Sherwin-Williams Breaks Out To New Highs
MarketBeat.com | Oct 27, 2021 06:16AM ET
Sherwin-Williams (NYSE:SHW) share prices are moving sharply higher despite a lackluster Q3 earnings report and guidance and the reason is simple. The mixed results were expected given similar performances from competitors PPG Industries (NYSE:PPG) and RPM International (NYSE:RPM) and, given the state of the global supply chain, better than they could have been.
Further, the outlook for the business remains generally positive despite the supply chain headwinds and promises to support growth in future quarters. Most importantly, the company is giving a favorable outlook for margin and that is what stock valuation is really about. Until then, cash flow remains strong and is allowing the company to invest in growth and give value to shareholders.
According to CEO John G. Morikis:
h2 Disruptions No Deterrent For Sherwin-Williams Demand/h2
“We continue to implement price increases to offset higher raw material costs across the business and are confident margins will recover as inflation headwinds eventually subside. Despite the near-term margin pressure, cash flow generation remained strong during the quarter, enabling us to invest in long-term strategic growth initiatives, open 19 new stores, announce two acquisitions and purchase 1.675 million shares.”
Sherwin-Williams was able to overcome supply chain disruptions enough to beat the Marketbeat.com consensus estimate for earnings , the bad news is that growth could have been as much as 900 basis points greater if not for the hurdles. The company reported $5.15 billion in net revenue which is down sequentially but up 0.6% over last year, 5.7% versus 2019, and beat the consensus estimate by 120 basis points. Strength was driven by sales in the Performance Coatings segment and offset by weakness in Consumer Brands centered in North America. In all cases, revenue was underpinned by pricing increases, and additional increases are expected.
Moving down the report, the company logged a 520 basis contraction in margin due to input costs and freight that cut deeply into the bottom line. The good news is that, once again, the contraction was in line with expectations and aided by the revenue strength. On the bottom line, the GAAP EPS of $1.88 missed the consensus but only by a penny while adjusted earnings came in $0.04 better than expected.
Looking forward, the company is expecting headwinds to persist through the 4th quarter at least and has updated guidance to match. The company is now expecting adjusted EPS in the range of $8.35 to $8.45 versus the $8.46 Marketbeat.com consensus estimate and there is upside risk in the numbers.
h2 Sherwin-Williams Dividend Is Safe As Ever/h2
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Sherwin-Williams consensus price target of $346.
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