The U.S. economy has performed extremely well, and the recovery of the housing market from the financial crisis in the late 2000s has been a key contributor to economic growth. Paint maker Sherwin-Williams (SHW 0.38%) has benefited greatly from its exposure to a strong housing market, and even though the company has an international presence that has suffered from sluggish conditions abroad, investors have nevertheless been comfortable with its growth prospects over the long run.
Sherwin-Williams saw its stock hit a new high after reporting its third-quarter financial results earlier this week, as investors saw a lot of things to like about the paint maker. With solid sales gains and impressive bottom-line performance, Sherwin-Williams is convincing shareholders that there's a lot of future potential for the company in the years to come.
Sherwin-Williams paints the town red
Sherwin-Williams' third-quarter results continued the positive momentum we've seen in past quarters. Sales were up 2.9% to $4.87 billion, which compared reasonably well with what most of those following the stock were looking to see. Net income jumped more than 60% year over year to $576.4 million, and even after making allowances for extraordinary items, adjusted earnings of $6.65 per share were up 17% from the year-ago period.
Image source: Sherwin-Williams.
There were fairly big disparities across Sherwin-Williams' business segments. The best performer was the Americas group, with sales gains of nearly 9% stemming from higher paint sales across its North American end markets. Strong pricing power also contributed to the segment's gains, and comparable sales were higher by 8.1% from year-ago levels. Segment profit jumped 15% on the combination of higher volume and wider margins.
Elsewhere, things looked more mixed. The performance coatings segment saw flat performance on the revenue front, with soft sales outside North America and negative foreign currency impacts hurting the top line. Yet on the bottom line, segment profit jumped more than 30% as raw materials costs were more favorable, and Sherwin-Williams did a better job of controlling other expenses. In the consumer brands unit, sales declines of 12% year over year came largely from the divestiture of its furniture protection business, but segment profit soared 37% as Sherwin-Williams improved its supply chain with an eye toward keeping costs in check.
CEO John Morikis explained where the company's success came from. "Our performance in the quarter was driven by continued strength in North American architectural paint markets," Morikis said, "which offset choppiness in some industrial end markets." He also noted that significant gross margin expansion helped to improve overall financial performance.
Can Sherwin-Williams keep doing well?
Sherwin-Williams is seeing considerable upward momentum in its financial performance that it expects to persist through the end of 2019. Even though revenue gains haven't been as large as initially hoped, the company expects reasonable results in future quarters.
In particular, Sherwin-Williams boosted its guidance for the remainder of the year. In the fourth quarter, it thinks that revenue should rise by a low single-digit percentage amount, consistent with what the company has seen lately. For the full year, Sherwin-Williams now believes adjusted earnings will end up in a range between $20.90 and $21.30 per share, narrowing its earlier range from three months ago but with an emphasis toward the upper end of what it had previously expected.
Sherwin-Williams shares have jumped to all-time highs, having gained more than 40% just so far in 2019. With the company doing this well even as foreign markets refused to cooperate fully, shareholders can only imagine how strong it could become if consumer confidence in key countries overseas start pulling their weight for Sherwin-Williams.
