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Why Is Sherwin-Williams (SHW) Up 5.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Sherwin-Williams (SHW). Shares have added about 5.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sherwin-Williams 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' Q2 Earnings Top, Sales Miss Estimates

Sherwin-Williams logged earnings (as reported) of $5.03 per share in the second quarter of 2019, up 18.4% from $4.25 a year ago.

Barring one-time items, adjusted earnings for the quarter came in at $6.57 per share, which beat the Zacks Consensus Estimate of $6.35.

Sherwin-Williams posted revenues of $4,877.9 million, up around 2.2% year over year. However, the figure trailed the Zacks Consensus Estimate of $4,924.7 million.

Segment Review

The Americas Group segment registered net sales of $2.76 billion in the quarter, up around 5% year over year. Revenues were mainly driven by higher paint sales volume across all end markets in North American stores along with higher selling price that more than offset the impact of unfavorable currency.

Net sales in the Consumer Brands Group segment rose around 3.4% to $804.5 million. The upside can be attributed to a new customer program initiated in 2018 and higher selling prices. However, it was partly offset by the divestiture of the Guardsman furniture protection business in third-quarter 2018, unfavorable currency translation impacts and lower sales volume related to some of the Group's retail customers.

Net sales in the Performance Coatings Group fell 3.8% to $1.32 billion in the quarter. The decline was mainly caused by softness in sales outside North America and unfavorable currency translation effect, partly offset by selling price increases.

Financials and Shareholder Returns

Sherwin-Williams had cash of $145.6 million at the end of the quarter, down around 6.1% year over year. Long-term debt declined 25.9% year over year to roughly $7.2 billion.

The company purchased 1,075,000 shares of its common stock during the first six months. It had remaining authorization to purchase 9.05 million shares through open market purchases.

Outlook

The company reaffirmed adjusted earnings per share guidance in the range of $20.40-$21.40 for 2019.

Sherwin-Williams projects low single digit percentage increase in net sales year over year for third-quarter 2019. For the full year, Sherwin-Williams expects 2-4% increase in net sales from 2018. The company now expects earnings in the range of $16.14-$17.14 per share for 2019 (compared with $11.67 in 2018) factoring in the charges related to tax credit investment loss.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Sherwin-Williams has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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



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