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Did You Miss Sherwin-Williams Company's Big Move in October?

By Neha Chamaria - Nov 8, 2017 at 1:14PM

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What you should make of the paint-manufacturer stock's 10.4% pop in October.

What happened

Sherwin-Williams (SHW 0.94%) continues to paint a pretty picture on the stock exchanges, with October turning out to be another big month as the paint and coatings stock soared 10.4%, extending its year-to-date to a jaw-dropping 47% as of Oct. 31. That, despite the company reporting a double-digit percentage drop in net income for the third quarter. What gives?

So what

Sherwin-Williams shares took off after the company reported its third-quarter numbers on Oct. 23. Investors were eagerly awaiting this quarterly report, as they wanted to see how Sherwin-Williams' just-concluded acquisition of Valspar would be reflected in its numbers.

The company didn't disappoint: It reported record quarterly sales of $4.51 billion, up 37% year over year, the bulk of which came from Valspar. Sherwin-Williams' same-store sales in the U.S. and Canada, a figure which includes stores open at least 12 months and is an important gauge of organic growth, jumped 5.2% during the quarter.

A man points at a rising stock graph.

Image source: Getty Images.

The market wisely chose to overlook the 18% year-over-year drop in Sherwin-Williams' net profit. The company would've posted much higher profits if not for the hurricanes that hit its operations and acquisition-related costs. It wasn't the only one to feel the pinch -- peer RPM International also warned investors last month that its ongoing quarter's sales could take a hit because of natural disasters, impacting its second-half numbers.

Now what

Sherwin-Williams now expects to end the year with lower profits than it previously guided for, which at the midpoint could mean a near-5% drop in earnings per share from 2016 levels.

While that may sound worrisome, I think investors should give the company some time to integrate Valspar's operations. Meanwhile, Sherwin-Williams continues to grow its top line at a rapid pace, which should lay the foundation for stronger years ahead. The company is already projecting a significant jump in dividends, giving investors yet another reason to stay invested for the long haul.

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The Sherwin-Williams Company Stock Quote
The Sherwin-Williams Company
SHW
$225.41 (0.94%) $2.10

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