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Sherwin-Williams Company (SHW), PPG Industries, Inc. (PPG): This Specialty Chemicals Company Is in for Difficult Times

Sherwin-Williams Company (NYSE:SHW), the owner of popular brand names like Sherwin-Williams, Dutch Boy, Krylon, Minwax, Thomson’s and Water Seal, recently declared its second quarter results. The company missed consensus estimates both on top and bottom lines. What went wrong? And is there any hope going forward? Let’s try to find out.

Revenue & earnings

Sherwin-Williams CompanyAs compared to the year-ago quarter, consolidated net sales increased 5.5% to $2.71 billion. The increase in revenue was primarily due to higher sales volume in the Paint Stores group. Also, acquisitions added 0.7% to revenue in the quarter. Unfavorable exchange rates, however, left a dent of 0.3% in consolidated revenue figures. As said earlier, revenue missed consensus estimates of $2.78 billion

Earnings of the company stood at $2.56 per share, which missed consensus estimates of $2.58, but were more than the year-ago quarter’s earnings of $2.17 per share. On adjusting $0.08 for the settlement related to import duty assessment in Brazil operations and $0.02 per share adjustments for unfavorable currency translations, the earnings worked out to $2.46 per share.

The results have been disheartening for investors and this resulted in the share price moving south. The company fell short of consensus estimates and it blamed the loss of business from key retailer Wal-Mart and also emphasized that its non-residential sales were short of targets as compared to residential. Also, consumer group sales saw a dip of 1%, even after 3.2% contribution from acquisitions.


For the current quarter, Sherwin-Williams Company (NYSE:SHW) expects that revenue will increase 6%-9% from last year. The company also expects to see EPS in the range of $2.55-$2.65 compared to last year’s record performance of $2.24 per share for the quarter. For 2013, the company expects to see earnings in the range of $7.45 to $7.55 per share as compared to $6.02 in 2012.

Housing markets are showing slowing momentum, and that isn’t a good sign for all related stocks and Sherwin-Williams Company (NYSE:SHW) is no exception. The company is seeing a cut in earnings estimates.

There’s been a rise in the mortgage rates recently, and a slowdown in pending home sales suggests there is risk of the earnings growth rate decelerating. Higher mortgage rates will not only affect sales of new homes, but will also reduce refinancing activity and hence, homebuyers will have less cash available for remodeling.

None of the analysts have revised their earnings estimates upward for the coming quarters or for fiscal 2014. Also, all estimates have declined in past 30 days for 2013 and 2014.


For those who want to have an exposure to paints and coatings, besides Sherwin-Williams Company (NYSE:SHW), they can also look at PPG Industries, Inc. (NYSE:PPG) and The Valspar Corporation (NYSE:VAL), so it would be apt to say that Sherwin-Williams Company (NYSE:SHW) competes with the two when it comes to fighting for a share of investors’ dollars.

PPG Industries, Inc. (NYSE:PPG)’s Industrial coatings sales volumes were up 12%, driven by its automotive sales. The company was keen to highlight that this is partly a result of excellent long-term positioning within the leading car companies. It claims to be the number one player in automotive coatings in North America and China. In the industrial segment, companies that have exposure to automobiles and aerospace have done well, whereas other segments have not been so encouraging.

One of the most astonishing yet encouraging aspect of PPG’s results was that architectural coatings income increased by $5 million in Europe, Middle East and Africa (EMEA) to $69 million, despite sales declining 5%. This increase is indicative of how well its management is implementing cost savings programs.

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