The Sherwin-Williams Company (SHW) Bundle
Understanding The Sherwin-Williams Company (SHW) Revenue Streams
Understanding Sherwin-Williams’ Revenue Streams
As of September 30, 2024, the total consolidated net sales for the company were $17,801.3 million, reflecting a slight increase from $17,799.7 million in the same period of 2023.
Breakdown of Primary Revenue Sources
- Paint Stores Group: Net sales were $10,143.1 million for the nine months ended September 30, 2024, up from $9,894.9 million in 2023, marking a year-over-year growth of 2.5%.
- Consumer Brands Group: Net sales decreased to $2,445.8 million in 2024 from $2,673.3 million in 2023, a decline of 8.5%.
- Performance Coatings Group: Net sales were $5,208.3 million in 2024, slightly down from $5,228.9 million in 2023, resulting in a decrease of 0.4%.
- Administrative: Net sales increased to $4.1 million from $2.6 million, a significant rise of 57.7%.
Year-over-Year Revenue Growth Rate
The overall year-over-year revenue growth rate for the first nine months of 2024 was essentially flat at 0.01% compared to 2023. The breakdown is as follows:
| Segment | 2024 Net Sales ($ million) | 2023 Net Sales ($ million) | Year-over-Year Change (%) |
|---|---|---|---|
| Paint Stores Group | 10,143.1 | 9,894.9 | 2.5 |
| Consumer Brands Group | 2,445.8 | 2,673.3 | (8.5) |
| Performance Coatings Group | 5,208.3 | 5,228.9 | (0.4) |
| Administrative | 4.1 | 2.6 | 57.7 |
| Total | 17,801.3 | 17,799.7 | 0.01 |
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions to overall revenue from different segments were:
| Segment | Contribution to Total Revenue (%) |
|---|---|
| Paint Stores Group | 56.9% |
| Consumer Brands Group | 13.7% |
| Performance Coatings Group | 29.3% |
| Administrative | 0.02% |
Analysis of Significant Changes in Revenue Streams
In 2024, the Paint Stores Group experienced a growth in net sales primarily driven by low-single digit sales volume growth and higher selling prices. In contrast, the Consumer Brands Group faced challenges, with a significant decline attributed to soft DIY demand in North America and foreign currency translation impacts. The Performance Coatings Group remained relatively stable, with sales volume growth offset by unfavorable currency effects.
Foreign subsidiaries reported net sales of $3.370 billion for the nine months ended September 30, 2024, compared to $3.342 billion in 2023. This growth was primarily due to increases in the Europe region, although declines were noted in Latin America and Asia.
A Deep Dive into The Sherwin-Williams Company (SHW) Profitability
A Deep Dive into Profitability Metrics
Profitability metrics are essential indicators of a company's financial health and operational efficiency. For the analyzed company, key profitability metrics include gross profit, operating profit, and net profit margins, along with trends and comparisons against industry averages.
Gross Profit, Operating Profit, and Net Profit Margins
In the third quarter of 2024, consolidated net sales reached $6,162.5 million, with a cost of goods sold (COGS) of $3,135.0 million, resulting in a gross profit of $3,027.5 million. This translates to a gross profit margin of 49.1%, an increase from 47.7% in the same quarter of 2023. The operating profit margin was derived from selling, general, and administrative expenses (SG&A) of $1,893.7 million, leading to an operating profit of $1,133.8 million and an operating margin of 18.4%.
Net income for the third quarter of 2024 was reported at $806.2 million, yielding a net profit margin of 13.1% compared to 12.5% in the third quarter of 2023.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Sales | $6,162.5 million | $6,116.7 million |
| Cost of Goods Sold | $3,135.0 million | $3,200.5 million |
| Gross Profit | $3,027.5 million | $2,916.2 million |
| Gross Profit Margin | 49.1% | 47.7% |
| SG&A | $1,893.7 million | $1,756.5 million |
| Operating Profit | $1,133.8 million | $1,159.7 million |
| Operating Margin | 18.4% | 19.0% |
| Net Income | $806.2 million | $761.5 million |
| Net Profit Margin | 13.1% | 12.5% |
Trends in Profitability Over Time
Over the first nine months of 2024, the company reported total net sales of $17,801.3 million, which is relatively stable with a slight increase compared to $17,799.7 million for the same period in 2023. The gross profit for this period was $8,621.9 million, resulting in a gross profit margin of 48.4%, up from 46.1% in 2023. Net income for the first nine months of 2024 was $2,201.3 million, reflecting a net profit margin of 12.4% compared to 11.4% in the previous year.
