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Why Is Sherwin-Williams (SHW) Up 1.9% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for The Sherwin-Williams Company (SHW - Free Report) . Shares have added about 1.9% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is SHW due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Sherwin-Williams' Q1 Earnings Top Estimates, Cuts Profit View

Sherwin-Williams logged net income (as reported) of $2.62 per share for the first quarter of 2018, up around 4% from $2.53 per share recorded a year ago.

Adjusted earnings (barring acquisition-related costs) for the quarter came in at $3.57 per share, beating the Zacks Consensus Estimate of $3.14.

Sherwin-Williams posted record first-quarter revenues of $3,965 million, up roughly 44% year over year. Sales were driven by the addition of Valspar sales, higher selling prices and increased paint sales volumes in the Americas Group unit. Revenues, however, missed the Zacks Consensus Estimate of $3,984 million.

Segment Review

The Americas Group unit registered net sales of $2.08 billion in the reported quarter, up around 7% on a year over year comparison basis. Revenues were driven by increased architectural paint sales volume across most end markets and higher selling prices.  

Net sales of the Consumer Brands Group unit surged around 103% to $656.4 million, driven by the addition of Valspar sales and higher pricing, partly masked by reduced volume sales to some of the unit’s retail customers. Valspar sales increased the division’s net sales by around 108.3% in the quarter.

Net sales from the Performance Coatings Group zoomed around 153% to $1.23 billion in the quarter owing to inclusion of Valspar sales and higher selling prices. Valspar sales contributed roughly 148% to the segment’s net sales in the quarter.

Financials and Shareholder Returns

Sherwin-Williams purchased 600,000 shares of its common stock during the first quarter. At the end of the quarter, it had remaining authorization to purchase 11.05 million shares through open market purchases.

Outlook

Moving ahead, Sherwin-Williams projects mid-to-high single digit percentage increase in net sales year over year for second-quarter 2018. It also sees incremental sales from Valspar acquisition to be around $600 million for April and May in the quarter.

For full-year 2018, Sherwin-Williams projects mid-to-high single digit percentage increase in net sales from 2017. It also sees incremental sales from the Valspar buyout to be roughly $1.7 billion for the first five months of the year.

At this sales level, the company now expects earnings per share for the year to be in the range of $14.95 to $15.45 per share, down from its earlier view of $15.35 to $15.85 per share. The revised guidance includes a 40 cents per share net reduction associated with an expanded customer agreement, mostly affecting the Valspar business. The guidance also includes a $3.40-$3.50 per share charge related to the Valspar acquisition.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision higher for the current quarter compared to seven lower.

The Sherwin-Williams Company Price and Consensus

 

VGM Scores

At this time, SHW has an average Growth Score of C, however its Momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, SHW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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