It has been about a month since the last earnings report for The Sherwin-Williams Company (NYSE:SHW) . Shares have added about 2.6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Sherwin-Williams Q1 Earnings, Revenues Top Estimates
Sherwin-Williams’ earnings, excluding costs related to the proposed acquisition of Valspar and gains from reduction in income tax provision, were $2.27 per share in first-quarter 2017. Adjusted earnings beat the Zacks Consensus Estimate of $2.07. Reported earnings improved to $2.53 per share from $1.75 per share a year ago.
Improved operating results at the Paint Stores and Global Finishes Groups led to the earnings upside. However, currency translation rate changes did not have a significant impact on earnings in the quarter.
Sherwin-Williams recorded net sales of $2,761.4 million in the first quarter, marking a 7.3% year-over-year rise. Revenues beat the Zacks Consensus Estimate of $2,740 million.
Increased paint sales volumes in Sherwin-Williams’ Paint Stores Group and a change in revenue classification led to higher sales.
The Paint Stores Group unit registered net sales of $1.81 billion in the reported quarter, up 12.1% year over year. The improvement was driven by increased architectural paint sales volume across most end markets. Net store sales from stores open for more than 12 calendar months rose 7.5% from the prior-year quarter.
Net sales of the Consumer Group unit fell 10.7% to $337.5 million, owing to lower volume sales to most retail and commercial customers. The segment’s profits declined to $60.6 million from $64 million in the prior-year quarter due to lower sales and higher raw material costs partly offset by improved operating efficiencies, better cost control initiatives, and higher selling price.
Net sales from the Global Finishes Group segment rose 3.6% to $470.3 million in the quarter. Segment profits improved year over year, due to higher paint sales volume and increased selling price partly offset by higher raw material cost.
The Latin America Coatings Group’s net sales improved 12.9% to $141.4 million, mainly due to an increase in selling price and favorable foreign currency translation. Favorable currency translation increased sales by 5.7%. The segment profit improved to $1.2 million in the quarter from a loss of $0.9 million last year mainly due to higher selling price partly offset by increased raw material costs.
Financials and Shareholder Returns
Sherwin-Williams made no open market purchases of its common stock in the three months ended Mar 31, 2017. As of the aforementioned date, the company had cash on hand of $1.02 billion that will be used to finance the Valspar acquisition.
For the second quarter, Sherwin-Williams projects mid-to-high single digit percentage increase in net sales, year over year. The company also expects earnings in second-quarter 2017 to be in the range of $4.15 to $4.35 per share, including a $0.25 charge from costs associated with the planned acquisition of Valspar.
For full-year 2017, Sherwin-Williams projects mid-single digit percentage increase in net sales from the prior year. The company raised its earnings view for 2017 and now expects earnings per share for the year in the range of $13.65 to $13.85 per share, compared to $11.99 earned in 2016. The year’s earnings per share includes a charge of $0.40 per share related to the planned acquisition of Valspar and a benefit of about $0.25 related to income tax provision.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
At this time, Sherwin-Williams' stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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