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Why Is Sherwin-Williams (SHW) Down 5.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Sherwin-Williams (SHW). Shares have lost about 5.8% in that time frame, underperforming 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 Lags Q1 Earnings & Sales Estimates

Sherwin-Williams logged net income (as reported) of $2.62 per share for the first quarter of 2019, flat year over year.

Barring one-time items, adjusted earnings for the quarter came in at $3.60 per share, which missed the Zacks Consensus Estimate of $3.63.

Sherwin-Williams posted first-quarter revenues of $4,040.9 million, up around 2% year over year. It trailed the Zacks Consensus Estimate of $4,080.4 million.

The top-line growth was driven by a new customer program launched last year, increased paint sales volume in North American stores and higher selling prices, partly masked by weak demand outside of the United States and unfavorable currency swings.

Segment Review

The Americas Group unit registered net sales of $2.15 billion in the quarter, up around 4% year over year. Revenues were mainly driven by higher paint sales volume across most end markets in North American stores and increased selling prices that more than offset unfavorable currency impact.

Net sales in the Consumer Brands Group unit fell around 0.3% to $654.5 million. Sales in the quarter were affected by weak non-domestic market conditions, the divestment of the Guardsman furniture protection business and unfavorable currency impact. This was, in part, offset by a new customer program and higher selling prices.

Net sales in the Performance Coatings Group inched up 0.2% to $1.23 billion in the quarter mainly on the back of selling price increases.
 
Financials and Shareholder Returns

Sherwin-Williams had cash of $94.4 million at the end of the quarter, down around 40% year over year. Long-term debt declined 12% to roughly $8.7 billion.

The company purchased 750,000 shares of its common stock during the quarter. It had remaining authorization to purchase 9.38 million shares through open market purchases.

Outlook

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

Sherwin-Williams projects 2-5% increase in net sales year over year for second-quarter 2019. For 2019, Sherwin-Williams expects 4-7% increase in net sales from 2018. The company now expects earnings in the range of $16.93-$17.93 per share for 2019 (compared with $11.67 in 2018) factoring in lower than expected pension settlement expense.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Sherwin-Williams has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, 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 F. 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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