Comparison of Profitability Ratios with Industry Averages
The gross profit margin of 49.1% in Q3 2024 exceeds the industry average of approximately 45%, indicating stronger pricing power and cost management. The net profit margin of 13.1% also surpasses the industry average of 10%, reflecting effective operational efficiency and robust sales performance.
Analysis of Operational Efficiency
Operational efficiency can be assessed through the SG&A expenses, which increased by 200 basis points to 30.7% of net sales in Q3 2024, compared to 28.7% in Q3 2023. This increase is attributed to investments in growth strategies, including new store openings and digital technologies. Despite this rise in SG&A, the company managed to improve its gross margin through cost control and operational efficiencies.
In the first nine months of 2024, the consolidated COGS decreased by 4.3% compared to the same period in 2023, primarily due to moderating raw material costs. This improvement in COGS contributed to a higher gross profit and overall profitability.
Overall, the company's focus on enhancing operational efficiencies while managing costs effectively has led to improved profitability metrics, setting a solid foundation for future growth.
Debt vs. Equity: How The Sherwin-Williams Company (SHW) Finances Its Growth
Debt vs. Equity: How The Sherwin-Williams Company Finances Its Growth
As of September 30, 2024, the company had total debt outstanding of $10.140 billion, comprising long-term debt of $9.224 billion and short-term borrowings of $915.5 million.
Debt Levels Overview
The long-term debt consists primarily of senior notes. In August 2024, the company repaid $600 million of its 4.05% senior notes due August 8, 2024, using commercial paper. Subsequently, it issued $400 million of 4.55% senior notes due 2028 and $450 million of 4.80% senior notes due 2031.
Debt-to-Equity Ratio
The debt-to-equity ratio is a crucial metric for assessing financial leverage. As of September 30, 2024, the total shareholders' equity stood at $4.156 billion. This results in a debt-to-equity ratio of approximately 2.44, calculated as follows:
| Total Debt | Shareholders' Equity | Debt-to-Equity Ratio |
|---|---|---|
| $10.140 billion | $4.156 billion | 2.44 |
This ratio is significantly higher than the industry average, which typically ranges between 1.0 and 1.5 for companies in the same sector.
Recent Debt Issuances and Credit Ratings
The company recently entered into a $2.500 billion revolving credit agreement maturing on July 31, 2029. This replaces a previous agreement and may be used for general corporate purposes.
As of September 30, 2024, the company maintained a strong credit rating, which allows it to access capital at favorable rates. The newly issued senior notes included customary qualitative covenants, and the company was in compliance with these covenants at the reporting date.
Balancing Debt Financing and Equity Funding
The company has been actively managing its capital structure to balance between debt financing and equity funding. Over the first nine months of 2024, it generated $2.219 billion in net operating cash, which was used to fund operations and support capital expenditures.
In addition to debt management, the company has repurchased 4.4 million shares of its common stock for treasury purposes during the same period.
In summary, the company’s strategy involves a careful balance of leveraging debt while maintaining a sustainable equity base to finance its growth initiatives.
Assessing The Sherwin-Williams Company (SHW) Liquidity
Assessing Liquidity and Solvency
Current and quick ratios are crucial indicators of a company’s liquidity position. As of September 30, 2024, the current ratio stood at 0.83, a decrease from 0.94 a year earlier. This suggests a tightening liquidity position as current liabilities have increased significantly.
The quick ratio, which excludes inventory from current assets, was not explicitly stated but can be inferred to be lower than the current ratio due to the increase in current liabilities and the potential decrease in liquid assets.
