Monday, July 23, 2007

Sherwin Williams On A Roll

The lead paint discussion now a days does not even merit the attention of CEO Chris Connor as it's brief 3 sentence mention was relegated to the PR dept. Good, too much was made of it anyway from the beginning.

As always, SHW delivered consistent results and based on the stock price action, (up 8%) not too many folks had realized that Sherwin was a global company that did not just sell paint to the US housing market. With housing retailers like home Depot (HD) and Lowes (LOW) suffering, the consensus was that Sherwin would also. Yet another reason to ignore the "consensus".

- Raised expectations for diluted net income per common share for the year to a range of $4.60 to $4.70 per share compared to $4.19 per share last year.
- Paint Stores segment opened 13 new stores, bringing the total new stores for the first half of the year to 30. At this pace, they remain on track to open around 100 net new stores during the year.
- Commitment to control distribution as planned it in the past extends beyond North America.
- Global Group additionally opened nine new stores and branches during the quarter including the 131 MAB stores reopened or acquired, the total of 153 stores during the second quarter and that brings year-to-date total to 180 additional stores
- Cash flow up $46 million to $349 million and bought back 1.3 million shares and has 88 million shares authorized under the current plan
- Declared an 31.5 cent dividend that will increase to 35.25 cents a share next year if the $4.70 guidance is achieved.
- Closed the MA Bruder deal

All in all a great quarter. Can you imagine what they would have done had the US housing market not been in a slump? If you have not been in a Sherwin paint store, they are great and are popping up all over the place. This is a great way to access the DIY crowd and based on results, it is working.

The real story with Sherwin is the overseas operations. With each quarter that passes, the expansion there decreases the impact of the US housing market and turns Sherwin into more of a global player rather that a regional one. Estimates going forward need to take this into account. ValuePlays has been stumping this fact since January and hopefully this quarters results may have convinced more people out there. The key will be the Nitco paints acquisition as, according th CEO Connnor "Nitco Paints is a leading manufacturer and distributor of exterior specialty paints and coatings headquartered in Mumbai, India. Although, a relatively small in total revenues today, Nitco will provide us with the platform in which to grow our presence in the dynamic and growing Indian market."

Sherwin will grow abroad through transaction like Nitco and it will be come the dominant player in that area of the world. There is no reason to stop trusting Connor now..

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