Sherwin Williams Company Analysis Overview of the Company

Founded in 1866 by Henry Sherwin and Edward Williams, the Sherwin Williams Company has grown to be one of the largest paint producers in the world. Nearly 150 years ago, Sherwin Williams established itself in Cleveland, Ohio, as the first ready-to-use paint store in America (History Timeline, 2015). Sherwin Williams began as a partner in Truman, Dunham & Company, which sold paint ingredients; when Truman Dunham dissolved to pursue the manufacturing of linseed oil, the Sherwin Williams company replaced it: the year was 1870. Within 40 years with Henry Sherwin as CEO, the company would have over $10 million in sales per year (History Timeline, 2015). Today, the company maintains more than 3000 product and service stores with over 40,000 employees and a net income per employee of $26,178 (SHW-Fundamental Reports, 2016). Shewin Williams manufactures, develops, distributes and sells paint, coatings and related products within the special chemical/basic material sector/industry of the market and ranks in the middle of the Fortune 500 list of companies in operation today.

Sherwin Williams would introduce a number of innovations to the industry, such as the patented resealable tin can, the pigment grinding mill, and the first-ever ready-mixed paint. The company spread to Newark and Boston, Montreal and San Diego. By 1895, Montreal was the first production plant of Sherwin Williams outside the U.S. (History Timeline, 2015). By 1907, the company had expanded across the Atlantic to London, England and by 1919 it had a production plant in Oakland, California. In 1922 it began selling its automobile lacquer, thus expanding the company's applicability to include the automobile sector. And in 1925, the company began trading publicly on the American Stock Exchange. Four years later its first Latin American store opened its doors in Mexico City. A number of new products followed, such as Kem-Tone and Kem-Glo paint; the company began working with the Cleveland Indians by sponsoring the baseball club and advertising at the club's stadium. And by the 1950s, the company was producing containers for other firms. A decade later, Sherwin Williams opened doors in Belgium in order to reach the western European market. In 1964, the company received the ticker symbol SHW as it listed on the New York Stock Exchange (NYSE).

In 1976, its automotive division opened in Richmond, Kentucky, and by the end of the 1980s, the company had acquired the Western Automotive Finishes company. Throughout the 1990s, Sherwin Williams would continue a strategy of acquisitions, completing 16 of them in just 21 months (History Timeline, 2015). The company now creates and sells paints/coatings, protective and marine products, original equipment manufacturer finishes and other items (SHW -- Fundamental Reports, 2016).

Today, Sherwin Williams is still a publicly traded company on the NYSE. The share price of its stock recently reached all-time highs of $309.65 per share last week. While its P/E ratio is at extremely high 26.96, its 2016 Q1 earnings report showed that revenues had increased 5% to $2.57 billion for the quarter. There are 92,495,113 shares outstanding, and analysts currently rate the company at Outperform.

Mission, Philosophy, Goals and Vision

The Mission of Sherwin Williams is to "lead our industry, to manufacture and market innovative products of superior quality, to operate a safe, clean and friendly workplace, to observe the highest ethical standards in business conduct and to reward our investors" (About Sherwin Williams, 2015). The philosophy of Sherwin Williams is based on the corporate social responsibility platform that places community and environment at the fore of its product/service development and sales goals. By involving itself with the community on a global scale and offering superior products and services to consumers, the Sherwin Williams Company aims to act ethically, responsibly and efficiently for the good of the consumer, the good of the planet, and the good of the stakeholders in the firm. Its goal is to continue to "strengthen the company for the benefit of customers, employees and shareholders" (History Timeline, 2015) and to achieve more than $10 billion in sales in the coming years (History Timeline, 2015). It is currently exceeding that goal with $11.46 billion in revenue (Market Realist, 2016). Its vision is to be the leader in the industry and a leader in the sector for the foreseeable future, and to this end its expanded operations throughout the world and its strategic acquisitions have placed the company in a unique position to be able to achieve its goals and maintain its vision of leadership, responsibility and efficiency.

