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Company Analysis Sherwin-Williams

COMPANY ANALYSIS: SHERWIN-WILLIAMS 10

CompanyAnalysis: Sherwin-Williams

CompanyAnalysis: Sherwin-Williams

Missionand vision statement analysis

  • Sherwin-Williams has a very interesting mission which states that “For over 140 years, manufacturers have trusted Sherwin-Williams for innovative coatings and exceptional service. And you can count on us for the expertise and the support you need to get better results, from start to finish”.

  • By looking at the mission statement, one can easily conclude that Sherwin-Williams deals in paints and similar products. Likewise, the mission clearly shows that the company’s primary customers are manufacturers. In addition, Sherwin-Williams seemingly regards its expertise as one of its core competitive advantages, meaning that the mission also captures the firm’s self-concept. However, the mission statement falls short of indicating the markets in which Sherwin-Williams operates, as well as the firm’s philosophy and outlook towards employees and the community (Bhandari, n.d).

  • In consideration of the above shortcomings, a new mission statement for the company would read as follows:

“Sherwin-Williamsis focused on relying on its 140-year experience to become theleading provider of innovative coatings and allied services tomanufacturers not only in the state of Ohio, but in the whole of theUS as well. Our company is committed to ensuring that we employ thelatest technologies that reduce the environmental risks associatedwith paint manufacture”.

Externalfactor analysis

Opportunities

  1. Positive market outlook

  • The global market for paints together with coatings is anticipated to grow in the coming years.

  • Since 2014, the market has grown tremendously in terms of total revenue together with consumption volumes (MarketLine, 2016)

  • Estimates suggest that this trend will continue until the year 2019, and this will give Sherwin-Williams the chance to enlarge its business.

  1. Diversification strategy by the company

  • Although it appears to be a strength, Sherwin-Williams’ strategy of launching new products frequently also doubles as an opportunity for further growth.

  • MarketLine (2016) discloses that over the past few years, the company has embarked on a process of launching a number of new products. For example, a type of paint known as SnapDry was introduced in May this year, only two months after the introduction of Extreme Primer together with Extreme Bond Interior. In January, the company had introduced ColorSnap.

  • Without doubt, Sherwin-Williams will be in a position to enlarge its customer base worldwide if it continues with the practice of launching new products regularly.

  1. Acquisitions

  • Plans are underway for Sherwin-Williams to acquire Valspar, which is highly reputed for its products (MarketLine, 2016).

  • Upon completion of the deal, Sherwin-Williams is expected to have in its portfolio an assortment of technologies together with strong brands, and this will help in accelerating the company’s growth strategy.

Threats

  1. Strict environmental regulations

  • Owing to the nature of its business, Sherwin-Williams has to comply with several regulations that relate to environmental safety and health.

  • Such regulations impose heavy costs on the company, eventually affecting its profitability.

  • The environmental regulations impose direct as well as indirect costs, including compensation as well as benefits paid to employees as well as law firms (MarketLine, 2016).

  1. Stiff competition

  • The sale and manufacture of paints and similar products involves many players, which creates intense competition within the industry.

  • Sherwin-Williams is reputed as one among the top paint manufacturers and dealers, but the firm’s competitive position fluctuates across different markets (MarketLine, 2016).

  • In general, Sherwin-Williams competes with players such as home centers, hardware chains, wallpaper stores, and mass merchandisers. Competition is also posed by paint distributors, all competing on the aspects of technology, quality, innovation, price, and service (MarketLine, 2016).

  • Despite its strong position within the market, Sherwin-Williams market share is threatened by huge rivals like PPG Industries and RPM International. The impact of such intense competition is that it could affect the firm’s pricing power, which would negatively affect profitability.

  1. Fluctuating costs of energy as well as raw materials

  • In order to manufacture its products, Sherwin-Williams has to buy raw materials like propylene and titanium oxide. Additionally, energy is needed to convert such materials into finished products

  • The availability of these inputs is influenced by prevailing weather conditions, meaning that adverse weather can affect the operations of Sherwin-Williams. Precisely, unexpected changes in these factors might negatively affect the organization’s profits.

Financialstatements and analysis

  • Despite operating in a very competitive and turbulent environment, Sherwin-Williams’ financial statements indicate that the company has been doing very well over the past five years. With reference to net income, the figures have been improved year after year since 2011, growing from US$ 442 million in 2011 to US$ 1,054 in 2015.

Source:Google Finance (2016)

  • Likewise, the earnings per share have grown since 2011, reaching US$ 11.16 last year.

  • The same positive pattern has been noted in the company’s return on assets together with return on equity, which have both grown every year since 2011 (Morningstar Investment Research Center, 2016b).

  • This latter report illustrates the degree of efficiency with which Sherwin-Williams executive team makes use of its assets together with shareholders’ funds. As a result, the company is able to distribute some of its profits as dividends to its shareholders.

  • Inasmuch as Sherwin-Williams is doing remarkably well in the areas of asset utilization and revenue generation, it is unfortunate that the firm’s net income cannot match that of PPG Industries, which made US$ 3231 million in 2013. Even so, an interesting observation that Sherwin-Williams earnings per share are greater than those of PPG Industries, at least over the last 5 years (Morningstar Investment Research Center, 2016a).The former also outdoes PPG Industries in terms of ROA and ROE, and this signals Sherwin-Williams’ strengths.

