Sherwin Williams Company (SHW) is scheduled to report its fourth quarter and full-year 2011 results before the market opens on Thursday, January 26.
The Zacks Consensus Estimate for the quarter is 84 cents per share, representing a year-over-year increase of 16.54%.
With respect to earnings surprises, the company beat the Zacks Consensus Estimate in three of the trailing four quarters. This is reflected in the average earnings surprise of 6.58%, with positive surprises in three quarters and a negative surprise in the second quarter of 2011.
Third-Quarter Synopsis
Sherwin-Williams reported net earnings of $1.71 per share in the third quarter of 2011, beating the Zacks Consensus Estimate by a penny.
Net sales for the quarter increased 14.4% year over year to $2.48 billion driven by acquisitions and selling price increases and strong organic sales growth by the Global Finishes Group. Sales were also boosted by favorable currency translation rate changes. Sherwin-Williams’ third-quarter sales exceeded the Zacks Consensus Estimate of $2.42 billion.
Company’s Outlook
For the fourth quarter of 2011, management anticipates consolidated net sales to increase 6% to 10% on a year-over-year basis. Earnings per share in the fourth quarter is expected to be in the range of minus 5 cents to 15 cents per share (including a one-time charge of 72 cents per share relating to the Internal Revenue Service (IRS) settlement), compared with 67 cents per share in the fourth quarter of 2010.
For the full-year 2011, management expects consolidated net sales to increase marginally above 2010 levels. With annual sales at that level, the company reaffirmed its full-year guidance for net income per share of $4.65 to $4.85 per share before the IRS settlement and in the range of $3.93 to $4.13 per share after the settlement for 2011.
Agreement of Estimate Revisions
In the past 30 days, two analysts made upward revisions for the fourth quarter and fiscal 2011, with no downward revisions.
Magnitude of Estimate Revisions
In the last 30 days, the Zacks Consensus Estimate increased by a penny to 84 cents from 83 cents for fourth quarter and remained flat at $4.84 per share for fiscal 2011.
Over the 90-day period, the Zacks Consensus Estimate increased from 81 cents to 84 cents per share for the fourth quarter and from $4.80 to $4.84 per share for fiscal 2011.
Our Viewpoint
Despite weak housing markets, the company continues to invest in its core Paint Stores Group in order to boost market share. We believe that even if there is a modest improvement in the market in the near term, strong sales in the Paint Stores Group will put Sherwin Williams in a better position. We further believe that Sherwin Williams will expand its footprint through meaningful acquisitions and consolidate the North American paint industry.
However, raw material prices remain a concern for the company. The price of its key input titanium dioxide (TiO2) has been escalating and continues to be a headwind for the company. Furthermore, Sherwin Williams faces stiff competition from PPG Industries Inc. (PPG).
In view of the above stated reasons, the company retains a Zacks #2 Rank, indicating a short-term (1 to 3 months) “Buy” rating and we have recommended the shares of the company as “Neutral” for the long-term (more than 6 months).
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