What's In Store For Sherwin-Williams' (SHW) Q2 Earnings?

The Sherwin-Williams Company (NYSE:SHW) is set to release second-quarter 2019 results on Jul 23, before the opening bell.

The stock has gained 6.6% in the past year compared with the industry’s 5.2% rise.

Factors at Play in Q2

In April 2019, the company stated that it expects consolidated net sales to increase 2-5% year over year in the second quarter. Notably, the Americas Group segment is forecast to be at or above the high end of this range on a year-over-year basis.

Sherwin-Williams’ cost-control initiatives, working-capital reductions, supply-chain optimization and productivity improvement are likely to drive margins in the to-be-reported quarter. The company is likely to gain from synergies of the Valspar acquisition.

However, Sherwin-Williams is witnessing weak demand outside the United States. The company witnessed relatively softer demand in non-domestic regions during the first quarter. Notably, in Asia Pacific and Europe, sales declined high single and mid-single digits in the first quarter, respectively. Trade issues have led to softness in markets in Asia. Demand weakness will likely persist in the second quarter.

The company also remains exposed to raw material cost pressure. Sherwin-Williams expects inflation in the low-single digits year over year for 2019. Some input cost pressure is likely to continue in the second quarter.

Sherwin-Williams also faces currency translation headwinds. In the first quarter, performance in all the three segments was affected by unfavorable currency translation. Currency translation reduced first-quarter sales in the Performance Coatings Group by roughly 4% and also affected segment profits. Also, the company’s Latin America business saw a high single-digit decline in the first quarter due to unfavorable currency swings. Currency may remain a headwind in the second quarter.

What do the Estimates Say?

The Zacks Consensus Estimate for second-quarter total revenues for Sherwin-Williams is currently pegged at $4,925 million, indicating an expected growth of 3.2% from the year-ago quarter’s figure.

The Zacks Consensus Estimate for net sales in the Americas Group segment is currently pegged at $2,759 million, implying an expected growth of roughly 5.1% year over year.

The Zacks Consensus Estimate for net sales in the Consumer Brands Group segment is currently pegged at $795 million, indicating an expected rise of around 2.2% from the year-ago quarter’s figure.

The Zacks Consensus Estimate for net sales in the Performance Coatings Group segment is currently pegged at $1,390 million, indicating an expected rise of roughly 1.5% from the year over year.

What the Zacks Model Says

Our proven model does not show that Sherwin-Williams is likely to beat estimates to-be-reported quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Sherwin-Williams is -0.85%. The Most Accurate Estimate is at $6.30 and the Zacks Consensus Estimate is pegged at $6.35. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sherwin-Williams currently carries a Zacks Rank #4 (Sell).

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

Franco-Nevada Corporation (TSX:FNV) has an Earnings ESP of +2.65% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold Corporation (NYSE:GOLD) has an Earnings ESP of +13.51% and carries a Zacks Rank #3.

Carpenter Technology Corporation (NYSE:CRS) has an Earnings ESP of +0.64% and carries a Zacks Rank #3.

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