Source: Sherwin-Williams.
The housing market has a huge impact on the overall economy, as the effects of homebuilding and home-improvement activity ripple far beyond the housing industry itself. Sherwin-Williams (SHW 0.36%) has also been a direct beneficiary of the recovery in housing since the financial crisis, as the company is famous for the paints, stains, and other protective coatings it produces for residential and commercial customers. In its third-quarter earnings report, Sherwin-Williams showed that it has taken full advantage of the opportunity it has to make a bigger splash in its core business areas, and it expects more good things in the immediate future. Let's take a closer look at how Sherwin-Williams did last quarter.
How Sherwin-Williams cleaned up last quarter
The most obvious sign of Sherwin-Williams' success came from its strong net income during the quarter, with record earnings of $3.35 per share topping what most investors had expected to see from the paint-seller by $0.15. Revenue also set a new record, coming in with a 10.6% jump to hit $3.15 billion, although that figure was actually slightly less than the $3.17 billion more optimistic investors wanted.
Looking at the business-by-business breakdown, Sherwin-Williams had the best results from its Paint Stores Group, where sales jumped 15%. Although acquisitions helped to bolster revenue, Sherwin-Williams' stores enjoyed comparable-store sales growth of 9.6% during the quarter, and the huge jump in paint sales volume, especially in the architectural-paint space, also helped push profits for the segment up by more than 20%. Despite some downward pressure from its newly acquired businesses, Sherwin-Williams still boosted profit margins for the segment by nearly a full percentage point.
Source: Sherwin-Williams Aerospace Coatings.
Results in Sherwin-Williams other main segments were also generally favorable. Consumer Group sales grew 5%, again from higher sales to the company's retail customers. In the Global Finishes business, the company overcame currency headwinds to see sales rise 5.7%, as Sherwin-Williams was able to boost the prices it charged its customers to compensate for weak foreign currencies compared to the strong U.S. dollar. Only the Latin America Coatings Group suffered a revenue drop for the quarter, as higher prices weren't enough to offset lower sales volumes and unfavorable currency movements.
Why Sherwin-Williams' future looks even brighter
As good as Sherwin-Williams' third quarter results were, the company expects even better times ahead. CEO Christopher Connor said that investors should expect 6% to 8% growth in revenue in the current quarter, with earnings guidance coming in between $1.30 and $1.40 per share. Given its full-year sales growth estimate of 9% to 11%, Sherwin-Williams also boosted its full-year earnings guidance to a range between $8.70 and $8.80 per share, which is above what most investors were looking to see from the paint-seller in 2014.
Source: Sherwin-Williams.
Connor pointed to two ways in which Sherwin-Williams is continuing to grow. On one hand, store-count expansion is still a key part of the company's overall business strategy, with the Paint Stores Group having opened 51 new stores so far in 2014 and expecting further moves in the future. Moreover, the company boosted its dividend by 10% during the quarter, and Sherwin-Williams used its stock repurchase program to buy back 2 million shares. With an authorization to buy back another 6.83 million shares, Sherwin-Williams shareholders can expect to have the repurchase winds at its back well into 2015.
Still, Sherwin-Williams faces some heavy competition. After the paint-maker unsuccessfully tried to buy out Mexico's Consorcio Comex, which is Mexico's largest paint company, rival PPG Industries (PPG -0.99%) answered with a bid of its own. Mexican regulators have asked for more time to review the deal, but with a smaller presence in Mexico than Sherwin-Williams had, PPG could well end up having its deal approved. That would give Sherwin-Williams much strong competition in the region, which has already faced pressure from tough economic conditions.
Nevertheless, Sherwin-Williams is taking full advantage of favorable conditions in the U.S. and is doing its best to get through its international challenges. As long as the domestic housing market keeps performing well, Sherwin-Williams is likely to benefit from riding the coattails of the recovery and doing more business with homeowners and professionals eager to make their homes look better.
