Why Is Sherwin-Williams (SHW) Down 6.1% Since The Last Earnings Report?

It has been about a month since the last earnings report for The Sherwin-Williams Company (NYSE:SHW) . Shares have lost about 6.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Sherwin-Williams’ Q2 Earnings Trail, Profits Down Y/Y

Sherwin-Williams logged profits of $319.1 million or $3.36 per share for the second quarter of 2017, down roughly 16% from $378.1 million or $3.99 per share a year ago. The bottom line was hit by charges associated with the buyout of Valspar.

Earnings, barring one-time items including acquisition-related costs, came in at $4.52 per share, missing the Zacks Consensus Estimate of $4.54. The company recorded charges of $0.72 per share for acquisition-related costs and charges of $0.44 per share related to the sale of Valspar's North American Industrial Wood Coatings business assets.

Sherwin-Williams recorded net sales of $3,735.8 million in the quarter, marking a 16% year-over-year rise. Revenues beat the Zacks Consensus Estimate of $3,571.9 million. Sales from stores in the U.S. and Canada (open more than 12 calendar months) rose around 5% in the quarter.

Segment Review

The Americas Group unit registered net sales of $2.44 billion in the reported quarter, up around 9% on a year over year comparison basis. Revenues were driven by increased architectural paint sales volume in most end markets, the impact of the change in revenue classification and higher selling prices.

Net sales of the Consumer Brands Group unit went up 16% to $536.4 million, driven by the addition of Valspar sales for the month of June, partly masked by reduced volume sales to most of the unit’s retail and commercial customers. Valspar sales increased the division’s net sales by around 28% in the quarter.

Net sales from the Performance Coatings Group jumped 48% to $761.1 million in the quarter on the back of one-month of Valspar sales, increased paint sales volume and higher selling prices. Valspar sales contributed roughly 49% to the segment’s net sales in the quarter.

Financials and Shareholder Returns

Sherwin-Williams made no open market purchases of its common stock during the six months ended Jun 30, 2017. At the end of the second quarter, the company had cash on hand of $210 million that it plans to use to reduce debt.

Outlook

Moving ahead, Sherwin-Williams said that it will focus on boosting the performance of its core businesses while completing the Valspar integration.

The company sees low to mid-single digit percentage increase in net sales, year over year for third-quarter 2017. The company expects earnings per share in the third quarter to be in the range of $3.70 to $4.10 per share, compared to $4.08 earned in the third quarter of 2016. Third-quarter earnings per share includes a $1.10 per share charge associated with the Valspar acquisition.

For full-year 2017, Sherwin-Williams projects mid-single digit percentage increase in net sales from 2016. It also sees incremental sales from the Valspar buyout to be around $2.4 billion for the year. At this level, the company now expects earnings per share from continuing operations for the year to be in the range of $12.30 to $12.70 per share, compared with $11.99 earned in 2016. The guidance includes a $2.50 per share charge related to the Valspar acquisition.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter

The Sherwin-Williams Company Price and Consensus

The Sherwin-Williams Company Price and Consensus | The Sherwin-Williams Company Quote

VGM Scores

At this time, Sherwin-Williams's stock has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.