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Category: Stock Market and Sherwin-Williams
Date: 23 October 2019 Stock Price: $566.89 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Sherwin-Williams a global manufacturer and distributor of paints, coatings and related products to industrial, commercial and retail customers.
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About Sherwin-Williams
Founded in 1866, The Sherwin-Williams Company is a global leader in the manufacture, development, distribution, and sale of paints, coatings and related products to professional, industrial, commercial, and retail customers. Sherwin-Williams manufactures products under well-known brands such as Sherwin-Williams®, Valspar®, HGTV HOME® by Sherwin-Williams, Dutch Boy®, Krylon®, Minwax®, Thompson's® Water Seal®, Cabot® and many more. With global headquarters in Cleveland, Ohio, Sherwin-Williams® branded products are sold exclusively through a chain of more than 4,900 company-operated stores and facilities, while the company's other brands are sold through leading mass merchandisers, home centers, independent paint dealers, hardware stores, automotive retailers, and industrial distributors. The Sherwin-Williams Performance Coatings Group supplies a broad range of highly-engineered solutions for the construction, industrial, packaging and transportation markets in more than 120 countries around the world. Sherwin-Williams shares are traded on the New York Stock Exchange (symbol: SHW).
Overview of Sherwin-Williams' latest earnings report
Data below refers to quarterly data unless specified otherwise:
- Revenues: $4.876 billion (up from $4.731 billion for the same period of the previous year)
- Revenues increased by 3.06% over the last 12 months
- Cost of sales: $2.642 billion (down from $2.721 billion for the same period of the previous year)
- Cost of sales decreased by -2.9% over the last 12 months
- Net earnings: $576.438 million (down from $354.027 million for the same period of the previous year)
- Diluted earnings per share: $6.16 (up from $3.72 for the same period of the previous year)
- PE ratio: 23.1
- Dividend declared: $1.13
- Dividend yield: 0.79%
- Diluted weighted-average shares outstanding: 93.604 million (down from 95.135 million for the same period of the previous year)
- Cash and cash equivalents: $189.645 million
- Cash and cash equivalents per share: $2.02
- Cash and cash equivalents makes up 0.35% of Sherwin-Williams' market capital
- Cash and cash equivalents makes up 4.7% of Sherwin-Williams' stockholders equity
- Accounts receivable: $2.479 billion
- Accounts receivable makes up 61.63% of Sherwin-Williams' stockholders equity
- Inventories: $1.84 billion
- Inventories makes up 45% of Sherwin-Williams' stockholders equity
- Stockholders equity in Sherwin-Williams: $4.022 billion
- Stockholders equity per share: $42.96
- So Sherwin-Williams is trading a 13.2 times its stockholders equity which is well outside the expected range of between 2 and 4 which most firms ten to trade at.
Sherwin-Williams' management commentary on their 3rd quarter results and fiscal guidance
CLEVELAND, OHIO, October 22, 2019 - The Sherwin-Williams Company (NYSE: SHW) announced its financial results for the third quarter ended September 30, 2019.
Commenting on the third quarter, John G. Morikis, Chairman and Chief Executive Officer, said, “Sherwin-Williams delivered strong results in the quarter as adjusted earnings per share increased 17.1% year-over-year to $6.65. Our performance in the quarter was driven by continued strength in North American architectural paint markets, which offset choppiness in some industrial end markets. U.S. and Canada same store sales growth was 8.1% as our pro painting customers continued to report strong demand. As a result of this strong volume and operating efficiencies, consolidated gross margin expanded over 300 basis points to 45.7%. Adjusted EBITDA margin in the quarter improved 150 basis points to 18.9% compared to the prior year.
“For the second consecutive quarter, all three operating segments increased segment profit and margin compared to the same period last year. In The Americas Group, our North American paint stores generated strong growth in all regions and all customer end markets, led by double digit growth in residential repaint. With the strong volume, the team delivered incremental operating margin of approximately 37%, and we have opened 31 net new stores year to date. In the Consumer Brands Group, sales decreased more than expected due primarily to softness in some international markets. In North America, we continued to strengthen our relationships with our largest retail partners. The team has done a nice job of controlling selling expenses, while continuing to realize synergies and improving year over year supply chain costs. The Performance Coatings Group was impacted by slowing industrial demand in some end markets, leading to slightly lower sales in the quarter. Despite the softer than expected top line, the team remained focused on controlling selling expenses, and with moderating raw material costs, adjusted segment profit and margin increased year over year.
“For the fourth quarter, we anticipate our consolidated net sales will increase by a low single digit percentage compared to last year's fourth quarter. For the full year 2019, we expect our consolidated net sales will increase by a low single digit percentage compared to the full year 2018. We are updating our full year 2019 diluted net income per share guidance to be in the range of $17.07 to $17.47 per share. Diluted net income per share in 2018 was $11.67 per share, including a charge of $4.15 per share for acquisition-related costs and a charge of $2.71 per share for non-operating expenses. We are increasing our full year 2019 adjusted diluted net income per share guidance to be in the range of $20.90 to $21.30 per share, excluding charges for acquisition-related costs and non-operating expenses, compared to $18.53 per share for the full year 2018 on a comparable basis."