Analysis of Working Capital Trends
Net working capital, defined as total current assets minus total current liabilities, showed a deficit of $1.244 billion at September 30, 2024, which is a deterioration from a deficit of $424.4 million a year prior. This change is attributed to a significant increase in current liabilities, which rose by $594.9 million.
| Metric | September 30, 2024 | September 30, 2023 |
|---|---|---|
| Current Assets | $5.974 billion | $6.198 billion |
| Current Liabilities | $7.218 billion | $6.622 billion |
| Net Working Capital | ($1.244 billion) | ($424.4 million) |
Cash Flow Statements Overview
In the nine months ended September 30, 2024, net operating cash generated was $2.219 billion, a decrease from $2.603 billion in the same period of 2023. The decline was primarily due to increased cash requirements for working capital.
Net investing cash usage increased to $910.8 million from $509.0 million, driven by higher capital expenditures and cash deposits for acquisitions. In terms of financing, net cash usage was $1.346 billion, down from $1.785 billion in the previous year, reflecting increased short-term borrowings and long-term debt proceeds.
| Cash Flow Activity | 2024 (9 Months) | 2023 (9 Months) |
|---|---|---|
| Net Operating Cash | $2.219 billion | $2.603 billion |
| Net Investing Cash Usage | ($910.8 million) | ($509.0 million) |
| Net Financing Cash Usage | ($1.346 billion) | ($1.785 billion) |
Potential Liquidity Concerns or Strengths
Despite the current liquidity challenges indicated by the ratios and working capital metrics, the company maintains a robust cash position with $238.2 million in cash and cash equivalents as of September 30, 2024. Additionally, there is an unused credit facility capacity of $3.026 billion, which provides a buffer against liquidity pressures.
However, the significant increase in total debt, which reached $10.140 billion, indicates a reliance on leverage that could heighten financial risk if cash flow generation does not keep pace with debt obligations. The total debt, net of cash and cash equivalents, amounts to $9.902 billion.
Overall, while the company has strengths in terms of cash reserves and credit facilities, the declining liquidity ratios and increasing working capital deficit warrant close monitoring by investors.
Is The Sherwin-Williams Company (SHW) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze several key financial metrics including the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and enterprise value-to-EBITDA (EV/EBITDA) ratio.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 41.4, which is calculated based on a diluted earnings per share (EPS) of $8.65 for the first nine months of 2024.
Price-to-Book (P/B) Ratio
The price-to-book ratio is currently 4.47, reflecting a book value per share of $193.55.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value is estimated at $14.1 billion, leading to an EV/EBITDA ratio of approximately 3.9 based on an EBITDA of $3.616 billion for the first nine months of 2024.
Stock Price Trends
Over the past 12 months, the stock price has experienced a significant increase, starting from around $298.50 and reaching a peak of $374.36 in September 2024.
Dividend Yield and Payout Ratios
The current dividend yield is 2.00%, with an annual dividend of $2.86 per share, representing a payout ratio of 31% of the diluted net income per share for 2023.
Analyst Consensus on Stock Valuation
Analysts have a consensus rating of Hold for the stock, with a target price of $360.00, indicating a potential downside of approximately 3.8% from the current level.
| Metric | Value |
|---|---|
| P/E Ratio | 41.4 |
| P/B Ratio | 4.47 |
| EV/EBITDA Ratio | 3.9 |
| Current Stock Price | $374.36 |
| 12-Month Low | $298.50 |
| Dividend Yield | 2.00% |
| Dividend Payout Ratio | 31% |
| Analyst Consensus Rating | Hold |
| Target Price | $360.00 |
Key Risks Facing The Sherwin-Williams Company (SHW)
Key Risks Facing Sherwin-Williams Company
Overview of Internal and External Risks
As of 2024, the company faces several internal and external risks that could impact its financial health. These include:
- Industry Competition: The company operates in a highly competitive market, with major competitors affecting pricing and market share.
- Regulatory Changes: Changes in environmental regulations could increase operational costs and impact product offerings.
- Market Conditions: Economic downturns can reduce consumer spending in home improvement and construction sectors.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight several significant risks:
- Debt Levels: Total debt outstanding as of September 30, 2024, was $10.140 billion, with a net debt of $9.902 billion after accounting for cash and cash equivalents of $238.2 million.
- Cash Flow: Net operating cash generated during the first nine months of 2024 was $2.219 billion, a decrease from $2.603 billion in the same period in 2023, mainly due to higher cash requirements for working capital.
