The Sherwin-Williams Company

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The Sherwin-Williams Company

founded: 1870

Contact Information:

headquarters: 101 prospect ave. nw
cleveland, oh 44115 phone: (216)566-2000 fax: (216)566-3266 url: http://www.sherwin-williams.com

OVERVIEW

Sherwin-Williams makes and markets paints and a variety of other coverings, such as varnishes, as well as equipment for applying paint. It is the largest such business in the United States and a pioneer in the paint industry from the time of its founding in the 1800s.

Dominant in the industry for decades, Sherwin-Williams lost market share in the 1970s due to a series of major capital expenditures. This forced the company to borrow heavily, stop paying dividends to stockholders, and concentrate on financial matters instead of innovation and marketing. With outsider John Breen tapped as CEO in 1979, the company focused on its products, slashed debt, and recovered its image. Since then the stock has risen and dividends also rise every year.

Sherwin-Williams was an innovator from the very beginning. In the 1880s only professionals painted, as the paint had to be hand mixed, frequently stirred, and used before it dried. By developing a technique for pre-mixing, the company was able to sell cans of paint directly to consumers.

The company created markets where none existed—developing different paints for different surfaces, for the inside and outside of buildings, and for different climates. Sherwin-Williams depends heavily on advertising for product introduction, emphasizing customer service.

Although the company has been hit with lawsuits over lead-based paint and environmental problems, it has money set aside for judgments, if it comes to that. Sherwin-Williams has a practice of vigorously defending itself against such actions, although it will settle suits if defending them is too costly.

COMPANY FINANCES

Both segments of the company, Paint Stores and Coatings, reported a 1997 sales gain of 8.1 percent and 32.5 percent, respectively. These figures reflect the acquisitions of Thompson Minwax and other smaller domestic and foreign companies. Excluding these assets, sales in the Paint Stores division rose 6.6 percent, and those for Coatings decreased 0.5 percent.

For 1997, Sherwin-Williams reported sales of $4.9 billion, up from $4.1 billion in 1996, a gain of 18.1 percent. Net income also rose, to $261 million from $229 million in 1996, or 13.7 percent. During a 52-week period the company's stock ranged from a high of 37 to a low of 25; the price-to-earnings ratio was 22.06. The annual dividend was $.40 per share, a 21.2 percent increase over the previous year. In 1997, the company reported its nineteenth consecutive year of increased earnings and dividend growth.

HISTORY

In 1866, the year after the end of the Civil War, Henry Sherwin put $2,000 into a partnership in the Truman Dunham Company, an Ohio paint manufacturer. Four years later, after the end of that partnership, Sherwin took on two other partners, Edward P. Williams and A.T. Osborn. Sherwin-Williams & Company of Cleveland, Ohio was born.

The company literally transformed the paint industry, making a series of technological innovations that changed paint from being an extremely messy, difficult-to-use product to one that any homeowner could use. The innovations included mixing processes, packaging, and development of a variety of paint products to meet different needs.

During World War II, Sherwin-Williams supplied camouflage paint to the armed services, and it introduced a number of well-known paint lines, such as Kem-Tone, in the postwar period. But after decades of prosperity, the company entered a slump in the 1970s. John G. Breen became the chairman in 1979, and instituted a program of cuts and restructuring that soon made the company profitable again.

In 1980, the company purchased the well-known Dutch Boy brand. In the early 1990s, Sherwin-Williams faced changes in the paint industry, and began supplying paint for Home Depot and Sears, the latter one of its rivals. It also moved into custom paints, such as the DeSoto and Cuprinol brands, which it purchased in the 1990s. In early 1997 the company, whose revenues had more than doubled since Breen became chairman 18 years earlier, announced a stock split.

STRATEGY

A number of winning strategies have made Sherwin-Williams the leader in its field. First, with innovative technology, Sherwin-Williams changed paint from an item difficult even for professionals to handle correctly, requiring users to grind together the oil and pigment themselves, to a relatively user-friendly product. In 1877, the company created the first reclosable paint can, a step that made painting much easier. The company pioneered the notion of different paints for different surfaces. For example, wood takes paint fairly easily, metal does not, and brick tends to soak it up. Also, a surface that will be exposed to the elements needs a different type of paint than one that is indoors.

