Sherwin-Williams (SHW) Rides on Demand Strength & Cost Actions
The Sherwin-Williams Company SHW is well-placed to gain from increased domestic demand, a growing retail business and the effective implementation of cost-cutting strategies. In addition, restructuring actions will benefit the company.
The stock has gained 20.6% in the past year compared with the industry’s rise of 20% in the same period.
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Strong Demand & Growing Retail Network to Aid Sales
Sherwin-Williams is witnessing strong domestic demand and is committed to increasing its retail network. The company now has a better visibility of third-quarter demand than the second quarter. It is experiencing strong demand in the vehicle refinishing market across multiple geographies. The installation of systems in North America has increased by double digits this year, which is likely to significantly support the company's future sales performance.
Sherwin-Williams has steadily increased its retail presence by exhibiting a firm commitment to gaining a larger market share. This is highlighted by the Paint Stores Group's 10% increase in sales during the second quarter. The growth is driven by a combination of effective pricing measures and increased volume, resulting in a 280 basis point improvement in the segment's margin, which now stands at 24.3%.
Cost Control Initiatives Improve Margins
Sherwin-Williams' proactive approach to cost management and continuing efforts to optimize the supply chain and improve overall efficiency are likely to positively influence margins. The company's careful cost-cutting actions have considerably contributed to strong net cash flows, totaling around $1.9 billion in 2022. This significant cash creation has also enabled the return of $848.7 million to shareholders in the first half of 2023 through dividends and share repurchases.
Restructuring Measures to Reap Benefits
Sherwin-Williams is currently undertaking restructuring activities to improve the Consumer Brands Group, Performance Coatings Group and corporate operations. These initiatives are expected to save $50-$70 million per year. The expected benefits of these initiatives are estimated to reach 75% by the end of 2023, with full implementation expected by the end of 2024.
Zacks Rank & Other Key Picks
Sherwin-Williams currently carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the basic materials space include Carpenter Technology Corporation CRS, The Andersons Inc. ANDE and Hawkins Inc. HWKN.
Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). The stock has rallied roughly 106.8% in the past year. CRS beat the Zacks Consensus Estimate in three of the last four quarters while meeting in one. It delivered a trailing four-quarter earnings surprise of 9.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Andersons currently carries a Zacks Rank #1. The stock has gained roughly 61.4% in the past year. ANDE beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average.
Hawkins currently carries a Zacks Rank #1. The stock has rallied roughly 57.5% in the past year. HWKN beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 25.6%, on average.
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