What Did Sherwin-Williams Company (SHW)’s Investor Day Tell Us?

While Ace is initially dilutive, toward the end of the year, the company should see improvements in contribution as the Valspar brand (higher price point and margin) starts to shift the mix favorably.

The company announced $18 million to $23 million in cost-reduction charges and ~$30 million of efficiency improvement CAPex for both its North America and Australia asset base. In total, this spend should result in ~$0.10 of incremental EPS in 2015. Additional upside on more cost take-outs (i.e. paint manufacturing facility rationalizations) is probable as well.

A story quite similar to Valspar

A story quite similar to Valspar is that of PPG Industries, Inc. (NYSE:PPG). The giant coatings producer and the number-two global producer of paints and coatings generated annual revenue of ~$15 billion in 2012.

PPG Industries, Inc. (NYSE:PPG) makes a large chunk of its sales from paint and coatings. However, the end market of paints in this case is not only houses. It is also used in the automotive and aerospace industries. And we all know that both of these industries are booming right now. Auto sales (SAAR) for May reached a five-year high level. Similarly, companies like The Boeing Company (NYSE:BA) believe that the demand for commercial aircraft (small and fuel-efficient) is rising day by day. The company also gets revenue from large flat glass and optical material, which helps it to diversify its revenue base.

Final word

Increasing volumes, declining raw material prices, new acquisitions in this space and consequent industry consolidation mean that the paint and coatings industry is poised to fly higher despite sluggishness in non-res construction markets.

The article What Did Sherwin’s Investor Day Tell Us? originally appeared on Fool.com is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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