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Sherwin-Williams (SHW) Down 9.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Sherwin-Williams (SHW). Shares have lost about 9.2% in that time frame, outperforming the S&P 500.

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

Sherwin-Williams' Earnings & Sales Lag Estimates in Q4

Sherwin-Williams logged earnings (as reported) of $2.66 per share in fourth-quarter 2019, up 148.6% from $1.07 in the year-ago quarter.

Barring one-time items, adjusted earnings in the quarter came in at $4.27 per share, which missed the Zacks Consensus Estimate of $4.40.

Sherwin-Williams posted revenues of $4,114.4 million, up 1.2% year over year. However, the figure missed the Zacks Consensus Estimate of $4,185.5 million. The company’s results gained from higher paint sales volume in The Americas Group, which was partly offset by weaker sales outside of North America as well as in specific industrial end markets.

2019 Highlights

The company recorded net sales of $17.9 billion for 2019, up 2.1% year over year. Earnings rose 41.3% year over year to $16.49 per share.

Segment Review

The Americas Group segment registered net sales of $2.36 billion in the fourth quarter, up 4.8% year over year. The upside can be attributed to higher paint sales across most end markets.

Net sales in the Consumer Brands Group segment inched up 0.9% to $539.4 million. Results gained form higher selling prices and increased sales volume related to some of the group's retail customers.

Net sales in the Performance Coatings Group fell 5% year over year to $1.21 billion in the reported quarter. The decline was mainly caused by softness in sales outside North America and unfavorable currency translation effect, which were partly offset by higher selling prices.

Financials and Shareholder Returns

At the end of 2019, Sherwin-Williams had cash and cash equivalents of $161.8 million, up 4.1% year over year. Long-term debt declined 7.5% year over year to roughly $8,050.7 million.

The company purchased 1,675,000 shares of its common stock in the 12-month period ended Dec 31, 2019. It had remaining authorization to purchase 8.45 million shares through open market purchases.

Outlook

Heading into 2020, the company stated that North American architectural demand is strong and industrial demand remains variable in terms of geography and end market.

For first-quarter 2020, Sherwin-Williams projects net sales to increase 2-5% year over year.

For 2020, The company expects net sales to increase 2-4% from 2019 levels. Based on this projection, the company expects earnings per share in the range of $19.91-$20.71 for 2020, which indicates a rise from $16.49 in 2019.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Sherwin-Williams has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Sherwin-Williams has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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