Sherwin-Williams (SHW) Q1 Earnings, Revenues Top Estimates

The Sherwin-Williams Company’s (NYSE:SHW) earnings, excluding costs related to the proposed acquisition of Valspar (NYSE:VAL) and gains from reduction in income tax provision, were $2.27 per share in first-quarter 2017. Adjusted earnings beat the Zacks Consensus Estimate of $2.07. Reported earnings improved to $2.53 per share from $1.75 per share a year ago.

Improved operating results at the Paint Stores and Global Finishes Groups led to the earnings upside. However, currency translation rate changes did not have a significant impact on earnings in the quarter.

Sherwin-Williams, whose well-known brands include Dutch Boy, Minwax and Krylon, recorded net sales of $2,761.4 million in the first quarter, marking a 7.3% year-over-year rise. Revenues beat the Zacks Consensus Estimate of $2,740 million.

Increased paint sales volumes in Sherwin-Williams’ Paint Stores Group and a change in revenue classification led to higher sales.

Sherwin-Williams Company (The) Price, Consensus and EPS Surprise

Segment Review

The Paint Stores Group unit registered net sales of $1.81 billion in the reported quarter, up 12.1% year over year. The improvement was driven by increased architectural paint sales volume across most end markets. Net store sales from stores open for more than 12 calendar months rose 7.5% from the prior-year quarter.

Net sales of the Consumer Group unit fell 10.7% to $337.5 million, owing to lower volume sales to most retail and commercial customers. The segment’s profits declined to $60.6 million from $64 million in the prior-year quarter due to lower sales and higher raw material costs partly offset by improved operating efficiencies, better cost control initiatives, and higher selling price.

Net sales from the Global Finishes Group segment rose 3.6% to $470.3 million in the quarter. Segment profits improved year over year, due to higher paint sales volume and increased selling price partly offset by higher raw material cost.

The Latin America Coatings Group’s net sales improved 12.9% to $141.4 million, mainly due to an increase in selling price and favorable foreign currency translation. Favorable currency translation increased sales by 5.7%. The segment profit improved to $1.2 million in the quarter from a loss of $0.9 million last year mainly due to higher selling price partly offset by increased raw material costs.

Financials and Shareholder Returns

Sherwin-Williams made no open market purchases of its common stock in the three months ended Mar 31, 2017. As of the aforementioned date, the company had cash on hand of $1.02 billion that will be used to finance the Valspar acquisition.

Outlook

For the second quarter, Sherwin-Williams projects mid-to-high single digit percentage increase in net sales, year over year. The company also expects earnings in second-quarter 2017 to be in the range of $4.15 to $4.35 per share, including a 25 cents charge from costs associated with the planned acquisition of Valspar.

For full-year 2017, Sherwin-Williams projects mid-single digit percentage increase in net sales from the prior year. The company expects earnings per share in the year in the range of $13.65 to $13.85 per share, compared to $11.99 earned in 2016. The year’s earnings per share includes a charge of 40 cents per share related to the planned acquisition of Valspar and a benefit of about 25 cents related to income tax provision.

Price Performance

The company’s shares rallied around 9.6% over the past three months outperforming the Zacks categorized Paints & Allied Products industry’s 1.9% growth.

Zacks Rank & Other Stocks to Consider

Sherwin-Williams currently carries a Zacks Rank #2 (Buy).

Other top ranked companies in the basic material space include Univar Inc. (NYSE:UNVR) and The Chemours Company (NYSE:CC) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Univar has expected long-term growth of 9.4%.

Chemours has expected long-term growth of 15.5%.

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