CLEVELAND, Ohio – Paint and wood coatings specialist Sherwin-Williams reported a 5.6% drop in consolidated net sales during the second quarter ended June 30, due primarily to softness in demand related to COVID-19.
Consolidated net sales fell to $4.6 billion during the quarter, compared to nearly $4.9 billion in the second quarter of 2019. During the first six months, consolidated sales fell 1.9% to $8.75 billion, from $8.9 billion during the first half of 2019.
The company said that the quarterly decrease was due to impacts from COVID-19, which caused softness in demand in some end markets in the Americas Group and the Performance Coatings Group. In addition, the change was attributed to unfavorable currency translation rate changes, which were partially offset by higher sales to most of the Consumer Brands Group’s retail customers.
The company estimated that the pandemic’s impact on consolidated net sales during the quarter and first six months was 8.2% and 5.2% respectively.
Net income during the quarter was $595.9 million, or $6.48 per diluted share, compared with $471 million, or $5.03 per diluted share in the second quarter of last year, a 26.5% increase. For the six-month period net income was $917.6 million, or $9.93 per diluted share, up 28.1% from the $716.2 million, or $7.65 per diluted share reported during the first half of 2019.
The second quarter 2020 included a charge of 62 cents per share for acquisition-related amortization expense. Second quarter 2019 included charges of 63 cents per share for acquisition-related amortization expense, 12 cents per share for integration costs and 79 cents per share for a tax credit investment loss.
The first six months of 2020 included a charge of $1.24 per share for acquisition-related amortization expense, while the first six months of 2019 included charges of $1.27 per share for acquisition-related amortization expense, 19 cents per share for integration costs, 79 cents per share for a tax credit investment loss and 27 cents per share for pension settlement expense.
Net sales in The Americas Group fell 8.4% to $2.52 billion during the second quarter and decreased 1.7% to $4.83 billion in the first six months. This was due primarily to the impacts of COVID-19 on demand in most end market segments served, the company said. It also was partially offset by higher DIY paint sales in the U.S. and Canada.
Net sales from stores in the U.S. and Canada open for more than 12 calendar months decreased 6.9% and 0.7% in the quarter and first six months, respectively, over last year’s comparable periods. Segment profit decreased $12.7 million to $599.7 million in the quarter due primarily to lower paint sales volume, partially offset by moderating raw material costs and good cost control. Segment profit increased $44.5 million to $988 million in the first six months primarily due to strong first quarter sales volume momentum realized prior to COVID-19 and favorable customer and product mix.
Net sales of the Consumer Brands Group rose 21.8% to $980.2 million in the quarter and rose 9.8% to $1.6 billion in the first six months of the year. The company attributed the increases primarily to higher volume sales to most of the group’s North American and European retail customers. This was partially offset by softer sales in the Asia Pacific region.
Segment profit rose to $237.4 million in the quarter from $140.7 million in the second quarter last year due primarily to higher volume sales, moderating raw material costs, good cost control and actions taken over the past year to improve international operating margins.
In the first six months, segment profit increased to $320.9 million from $228.6 million in the first six months last year primarily due to higher volume sales, moderating raw material costs, good cost control and actions taken over the past year to improve international operating margins.
Net sales in the Performance Coatings Group fell 16.5% to $1.10 billion and fell 9% to $2.3 billion in the first six months. The decreases were due primarily to softer end market demand in most businesses, partially due to the impacts of COVID-19, and unfavorable currency translation rate changes. They were partially offset by increased sales in the Performance Coatings Group packaging division in all regions.
Meanwhile, currency translation rate changes decreased the group’s net sales by 3% and 2.6% in the quarter and first six months, respectively.
Segment profit decreased in the second quarter to $97.4 million from $150.3 million in the second quarter last year and to $211.1 million in the first six months from $249 million in the first six months last year due primarily to sales volume decreases. This was partially offset by moderating raw material costs and good cost controls.
The company said that it generated $1.07 billion in net operating cash during the first six months of the year, up 42% from compared to the first half of 2019. This was primarily due to an increase in earnings and improved working capital management. The company noted that its liquidity remains strong as it has $188.1 million in cash and $2.96 billion in unused capacity under its revolving credit facilities as of June 30.
John G. Morikis, chairman and CEO, said of the results, “My sincere thanks goes to our entire global team for their resilience and determination in bringing solutions to our customers under very challenging circumstances this quarter. Consolidated net sales improved sequentially in each month of the quarter, led by unprecedented demand for architectural DIY paint in North America. While sales were down by a mid-single digit percentage overall, favorable customer and product mix, lower input costs and strong spending controls enabled us to deliver significantly improved performance compared to last year’s second quarter. Gross margin expanded 330 basis points to 48%, and adjusted earnings per share increased 8.1% to $7.10 per share. Adjusted EBITDA grew 6.2% to $979 million, or 21.3% of sales, compared with 18.9% in second quarter last year.
“In the Americas Group, our teams adjusted quickly to meet customer demand while we temporarily shifted to curbside pickup and delivery, and delivered better than expected sales and profit results with sequential improvement through the quarter,” he added. “In the Consumer Brands Group, higher volume sales through the Group’s North American retail customers resulted in a 21% sales gain and improved segment profit. In the Performance Coatings Group, softening industrial demand and the impact of COVID-19 affected most of the end markets and all of the geographies served.
Morikis added that the company anticipates sequential improvement in demand for the third quarter compared to the second quarter, while some softness in demand is expected to continue some end markets in the U.S. and around the world. Given various trends and indicators, he noted, the company expects third quarter 2020 consolidated net sales will be up or down low single digits compared to the same period last year.
“For the full year 2020, we now expect full year consolidated net sales will be approximately flat to last year,” he added. “Our revised sales guidance continues to reflect uncertainties in the timing and pace of improvement in the U.S. and global environments. Considering our revised sales guidance, we are increasing our diluted net income per share guidance for 2020 to be in the range of $19.21 to $20.71 per share compared with our previous guidance of $16.46 to $18.46 per share and compared to $16.49 per share earned in 2019.
“Full year 2020 earnings per share guidance includes acquisition-related amortization expense of approximately $2.54 per share. Full year 2019 earnings per share included acquisition-related costs of $3.21 per share and other adjustments of $1.42 per share.”