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Sherwin-Williams (SHW) Gains on Cost Actions, Expansion Moves
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The Sherwin-Williams Company (SHW - Free Report) is benefiting from pricing and cost-control initiatives, strength in its Paint Stores Group unit and expansion of operations amid a challenging demand environment.
Shares of Sherwin-Williams, a Zacks Rank #3 (Hold) stock, have lost 15.9% over the past year against the 15.7% decline of its industry.
Image Source: Zacks Investment Research
Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are expected to provide margin benefits. It is also implementing pricing actions to offset cost inflation, especially in raw materials.
The company is focusing on cost reductions through restructuring, which is expected to provide benefits in 2023. It expects to realize approximately $50-$70 million in estimated annual savings, 75% of which are expected to be realized by the end of 2023.
Moreover, the company remains committed toward expanding its retail operations. It is focused on capturing a larger share of its end-markets, as is evident from increasing number of retail stores.
Sherwin-Williams is benefiting from favorable demand in domestic markets. The company is seeing strength in North American professional architectural end markets. It is witnessing higher architectural sales volumes in the Paint Stores Group segment. Net sales from this segment climbed nearly 15% year over year in the first quarter of 2023 driven by a rise in sales volume in all end markets and higher selling prices. The momentum in this segment is likely to continue in the second quarter on higher architectural demand.
SHW also has a strong liquidity position and is using its cash strategically. Significant efforts to cut operating costs helped the company to generate strong net cash flows from operations of around $1.9 billion in 2022. The company returned around $1.5 billion to its shareholders through dividends and share buybacks in 2022. It also repurchased 1.3 million shares of its common stock during the most recent quarter.
However, demand has softened in Europe due to the sluggish macroeconomic environment. Moreover, the lack of meaningful recovery in China following the lifting of pandemic-led restrictions is also affecting demand. The company sees a challenging demand environment in the second half of 2023. It is witnessing weak demand in new residential and the Consumer Brands Group DIY.
On the industrial side of the business, it is seeing more pressure in North America while Europe and China are yet to fully recover. This is likely to exert pressure on its sales volumes.
Sherwin-Williams’ industrial wood business is also being hurt by the slowdown of the U.S. housing market. Sales in this business fell by mid-single digits in first-quarter 2023, hurt by a slowdown in furniture, cabinetry and flooring related to the weakness in new residential. Revenues from this business are likely to remain under pressure in the second quarter.
Better-ranked stocks worth considering in the basic materials space include AngloGold Ashanti Limited (AU - Free Report) , L.B. Foster Company (FSTR - Free Report) and Linde plc (LIN - Free Report) .
AngloGold Ashanti currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for AU’s current-year earnings has been revised 22% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for current-year earnings for AU is currently pegged at $1.94, reflecting an expected year-over-year growth of 50.4%. AngloGold Ashanti’s shares have popped roughly 35% in the past year.
L.B. Foster currently carries a Zacks Rank #1. The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days.
L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 5% in a year.
Linde currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 11% in the past year.
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Sherwin-Williams (SHW) Gains on Cost Actions, Expansion Moves
The Sherwin-Williams Company (SHW - Free Report) is benefiting from pricing and cost-control initiatives, strength in its Paint Stores Group unit and expansion of operations amid a challenging demand environment.
Shares of Sherwin-Williams, a Zacks Rank #3 (Hold) stock, have lost 15.9% over the past year against the 15.7% decline of its industry.
Image Source: Zacks Investment Research
Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are expected to provide margin benefits. It is also implementing pricing actions to offset cost inflation, especially in raw materials.
The company is focusing on cost reductions through restructuring, which is expected to provide benefits in 2023. It expects to realize approximately $50-$70 million in estimated annual savings, 75% of which are expected to be realized by the end of 2023.
Moreover, the company remains committed toward expanding its retail operations. It is focused on capturing a larger share of its end-markets, as is evident from increasing number of retail stores.
Sherwin-Williams is benefiting from favorable demand in domestic markets. The company is seeing strength in North American professional architectural end markets. It is witnessing higher architectural sales volumes in the Paint Stores Group segment. Net sales from this segment climbed nearly 15% year over year in the first quarter of 2023 driven by a rise in sales volume in all end markets and higher selling prices. The momentum in this segment is likely to continue in the second quarter on higher architectural demand.
SHW also has a strong liquidity position and is using its cash strategically. Significant efforts to cut operating costs helped the company to generate strong net cash flows from operations of around $1.9 billion in 2022. The company returned around $1.5 billion to its shareholders through dividends and share buybacks in 2022. It also repurchased 1.3 million shares of its common stock during the most recent quarter.
However, demand has softened in Europe due to the sluggish macroeconomic environment. Moreover, the lack of meaningful recovery in China following the lifting of pandemic-led restrictions is also affecting demand. The company sees a challenging demand environment in the second half of 2023. It is witnessing weak demand in new residential and the Consumer Brands Group DIY.
On the industrial side of the business, it is seeing more pressure in North America while Europe and China are yet to fully recover. This is likely to exert pressure on its sales volumes.
Sherwin-Williams’ industrial wood business is also being hurt by the slowdown of the U.S. housing market. Sales in this business fell by mid-single digits in first-quarter 2023, hurt by a slowdown in furniture, cabinetry and flooring related to the weakness in new residential. Revenues from this business are likely to remain under pressure in the second quarter.
The Sherwin-Williams Company Price and Consensus
The Sherwin-Williams Company price-consensus-chart | The Sherwin-Williams Company Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include AngloGold Ashanti Limited (AU - Free Report) , L.B. Foster Company (FSTR - Free Report) and Linde plc (LIN - Free Report) .
AngloGold Ashanti currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for AU’s current-year earnings has been revised 22% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for current-year earnings for AU is currently pegged at $1.94, reflecting an expected year-over-year growth of 50.4%. AngloGold Ashanti’s shares have popped roughly 35% in the past year.
L.B. Foster currently carries a Zacks Rank #1. The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days.
L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 5% in a year.
Linde currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 11% in the past year.