The Sherwin-Williams Company (SHW) is set to release its third-quarter 2014 results before the opening bell on Oct 28.
In the last quarter, the coatings and paints company had delivered a roughly 3.5% positive earnings surprise on the back of increased paint sales volumes and favorable impact of acquisitions. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Sherwin-Williams’ Consumer segment is recovering with improving domestic and international sales of automotive finishes, original equipment manufacturers’ product finishes, and protective and marine coatings. The Paint segment has also seen a rebound with a favorable mix reversion to professional contractors from the do-it-yourself channel.
Paint Stores Group recorded healthy sales gain in 2013 on the back of higher paint sales volumes and acquisitions. The company is focused on capturing a larger share of its end markets, as is evident from the increasing number of stores.
The company’s aggressive cost control initiatives, working capital reductions, supply chain optimization and productivity improvement should continue to yield margin benefits. It is also implementing effective pricing strategies to offset raw material inflation.
Sherwin-Williams expects consolidated sales to increase 8%–13% year over year in 2014. The company expects its earnings guidance for 2014 to a range of $8.50 to $8.70 per share from $8.12 to $8.32 expected previously.
In its third quarter, Sherwin-Williams expects consolidated net sales to rise 9%–14% year over year and earnings per share in the range of $3.15 to $3.25 for the quarter.
However, the third quarter guidance had included the positive effect of the acquisition of Mexico’s leading paint company, Consorcio Comex S.A. de C.V. However, since then, Sherwin-Williams had announced that it has terminated the deal.
Moreover, Sherwin-Williams’ Latin American operations are facing soft end-market demand and unfavorable currency translation (stemming from a stronger U.S. dollar). Currency translation reduced sales from the company’s Latin American operations by around 11% in the most recent quarter. Sherwin-Williams is expected to continue to face currency headwinds and soft demand in its Latin American markets through the balance of 2014.
Earnings Whispers?
Our proven model does not conclusively show that Sherwin-Williams is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Sherwin-Williams has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $3.18.
Zacks Rank: Sherwin-Williams carries a Zacks Rank #1 (Strong Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some other companies in the basic materials sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Celanese Corp. (CE) has an Earnings ESP of +2.21% and carries a Zacks Rank #2 (Buy).
LyondellBasell Industries N.V. (LYB) has an Earnings ESP of +0.48% and carries a Zacks Rank #2.
Methanex Corp. (MEOH) has an Earnings ESP of +9.23% and carries a Zacks Rank #3 (Hold).
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
Be the first to comment