The Sherwin-Williams Company SHW (NYSE) Strategic Analysis ————————————————- SWOT ANALYSIS StrengthsWeaknesses Strong financial performanceHigh debt to equity ratio Wide product portfolioIncrease in current liabilities Strong market presence OpportunitiesThreats Global demand for coatings market Consolidation in chemical industry Opening new storesForeign exchange risks Strategic acquisitionEnvironmental regulations The Sherwin-Williams Company is viewed as one of the leading paint manufacturing and retailing companies in the US.
Some of their key strengths are a strong market presence, wide product portfolio, and strong financial performance. Some major areas of concern are a high debt to equity ratio and increasing current liabilities. Going forward, the risks associated with foreign exchange risk, environmental regulations, and consolidation in chemical industry may impede its business growth. However, ample growth opportunities for the company are obtainable through strategic acquisition, opening new stores and increasing global market for coatings. Strengths: Strong financial performance FY2010 reflected an impressive financial performance for the company.
They registered total revenue of US$7,776. 42 million in the FY2010, up 9. 62% on an annual basis from US$7,094. 25 million in the FY2009. The increase in revenue was principally due to the acquisition of two industrial wood finishes businesses(Sayerlack and Becker Acroma). These two acquisitions increased revenues for FY2010 by more than US$440 million. Also, their operating profit increased by 8. 82% from US$622. 82 million in the FY2009, to US$677. 78 million in the FY2010. Simultaneously, the company net income increase by 6. 11% to US$462. 49 million in the FY2010 from US$435. 5 million in the FY2009. Based on such strong financial performance, the company can aggressively pursue its growth and expansion plans. Wide product portfolio Having a broad business portfolio helps the company to serve the diverse needs of its customer base. Sherwin-Williams develops, produces, distributes and retails paints, coatings and related products. They also produce paints, stains, painting tools and equipments for a wide variety of customers such as residential and commercial builders, architectural and industrial painting contractors, property owners and managers.
Their portfolio includes products for their Paint Stores group segment, Consumer Group segment, and the Global Finishes Group segment. In addition to its merchandise offerings, it also provides painting related services such as color sampling, wood finishing systems and services, inventory management and equipment repairs. This broad product portfolio has allowed them to obtain a higher market share and increase their revenues. Strong market presence A strong market position allows them to attract a huge customer base, ensuring strong top-line performance.
Sherwin-Williams is one of leading manufacturers in the coating industry in the US. In Europe, their subsidiaries, Sayerlack and Becker Acroma are recognized as the leading coating companies. Another subsidiary, Pinturas Condor is the largest paint and coatings company in Ecuador. The company offers a wide portfolio of market leading brands such as Sherwin-Williams, ProMar, SuperPaint, A-100, Duron, PrepRite, Duration, Master Hide, ProClassic, Classic 99, MAB, Columbia and ExpressTech. Such a strong market presence of the company helps it to generate increased demand for its offerings, driving the revenue. Weaknesses:
High debt to equity ratio This ratio may place the company in a risky position in paying off its high interests. Their debt to equity ratio was 70. 12 in the FY2010, which was much higher than Chemicals – Commodity industry’s average debt to equity ratio of 29. 91. The increased debt to equity ratio was due to 27. 79% annual increase in debt, from US$817. 61 million at the end of the FY2009 to US$1,044. 79 million at the end of the FY2010. This higher debt to equity ratio compared to the industry may indicate that the company’s poor ability to meet its obligations, which in turn may affect its business operations.
Increase in current liabilities Substantial increase in current liabilities weakened the company’s liquidity position. Its current liabilities were US$2,063. 94 million at the end of FY2010, a 48. 09% increase compared to the previous year. However, its current assets recorded a marginal increase of 25. 07% – from US$1,770. 02 million at the end of FY2009 to US$2,213. 72 million at the end of FY2010. Following this, the company’s current ratio declined from 1. 27 at the end of the FY2009 to 1. 07 at the end of FY2010.
A lower current ratio indicates that the company is in a weak financial position, and it may find it difficult to meet its day-to-day obligations. Opportunities: Global demand for coatings market The growing market for global coatings will certainly benefit the company. Market analysts expect the global coatings market to reach US$98. 69 billion by 2015. This expected increase is primarily due to economic activity, rapid industrialization, and increasing demand from automotive and construction sectors in developing countries.
The Asian market is also forecast to increase at a compounded annual growth rate of 4. 2% through 2015. Being a manufacturer of paints and coatings, the company can tap this growing market. Opening new stores The company’s expansion plans of new stores will attract huge customer base. During the FY2010, the company’s Paint Group segment opened 49 new stores, of which 40 in the US, six in Canada, two in Trinidad and one in Jamaica. Also, during the FY2001, the company increased its total stores to 3,390 compared to 3,354 in the FY2009.
For FY2011, the company is planning to open 50 to 60 new stores. This expansion plan will provide competitive edge over its peers in the industry. Strategic acquisition Their focus on expanding its global presence will provide further growth opportunities. As an example, the company acquired Becker Industrial Products AB in September 2010, one of the largest manufacturers of industrial wood coatings globally. Becker Acroma operates nine manufacturing facilities, 19 mixing sites and 13 technical centers around the world.
This acquisition will allow them to expand its quality products and customer service while also strengthening its growing global platform to better serve customers around the world with outstanding technology, assets, and people. Strategic acquisitions such as this will enhance the company’s global expansion, ensuring top-line performance. Threats: Consolidation in chemical industry Merger and acquisition activities in the chemical industry could present a potential threat. The global chemical M&A deals are expected to be more active in 2011.
