Sherwin-Williams said it expects FTC approval to acquire Valspar paints and coatings within the next 90 days.
CLEVELAND, Ohio -- The Sherwin-Williams Co. announced that its 2016 net sales increased 4.6 percent, or $516.3 million, to a record $11.86 billion.
For the fourth quarter, sales rose 6.8 percent, or $178 million, to $2.78 billion, because of higher paint sales and a previously announced change in revenue classification.
Sherwin-Williams says it still expects to buy rival Valspar paints this year. The Cleveland-based paint company said it still anticipates acquiring Minneapolis-based Valspar Corp. paints and coatings company early this year, at a price of $113 per share, even though it is still awaiting approval of the deal from the Federal Trade Commission. Valspar is a consumer-focused brand of paint sold in home-improvement stores.
That deal, first announced on March 20, 2016, would be the largest acquisition in Sherwin-Williams' 150-year history, creating a global paint company with combined revenues of about $15.6 billion, adjusted profits of $2.8 billion, and about 58,000 employees worldwide. The proposed merger has been unanimously approved by the boards of directors of both companies, but still needs FTC approval.
"We are moving forward on a divestiture that we believe will allow us to gain approval from the FTC," said Sherwin-Williams' Chairman, President, and CEO John G. Morikis, in a written statement. "The expected divestiture has revenues below the $650 million threshold, and we expect to negotiate the divestiture and complete the Valspar transaction at $113 per common share within 90 days."
When analysts pressed for more information, he said on Thursday that "We're very pleased with the progress we're making. The business that has to be divested has been identified, and we're working through the FTC with that, to that process, but we're really not going to expand to much greater than that right now."
When asked if the change in the FTC's leadership would affect the timing of the Valspar deal, Morikis said he did not expect it to.
Sherwin-Williams' 2016 diluted net income per common share rose to $11.99 per share, including 86 cents per share in costs associated with the Valspar acquisition, up from $11.15 per share the previous year.
Sherwin-Williams reported profits of $203.03 million for the fourth quarter, and $1.13 billion for 2016 as a whole.
-- Net sales in its Paint Stores Group increased 9.8 percent to $1.84 billion during the fourth quarter, and 8.1 percent to $7.79 billion for 2016.
Net sales at paint stores open at least a year, an important retail metric, increased 5.5 percent during the quarter and 5.3 percent for the year.
Paint sales to contractors increased to a high single digit growth as they tackled a backlog of projects from earlier in the year, Morikis said.
"Sales to residential repaint contractors rebounded to a double-digit growth rate marking the 11th quarter of double-digit growth in the past 13 quarters," Morikis said. Sales of protective and marine coatings were down during the quarter, but had little impact on results in the Paint STorenegative in the quarter.
-- Net sales in its Consumer Group increased 0.4 percent to $315.9 million for the quarter and 0.4 percent to $1.58 billion for the year, primarily because of higher paint sales volumes to its retail customers.
-- Net sales in its Global Finishes Group were flat at $455 million for the quarter, and decreased 1.4 percent to $1.89 billion for the year, because of unfavorable currency translations.
-- Net sales in its Latin America Coatings Group increased 8.3 percent to $171.8 million during the quarter, and decreased 7.0 percent to $586.9 million for the year, because of unfavorable currency translation rates and lower paint sales volumes partially offset by higher prices.
The company says it had $889.8 million in cash available as of Dec. 31, 2016, to fund the expected Valspar acquisition.
"It is gratifying to report another year of record performances in sales, net income, earnings per share, and earnings before interest, taxes, depreciation and amortization," Morikis said.
"We continue to generate significant cash from operations allowing us to invest in the business and return a substantial portion to our shareholders. In 2016, we generated net operating cash flow of $1.31 billion." The company also increased its annual cash dividend 25 percent during the year, to $3.36 per common share.
In 2016, Sherwin-Williams opened 39 net new stores during the fourth quarter, for 84 net new locations in 2016, and finished the year with 4,180 stores in the U.S., Canada, and the Caribbean.
"We remain confident that our next milestone of 5,000 locations in North America is realistic, and we intend to add another 90 to 100 stores this year," Morikis said.
Sherwin-Williams expects net sales to increase by a mid-to-high single-digit percentage in the first quarter of 2017, and diluted net income per common share of $1.45 to $1.55 per share.
For 2017 as a whole, the company forecasts net sales to increase by a mid-single-digit percentage, and diluted earnings-per-share to range between $13 and $13.20 in 2017, including about 80 cents per share in costs related to the Valspar deal.