Commenting on the third quarter, John G. Morikis, Chairman and Chief Executive Officer, said, “Sherwin-Williams delivered strong results in the quarter as adjusted earnings per share increased 17.1% year-over-year to $6.65. Our performance in the quarter was driven by continued strength in North American architectural paint markets, which offset choppiness in some industrial end markets. U.S. and Canada same store sales growth was 8.1% as our pro painting customers continued to report strong demand. As a result of this strong volume and operating efficiencies, consolidated gross margin expanded over 300 basis points to 45.7%. Adjusted EBITDA margin in the quarter improved 150 basis points to 18.9% compared to the prior year.
“For the second consecutive quarter, all three operating segments increased segment profit and margin compared to the same period last year. In The Americas Group, our North American paint stores generated strong growth in all regions and all customer end markets, led by double digit growth in residential repaint. With the strong volume, the team delivered incremental operating margin of approximately 37%, and we have opened 31 net new stores year to date. In the Consumer Brands Group, sales decreased more than expected due primarily to softness in some international markets. In North America, we continued to strengthen our relationships with our largest retail partners. The team has done a nice job of controlling selling expenses, while continuing to realize synergies and improving year over year supply chain costs. The Performance Coatings Group was impacted by slowing industrial demand in some end markets, leading to slightly lower sales in the quarter. Despite the softer than expected top line, the team remained focused on controlling selling expenses, and with moderating raw material costs, adjusted segment profit and margin increased year over year.
“For the fourth quarter, we anticipate our consolidated net sales will increase by a low single digit percentage compared to last year's fourth quarter. For the full year 2019, we expect our consolidated net sales will increase by a low single digit percentage compared to the full year 2018. We are updating our full year 2019 diluted net income per share guidance to be in the range of $17.07 to $17.47 per share. Diluted net income per share in 2018 was $11.67 per share, including a charge of $4.15 per share for acquisition-related costs and a charge of $2.71 per share for non-operating expenses. We are increasing our full year 2019 adjusted diluted net income per share guidance to be in the range of $20.90 to $21.30 per share, excluding charges for acquisition-related costs and non-operating expenses, compared to $18.53 per share for the full year 2018 on a comparable basis."
Sherwin-Williams (NYSE: SHW) stock price history
The image below, obtained from Google, shows the stock price history of Sherwin-Williams since its listing And it's been a pretty good time for Sherwin-Williams stockholders. 5 years ago the stock was trading at around $228.90 a stock and its currently trading at $566.89 a stock. That's a decent return of 34.9% provided to Sherwin-Williams stockholders over the last 3 years.
The stock of Sherwin-Williams is trading at very close to its 52 week high of $578.36 and far away from its 52 week low of $355.28 which to us is a clear indication that the short term momentum and sentiment of Sherwin-Williams stock is very positive.
The stock of Sherwin-Williams is trading at very close to its 52 week high of $578.36 and far away from its 52 week low of $355.28 which to us is a clear indication that the short term momentum and sentiment of Sherwin-Williams stock is very positive.
Recent coverage of Sherwin-Williams
The extract below covers the latest dividend announcement from Sherwin-Williams is as obtained from TheStreet.com
CLEVELAND, Oct. 16, 2019 /PRNewswire/ -- The Board of Directors of The Sherwin-Williams Company (NYSE: SHW) today announced a regular quarterly dividend of $1.13 per common share payable on December 6, 2019, to shareholders of record on November 15, 2019.
CLEVELAND, Oct. 16, 2019 /PRNewswire/ -- The Board of Directors of The Sherwin-Williams Company (NYSE: SHW) today announced a regular quarterly dividend of $1.13 per common share payable on December 6, 2019, to shareholders of record on November 15, 2019.
Sherwin-Williams (NYSE: SHW) latest stock valuation
So what is Sherwin-Williams stock worth based on the release of their latest earnings report? Based on Sherwin-Williams' latest earnings report and their outlook our valuation models provide a target (full value) price of Sherwin-Williams stock at $398.10 a stock. Therefore we believe the stock of Sherwin-Williams is overvalued at its current price of $56.89
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price which in this case is $398.10, so we believe a good entry point into Sherwin-Williams' stock would be at $398.10 or below. Considering the fact that Sherwin-Williams is trading at well above our suggested entry point into the group's stock we rate Sherwin-Williams as a sell.
We expect the stock of Sherwin-Williams to decline from current levels in coming weeks and months to levels closer to our target (full value) price as we cannot see then group holding on to its current stock price based on their 3rd quarter 2019 earnings release and their fiscal guidance provided.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price which in this case is $398.10, so we believe a good entry point into Sherwin-Williams' stock would be at $398.10 or below. Considering the fact that Sherwin-Williams is trading at well above our suggested entry point into the group's stock we rate Sherwin-Williams as a sell.
We expect the stock of Sherwin-Williams to decline from current levels in coming weeks and months to levels closer to our target (full value) price as we cannot see then group holding on to its current stock price based on their 3rd quarter 2019 earnings release and their fiscal guidance provided.
Next earnings release date for Sherwin-Williams
Arch Coal is expected to release their 4th quarter earnings report for their 2019 fiscal year in late January 2020