Sherwin-Williams' (SHW) Q2 Earnings Top, Raises Guidance - Analyst Blog

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Sherwin-Williams ' ( SHW ) earnings rose roughly 19.5% year over year to $2.94 per share in the second quarter of 2014 from $2.46 per share a year ago. Earnings for the second quarter include an unfavorable impact of 6 cents per share related to acquisitions.

Barring that acquisition-related impact, earnings of $3.00 per share surpassed the Zacks Consensus Estimate of $2.90.
Sherwin-Williams, whose well-known brands include Dutch Boy, Minwax and Krylon, recorded net sales of around $3,042 million in the quarter, a 12.1% year-over-year rise. It exceeded the Zacks Consensus Estimate of $2,980 million.

Increased paint sales volume of Sherwin-Williams' Paint Stores Group and favorable impact of acquisitions led to higher sales in the quarter. Acquisitions contributed 4.6% to the rise in revenues in the quarter while currency swings had an unfavorable impact of 0.9%.

Sherwin-Williams, in Sep 2013, completed its takeover of the U.S. and Canadian businesses of Mexico's leading paint company, Consorcio Comex S.A. de C.V., for $90 million in cash and assumed liability of around $75 million. The acquisition is expected to contribute to the company's top line growth this year.

Segment Review

The Paint Stores Group unit registered net sales of $1.88 billion in the reported quarter, up 17.2% from the year-ago quarter. The gain was led by increased architectural paint sales volume across all end market segments and acquisition. The group led with higher sales volume and operating results.

Net sales of the Consumer Group unit rose 10.1% to $433.4 million due to acquisitions and higher volume sales to most of the company's retail customers. Acquisitions increased net sales of the segment by 5% in the reported quarter. The segment improved its operating results through increased volume sales and operating efficiencies.

Net sales from the Global Finishes Group segment went up 6.1% to $544.6 million in the quarter due to higher selling prices, and higher paint sales volumes. Unfavorable currency translation reduced sales by 0.3%.

The Latin America Coatings Group net sales fell 8.9% to $181.2 million as higher selling prices were offset by unfavorable currency translation, which reduced sales by 11.3%, and lowered paint sales volume. The Latin America Group is taking measures and increasing its selling prices and also reducing costs in order to improve its operating margins.

Financials and Shareholder Returns

Sherwin-Williams' working capital ratio as of Jun 30, 2014, was 11.7% compared with 12% last year.

Sherwin-Williams bought back 2.03 million shares through open market purchases in the reported quarter. The company had remaining authorization to repurchase 8.83 million shares as of Jun 30, 2014.
During the quarter, Sherwin-Williams hiked its quarterly dividend to 55 cents per share from 50 cents per share.

Outlook

Sherwin-Williams, which is among the leading paint companies along with PPG Industries Inc. ( PPG ) and Akzo Nobel NV ( AKZOY ), expects consolidated sales to increase 8%-13% year over year in 2014. At this level, the company increased its earnings guidance for 2014 to a range of $8.50 to $8.70 per share from $8.12 to $8.32 per share expected previously. This is above the current Zacks Consensus Estimate of $8.42.

The guidance assumes that the Comex acquisition will increase net sales by a low-single-digit percentage in the year and negatively impact earnings per share by 35 cents per share in 2014.

For the third quarter, Sherwin-Williams expects consolidated net sales to rise 9%-14% year over year. The company expects earnings per share in the range of $3.15 to $3.25 per share for the quarter. The Zacks Consensus Estimate for the quarter currently stands at $3.05. The guidance assumes that the Comex acquisition will increase net sales in the range of $120 million to $130 million and unfavorably impact earnings per share by 5 cents in the third quarter.

Sherwin-Williams is a Zacks Rank #2 (Buy) stock.

Another paint company, T he Valspar Corporation ( VAL ), retains a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: PPG , VAL , SHW , AKZOY

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