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Sherwin-Williams Defies Coronavirus Fears, Maintains Q1 2020 Outlook

By Neha Chamaria - Mar 19, 2020 at 11:30AM

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Good news amid the coronavirus gloom: Sherwin-Williams expects higher-than-projected Q1 sales growth in its largest segment.

Sherwin-Williams (SHW -0.67%) just did the unexpected: defy market fears of massive COVID-19 pandemic supply disruptions and maintain its outlook for the first quarter of 2020. This encouraging news from Sherwin-Williams comes at a time when rival Home Depot and key retail partners like Walmart (WMT -0.28%) are cutting back store operating hours to prevent the spread of the virus. Sherwin-Williams primarily sells paints and coatings through its own specialty stores, but also has long-standing partnerships with consumer discretionary chains like Walmart and Lowe's.

Sherwin-Williams shares have lost nearly in 28% value in the past month, as of the time of this writing.

Why Sherwin-Williams isn't worried about coronavirus

In late-January, Sherwin-Williams guided for 2%-5% year-over-year growth in net sales for the first quarter, driven by strong demand from architectural and industrial markets. The company just affirmed its guidance, and in fact, said sales from its Americas Group segment to be "above the high end of the range."

The Americas group brings in the bulk of revenue for Sherwin-Williams, consisting of more than 4,700 company-owned paint stores and contributing almost 57% to the company's net sales in 2019. In fact, the segment's contribution is much higher when you consider that 57% of Sherwin-Williams' Consumer Brands Group sales were inter-segmental and made through the Americas Group last year.

Paint materials.

Sherwin-Williams is seeing minimal impact from the coronavirus pandemic for now. Image source: Getty Images.

In its latest statement, Sherwin-Williams said that although it is facing headwinds from the coronavirus pandemic especially outside the U.S., the company has seen "minimal" disruption in its supply chain so far and continues to operate majority of its paint stores in North America.

What that means for investors

Sales growth of 5% or more for its primary segment is great news for shareholders during these depressing times. More importantly, as the company said in its statement, "Although near-term market conditions are likely to remain unpredictable, we believe our underlying long-term demand fundamentals remain intact, and we remain focused on delivering value added solutions to ensure our customers' continued success."

This "long-term" view is what investors should keep in mind when Sherwin-Williams releases its first quarter earnings on April 29. In January, the company guided for 2020 earnings of $19.91-$20.71 per share compared to $16.49 it earned in 2019.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$121.58 (-0.28%) $0.34
The Sherwin-Williams Company Stock Quote
The Sherwin-Williams Company
$223.91 (-0.67%) $-1.50
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$274.27 (0.15%) $0.40
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
$174.67 (-0.81%) $-1.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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