- Net Working Capital: The company reported a net working capital deficit of $1.244 billion at September 30, 2024, compared to a deficit of $424.4 million a year prior.
Market Risk
The company is exposed to market risks associated with:
- Interest Rate Fluctuations: Changes in interest rates could affect financing costs.
- Foreign Currency Risks: The company engages in international operations, with net external sales of consolidated foreign subsidiaries reaching $3.370 billion for the nine months ended September 30, 2024.
- Commodity Price Risks: Fluctuations in the prices of raw materials could impact production costs.
Mitigation Strategies
The company employs various strategies to mitigate risks:
- Utilizes derivative instruments to hedge against foreign currency and interest rate fluctuations.
- Maintains sufficient short-term borrowing capacity at reasonable rates to manage liquidity.
- Continues to invest in operational efficiencies, aiming for a targeted capital expenditure of approximately 2% of net sales in 2024.
| Risk Factor | Description | Potential Impact | Mitigation Strategy |
|---|---|---|---|
| Debt Levels | Total debt of $10.140 billion | Increased financial burden; risk of default | Maintain short-term borrowing capacity |
| Cash Flow | Net operating cash decreased to $2.219 billion | Reduced liquidity for operations | Focus on working capital management |
| Market Conditions | Economic downturn affecting consumer spending | Lower sales revenue | Diversify product offerings |
| Commodity Prices | Fluctuating raw material costs | Increased production costs | Long-term supplier contracts |
| Regulatory Changes | Potential changes in environmental regulations | Increased compliance costs | Proactive regulatory engagement |
Future Growth Prospects for The Sherwin-Williams Company (SHW)
Future Growth Prospects for Sherwin-Williams Company
Analysis of Key Growth Drivers
In 2024, the company is focusing on multiple growth opportunities, including product innovations, market expansions, and strategic acquisitions. Key drivers include:
- Product Innovations: The introduction of new product lines, particularly in the eco-friendly segment, is expected to drive sales. The Paint Stores Group reported a 3.2% increase in net sales in Q3 2024, attributed to low-single digit sales volume growth and higher selling prices.
- Market Expansions: The company is expanding its international footprint, with net sales of consolidated foreign subsidiaries increasing to $1.124 billion in Q3 2024 from $1.105 billion in Q3 2023.
- Acquisitions: The acquisition of SIC Holding GmbH in 2023 is expected to enhance the Performance Coatings Group's offerings and improve market share.
Future Revenue Growth Projections and Earnings Estimates
The company projects steady revenue growth, aiming for a 2.5% increase in net sales for the Paint Stores Group, reaching $10.143 billion for the nine months ended September 30, 2024. Overall, total net sales for the first nine months of 2024 were $17.801 billion, marginally up from $17.799 billion in the same period of 2023.
Earnings estimates for 2024 show a diluted net income per share increasing by 10.2% to $8.65 compared to $7.85 in the first nine months of 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is investing significantly in technology and digital initiatives, with an increase in SG&A expenses by $137.2 million in Q3 2024 compared to the previous year. This investment supports new store openings and enhances digital capabilities.
Competitive Advantages That Position the Company for Growth
Competitive advantages include a strong brand presence and a diversified product portfolio across various segments:
- The Paint Stores Group's gross profit increased by $181.8 million in the first nine months of 2024 due to higher net sales and moderating raw material costs.
- The company's total gross profit margin improved to 48.4% for the nine months ended September 30, 2024, compared to 46.1% in the previous year.
Financial Overview
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Sales | $6.162 billion | $6.116 billion |
| Gross Profit | $3.028 billion | $2.916 billion |
| SG&A Expenses | $1.894 billion | $1.757 billion |
| Income Before Taxes | $1.023 billion | $1.009 billion |
| Diluted EPS | $3.18 | $2.95 |
As of September 30, 2024, the company reported total debt of $10.140 billion and cash equivalents of $238.2 million, maintaining a strong liquidity position.
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Article updated on 8 Nov 2024
Resources:
- The Sherwin-Williams Company (SHW) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of The Sherwin-Williams Company (SHW)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View The Sherwin-Williams Company (SHW)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.