Sherwin-Williams Co. (SHW) reported net earnings of $1.58 per share in the second quarter of 2011 missing the Zacks Consensus Estimate of $1.77 per share. However, excluding charges of 8 cents per share relating to costs to repurchase $84.9 million of long-term debt, diluted net income was $1.66 per share versus $1.64 per share in the prior year quarter. The second quarter earnings were at the low end of the company’s guidance range due to high raw material costs versus the timing of its price increases.
Net sales for the quarter increased 9.9% year over year to $2.36 billion driven by acquisitions and selling price increases and strong organic sales growth by the Global Finishes Group. Sales were also boosted by favorable currency translation rate changes. Sherwin-Williams’ second quarter sales also missed the Zacks Revenue Estimate of $2.40 billion.
Cost of goods sold increased 13.7% to $1.33 billion in the quarter and expressed as a percentage of revenues, it increased to 56.6%. Gross profit surged 5.2% to $102.2 million while gross margin dipped 200 basis points year-over-year to 43.4%.
Selling, general and administrative expenses were $755.6 million, an 8.5% climb over $691.2 million in the prior-year quarter.
Performance by Segment
The Paint Stores Group posted net sales of $130.0 million, up 9% from $124.5 million in the year-ago period. The improvement was largely attributable to selling price increases and expanding domestic architectural paint sales to residential repaint contractors and do-it-yourself customers. Segment profit decreased 2.5% year over year to $206.6 million and as a percentage of net sales it decreased in the quarter to 15.9% from 17.0% last year.
Net sales of the Consumer Group fell 8.4% from the same period last year to $375.6 million due primarily to the elimination of a portion of a paint program with a large retail customer partially offset by selling price increases. Segment profit decreased 23.9% to $61.4 million year over year mainly because of increasing raw material costs, but partially offset by selling price increases.
Net sales of the Global Finishes Group soared 39.5% to $678.9 million in the quarter as a result of acquisitions, higher paint sales volume, selling price increases and favorable currency translation rate changes. The segment’s profit was $46.1 million, up 15.3% from $40 million recorded during the corresponding quarter of 2010. The progress was derived from increased paint sales volume and favorable foreign currency translation rate changes.
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