Sherwin-Williams Company (NYSE:SHW) is the largest U.S. producer of architectural coatings(house paint) by revenue. The company also produces paint and finishes for automobiles and planes. SHW sells its products domestically and internationally through its own retail stores and through third party distributors. Store expansion has played an important role in SHW's revenue growth over the past few years. In fiscal 2010, SHW opened 35 new branches in the world, totaling to 564 company-operated branches.
SHW sells premium (e.g. high priced) paints to professional painters and has benefited from the growth of its core market as homeowners have increasingly moved away from do-it-yourself paint jobs, in favor of hiring professional painters. Conversely, the company remains exposed to fluctuations in the U.S. housing market. Existing home sales are directly correlated with home improvements, including paint jobs.
SHW has three business segments: the Paint Stores Group, the Consumer Group and the Global Group:
A significant decrease in the quantity of homes sold results in a decrease in touch-up painting by the seller and remodeling painting by the new resident. Whenever a home is sold, there is usually some remodeling involved, and this remodeling will usually involve some form of repainting. Statistics show that a homeowner who has been in a place for 5 years makes an average of only 0.5 paint transactions per year, while a resident who has been there for 2 years or less makes an average of over 7 times that number.
On the other hand, as U.S. demographics have shifted towards more dual-income families, families have found professional paint jobs to be more affordable, while finding themselves with less time for Do-It-Yourself (DIY) projects has . Over the past 30 years the market share of professionals in the residential paint market has grown from 40% to 60%. SHW is well positioned to capitalize on this trend, because its paint stores target the professional user. Additionally, professional users are more likely to buy the high quality (i.e. high priced) paint produced by Sherwin-Williams, and they are more brand loyal than the more price consumer. Most of SHW sales are to professional painters, so this trend has a large positive effect on their total revenue and profitability. In contrast, competitor Masco sells primarily to DIY customers in their kiosks in Home Depot.
SHW has announced plans its intention to capture up to 60% of the Chinese paint market, the second largest market for paint products in the world. . The company opened several factories in the country dedicated to producing finishes for the Chinese market, and within three years the company opened its first franchise store in Shanghai. Since then, it has grown its number of stores rapidly. The company's growing exposure to China and other international destinations, has been instrumental in helping the company to weather the downturn in the U.S. housing market.
The U.S. coatings market can be split into two major segments, the architectural coatings market and the industrial and commercial coatings market. Architectural coatings include interior and exterior paints stains and varnishes, etc.; Industrial and commercial coating includes auto and other industrial coating. SHW produces in both markets, but mostly in the architectural one, and has different competitors in each.
The architectural coatings market accounts for about 45% of the total coatings market. Sherwin-Williams is by far the largest producer in this market. Its revenues of 7.8 billion dwarf its closest competitors ICI, Benjamin Moore and Masco.
Sherwin-Williams is a small player in this segment of the coatings market, which is largely dominated by the large chemical corporations such as Akzo Nobel, DuPont, and PPG. This segment accounts for only about 8% of Sherwin-Williams' yearly sales.