External Environmental Analysis

Porter's Five Forces Model

Threat of New Entry, Buyer Power, Threat of Substitution, Supplier Power, and Competitive Rivalry are the five forces that impact the business of Sherwin Williams, according to the Porter model. New Entry threat is comprised of time/cost of entry, specialist knowledge, economies...

Substitution Threat consists of substitute performance, cost of change. Buyer Power equals number of customers, size of orders, differences between competitors, price sensitivity, the ability to substitute, and the cost of changing; Supplier Power equals the number of suppliers, size, uniqueness, sub-ability and changing cost. Competitive rivalry consists of the number of competitors, quality differences, switching costs and customer loyalty. These five forces impact Sherwin Williams in obviously diverse ways, which can be broken down into the following analyses.
Existing Rivalry analysis includes Dupont, Benjamin Moore, PPG Industries, Bradero Shaw and Behr Paint. These companies indicate that while competition exists, Sherwin Williams is among the largest players in the industry. The threat of new entrants for that reason is limited, as new entrants tend to be candidates for acquisition if they ever gain substantial market share, and Sherwin Williams has shown itself to be an aggressive acquirer of other businesses related to the industry. The bargaining power of buyers is relatively high as a result of a competitive industry; thus Sherwin Williams seeks to provide strong customer service, strong products and strong consumer loyalty. The bargaining power of suppliers is limited as Sherwin Williams manufactures in-house; supplies are limited to basic materials, which are in demand across several sectors; thus prices are kept not dependent upon a single industry/sector.

Strategic Group Map

Factor Analysis -- Social, Environmental

Factor analysis of Sherwin Williams' social and environmental variables impacting its business indicate that the company's strategic acquisitions and investments are having a positive impact on its growth continuance. It continues to add stores, building upon its environmental expansion efforts. Corporate social responsibility efforts include, reducing its environmental footprint, helping neighborhood communities where it does business, emphasizing safety in the workplace, and publishing its metrics reports that include total carbon produced, total fuel consumption, non-hazardous solid waste performance, carbon performance, electricity performance, mercury releases, and certified sites (Caring in Full Color, 2015).

Other Pertinent Analysis

Other pertinent analysis includes financial strength, profitability/growth and financials analysis, all of which indicate the stability and ability of the company to keep delivering on its vision and goals. The company's operating margin is in excellent condition compared both to its own history and the industry; its net margin is similar. Its P/E is high and its cash to debt ratio low (GuruFocus, 2016). With a market cap of more than $28 billion, the company is expensive for stockholders but analysts view it as outperforming, especially with its recent expected acquisition of competitor Valspar (Valspar Shareholders Approve Buyout by Sherwin-Williams, 2016).

Environmental Forecasting

Remote Environment

Political changes impacting the remote environment of Sherwin Williams include rules/regulations based on the use of solvent-based products that could release harmful chemicals into the environment. Under the current administration, environmental lobbying has been active, with federal regulations in both Canada and the U.S. impacting initiatives by the company, for example in the Leadership in Energy and Environmental Design, Green Globes, the National Association of Home Builders, and the Canadian Green Building Council. Canada's Volatile Organic Compounds (VOC) regulations for paints, enacted in 2010, apply to all coatings manufacturers and stipulate that VOC concentration limits for more than 50 architectural coatings meet specific guidelines, which Sherwin-Williams is efficient about maintaining (Green Programs and VOC Regulations, 2015). For this reason, the company is expected to be a leader in the industry regarding environmentally safe products and services

Industry Environment

The industry environment forecast is that that global green coatings market will grow "at a CAGR of 5.1% from 2015 to 2020" (PRNewswire, 2016). Drivers for this growth include end-use industry, regulatory measures regarding the environment, and VOC emissions awareness, which Sherwin Williams is already well-positioned to capitalize on given its business in Canada where VOC regulations are already in place. For this reason, the architectural coatings segment of the industry is expected to see an increase in growth over the next five years as laws are implemented. The company's ability to provide products to meet the new demands is evident.

Operating Environment

Sherwin Williams' Cover the Earth initiative is focused on "acquiring local operations -- manufacturing, supply chain, sales, customer service, and more -- the world over" in order to establish systems and processes that support and are supported by local economies, which adds to the stability and authenticity of…