Sherwin-Williams was a heavy advertiser from its earliest days. In 1890, long before competitors fully comprehended the value of advertising, it established an advertising department. Fifteen years later, in 1905, the department created the "Cover the Earth" trademark, depicting paint being poured over the globe. Edward Williams and the advertising director, George Ford, thought it was a wonderful symbol, but Henry Sherwin considered it a bit facetious because the company did not have much of an overseas market at the time. Williams and Ford won out, and the logo ultimately became one of the best-known trademarks in the world.

In 1998, the Paint Stores group implemented a satellite network among the stores. All products went on a perpetual inventory system. This allowed for better purchasing decisions, inventory control, and shared inventory information. In launching a new product line in 1998, Sherwin-Williams also rolled out a new advertising slogan: "When Only the Best Will Do, Ask Sherwin-Williams." Ads introduced new products and focused attention on the company's service.

With the company's purchase of Thompson Minwax in 1997, Sherwin-Williams entered a new market, due to Thompson having introduced a line of fence care products just prior to the sale. This transaction fits with the Sherwin-Williams' strategy of growth and entering new markets through acquisitions.

While the Coatings division looks to produce high quality products at a low price, Sherwin-Williams does not always compete on price. While reporting lower Coatings sales in 1997, it would not agree to match lower prices offered by the competition to certain customers. The company expected that the expansion of its product line, as well as acquisitions of other companies, would make up for the lost business in 1998.

INFLUENCES

To stay ahead of competition, the company created a variety of markets by establishing the need for different paints for different surfaces, and it prospered by moving into the automobile-painting segment as well. Until the introduction of nitro-cellulose lacquer and synthetic enamel by Sherwin-Williams chemists, automobile paint took 21 days to dry. With the advent of the new product, drying time was reduced to a few hours.

Sherwin-Williams went from success to success in the decades after World War II, when wartime scarcity had forced it to develop new products such as the paint roller. In the mid-1970s, management decided to switch from a single brand name to a variety of names to increase buyer recognition of various specialty products, a move that cost money in the short term but by the next decade had proven highly effective.

In 1977, however, the company entered a dark period due to a heavy debt load incurred while expanding and modernizing its stores. The corporation seemed to have gotten away from its roots, symbolized by the fact that from 1974 until 1979, it dropped its famous Cover the Earth logo. Costs spiraled upward, evidenced by a loss of $8.2 million on sales of $1 billion in 1977. The company borrowed heavily, increasing long-term debt from none in 1967 to $242 million in 1977. Dividends to stockholders were suspended during this time.

When John G. Breen took over as president and CEO in 1979, he restored the logo and instituted a series of dramatic cost-cutting measures which helped bring stability to the company. As an outsider, Breen was able to make changes. Among them were replacing management, stopping production of some 1,000 products that weren't selling well, and reducing long-term debt.

FAST FACTS: About The Sherwin-Williams Company

Ownership: Sherwin-Williams is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: SHW

Officers: John G. Breen, Chmn. & CEO, 1997 salary $891,020, bonus $740,000; Thomas A. Commes, Pres. & COO, 1997 salary $578,158, bonus $490,000; C.M. Connor, Pres., Paint Stores Group, 1997 salary $274,085, bonus $250,000; J.M. Scaminace, Pres., Coatings Division, 1997 salary $299,480, bonus $235,000

Employees: 25,000 (1997)

Chief Competitors: Sherwin-Williams not only manufactures, retails, and distributes paints and other wall coverings, but warehouses and transports products. Some primary competitors include: Benjamin Moore; Dupont; Glidden; Kelly-Moore; Sears; and 3M.

CURRENT TRENDS

During the 1990s, Sherwin-Williams began to focus on increasing its market share, primarily by purchasing smaller companies. It bought five paint manufacturers in 1995 and 1996, and in November 1996, the New York Times reported that Forstmann Little & Co., a buyout firm, had offered Thompson Minwax to Sherwin-Williams for $830 million. That deal was concluded in January 1997. Environmental regulations, not to mention the increased cost of doing business, have created a difficult situation for smaller paint companies, and Sherwin-Williams is expanding by purchasing these troubled entities.

