Maybe I'm painting myself into a corner, but I'm not sure why the market reacted to Sherwin-Williams'
Don't get me wrong. The paint specialist's efforts at cutting costs and turning a profit beyond analyst expectations took a special effort. With the housing market in the tank, generating sales to the commercial and consumer markets is no easy task, but considering the outlook for the industry for the rest of the year -- let alone the economy -- it's not a very bright palette that Sherwin-Williams has at its disposal.
I'll chalk up some of Sherwin's stock run-up to general market euphoria. PPG Industries
Not that there weren't previous warnings. The paint giant warned at the end of the fourth quarter that the earliest point to expect an upturn would be in the back half of this year. Further, foreign-currency exchange rates that had served to boost results late last year were a black stain this time around. All of this makes the market's reaction yesterday all the more curious.
While Sherwin-Williams beat earnings expectations, revenues came up at the very tail end of guidance -- even after a handful of international acquisitions. Moreover, even as it reaffirmed its full-year earnings guidance of $3 to $4 per share, it said sales for the year were likely to decline much more steeply than it previously forecast. And when one looks at how housing is shaping up, it's easy to see why. New housing starts plummeted in March, and the downturn planted lots of egg on the faces of those who thought February's relatively robust numbers meant that the industry had turned a corner. And those earnings estimates for the year are painted with some pretty broad strokes.
Sherwin also trades at a bit of a premium to its rivals. PPG, Valspar
I like the Motley Fool Stock Advisor recommendation as a long-term investment, and I think that when the economy and housing markets turn, the company will emerge from the current malaise stronger. In addition to its namesake stores that cater to professional painting contractors, its presence in retail locations such as Wal-Mart
Sherwin-Williams is a Motley Fool Stock Advisor recommendation. Wal-Mart is a Motley Fool Inside Value pick. PPG Industries and RPM International are Motley Fool Income Investor recommendations. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Rich Duprey owns shares of Wal-Mart but has no financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.