Markets
SHW

Sherwin-Williams (SHW) Q4 Earnings, Sales Top Estimates

The Sherwin-Williams Company 's SHW earnings, excluding costs related to the proposed acquisition of Valspar VAL and gains from reduction in income tax provision, were $2.34 per share in fourth-quarter 2016. Adjusted earnings beat the Zacks Consensus Estimate of $2.22. Reported earnings improved to $2.15 per share from $2.11 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 reduced earnings by 3 cents per share in the quarter.

Sherwin-Williams, whose well-known brands include Dutch Boy, Minwax and Krylon, recorded net sales of $2,782.6 million in the fourth quarter, marking a 6.8% year-over-year rise. Revenues beat the Zacks Consensus Estimate of $2,688 million.

Increased paint sales volumes in Sherwin-Williams' Paint Stores Group and a change in revenue classification, starting from the third quarter, led to higher sales, partly offset by unfavorable currency translation. Currency swings had an unfavorable effect of 0.9% on consolidated net sales.

Full-year Results

Sherwin-Williams reported earnings of $11.99 in 2016, up from the year-ago figure of $11.15 per share. The company saw sales increase 4.6% to $11.86 billion in the year.

Segment Review

The Paint Stores Group unit registered net sales of $1.84 billion in the reported quarter, up 9.8% 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 5.5% from the prior-year quarter.

Net sales of the Consumer Group unit inched up 0.4% to $315.9 million, mainly due to higher volume sales to most retail customers, partly offset by unfavorable currency translation. The segment's profits increased to $54.9 million from $50.9 million in the prior-year quarter, due to improved operating efficiency and lower selling, general and administrative expenses.

Net sales from the Global Finishes Group segment remained stable at $455 million in the quarter. Segment profits improved year over year, owing to a fall in costs of raw materials and good cost control, which were partly offset by unfavorable currency translation.

The Latin America Coatings Group's net sales improved 8.3% to $171.8 million, mainly due to an increase in selling price and sales volume, partly offset by unfavorable currency translation. Unfavorable currency translation affected sales by 6.7% in the quarter. The segment suffered a loss in the quarter, mainly owing to goodwill and trademark impairments of $10.7 million along with higher raw material costs and an unfavorable currency translation rate, partly offset by higher selling price.

Financials and Shareholder Returns

Sherwin-Williams made no open market purchases of its common stock in the full year ended Dec 31, 2016. As of Dec 31, 2016, the company had $889.8 million cash in hand that will be used to finance the Valspar acquisition.

Outlook

Sherwin-Williams projects mid to high single digit percentage increase in net sales, year over year for first-quarter 2017. The company expects earnings per share in the first quarter to be in the range of $1.45 to $1.55 per share, compared to $1.75 earned in the first quarter of 2016. First-quarter earnings per share includes costs related to the planned acquisition of Valspar of around 69 cents per share and an increase in earnings per share of about 11 cents related to the decrease in the income tax provision.

For full-year 2017, Sherwin-Williams projects mid-single digit percentage increase in net sales from 2016. The company expects earnings per share in the year to be in the range of $13.00 to $13.20 per share, compared to $11.99 earned in 2016. The year's earnings per share includes costs related to the planned acquisition of Valspar of around 80 cents per share and an increase in earnings per share of about 20 cents related to the decrease in the income tax provision.

Sherwin-Williams expects divestiture will be required to gain approval for the completion of the Valspar acquisition. The company expects to divest business that generates less than $650 million in revenue. The acquisition is expected to conclude at $113 per share post negotiations for divestiture.

The company has outperformed the Zacks categorized Paints & Allied Products industry over the past three months, partly driven by strength in its Paint Stores Group unit. The company's shares have gained around 24% over this period, compared with roughly 11.5% growth recorded by the industry.

Zacks Rank & Key Picks

Sherwin-Williams currently has a Zacks Rank #4 (Sell). Better-ranked companies in the basic materials space include Methanex Corp. MEOH and Celanese Corp. CE .

Methanex sports a Zacks Rank #1 (Strong Buy). The company has an expected long-term growth rate of 15%. You can see the complete list of today's Zacks #1 Rank stocks here.

Celanese carries a Zacks Rank #2 (Buy) and has an expected long-term growth rate of around 8.8%.

Zacks' Best Private Investment Ideas

In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?

Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Methanex Corporation (MEOH): Free Stock Analysis Report

Celanese Corporation (CE): Free Stock Analysis Report

Valspar Corporation (The) (VAL): Free Stock Analysis Report

Sherwin-Williams Company (The) (SHW): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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


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

In This Story

SHW MEOH CE

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More