Sherwin-Williams Beats on Earnings in Q1 - Analyst Blog

Sherwin-Williams' SHW earnings rose roughly 2.7% year over year to $1.14 per share in the first quarter of 2014 from $1.11 per share a year ago. Earnings for the first quarter include loss from acquisitions of 12 cents per share.

Barring loss associated with acquisitions, earnings of $1.26 per share surpassed the Zacks Consensus Estimate of $1.08.

Sherwin-Williams, whose well-known brands include Dutch Boy, Minwax and Krylon, recorded net sales of around $2,366 million in the quarter, a 9.2% year-over-year rise. It exceeded the Zacks Consensus Estimate of $2,360 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 4.5% to the rise in revenues in the quarter while currency swings had an unfavorable impact of 1.9%.

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 Comex acquisition contributed to better-than-expected results in the first quarter.

Segment Review

The Paint Stores Group unit registered net sales of $1.36 billion in the reported quarter, up 16.4% from the year-ago quarter. The gain was led by increased architectural paint sales volume across all end market segments and acquisition.

Net sales of the Consumer Group unit rose 5.4% to $325.3 million due to acquisitions and the timing of seasonal shipments to some customers. Acquisitions increased net sales of the segment by 3.9% in the reported quarter.

Net sales from the Global Finishes Group segment went up 2.2% to $497.6 million in the quarter due to higher selling prices, partly offset by lower paint sales volume and unfavorable currency impact.

The Latin America Coatings Group net sales fell 10% to $182.4 million as higher selling prices were offset by unfavorable currency translation, which reduced sales by 16.5%, and lowered paint sales volume.
 
Balance Sheet, Share Repurchases and Dividend

Sherwin-Williams' working capital ratio as of Mar 31, 2014, was 11% compared to 11.7% last year.

Sherwin-Williams acquired 1.3 million shares through open market purchases in the reported quarter. The company had remaining authorization to purchase 10.85 million shares as of Mar 31, 2014.

During the quarter, Sherwin-Williams hiked the 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 reiterated its earnings guidance in the band of $8.12 to $8.32 per share for the year. This is below the current Zacks Consensus Estimate of $8.41.

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 in the range of 45 cents to 55 cents per share in 2014.

For the second quarter, Sherwin-Williams expects consolidated net sales to rise 8%–14% year over year. The company expects earnings per share in the range of $2.80 to $3.00 per share for the quarter. The Zacks Consensus Estimate for the quarter currently stands at $2.84. The guidance assumes that the Comex acquisition will increase net sales in the range of $125 million to $135 million and unfavorably impact earnings per share by 10 cents in the second quarter.

Sherwin-Williams is a Zacks Rank #3 (Hold) stock.

Another paint company RPM International Inc. RPM retains a Zacks Rank #2 (Buy).