In the first three quarters of 2010, total global chemical M&A transactions amounted to US$32 billion, which was higher than full year 2009 value of US$25. 4 billion. Sherwin-Williams may face competition from its peers, which are financially and operationally stronger, apart from becoming a target of such M&A deals. Foreign exchange risks Because they operate in many parts of the world, they are exposed to the fluctuations in foreign exchange rates. Their business operations are conducted in many currencies worldwide.
Significant part of its revenue is denominated in other currencies such as the Russian Ruble, Euro, Brazil Real, Chile peso, and Japan Yen, among others. Although the company has forward currency contracts, there can be no assurance that such hedging activities or measures will significantly limit the impact of movements in exchange rates on the company’s results of operations. As a result, a loss of US$3. 82 million and US$2. 84 million was reports in FY2010 and FY2009 respectively, due to fluctuations in foreign currency exchange rates.
If the same scenario occurs, the company’s business and results of operations may be adversely affected. Environmental regulations These regulations may be affected by the environmental regulations governing the global chemical industry. REACH (Registration Evaluation and Authorization of Chemicals) is an example of the stringent environmental regulations that are set to affect chemical producers. REACH regulates the products manufactured and marketed in Europe by mandating that all companies develop and submit dossiers containing datasets about their chemical products and detail their potential impact and risk on environment.
This could be a challenge while launching a new product as it is a time-consuming and expensive process. It could also result in phasing out many existing chemicals from the market, which may be regarded as toxic and hazardous. REACH directly applies to over 30,000 different chemical substances that are produced or sold in Europe and its implementation is expected to cost European chemical industry about US$3 billion. Regulations for other countries are expected to follow the same model. Similar regulations have already been implemented in the US with the reform of Toxic Substances Control Act.
Such stringent environmental regulations could affect both existing and new products for the company. KEY PERSONNEL Christopher M. Connor, Chairman, Chief Executive Officer Since 2000, ? Age 54 Mr. Connor has been the Chairman of the company, since 2000 and has also been the Chief Executive Officer since 1999. From 2005 to 2006, he served as the President of the company and was the vice chairman from 1999 to 2000. He served as the President, Paint Stores Group of Sherwin-Williams from 1997 to 1999. He is also a Director of Eaton Corporation and National City Corporation.
John G. Morikis, Chief Operating Officer, President Since 2006, ? Age 47 Mr. Morikis has been the President and the Chief Operating Officer of the company, since 2006. Prior to this, he served as the President, Paint Stores Group from 1999 to 2006. He joined the company in December 1984. Sean P. Hennessy, Chief Financial Officer – Finance, Senior Vice President Since 2002, ? Age 53 Mr. Hennessy has been the Chief Financial Officer the company, since 2002. He has also been the Senior Vice President – Finance of the company, since August 2001.
Mr. Hennessy joined the company in September 1984. CORPORATE CULTURE AND SOCIETAL EXPECTATIONS/RESPONSIBILITIES Corporate Culture Sherwin Williams has a positive corporate culture and through education assistance is willing to give its employees the skills to become what they would like to be. Additionally they have excellent training that is provided in a scheduled manner to make sure that everyone has the up to date information. They also have cutting edge technology that facilitates the sales process.
Sherwin-Williams has been recognized among Fortune Magazine’s 100 Best Companies to Work For in 2005, 2006, and 2008. Seven core values drive their culture and guide Sherwin-Williams as a team and as a company. These values are Integrity, People, Service, Quality, Performance, Innovation and Growth. The company ensures that these values are reflected in their people, their products, and their business practices and relationships. They also provide opportunities for advancement. More than 90% of placements into managerial and professional positions in the Paint Stores Group come from within the company.
Over 700 college recruits are hired every year into their Management/Sales Training Program and receive training in different divisions and functions. Sherwin-Williams is also well respected for their benefits package. Is considered one of the best in the business. Besides the common short-term benefits like health and dental insurance, they also offer benefits that grow over a lifetime. They offer: * Health ; Dental Insurance * Group Life ; Accidental Death ; Dismemberment Insurance * Supplemental Life Insurance * Voluntary Personal Accident Insurance Disability Insurance (Short ; Long-term) * Matching 401(k) and Pension Programs * Vacation and Holidays * Employee Discount Program * Tuition Aid * Adoption Assistance Societal Expectations Sherwin-Williams believes that it is their calling to manufacture and market innovative products while still operating a safe, clean and friendly workplace and observing the highest ethical standards in business. In 2009, they presented their first, Corporate Social Responsibility Report — a report that demonstrated the actions behind their beliefs.
To them, Corporate Social Responsibility means to act in a way that reduces their impact on the world around us. They believe they have the most comprehensive line of environmentally responsible products. They also have a number of other brands sold around the world that seek to reduce their impact on the environment. Sherwin-Williams believes it’s important to participate in healthy discussions — and create action plans — with input from those around them. That is why they are actively engaged with government agencies and industry organizations that value sustainable practices as much as they do.
Some of these agencies are: * U. S. Environmental Protection Agency (EPA) Climate Leaders Program * National Paint ; Coatings Association Coatings Care Program * CLEARCorps National Lead Extraction Program * EPA Smart Ways Fuel Efficient Transportation Program * U. S. Green Building Council * National Association of Home Builders — Green Building Council In July 2008, Sherwin-Williams launched EcoVision, an internal company-wide initiative that challenges every employee to look for and implement ways to reduce the company’s impact on the environment.
The programs mission is to assist Sherwin-Williams to be recognized as a leader in the development of sustainable processes, product and activities that are profitable, preserve natural resources, and contribute to social improvement. Their contribution to social improvement has been demonstrated through The Sherwin-Williams Foundation. In 2007, the Foundation launched the Sherwin-Williams Grant, a $50,000 cash award given annually to a charity committed to either children’s health or educational programs that lead to economic independence.
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