Internalfactor analysis

Strengths

  1. Utilization of acquisition strategies

  • One of the factors behind Sherwin-Williams’ remarkable growth is its acquisition strategy. According to MarketLine (2016), the company has acquired a number of entities dealing in coatings together with paints. For instance, the firm acquired Portugal-based Euronavy, and this reinforced its global platform.

  • Sherwin-Williams has also acquired firms like Atlax, Leighs Paints, and Becker. Consequently, the company has witnessed immense growth that has enabled it to improve its product mix and brand image (MarketLine, 2016).

  1. A strong distribution chain

  • Sherwin-Williams primarily sells its merchandise via third-party retailers. Nonetheless, it owns a chain of stores in different locations MarketLine, 2016).

  • Such a strong chain is an advantage because it minimizes the company’s dependence upon third-party retailers, besides helping in forging direct links with customers.

Weaknesses

  1. Excessive dependence on a single market

  • Even though Sherwin-Williams operates branches in several nations, it regards the US market as its primary market (MarketLine, 2016).

  • This is a serious weakness because it raises the business risk of the firm.

  • Similarly, Sherwin-Williams reportedly relies on the so-called large customers, despite having a varied base of customers. According to a MarketLine (2016) report, Sherwin-Williams has identified a group of customers it regards as being very important, simply because they make bulk purchases.

  • Whilst there is nothing seemingly wrong in having a special group of customers, this is risky as it implies that the quitting of a single customer would seriously affect the firm’s earnings.

  1. High levels of debt

  • Referring to Sherwin-Williams’ financial statements, it emerges that the firm’s debt-equity ratio has been rising since 2011. Specifically, the ratio has increased from 47% in 2011 to 2215 in 2105 (Morningstar Investment Research Center, 2016b).

  • This means that Sherwin-Williams is overly dependent upon debt finance, an indication that the company runs a high risk of becoming bankrupt.

  • In the short-term, such a huge amount of debt means that the company has to commit a significant amount of its earnings to repayment of debt, and this has a negative impact on its brand image and profitability.

SWOT,existing strategic plan, and proposed strategic direction

Strengths

  • A strong distribution chain

  • Effective use of acquisition strategies

Weaknesses

  • Excessive dependence on a single market

  • High levels of debt

Opportunities

  • Positive market outlook

  • Availability of companies for acquisition

Threats

  • Strict environmental regulations

  • Stiff competition

  • Fluctuating costs of raw materials

Theabove SWOT matrix reveals that Sherwin-Williams survives in anintensely competitive environment by employing the strategies ofdiversification together with strategic alliance. These strategiesenable the company to respond to the challenge posed by the presenceof many different competitors within the industry

Proposedstrategic direction

Inasmuchas the diversification strategy utilized by Sherwin-Williams isrelevant, it is necessary to explore the magnitude of threat inherentin the consumer products and services sector in order to decide themost feasible strategy that the company should adopt. Using the fiveforces model proposed by Michael Porter, it appears that the strictregulations that govern the industry act as hindrance to potentialentrants. In short, Sherwin- Williams is confronted by a low threatof entry. However, considering the stiff competition that exists inthe industry, it is right to say that buyer power is strong.Conversely, the company owns a chain of stores that facilitatedistribution, and this weakens supplier bargaining power.

Withspecific reference to Sherwin-Williams’ weaknesses and the threatsit faces, it is recommended that the company should abandon itspractice of depending on a few large customers and a single market.The proposal is that Sherwin-Williams should intensify its activitiesin other markets other than the US, as this will help to diversifybusiness risk. In short, Sherwin-Williams needs to review itsdiversification strategy and ensure that it reaches as many customersas possible. Alternatively, if Sherwin-Williams finds it difficult tostop relying on large customers, it could consider embracing the ideaof niche segmentation (Morritt &amp Weinstein, 2012).

References

Bhandari,(n.d.). Strategicmanagement: a conceptual framework.Tata McGraw-Hill Education.

MarketLine.(2016). Companyprofile: The Sherwin-Williams Company.Available at &lt&lthttp://web.b.ebscohost.com.ezproxy.ohiodominican.edu/ehost/pdfviewer/pdfviewer?sid=ae59d42b-8125-4c06-95a0-20b34d4c56e9%40sessionmgr101&ampvid=0&amphid=125&gt&gt

MorningstarInvestment Research Center. (2016a). PPGIndustries Inc.Retrieved from &lt&lthttp://library.morningstar.com.ezproxy.ohiodominican.edu/stock/key-ratios?t=PPG&ampregion=USA&ampculture=USA&gt&gton 22 November, 2016.

MorningstarInvestment Research Center. (2016b). Sherwin-WilliamsCo.Available at &lt&lthttp://library.morningstar.com.ezproxy.ohiodominican.edu/stock/key-ratios?t=SHW&ampregion=USA&ampculture=USA&gt&gt

Morritt,R. &amp Weinstein, A. (2012). Segmentationstrategies for hospitality managers: target marketing for competitiveadvantage.Routledge.