Sherwin Williams SWOT and PESTLE Analysis

Strength

1. Pool of skilled manpower: Sherwin Williams boasts of a great pool of skills and talent, which it takes care through its professional work environment, excellent benefits and committed training and development programs. It has several awards to its credit, such as the Forbes' America's Best Large Employers 2016 and Northeast Ohio Top 100 Workplaces 2010-16, which only re-emphasize the dedication and commitment of the organization towards enriching its human assets. The company management is stalwart on providing training and requisite tools its employees need for excelling today and tomorrow.

2. Proven efficiency in market expansion: the company is a master at the art of market expansion. It has proved its mettle in every market it has forayed into with its existing product lines. It has successfully carved out for itself, a good chunk of revenue in architectural paints across North America, China, Australia and the UK. The company focuses on growth through acquisitions and expansion of operations in newer markets that facilitate economies of scale as well as diversification of economic cycle risks in the markets it operates in. The Valspar acquisition is a proof of this rewarding strategy.

3. Well networked distribution system: year 2016 saw a record growth of 11.6% in profit, majorly due to the volume driven supply chain productivity in North America. The business leverages its excellent networks to have a commanding hold on selling, general and administrative expenses, which helped improve the operating profit by 10.82% in the year 2016. Not less than 90% of the US population lives within a 50 mile radius of a Sherwin Williams store. All its principal business divisions are endowed with the best distribution chains. While the Consumers Group manages a highly efficient network constituting of 65 manufacturing plants and 33 distribution centres, the Global Finishes Group has 288 company operated automotive, protective and marine and product finish branches. On the other hand, the Latin America Coatings Group operates 600 dedicated dealer outlets, placed in prime locations.

4. Strong financial profile: Sherwin Williams has an enviable financial profile to boast of. The third quarter, ending September 2017, saw a consolidated net sales increase of 37.4% to a whopping $4.51 billion. Earnings before interest, taxes, depreciation and amortization (EBITDA) saw a 9.6% in nine months to $1.70 billion, including impact of the Valspar acquisition. The company has a balanced revenue mix, comprising of all its four divisions, namely, the Paint Stores Group, the Consumer Group, the Global Finishes Group and the Latin America Coatings Group, that provide an impetus for growth. The company is focusing on achieving business synergies to be realized by 2020. Beginning 2009, working capital has increased in absolute terms, except for a dip during the 2014-15 periods, which saw a global slowdown. On other hand, the company targets an EBITDA of 18.8-21.0% by 2020 against 16.6% in 2016, with 220 to 440 bps of margin expansion over this period of 4 years.

Weakness

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Opportunity

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Threat

1. Competition from other home improvement retailers:Sherwin Williams major competitors are PPG industries, DOW chemical and Eastmen Chemical. Company's net income in the 3rd quarter of 2017 declined year on year by 18.13%, whereas most of its competitors witnessed an income growth. During the same period, international coatings segment of the Company lost market share of approximate 4.61%. Sherwin Williams failed to increase sales with same pace vis-a-vis its competitors during Q3-2017.

2. Changes in Consumer's buying behavior: from 'do-it- yourself' to 'do-it-for-me', the consumers' buying behavior is getting dynamic each passing day. Consumers taste and preferences are also changing as they are demanding more specialized and quality products at the most competitive prices. Also, with the advent of online channel, Sherwin Williams' existing physical infrastructure driven supply chain model might face a threat.

3. Unfavorable environment regulations: Paints and Coatings industry is highly vulnerable to environmental regulations. Recently a law suit was filed against the company whereby it was held liable for its actions under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as well as applicable state laws, including the New Jersey Spill Compensation and Control Act. Such environmental regulations and violations not only affect the product decisions of the company but also significantly impact its image as well.

Political

1. Protectionist policies of the Trump Government: Protectionist trade policies might have a short lived favorable impact on the economy of any country, however the long term effects are definitely a deterrent to both domestic and foreign companies. Sherwin Williams, being an American company, will not face the wrath of protectionism as much as its foreign, particularly Asian competitors, it will however, be affected due to changes in the existing tax regimes, proposed renegotiation of the free trade agreements and employment of skilled labour. These factors on one hand may have a potential impact on the procurement, trade and labor decisions of the company. While on the other hand, there is also a likelihood of the company eating up the share of foreign companies in the domestic market.

Economic

1. Unfavorable currency translation in many parts of the world: Sherwin Williams is a multinational company with operations spread across different countries of the world. Hence, it is exposed to translation exposure arising out of currency fluctuations. Currency translation rate changes impacted the profits of the Performance Coatings' Group reducing them from 13.7% to 8.2% in the second quarter of 2017 as compared to previous year. Moreover, the Latin America group saw its revenue fall by more than double in 2016, because of low volume and currency related difficulties as the US dollar continued to remain strong against foreign currencies.

2. Mergers and acquisitions: Sherwin Williams has a history of mergers and acquisitions being used as a strategy to reduce the competition and achieve growth. The recently acquired Valspar Corporation has given birth to business reorganization concerns that Sherwin Williams must undertake in order to integrate the businesses. Post-acquisition, the company is expecting incremental sales of approximately $1 billion in the fourth quarter of 2017. There are significant synergies between both the businesses, where Valspar provides the necessary scale in Asia Pacific and Europe. With addition of new industrial categories to the existing product mix, beneficial results are expected. Back in 2013, Sherwin Williams had acquired the US/Canada business of Consorcio Comex. This helped Sherwin Williams increase its store count in US, one of its most important business geographies.

3. Impact on demand for housing due to change in lending standards: The Trump administration in January 2017 had 'suspended indefinitely' a cut to the Federal Housing Administration mortgage insurance premium. The cut that would have saved homeowners $500 in the previous year may act as a deterrent for home buyers thereby impacting the paints and coatings Industry as well. Uncertainty still surrounds as many housing experts expect the mortgage rates to rise. However, the average rate of a 30 year fixed mortgage went down from 4.12% in second week of January 2017 to 4.09% in third week of January 2017. At present it is around 4.20%.

Social

1. Robust demand for paint in new residential Construction and residential Repaint segments: According to industry experts, demand for paints and coatings in the domestic market continues to look positive, owing to the growing trend of expanded services. Faux finishing, staining decks, sealing walkways, waterproofing driveways and coatings concrete are all those possibilities that professional painting contractors are looking forward to as new sources of revenue which can be potentially tapped. Also, the global demand is expected to rise owing to emergence of new markets. Asia- Pacific (ex China) and China have an expected CAGR GDP growth of 4.5% and 6.5%, respectively in the 2017-2020 period. This further triggers an expected 4-6% sales CAGR through FY 20. While relaxation in legal regulations is expected to raise demand for new residential construction, the residential repaint segment is also expected today to pick up on account of need for renovation and positive trends in construction industry such as the collaborative project delivery.

2. Fluctuating revenue patterns owing to labor constraints: One of the major factors in 2017 has been the escalating cost of doing business, which is expected to continue in the coming years also. Owing to the protectionism policies of the Trump Government, material and labor costs are like to remain high, thereby generating fluctuating revenue patterns for companies across all industries. Shortage of skilled labor has led to companies raising the average pay to a level higher than the national average. All this can be supported by the fact that the Trump Government has withdrawn from the Trans-Pacific Pact, which will discourage skilled and cheaper labour from across borders. This is in lieu of Trump's ideology of giving jobs to his own people that might not favour businesses as they will likely face raise in labor costs.

Technological

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Legal

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Environmental

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