Financial Analysis for Sherwin-Williams

Financial Analysis for Sherwin-Williams

Financial Analysis Report

Sherwin-Williams 2010 Analysis Report

History

In 1866, Henry Sherwin bought a partnership in the Truman Dunham Company of Ohio. This company was a distributor of pigments, painting, supplies, oils, and glass. When that partnership dissolved, Sherwin organized a new partnership with Edward P. Williams and A. T. Osborn and called it Sherwin-Williams & Company. In 1873 they purchased their first factory which manufactured paste paints, oil colors and putty.

In the 1870's prepared paints (premixed) were only available during the painting season (spring) because they needed to be stirred continuously to prevent the pigment from sinking to the bottom of the container. Paint needed to be used immediately otherwise it would dry up. For these reasons, shipping paint was rarely shipped to far away places.

In 1877, the company developed the first patented reclosable paint can. This development changed the way that paint could be used, stored and reused over multiple periods of time. The company continued to develop new products and a few years later, they made the first mixed paint.

By 1884, the partnership had dissolved but Sherwin and Williams incorporated what is now known as The Sherwin-Williams Company. Adding to their team, the duo hired a gentleman, Percy Neyman. He was the industry's first paint chemist. Neyman had a huge impact on the research and development of new products for the company and also for the industry.

The company opened their first manufacturing facility near Chicago in 1888 and realized that they needed to advertise their products to keep growing. They created a department specifically for their marketing and shortly after that, they opened their sales agency in Worcester Massachusetts. Their trademark catch phrase "Cover the Earth" was created and promoted in 1905.

In 1959, Sherwin Williams introduced in-store mixing. This creation lowered inventory costs for both manufacturing and retailing stages of the business. Customers also benefitted from being able to choose from a larger range of colors and shades.

Jumping forward to World War II, the company supplied camouflage paints for the armed forces. They also received a commission to load shells, anti-tank mines, and aerial bombs, and in order to keep up with the demand, they had to construct a plant in Illinois. During this time, the company continued to work on new products. But by 1977, the company was struggling and had reported a loss of $8.2 million. The company's borrowing increased dramatically and rumors of a takeover was likely.

John Breen, the company's new president and CEO was able to bring the company back and elude the takeover from Gulf & Western Industries (who at the time held over 13% of Sherwin-Williams' stock) in 1979. Breen managed to persuade the chairman of Gulf & Western to sell their shares back to Sherwin-Williams. He was able to convince the chairman that their holdings were a liability and that Sherwin-Williams wouldn't be able to recover financially if a takeover was to happen, and that the shares were no longer a sound investment. Breen then reorganized the management, discontinued slow selling products and cut the company's long term debt. Within the first year, Breen managed to improve the earnings by 57% and 15 years after he took over, he managed to more than double the company's revenue and create an almost debt-free balance sheet.

In 1985, the company sold its chemical operation but purchased Western Automotive Finishes, Krylon and many others. More recently, Sherwin-Williams has brought its product line through a series of sales and acquisitions. These acquisitions which have contributed to their success and have paid off so well that in 1991, they had reported a 2.9% increase in revenues.

The company's performance needed to keep up with the times, so they developed an automated control system for its distribution centers. This technology used bar coding and radio frequency to improve efficiency and accuracy of processing orders.

Over 125 years later, Sherwin-Williams has become only one of a few companies to lead in its chosen industry for over a century.

Main Strategy and Goals

The strategy of paying suppliers later lowers the inventory and strengthens their liquidity by forcing efficiencies in inventory management.

China is the second largest market for paint products and the company's intention is to capture 60% of this market; they have already opened several factories in the country. The exposure in China and other international locations will help offset the negative U.S. housing