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Sherwin-Williams (SHW) Q3 Earnings: Is a Beat in the Cards?
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Sherwin-Williams (SHW - Free Report) is set to release third-quarter 2016 results before the bell on Oct 25.
Last quarter, the coatings and paints company delivered a negative earnings surprise of 2.64%. Revenues rose year over year as higher paint sales volumes in the company’s Paint Stores Group unit more than offset unfavorable currency impact. However, sales missed expectations. Sherwin-Williams has beaten the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 5.51%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Sherwin-Williams, in July, said that it expects consolidated net sales to increase at a low to mid-single digit clip year over year in the third quarter. The company anticipates earnings per share for the quarter to be in the range of $4.10–$4.30.
Third-quarter earnings per share include costs related to the company's planned acquisition of rival paints maker Valspar (VAL - Free Report) of around 20 cents per share and an increase in earnings per share of about 10 cents related to the decrease in the income tax provision.
Sherwin-Williams follows a strategy of growth through acquisitions and internal initiatives such as efficient working capital management and innovation. This enables the company to somewhat reduce its dependence upon prevailing market conditions.
Sherwin-Williams, in Mar 2016, agreed to buy Valspar in an all-cash deal worth roughly $11.3 billion. Valspar's shareholders voted in favor of the deal at the company’s Special Meeting of Shareholders in Jun 2016.
The planned acquisition (expected to close at the end of the first quarter of calendar year 2017) will allow Sherwin-Williams to reinforce its position as a leading paints and coatings provider globally leveraging highly complementary offerings, strong brands and technologies.
Valspar is a strategic fit and the merger will extend Sherwin-Williams’ brand portfolio and customer relationships in North America, apart from bolstering its global finishes business. Sherwin-Williams expects $280 million in annual synergies within two years following the closure of the deal.
Sherwin-Williams’ aggressive cost control initiatives, working capital reduction, supply chain optimization and productivity improvement should yield margin benefits. Strong momentum in its Paint Stores Group unit should also support results in the third quarter.
However, Sherwin-Williams’ Latin American operations remain exposed to soft end-market demand and currency headwinds. Currency translation reduced sales from the company’s Latin American business by roughly 16% in the second quarter. Currency may continue to hurt sales in this business in the September quarter.
Our proven model shows that Sherwin-Williams is likely to beat earnings because it has the right combination of the two key ingredients.
Zacks ESP: The Earnings ESP for Sherwin-Williams is +0.69% as the Most Accurate Estimate stands at $4.36 while the Zacks Consensus Estimate is pegged at $4.33. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Sherwin-Williams currently carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank of #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings.
Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Sherwin-Williams’ Zacks Rank #1 and positive ESP makes us reasonably confident of an earnings beat.
Stocks that Warrant a Look
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
The Dow Chemical Company (DOW - Free Report) has an Earnings ESP of +1.25% and a Zacks Rank #2.
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Sherwin-Williams (SHW) Q3 Earnings: Is a Beat in the Cards?
Sherwin-Williams (SHW - Free Report) is set to release third-quarter 2016 results before the bell on Oct 25.
Last quarter, the coatings and paints company delivered a negative earnings surprise of 2.64%. Revenues rose year over year as higher paint sales volumes in the company’s Paint Stores Group unit more than offset unfavorable currency impact. However, sales missed expectations. Sherwin-Williams has beaten the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 5.51%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Sherwin-Williams, in July, said that it expects consolidated net sales to increase at a low to mid-single digit clip year over year in the third quarter. The company anticipates earnings per share for the quarter to be in the range of $4.10–$4.30.
Third-quarter earnings per share include costs related to the company's planned acquisition of rival paints maker Valspar (VAL - Free Report) of around 20 cents per share and an increase in earnings per share of about 10 cents related to the decrease in the income tax provision.
Sherwin-Williams follows a strategy of growth through acquisitions and internal initiatives such as efficient working capital management and innovation. This enables the company to somewhat reduce its dependence upon prevailing market conditions.
Sherwin-Williams, in Mar 2016, agreed to buy Valspar in an all-cash deal worth roughly $11.3 billion. Valspar's shareholders voted in favor of the deal at the company’s Special Meeting of Shareholders in Jun 2016.
The planned acquisition (expected to close at the end of the first quarter of calendar year 2017) will allow Sherwin-Williams to reinforce its position as a leading paints and coatings provider globally leveraging highly complementary offerings, strong brands and technologies.
Valspar is a strategic fit and the merger will extend Sherwin-Williams’ brand portfolio and customer relationships in North America, apart from bolstering its global finishes business. Sherwin-Williams expects $280 million in annual synergies within two years following the closure of the deal.
Sherwin-Williams’ aggressive cost control initiatives, working capital reduction, supply chain optimization and productivity improvement should yield margin benefits. Strong momentum in its Paint Stores Group unit should also support results in the third quarter.
However, Sherwin-Williams’ Latin American operations remain exposed to soft end-market demand and currency headwinds. Currency translation reduced sales from the company’s Latin American business by roughly 16% in the second quarter. Currency may continue to hurt sales in this business in the September quarter.
SHERWIN WILLIAM Price and EPS Surprise
SHERWIN WILLIAM Price and EPS Surprise | SHERWIN WILLIAM Quote
Earnings Whispers
Our proven model shows that Sherwin-Williams is likely to beat earnings because it has the right combination of the two key ingredients.
Zacks ESP: The Earnings ESP for Sherwin-Williams is +0.69% as the Most Accurate Estimate stands at $4.36 while the Zacks Consensus Estimate is pegged at $4.33. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Sherwin-Williams currently carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank of #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings.
Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Sherwin-Williams’ Zacks Rank #1 and positive ESP makes us reasonably confident of an earnings beat.
Stocks that Warrant a Look
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
The Chemours Company (CC - Free Report) has an Earnings ESP of +25.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Dow Chemical Company (DOW - Free Report) has an Earnings ESP of +1.25% and a Zacks Rank #2.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>