Sherwin-Williams to Buy Comex - Analyst Blog

By Zacks | November 15, 2012 AAA

The Sherwin-Williams Company (SHW) announced that it has entered into an agreement to buy Mexico's leading paint company Consorcio Comex S.A. de C.V. for approximately $2.34 billion, including debt. The transaction is expected to close after the completion of all the necessary regulatory approvals.

The acquisition will be a strategic and cultural fit for both Sherwin-Williams and Comex Group. With the acquisition of Comex, Sherwin-Williams will be able to expand its presence in those markets, where its store count is low. Further, the company will be able to expand its architectural paint business in America.

Consorcio Comex sells paints and coatings under several brands in the United States and Canada. The company also sells architectural and industrial coatings in Mexico. It not only has company-operated stores but also works with independent paint dealers. The company is based in Mexico and had annual sales of $1.4 billion in 2011.

Sherwin-Williams is a global leader in the manufacture, development, distribution, and sale of coatings and related products to professional, industrial, commercial, and retail customers. Last month, the company released its third-quarter 2012 results.

The company's adjusted earnings of $2.29 per share surpassed the Zacks Consensus Estimate of $2.19. The adjusted earnings exclude a negative currency translation impact of 5 cents a share. Including that impact, earnings came in at $2.24 per share in the reported quarter compared with $1.71 a year ago. Net sales for the quarter increased 4.8% year over year to $2.60 billion, but missed the Zacks Consensus Estimate of $2.67 billion. The growth was driven by an increase in paint sales volume and selling price, partially offset by the negative impacts of currency translation.

Sherwin-Williams' philosophy is to diversify its customer base and expand its operations into various geographies. The company follows a strategy of growing through acquisitions and internal initiatives, such as efficient working capital management and innovation. This policy enables the company to somewhat reduce its dependency upon prevailing market conditions.

However, Sherwin-Williams is facing higher costs for raw materials, including titanium dioxide in the Consumer group segment, which primarily sells paints to the company's Paint Stores Group segment.

Sherwin-Williams competes with companies like E. I. du Pont de Nemours and Company (DD) and PPG Industries Inc. (PPG). The company retains a Zacks #2 Rank, which translates into a short term rating of Buy and we have a long-term Neutral recommendation on the stock.

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