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What's in Store for Sherwin-Williams (SHW) in Q4 Earnings?

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The Sherwin-Williams Company (SHW - Free Report) is set to release fourth-quarter 2017 results ahead of the bell on Jan 25.

In the last quarter, the paints and coatings company reported a positive earnings surprise of 1.06% by posting adjusted earnings of $4.75 per share, which surpassed the Zacks Consensus Estimate of $4.70.

Sherwin-Williams recorded net sales of $4,507 million in the quarter, marking a 37.4% year-over-year rise. Revenues also topped the Zacks Consensus Estimate of $4,386.4 million.

The company topped the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, delivering an average positive surprise of around 3.9%.

Shares of Sherwin-Williams have moved up 11.4% in the last three months, outperforming the industry’s 9.8% growth.

 


 

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors at Play

Sherwin-Williams, during third-quarter earnings call, said that the Valspar integration plans and synergy progress is in line with its expectations, as the company remains focused on strengthening performance of core businesses and newly acquired businesses. The company has also implemented appropriate pricing actions to offset the impact of increasing raw material costs.

The company projects mid-to-high single digit percentage increase in net sales, year over year for fourth-quarter 2017. Sherwin-Williams expects earnings per share in the fourth quarter to be in the range of $1.97-$2.27, compared with $2.15 earned a year ago. The projected fourth-quarter earnings include a 98 cents charge associated with the Valspar acquisition.

For full-year 2017, Sherwin-Williams projects mid-single digit percentage increase in net sales from 2016. It also sees incremental sales from the Valspar buyout to be roughly $2.5 billion for the year. At this level, the company expects earnings per share for the year to be in the range of $11.20-$11.50, compared with $11.99 earned in 2016. The guidance includes a $3.21 per share charge related to the Valspar acquisition.

Net sales from the Americas Group segment for the fourth quarter is projected to decrease roughly 15.1% from the third quarter as the Zacks Consensus Estimate for the fourth quarter is currently pegged at $2,157 million. In the third quarter, the company witnessed a roughly 6.5% year-over-year increase in net sales for this segment, mainly driven by increased architectural paint sales volume in most end markets and higher selling prices, partly offset by the impact of natural disasters.

Net sales from the Consumer Brands Group segment for the fourth quarter is projected to decrease roughly 16.5% from the third quarter as the Zacks Consensus Estimate for the fourth quarter is currently pegged at $604 million. In the third quarter, the company witnessed an 81.6% year-over-year surge in net sales for this segment, mainly driven by the addition of Valspar sales since June 2017, partly masked by reduced volume sales to most of the unit’s retail customers.

Net sales from the Performance Coatings Group segment for the fourth quarter is projected to decrease roughly 8.7% from the third quarter as the Zacks Consensus Estimate for the fourth quarter is currently pegged at $1,132 million. In the third quarter, the company witnessed a 150.8% year-over-year increase in net sales for this segment, owing to inclusion of Valspar sales, increased paint sales volume and higher selling prices.

Sherwin-Williams’ aggressive cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement should continue to yield margin benefits. Working capital management and efforts to cut operating costs are also helping the company to generate healthy cash flows.

The Valspar acquisition also enables Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. The buyout will extend Sherwin-Williams’ brand portfolio and customer relationships in North America, and bolster its global finishes business. Sherwin-Williams should gain from significant synergies of the Valspar acquisition.

 

Earnings Whispers

Our proven model does not conclusively show that Sherwin-Williams is likely to beat the Zacks Consensus Estimate 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.

Zacks ESP: Earnings ESP for Sherwin-Williams for the fourth quarter is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $3.18. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sherwin-Williams currently carries a Zacks Rank #2, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

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

Agnico Eagle Mines Limited (AEM - Free Report) has an Earnings ESP of +20.99% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

LyondellBasell Industries N.V. (LYB - Free Report) has an Earnings ESP of +0.55% and carries a Zacks Rank #2.

Kinross Gold Corporation (KGC - Free Report) has an Earnings ESP of +2.27% and carries a Zacks Rank #3.

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