Paint-maker Sherwin-Williams (SHW -1.10%) reported fourth-quarter and full-year earnings which was within the company's recently bumped-up guidance range. The company which had guided to earn between $6.35-$6.55 for the year turned in earnings of $6.49 a share. It had already blown past its original annual guidance by the end of the third quarter.
Sherwin's sales in the quarter were $2.22 billion and slightly ahead of analyst estimates of $2.19 billion. The company saw both higher paint sales volumes and higher selling prices. This contributed to gross margins widening from 42.8% to 45.5%.
Looking ahead to 2013, the company expects earnings to be in a range of $7.45-$7.55 a share. The company also sees sales growing in the mid-single digits. That guidance does exclude the effects of the company's proposed Comex acquisition which has yet to close giving additional upside to earnings in the year ahead.
The Comex deal is just one in a string of deals in the industry which will give it quite a different look in 2013. Joining Sherwin-Williams in stocking up for the housing recovery is PPG Industries (PPG -3.12%) which will also soon be closing on its acquisition of AkzoNobel's North American architectural coatings business. That's on top of DuPont's (DD) performance coatings business soon to be in the hands of private equity giant Carlyle Group (CG).
These ownership changes within the industry come at a time when the housing market really appears to have turned a corner. The numbers being reported by homebuilders and the industry's suppliers have all been quite positive. Not only are builders selling more homes but they are being sold for higher prices. Homebuilder PulteGroup (PHM -0.50%), for example saw closings rise 20% with the average selling price rising by 6% in its most recent quarter's report.
Housing starts last December jumped 12.1% to an annual rate of 954,000 which trounced estimates and was well ahead of November's pace of 854,000 starts. This logically means just one thing for paint-makers: increased sales and earnings. However, a lot of this is already priced into both homebuilders and suppliers.
At 21 times projected 2013 earnings, Sherwin-Williams does seem a bit pricey given the company's economically sensitive business. The stock has risen 67% over the past year so much of the easy money would appear to have already been made. In order to continue to outperform from here, the company needs to execute flawlessly, and even at that, it's beholden to the continued strength of the housing market.
