Fitch Reaffirms Sherwin's Rating - Analyst Blog

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Fitch Ratings Services has reaffirmed its long-term issuer default rating (IDR), senior unsecured debt and bank credit facility ratings on The Sherwin Williams Company ( SHW ) at 'A.' The rating agency has also maintained its short-term IDR and commercial paper rating on the company at 'F1.' Moreover, Fitch has conferred a stable outlook on the company.

The reaffirmation of the rating is based on the company's leading market position in the architectural coatings industry. The company is always on the look out for diversifying its customer base and expanding its operations into various geographies. The company primarily intends to grow through acquisitions and internal initiatives such as efficient working capital management and innovation.

Sherwin-Williams' Consumer segment is recovering with improving domestic and international sales of automotive finishes, original equipment manufacturers' product finishes, and protective and marine coatings. The company's Paint segment has also rebounded based on a favorable mix reversion to professional contractors from the do-it-yourself channel.

However, the cyclical nature of the company's end markets, volatile raw material costs and relatively aggressive growth strategy remain concerns for the company.

Last month, Sherwin-Williams released its second quarter 2012 results. The company reported net earnings of $2.21 per share in the quarter versus $1.74 per share in the year-ago quarter. The results surpassed the Zacks Consensus Estimate of $2.12.

The second-quarter 2012 earnings excluded negative impact of 4 cents from currency translation, while second-quarter 2011 earnings included charges of 8 cents related to repurchase of long-term debt. Including these charges, earnings came in at $2.17 per share in the reported quarter compared with $1.66 in the year-ago quarter.

Net sales for the quarter increased 9.3% year over year to $2.57 billion, missing the Zacks Consensus Estimate of $2.68 billion. The growth was driven by higher paint sales volume and selling price, partially offset by negative impacts of currency translation.

Due to its strong cash generation, Sherwin-Williams acquired 1.5 million shares of its common stock through open market purchases in the reported quarter. The company had 17.75 million shares remaining under its existing share repurchase authorization as of June 30, 2012.

The company expects to maintain financial stability and keep expanding through acquisitions. However, stiff competition and rising raw material prices represent challenges for the company.

Sherwin-Williams competes with companies like E. I. du Pont de Nemours and Company ( DD ) and PPG Industries Inc. ( PPG ). The company retains a Zacks #2 Rank (Buy) for the short term and we have a long-term Neutral recommendation on the stock.


 
DU PONT (EI) DE (DD): Free Stock Analysis Report
 
PPG INDS INC (PPG): Free Stock Analysis Report
 
SHERWIN WILLIAM (SHW): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DD , EI , PPG , SHW

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