What to Watch When Sherwin-Williams Reports

Sherwin-Williams (NYSE: SHW  ) will report its fourth quarter and full-year earnings on Jan. 31 before markets open. The global coating manufacturer and distributor is expecting that its net sales will increase in the mid-single digits when compared to the fourth quarter of 2011. It sees earnings coming in a range of $0.98-$1.18 a share, which is a big boost from its 2011 earnings of just $0.14 a share. In addition to watching these numbers, investors will need to focus in on two key areas when Sherwin-Williams reports. 

Painting the picture for 2013
In the company's 2011 fourth-quarter report,Sherwin-Williams guidance for 2012 had sales increasing by a high-single-digit to low-teens percentage with earnings coming in a range of $5.37-$5.67 a share. The company blew past those number; it had hit the bottom of that earnings range by the end of the third quarter. That led the company to increase its guidance, and it now anticipates full-year 2012 earnings to be in the range of $6.35-$6.55. Investors need to focus on how the company guides its 2013 outlook and what that might say about the housing market.

Architectural coating competitor, PPG Industries (NYSE: PPG  ) recently reported strong earnings and gave some insight as to what to expect when Sherwin-Williams reports. It saw high-single-digit volume growth, but it didn't yet experience much growth on the pricing side. Overall, it's seeing positive trends of about 4% industry growth for the year ahead. These positives bode well for Sherwin-Williams outlook for the year ahead.

Let's make a deal!
While there might be few things less exciting than watching paint dry, those selling paint have more than made up for that lack of excitement. The past few months have seen the industry hit with a wave of merger activity, dramatically altering its landscape. Sherwin-Williams made a big splash this past November when it announced that it had signed an agreement to acquire Mexican-based paint maker Comex. The company is paying $2.34 billion for the business which has a loyal customer base in throughout North America. 

Meanwhile PPG Industries announced that it also was bulking up on its coatings business with the acquisition of AkzoNobel's North American architectural coatings business. Finally, these deals were in contrast to DuPont (NYSE: DD  ) deciding it was time to jettison its own performance coatings business in a deal that's expected to close shortly. Investors need to watch to see how these changes will affect the pricing environment in 2013. 

Foolish bottom line
It looks like 2012 will go in the books as an excellent year for Sherwin-Williams. It doesn't hurt that it only took the company three quarters to meet the low end of its full-year earnings guidance. To repeat that success in 2013, the company will have to successfully navigate its integration with Comex while taking advantage of any disruptions from the overall industry consolidation. Finally, any real signs of a sustained rebound in housing starts could mean Sherwin-Williams investors are in for a really big year.

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