We have retained our Neutral recommendation on paint giant Sherwin-Williams ( SHW ). While healthy momentum in the company's paint business is encouraging, we remain on the sidelines factoring in currency headwinds, volatility in raw material pricing and uncertainty surrounding Comex takeover.
Both revenues and adjusted earnings for second-quarter 2013, reported on Jul 18, missed Zacks Consensus Estimates. Revenues rose year over year as higher paint sales volume and contributions from acquisitions more than offset negative currency impact.
Sherwin-Williams, which is among the major paint companies along with Akzo Nobel NV ( AKZOY ), 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.
Sherwin-Williams 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. Sherwin-Williams also remains committed to deliver incremental returns to shareholders.
While the $2.34 billion acquisition of Consorcio Comex S.A. de C.V. should usher in significant opportunity for Sherwin-Williams and enable it to expand its architectural paint business in the Americas, near term uncertainty surrounding the takeover following the recent rejection of the deal by Mexican regulators may weigh on the stock.
Moreover, 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 business still remain impacted by the U.S. economic weakness. We do not expect a material near-term recovery in the non-residential construction market. Moreover, Sherwin-Williams is exposed to raw material costs pressure.
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