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Can Sherwin-Williams (SHW) Spring a Surprise in Q2 Earnings?


The Sherwin-Williams Company SHW is set to release second-quarter 2017 results ahead of the bell on Jul 20.

In the last quarter, the paints and coatings company delivered a positive earnings surprise of 9.66% by posting adjusted earnings of $2.27 per share. The adjusted earnings beat the Zacks Consensus Estimate of $2.07.

Sherwin-Williams recorded net sales of $2,761.4 million in the quarter, marking a 7.3% year-over-year rise. Revenues beat the Zacks Consensus Estimate of $2,740 million.

Sherwin-Williams beat the Zacks Consensus Estimate in two of the trailing four quarters with an average positive surprise of around 2.48%.

Sherwin-Williams’ shares have rallied around 14.6% over the last three months, outperforming the Zacks categorized Paints & Allied Products industry’s 13.5% gain.

Can Sherwin-Williams surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors to Consider

For the second quarter, Sherwin-Williams expects net sales to increase by mid-to-high single digit percentage year over year. The company also expects earnings in second-quarter 2017 to be in the range of $4.15–$4.35 per share, including a 25 cents charge from costs associated with the Valspar acquisition.

Sherwin-Williams is benefiting from its cost control initiatives. Moreover, it remains focused on growth through acquisitions and expansion of operations. The company should also gain from favorable demand for paint and coatings in most domestic markets.

Last month, Sherwin-Williams wrapped up its $11.3 billion acquisition of Valspar, creating a premier global paints and coatings company.

The Valspar acquisition allows Sherwin-Williams to reinforce its position as a leading paints and coatings provider globally leveraging highly complementary offerings, strong brands and technologies.

Valspar is a strategic fit and the merger expands Sherwin-Williams’ brand portfolio and customer relationships in North America and bolsters its global finishes business. The buyout also significantly enhances Sherwin-Williams’ competitive profile.

Sherwin-Williams expects to achieve $320 million in annual synergies within three years following the deal closure. It also expects the transaction to be immediately accretive to adjusted earnings and increase its operating cash flow considerably.

Sherwin-Williams Company (The) Price and EPS Surprise

Sherwin-Williams Company (The) Price and EPS Surprise | Sherwin-Williams Company (The) Quote

Earnings Whispers

Our proven model does not conclusively show that Sherwin-Williams is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Sherwin-Williams is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $4.55. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sherwin-Williams currently sports a Zacks Rank #1 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Newmont Mining Corporation NEM has an Earnings ESP of +39.29% and carries a Zacks Rank #3.

Arconic Inc. ARNC has an Earnings ESP of +11.11% and carries a Zacks Rank #3.

Westlake Chemical Corporation WLK has an Earnings ESP of +5.04% and carries a Zacks Rank #2.

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