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Sherwin-Williams Poised on Valspar Buyout & Cost Actions

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On Sep 20, we issued an updated research report on paint giant, The Sherwin-Williams Company (SHW - Free Report) .

Sherwin-Williams logged profits of $319.1 million or $3.36 per share for the second quarter of 2017, down roughly 16% from $378.1 million or $3.99 per share a year ago.  The bottom line was hit by charges associated with the buyout of Valspar.

Earnings, barring one-time items including acquisition-related costs, came in at $4.52 per share, missing the Zacks Consensus Estimate of $4.54.  

Sherwin-Williams recorded net sales of $3,735.8 million in the quarter, marking a 16% year-over-year rise. Revenues beat the Zacks Consensus Estimate of $3,571.9 million.  

Sherwin-Williams, during the second quarter earnings call, noted that it will continue to remain focused on boosting the performance of its core businesses while completing the Valspar integration.

The company sees low to mid-single digit percentage increase in net sales, year over year for the third quarter of 2017. The company expects earnings per share in the third quarter to be in the range of $3.70-$4.10 per share, compared to $4.08 earned in the third quarter of 2016. Third-quarter earnings per share includes a $1.10 charge associated with the Valspar acquisition.

Price Performance

Shares of Sherwin-Williamshave moved up 11.3% in the last three months, outperforming the industry’s 6.8% growth.



Valspar Acquisition & Cost Actions to Drive Results

Sherwin-Williams, in June, closed the Valspar acquisition, creating a premier global paints and coatings company. The acquisition allows Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies.

In addition to expanding Sherwin-Williams’ global platform in Asia-Pacific and Europe, the Middle East and Africa regions, the buyout adds new capabilities in the packaging and coil segments. Sherwin-Williams expects to achieve $320 million in annual synergies within three years following the deal closure.

Moreover, the company’s cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are expected to continue to yield margin benefits. The company generated operating cash flows of $539 million during first-half 2017 and it is also using its cash strategically.  

Zacks Rank & Other Stocks to Consider

Sherwin-Williams currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the basic materials space are Sociedad Quimica y Minera de Chile S.A. SQM, Koppers Holdings Inc. KOP and Kronos Worldwide Inc. KRO. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sociedad Quimica has an expected long-term earnings growth rate of 32.5%.

Koppers Holdings has an expected long-term earnings growth rate of 18%.

Kronos Worldwide has an expected long-term earnings growth rate of 5%.

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