Ahead of Sherwin-Williams Company (NYSE:SHW) reporting its figures for the first quarter, Nomura Holdings, Inc. (ADR) (NYSE:NMR) showed optimism and changed the stock’s rating to a buy. Afterwards, the company issued its earnings, which were so positive that the stock shot up and is expected by the analyst to stay high for rest of the year.
But did Sherwin-Williams Company (NYSE:SHW)’s figures really merit that reaction? While its competitors are flogging paint pots like there’s no tomorrow, the company is recouping after the shock of losing a big client. How will Sherwin-Williams move forward? Is it fighting a losing battle?
Not good enough
In the first quarter, Sherwin-Williams Company (NYSE:SHW) showed a 1.4% increase in sales, compared to the previous year. Comparable-store sales (statistics used in the retail industry, which compare sales of stores that have been open for at least 12 months), were slightly higher at 3.2%. But the figures were not as good as they could have been.
Previously, RPM International Inc. (NYSE:RPM) revealed excellent figures to the market – and performance was much better than Sherwin-Williams’ results – so Sherwin needs to start catching up. If we look at the first-quarter sales for RPM, they have increased by 9%. And as for net profits, RPM International Inc. (NYSE:RPM)’s have risen 31% year-over-year.
Taking advantage of the housing industry
One explanation for RPM International Inc. (NYSE:RPM)’s success could be that its industrial market presence is greater than Sherwin’s. More than 65% of RPM’s revenue comes from the company’s industrial segment, which is also its biggest. In this division, sales saw 6.1% growth in the quarter and acquisitions added around 4% to this.
There is also movement in the construction industry’s commercial side, and this could also be helping to increase RPM’s sales. In commercial construction, the US total spend in February rose by 3.2%, compared to the same period the previous year. But if we look at Sherwin-Williams, more than 60% of its sales can be attributed to consumers.
The bottom line is that RPM also outran Sherwin on the retail side. RPM’s retail customers were to thank for the extraordinary 15% bump in sales. This is notably better than the 4.2% sales increase that Sherwin-Williams Company (NYSE:SHW)’ paint stores were getting. And once more, due to acquisitions, another 11% could be added on to RPM’s list of achievements.
So in the paints market, RPM is moving along in leaps and bounds, especially thanks to its latest acquisitions, and Sherwin should be concerned. Plus there’s even worse news of Sherwin-Williams. RPM is by no means all it has to worry about, because there are other companies moving in to grab more pieces of the market.
Major client loss
There is one major factor that has contributed to Sherwin-Williams Company (NYSE:SHW)’s decreased earnings and that is its loss of a major client, Wal-Mart Stores, Inc. (NYSE:WMT). Their squabble and subsequent separation first became public knowledge back toward the end of 2010, but even now it is still wreaking havoc on Sherwin’s top line.
It is this sole factor that explains why Sherwin’s consumer sales were reduced to a mere 4% in the last quarter. It is obvious that its fallout with Wal-Mart Stores, Inc. (NYSE:WMT) has cost the company dearly, especially as the company is still trying to recover from the loss now in 2013. And you’ll probably want to know who took Sherwin-Williams’ place? It was PPG Industries, Inc. (NYSE:PPG) and its Glidden brand.
Other paint brands
Glidden paints is a prized brand, taken over by PPG in the recent past and now included in its range alongside Akzo Nobel’s coatings business for the architectural sector, which PPG Industries, Inc. (NYSE:PPG) also nabbed for a mere $1 billion. It was PPG’s Glidden paints that successfully pushed Sherwin-Williams’ Dutch Boy brand out of Wal-Mart Stores, Inc. (NYSE:WMT) in late 2010. Since then, PPG’s revenue has grown 5% and its earnings have increased 8%.
Post-acquisition, PPG Industries, Inc. (NYSE:PPG) is now officially the world’s biggest paint and coatings business. This is a bitter pill for Sherwin-Williams Company (NYSE:SHW) to swallow, because it was the company previously enjoying the position. With the help of this deal the company delivered strong performance in the first quarter for its coatings segment with 13% year-over-year earnings growth. Since this has traditionally been Sherwin’s territory, and since it now looks like PPG is moving in on it, Sherwin really need to get up and hone its game.