We have maintained our Neutral recommendation on
) following our assessment of its first-quarter 2013 results,
reported on Apr 18. We maintain a cautious stance factoring in
currency headwinds, raw material pricing pressure and sustained
weakness across some of its key end markets.
Sherwin-Williams' first quarter earnings topped the Zacks
Consensus Estimate while sales met. Revenues improved modestly as
higher paint sales volume coupled with the positive impact of
acquisitions was masked by unfavorable currency impact. Higher
architectural paint sales led to an increase in revenues in the
Paint Stores Group division.
Sherwin-Williams, which is among the major paint companies along
Akzo Nobel NV
), follows a strategy of growth through acquisitions and internal
initiatives such as efficient working capital management and
innovation. Its philosophy is to diversify its customer base and
expand its operations into various geographies.
The company continues to invest in its Paint Stores Group segment
to boost market share. It is also implementing effective pricing
strategies to offset higher raw material costs.
Moreover, the $2.34 billion acquisition of Consorcio Comex S.A.
de C.V. should usher in significant opportunity. The acquisition
(expected to complete in second-quarter 2013) will enable
Sherwin-Williams to expand its architectural paint business in
Sherwin-Williams also remains committed to deliver incremental
returns to shareholders. The company, in Feb 2013, raised its
quarterly dividend by 28% to 50 cents per share.
However, Sherwin-Williams remains exposed to currency headwinds.
The company's Latin American operations are facing soft
end-market demand and unfavorable currency translation impact.
Sherwin-Williams' consumer and paint stores businesses still
remain impacted by the U.S. economic weakness. We do not expect a
material near-term recovery in the housing and commercial
Moreover, Sherwin-Williams continues to contend with volatility
in raw material costs, primarily for acrylic latex, propylene and
titanium dioxide (a key paint pigment).
Other Stocks to Consider
Other specialty chemicals companies with favorable Zacks Rank are
Minerals Technologies Inc.
Prospect Global Resources, Inc.
). Both hold a Zacks Rank #2 (Buy).
AKZO NOBEL NV (AKZOY): Free Stock Analysis
MINERAL TECH (MTX): Free Stock Analysis
PROSPECT GLOBAL (PGRX): Free Stock Analysis
SHERWIN WILLIAM (SHW): Free Stock Analysis
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