PRODUCTS

Sherwin-Williams manufactures and sells paints, wallpaper, floor coverings, painting accessories, and a variety of products for decorating. It owns and operates more than 2,100 stores in the United States, Canada, and Puerto Rico. Among the brands it markets, aside from the Sherwin-Williams line itself, are Cuprinol, Ever-Clean, Kem-Tone, Krylon, Martin-Senour, and a significant acquisition of the 1980s, Dutch Boy.

In the early 1990s, Kid's Room Paint, produced under the Dutch Boy label, became highly successful as a paint for children's rooms. According to an article in Advertising Age, which highlighted the brand as a marketing success in its July 5, 1993 issue, the product owed its success in part to focus groups, which revealed that parents were looking for strong, durable paint to cover the walls of their small children's bedrooms.

In the mid-1990s, the company continued its plan for growth through new products and product lines. In 1997, the Paint segment introduced new primers under the Prep-Rite brand, a new high-gloss latex paint under the SuperPaint brand, which has a quick drying time, and new, low volatile, compliant (VOC) products for industrial use. In 1998, Sherwin-Williams offered industrial users a new line of VOC compliant interior stains, sealers, and varnishes, all under the Wood Classics brand. The Consumer Brands division showcased 256 colors of new paints in the Martha Stewart Everyday Colors line. Also in 1998, the division introduced a line of exterior paints, called Climate Guard. These paints have five different formulas to meet the challenges of regional weather conditions. A one-coat interior paint was marketed under the Classic One name.

CORPORATE CITIZENSHIP

In 1997, Sherwin-Williams settled lawsuits brought by the U.S. Department of Justice and the Environmental Protection Agency (EPA). The suits, filed in 1993, charged that the company's Chicago manufacturing plant unlawfully discharged organic solvents and toxic metals into the local sewer system, failed to control unstable organic compound emissions, and failed to identify and properly handle hazardous wastes. Under the settlement, the company will clean up the plant at a cost of several million dollars, and an abandoned industrial site for another $1.1 million, and return nearby wetlands to their original state. Sherwin-Williams wants to sell the site and is examining its other manufacturing facilities to gauge potential problems.

CHRONOLOGY: Key Dates for The Sherwin-Williams Company

1870:: Henry Sherwin forms a partnership with Edward Williams and A.T. Osborn called Sherwin-Williams & Company
1873:: Purchases its first factory
1877:: Develops and patents the first reclosable paint can
1884:: The partnership is dissolved and Sherwin-Williams incorporates
1905:: Sherwin-Williams introduces its "Cover the Earth" trademark, still used today
1920:: The company goes public
1929:: Purchases the Bredell Paint Company of Havana
1941:: Introduces the first emulsion-based, fast-drying paint for the do-it-yourself market
1964:: Listed for the first time on the New York Stock Exchange
1980:: Sherman-Williams purchases the Dutch Boy line of paint
1990:: Purchases DeSoto Inc., making Sherwin-Williams the largest supplier of custom paints for the private-label market
1997:: Purchases Thompson Miniwax and ventures out of the paint market for the first time

GLOBAL PRESENCE

The Coatings division continues to generate sales through licensing technology and forming joint ventures and wholly-owned subsidiaries around the world. Sherwin-Williams considers South America its most important foreign market, and has most of its subsidiaries there. In 1997, the company signed a new licensing agreement in Thailand, and expects to continue exploring options internationally. Sherwin-Williams pursues acquisitions of foreign companies as well. In 1997, the company bought Sumare Industria Quimica, S.A. in Brazil, and Pinturas Andina, S.A. in Chile, both coatings manufacturers.

The purchase of Thompson Minwax in 1997 helped the Consumer Brands division enter the international market. Thompson has a product line called Ronseal which is marketed in Great Britain and Ireland.

The Automotive division has a Jamaican subsidiary that manufactures, distributes, and sells Sherwin-Williams products. It has also acquired companies in Mexico, Brazil, and Chile, where it plans to continue seeking market share. In addition, the division licenses its technology to 14 companies in 14 countries.