A month has gone by since the last earnings report for Sherwin-Williams (SHW Quick QuoteSHW - Free Report) . Shares have added about 4.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sherwin-Williams due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Sherwin-Williams’ Earnings & Sales Top Estimates in Q2

Sherwin-Williams logged earnings (as reported) of $6.48 per share in second-quarter 2020, up roughly 29% from $5.03 in the year-ago quarter.

Barring one-time items, adjusted earnings in the reported quarter were $7.10 per share, which topped the Zacks Consensus Estimate of $5.69.

Sherwin-Williams posted revenues of $4,604 million, down roughly 6% year over year. However, the figure beat the Zacks Consensus Estimate of $4,556.2 million.

The decline in sales is due to the impacts of coronavirus pandemic, which led to weak demand in certain end markets in the Americas Group and the Performance Coatings Group segments. Unfavorable currency translation also hurt sales. These were, in part, offset by increased sales to most of the Consumer Brands Group unit’s retail customers.

Segmental Review

The Americas Group segment registered net sales of $2.52 billion in the second quarter, down around 8% year over year, as coronavirus impacted demand in most end market segments.

Net sales in the Consumer Brands Group segment climbed roughly 22% year over year to $980.2 million. Increased volume sales to most of the segment’s North American and European retail customers were partly offset by weaker sales in Asia Pacific.

Net sales in the Performance Coatings Group fell nearly 17% year over year to $1.1 billion in the reported quarter. The decline was mainly due to weaker end market demand in most businesses partly resulting from the impacts of the pandemic. Sales were also affected by unfavorable currency swings. These were partly offset by higher sales in the packaging division in all regions.

Financials and Shareholder Returns

At the end of the quarter, Sherwin-Williams had cash and cash equivalents of $188.1 million, up 29% year over year. Long-term debt increased around 15% year over year to $8,289.4 million.

The company purchased 1,700,000 shares of its common stock in the first half of 2020. It had remaining authorization to purchase 6.75 million shares through open market purchases.

Outlook

Moving ahead, Sherwin-Williams envisions demand to improve sequentially in the third quarter with softness continuing in certain end markets in the United States and global environments for the balance of 2020.  The company expects third-quarter consolidated net sales to be up or down low single digits on a year-over-year basis.

The company also raised its net income per share guidance for full-year 2020 to $19.21-$20.71 from its prior view of $16.46-$18.46.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 15.24% due to these changes.

VGM Scores

Currently, Sherwin-Williams has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sherwin-Williams has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.