Will Sherwin-Williams’ (SHW) Earnings Surprise in Q4?

The Sherwin-Williams Company (SHW) is set to release its fourth-quarter 2014 results before the opening bell on Jan 29, 2015.

In the last quarter, the coatings and paints company had delivered a positive earnings surprise of roughly 6.6% on the back of improved operating results in its Paint Stores, Global Finishes and Consumer Groups. Let’s see how things are shaping up for this announcement.

Factors to Consider

Sherwin-Williams provided an updated forecast for its earnings per share in 2014, along with a primary outlook for 2015 in Dec 2014. The company expects full-year 2014 consolidated net sales to improve by around 9% from 2013 and projects earnings per share in the range of $8.75–$8.80, compared with $7.26 in 2013. The guidance includes the negative impact of the Comex paint stores’ acquisition, which is expected to hurt earnings per share by 28 cents for 2014.

For full-year 2015, Sherwin-Williams expects consolidated net sales to improve by 7%–11% over 2014. At this level, the company expects earnings per share for 2015 in the band of $10.65–$10.85. The outlook for 2015 includes the assumption that the launch of the HGTV HOME paint solutions at Lowe’s will help sales rise by a low single-digit percentage and slightly add to earnings per share this year.

Given that Lowe’s is well recognized by homeowners in the global home remodeling space, collaborating with Lowe’s should prove beneficial for Sherwin-Williams’ HGTV HOME solutions.

Sherwin-Williams is also expected to benefit from the recent fall in oil prices as this will lower its input costs and thus, expand margins. The company is striving to expand its product portfolio and market footprint through various acquisitions and collaborations.

Moreover, Sherwin-Williams is likely to benefit from improvement in residential and non-residential markets in North America.

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 $1.36.

Zacks Rank: Sherwin-Williams carries a Zacks Rank #3 (Hold). Though a Zacks Rank #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:

Cameco Corp. (CCJ) has an Earnings ESP of +24.14% and carries a Zacks Rank #3.

Compass Minerals International Inc. (CMP) has an Earnings ESP of +2.60% and carries a Zacks Rank #1 (Strong Buy).

CF Industries Holdings, Inc. (CF) has an Earnings ESP of +1.21% and carries a Zacks Rank #2 (Buy).