Cost Cuts Help Sherwin Williams

Net earnings of $1.51 per share for paint and coating maker Sherwin Williams Company (SHW - Snapshot Report) in the third quarter of 2009 exceeded the Zacks Consensus Estimate of $1.35 per share and improved marginally from the $1.50 reported in the same period of the previous year.

Cost reduction helped the modest improvement in profits. In the first nine months of 2009, the company reduced its selling, general and administrative expenses by nearly $94 million, and improved its working capital ratio to 12.5% from 13% last year.

Net sales in the quarter declined 64% year over year to $2 billion. Weak demand in the residential and commercial architectural paint market and lower sales in industrial coatings and non-paint categories lead to a 13.5% decrease in net sales in the Paint Stores segment to $1.22 billion.

Net sales of the Consumer Group decreased 7.1% to $330.5 million in the quarter, primarily due to lower demand from retail customers. The Global Finishes Group net sales were down 11.3% to $444.1 million in the quarter, driven by unfavorable currency translation, which impacted net sales of the segment by 6.4% or $1.7 million.

During the quarter, Sherwin Williams repurchased about 3.88 million shares. At Sept. 30, 2009, the company had authorization remaining to purchase 14.87 million shares.

Sherwin Williams has also released guidance for the fourth quarter and full year 2009. The company expects diluted net income of 35 cents to 55 cents in the next quarter.

In the fourth quarter, the company anticipates consolidated net sales to decrease 8% to 12% from the same period of the previous year. For the full year 2009, the company anticipates net income to be within $3.52 to $3.72 per share compared to $4.00 per share earned in 2008.

Net sales for full year 2009 are expected to be 11.5% to 12.5% lower than 2008. Sherwin Williams expects weak paint demand in the Global Finishes division in the rest of 2009. We maintain our Neutral recommendation on the stock.