Sherwin Williams: Continues to Defy Investors

Sooner or later investors are going to catch on to the fact that Sherwin Williams (SHW) is not a "housing stock". First the results:

• Consolidated net sales increased 2.5% in the year to a record $8.01 billion.
• Diluted net income per common share increased 12.2% in the year to a record $4.70 per share including a goodwill impairment charge of approximately $.08 per share.
• Earnings before interest, taxes, depreciation and amortization increased $100.7 million in the year to a record $1.148 billion.
• Net operating cash increased $58.7 million in the year to a record $874.5 million.
• Seven acquisitions completed during 2007 increased consolidated net sales 1.4% in the year and 2.9% in the quarter.
• The Global Group’s segment profit improved 23.2% in the year and 34.1% in the quarter.
• The Company purchased 3,000,000 shares of its common stock in the quarter and 13,200,000 shares in the year.
• The Company had remaining authorization at December 31, 2007 to purchase 27,000,000 shares (out of 124 million outstanding).

CEO Chris Connor said:

In the first quarter of 2008, we anticipate achieving a low-to-mid single digit percentage increase in consolidated net sales versus the first quarter of 2007. At that anticipated sales level, we estimate diluted net income per common share in the first quarter of 2008 will be in the range of $.72 to $.80 per share compared to $.83 per share earned in the first quarter of 2007. For the full year 2008, we expect to achieve a low-to-mid single digit percentage increase in consolidated net sales over 2007. With annual sales at that level, we anticipate diluted net income per common share for 2008 will be in the range of $5.00 to $5.15 per share compared to $4.70 per share earned in 2007.

Simply put, at the low end of the earnings range, Sherwin will trade at a PE in 2008 of 11 and will grow EPS 6.3% to 9.5% and sport a 2.2% yield. Connor and company made some brilliantly timed acquisitions that were immediately accretive in 2007 to earnings due to the prices paid for them. Sherwin sits on plenty of cash for either additional purchases or to finish to share repurchases. Sherwin has averaged about $200 million a year in share repurchases recently and given its cash from operations, that will be easily attainable in 2008 without the addition of debt.

Can you imagine what this company will do when housing does turn?

Disclosure ("none" means no position): Long Sherwin