Sherwin-Williams (SHW, Financial) posted strong third-quarter results. Its revenue rose about 10.6%, while its earnings grew striking 31.4% in the third quarter 2014. It continues to see strong sales momentum for its Paint Store group segment that contributes more than half to the total sales. Also, the company is witnessing growth across its product portfolio that is the reason behind its upgraded guidance for the full fiscal year 2014.
Strong guidance
Sherwin-Williams now expect its earnings to grow in the range of $8.70 to $8.80 per share from the earlier guidelines of $8.50 to $8.70 per share. Also, its revenue is forecasted to range between $11.1 billion to $11.3 billion. This upgraded guidance topped the analyst forecasts on earning of $8.69 per share on the revenue of $11.21 billion for the full year.
For the fourth-quarter, the company expects its revenue to increase by 6% to 8% to $2.60 to $2.65 billion. Its earnings are projected to range between $1.30 per share to $1.40 per share for the fourth quarter. The consensus estimates earnings of $1.39 per share on the revenue of $2.63 billion for the fourth quarter. Let us look at the growth drivers that could possibly enhance its growth in this year and into fiscal 2015.
Seeing growth across the board
Sherwin-William continues to see strong performance in its store groups and acquisitions. Its same store sales are picking up the momentum with no contribution from Comex stores. It is seeing healthy high single-digit improvement in its store volume growth. Sherwin-Williams has opened 18 new stores in the reported quarter, bringing its total tally of new stores openings to 51 this year so far. It has a total of 3,959 stores across the United States, Canada and the Caribbean, compared to 3,868 locations in the fiscal 2013. This 2.35% increase in total number of new stores should drive its growth in the future. It plans to open approximately 80 to 90 net new paint stores locations in fiscal 2014.
In addition, the company is benefiting from its acquisition business from Comex. Sherwin-William expects this acquisition business to contribute significantly to its top and bottom line performance going forward. The company had acquired Comex’s small United States and Canada operations for $90 million in cash and about $75 million in assumed liabilities. Comex has added around 3.3% to its net sales this year so far. The integration of Comex’s business with its business should augment its performance in the long run. However, the company expects this acquisition to reduce its diluted income share by about $0.10 per share in the fourth quarter.
The company should also benefit from the strong trend in the coatings market. Its global coating group continues to generate positive sales, despite challenging economic environment in Latin America. It posted about 11.3% rise in profit as compared to 8.8% last year. Further, the company is seeing increases in the selling prices. However, it sees lower sales volumes and currency related raw material costs that could offset its top line performance in the fourth quarter.
Nevertheless, the company should benefit from the rebound in non-residential activities. The company is pleased with the resilience in the domestic housing recovery. Sherwin-Williams expects this recovery in the housing should materialize for the company going forward. The company should gain from this rosy picture in the current quarter as well as in fiscal 2015.
Conclusion
Sherwin-Williams looks good on acquisition and opening up new stores that should accelerate its performance going forward. The analysts expect its earnings to grow at CAGR of 15.27%, greater than industry CAGR of 14.85% for the next five years. This indicates strong growth prospects for the company in the long run. The stock also offers promising short term returns as its earnings are projected to grow at CAGR of 15.90% this year and 23.30% by next year respectively.
The company has cheap valuations with its trailing P/E of 28.82 and forward P/E of 22.55. This signifies that the stock has a lot of rooms to grow in the future. Also, it has PEG ratio of 1.79 that continues to support its growth prospects in the future. It has profit and operating profit margins of 7.71% and 11.52% respectively for the trailing twelve months. Its balance sheet carries total cash of $261.35 million, and has total debt of $1.62 billion. It has operating cash flow of $1.19 billion, while its leverage free cash flow stands at $1.01 billion.
