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Sherwin-Williams (SHW) Q4 Earnings: What's in the Cards?

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Sherwin-Williams (SHW - Free Report) is set to release fourth-quarter 2016 results before the bell on Jan 26.

Last quarter, the coatings and paints company delivered a negative earnings surprise of 2.53%. Revenues rose on improved volumes at the Paint Stores Group unit but missed the Zacks Consensus Estimate.

The company has beaten the Zacks Consensus Estimate in two of the trailing four quarters while missing in the other two with an average beat of around 4.36%. Let’s see how things are shaping up for this announcement.

Factors to Consider

Sherwin-Williams expect a low single-digit percentage increase in net sales year over year for fourth-quarter 2016. The company anticipates earnings per share (EPS) in the quarter to be in the range of $1.45–$1.55. The EPS guidance for 2016 has been revised to the range of $11.30–$11.40 from $11.65−$11.85 per share, guided earlier.

Fourth-quarter EPS includes costs related to the planned acquisition of rival paints maker Valspar (VAL - Free Report) of around 71 cents per share as well as an increase of about 3 cents in EPS related to the decrease in income tax provision.

Sherwin-Williams follow 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 dependency upon prevailing market conditions.

Sherwin-Williams, in Sep 2013, completed its takeover of the U.S. and Canadian businesses of Comex for $90 million in cash and assumed liability of around $75 million. The acquisition allowed the company to serve its customers better in some of its key markets. Moreover, the company, in Mar 2016, agreed to buy Valspar for roughly $11.3 billion which will allow Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally.

Sherwin-Williams is also actively pursuing initiatives such as aggressive cost control, working capital reductions, supply chain optimization and productivity improvement that continues to yield margin benefits.

Sherwin-Williams has outperformed the Zacks categorized Paints & Allied Products industry over the past three months, partly driven by strength in its Paint Stores Group unit. The company’s shares have gained around 14.7% over this period, compared with roughly 11% growth recorded by the industry.



However, Sherwin-Williams’ Latin American operations remain exposed to soft end-market demand and currency headwinds. Currency translation also reduced sales from the company’s Latin American operations by roughly 8% in the third quarter. Currency may continue to hurt sales in this business in the fourth quarter. Moreover, Sherwin-Williams’ consumer and paint stores businesses still remain impacted by the global economic weakness.
 

Sherwin-Williams Company (The) Price and Consensus

 

Earnings Whispers

Our proven model does not conclusively show that Sherwin-Williams is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Sherwin-Williams is currently pegged at 0.00%. This is because both the Most Accurate estimates as well as the Zacks Consensus Estimate are pegged at $2.21. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sherwin-Williams carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the basic material space you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Methanex Corp. (MEOH - Free Report) has an Earnings ESP of +53.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Albermale Corp. (ALB - Free Report) has an Earnings ESP of +2.67% a Zacks Rank #2.

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