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Is a Beat in Store for Sherwin-Williams' (SHW) Q1 Earnings?

Zacks Equity Research

The Sherwin-Williams Company SHW is set to release first-quarter 2019 results on Apr 23, before the opening bell.

In the last reported quarter, the paints and coatings giant posted adjusted earnings of $3.54 per share, which trailed the Zacks Consensus Estimate of $3.56.

Revenues rose roughly 2.1% year over year to $4,064.2 million, beating the Zacks Consensus Estimate of $4,054.6 million.

Notably, Sherwin-Williams beat the Zacks Consensus Estimate in two of the trailing four quarters with average positive surprise of 3.8%.

The stock has gained 10.5% in the past year compared with the industry’s 12.6% rise.



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

Earnings Whispers

Our proven model shows that Sherwin-Williams is likely to beat estimates this quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for Sherwin-Williams is +3.90%. The Most Accurate Estimate is at $3.80 and the Zacks Consensus Estimate is pegged at $3.66. 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 #3, which when combined with a positive ESP, make us reasonably confident of an earnings beat. the complete list of today’s Zacks #1 Rank stocks here.

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.

Factors to Consider in Q1

During fourth-quarter 2018 earnings call, Sherwin-Williams stated that it expects first-quarter net sales to increase 2-6% year over year. Moreover, the first quarter will include expenses related to the defined benefit plan annuity purchase of roughly 43 cents per share.

The Zacks Consensus Estimate for total revenues for the first quarter is currently pegged at $4,078 million, indicating 2.8% growth from the year-ago reported figure.

The Zacks Consensus Estimate for net sales in the Americas Group segment is currently pegged at $2,168 million, implying growth of around 4.2% from the year-ago reported figure.

The Zacks Consensus Estimate for sales in the Consumer Brands Group segment is currently pegged at $664 million, indicating a rise of around 1.2% from the year-ago reported figure.

The Zacks Consensus Estimate for net sales in the Performance Coatings Group segment is currently pegged at $1,254 million, indicating a rise of 2.1% from the year-ago reported figure.

Sherwin-Williams’ cost control initiatives, working capital reductions, supply chain optimization and productivity improvement are likely to yield margin benefits in the to be reported quarter. The company should also gain from synergies of the Valspar acquisition.

However, Sherwin-Williams faces raw material cost pressure. The company witnessed higher-than-expected raw material cost inflation in the last reported quarter. It expects raw material costs for first-half 2019 to be higher on a year-over-year basis. The company expects inflation to be in the low-single digits year over year for full-year 2019 with most impact is expected in the first quarter.

Other Stocks Poised to Beat Estimates

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

Kinross Gold Corporation KGC has an Earnings ESP of +9.09% and carries a Zacks Rank #2.

Ingevity Corporation NGVT has an Earnings ESP of +6.77% and carries a Zacks Rank #3.

Ternium S.A. TX has an Earnings ESP of +6.21% and carries a Zacks Rank #3.

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Ingevity Corporation (NGVT) : Free Stock Analysis Report
 
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