Sherwin-Williams (SHW) Up 2.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Sherwin-Williams (SHW). Shares have added about 2.2% in that time frame, underperforming 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 drivers.

Sherwin-Williams' Q3 Earnings, Sales Top Estimates

Sherwin-Williams logged earnings (as reported) of $6.16 per share in the third quarter of 2019, up around 66% from $3.72 a year ago.

Barring one-time items, adjusted earnings for the quarter came in at $6.65 per share, which surpassed the Zacks Consensus Estimate of $6.46.

Sherwin-Williams posted revenues of $4,867.7 million, up around 3% year over year. The figure also beat the Zacks Consensus Estimate of $4,819.8 million. The company gained from sustained strength in architectural paint markets in North America.

Sales were driven by increased paint sales volume in North American stores and higher selling prices that more than offset weak demand across certain end-markets outside the United States. Unfavorable currency translation reduced sales by 0.9%.

Segment Review

The Americas Group segment registered net sales of $2.9 billion in the quarter, up around 9% year over year. Revenues were mainly driven by higher paint sales across all end markets in North American stores along with higher selling prices.

Net sales in the Consumer Brands Group segment fell around 12% to $678.5 million. The decline is partly due to the divestiture of the Guardsman furniture protection business and weaker sales in specific markets outside of North America. The company, however, saw higher selling prices and increased sales volume related to most of the Group's retail customers.

Net sales in the Performance Coatings Group ticked down 0.3% to roughly $1.3 billion in the quarter. The decline was mainly caused by softness in sales outside North America and unfavorable currency translation effect, partly offset by higher selling prices.

Financials and Shareholder Returns

Sherwin-Williams had cash of $189.6 million at the end of the quarter, up around 5% year over year. Long-term debt declined around 8% year over year to roughly $8 billion.

The company purchased 1,325,000 shares of its common stock during the first nine months. It had remaining authorization to purchase 8.8 million shares through open market purchases.

Outlook

Sherwin-Williams projects low single digit percentage increase in net sales year over year for fourth-quarter 2019. For the full year, Sherwin-Williams expects low single digit percentage increase in net sales from 2018. The company now expects earnings in the range of $17.07-$17.47 per share for 2019 (compared with $11.67 in 2018).

The company also raised its adjusted earnings per share guidance for 2019 to the range of $20.90-$21.30.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Sherwin-Williams has a strong Growth Score of A, 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 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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