globe.”

The Motley Fool predicted that once the integration of Valspar is complete, “the boost to earnings over the long run should more than make up for the short-term pain that the paint-maker is having to endure.”