Sherwin Williams and Eaton Shares Generate Interest as Earnings are Digested

Sherwin Williams Co.(NYSE:SHW) reported a lower net income in fourth quarter, missing analysts’ estimates. Net income for Sherwin Williams Co. fell to $14.6 million (14 cents per share) vs. $72.9 million (68 cents per share) a year earlier. This is a decline of 80% from the year earlier quarter. Revenue rose 9.2% to $2.07 billion from the year earlier quarter. SHW fell short of the mean analyst estimate of 84 cents per share. Analysts were expecting revenue of $2.05 billion.

Commenting on the financial results, Christopher M. Connor, Chairman and Chief Executive Officer, said, “We are pleased to report record sales and earnings per share in 2011 in an environment of soft demand and rapidly escalating raw material costs. Our operating segments continue to control costs and implement price increases in an effort to keep pace with rising raw material increases.” “In the first quarter of 2012, we anticipate our consolidated net sales will increase nine to fourteen percent compared to the first quarter of 2011. At that anticipated sales level, we estimate diluted net income per common share in the first quarter of 2012 will be in the range of $.56 to $.74 per share compared to $.63 per share earned in the first quarter of 2011. For the full year 2012, we expect consolidated net sales to increase above 2011 levels by a high single-to-low-teens percentage. With annual sales at that level, we anticipate diluted net income per common share for 2012 will be in the range of $5.37 to $5.67 per share compared to $4.14 per share earned in 2011.”

Competitors to Watch: PPG Industries, Inc. (NYSE:PPG), The Home Depot, Inc. (NYSE:HD), Lowe’s Companies, Inc. (NYSE:LOW), The Valspar Corporation (NYSE:VAL), RPM International Inc. (NYSE:RPM), Tractor Supply Company (NASDAQ:TSCO), Builders FirstSource, Inc. (NASDAQ:BLDR).

Eaton Corporation (NYSE:ETN) reported its results for the fourth quarter. Net income for Eaton Corporation rose to $362 million ($1.07 per share) vs. $280 million (82 cents per share) in the same quarter a year earlier. This marks a rise of 29.3% from the year earlier quarter. Revenue rose 10.1% to $4.03 billion from the year earlier quarter. ETN fell short of the mean analyst estimate of $1.11 per share. It fell short of the average revenue estimate of $4.16 billion.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our earnings per share came in below the midpoint of our guidance range, driven by revenues in December falling roughly $200 million short of our expectations partially offset by a lower tax rate and better segment operating margins.”

“About 75 percent of the revenue shortfall was in our Electrical sector, with the shortfall spread evenly among the U.S., Europe, and Asia Pacific,” said Cutler. “The shortfall in the U.S. was principally due to customer requested delays of major project shipments. The shortfall in Europe was due to the slowing Eurozone economy, and in Asia Pacific the shortfall was due to a slowdown in China as a result of restrictions on credit availability.”

“The balance of the revenue shortfall was due to lower truck demand in Brazil and production reductions and shutdowns late in the quarter at several U.S. and European auto assembly plants,” said Cutler. “We believe that many of the factors behind the shortfall in fourth quarter revenues are temporary and, as a result, should not have a significant impact on 2012 revenues,” said Cutler.

“Sales growth in the fourth quarter of 10 percent consisted of nine percent growth in core sales and one percent growth from acquisitions. End markets in the fourth quarter grew by eight percent,” said Cutler. “Our segment operating margin in the fourth quarter was 15.1 percent, an all-time record and a notable improvement over our segment operating margin of 14.6 percent in the third quarter.” For the full year 2011, sales were $16.0 billion, 17 percent higher than 2010. Net income was $1.35 billion, an increase of 45 percent over 2010, and net income per share of $3.93 was 44 percent more than in 2010. Operating earnings in 2011 totaled $1.36 billion, an increase of 42 percent over 2010. Operating earnings per share for 2011 of $3.96 were 41 percent higher than in 2010.”

“Our full year 2011 sales increase of 17 percent reflects strong growth, despite a volatile global economy over the course of 2011,” said Cutler. “We increased our earnings guidance three times during 2011, reflecting stronger markets than we had anticipated at the start of the year.”

“We expect that 2012 operating earnings per share will set another record,” said Cutler. “We estimate that first quarter operating earnings per share, which exclude an estimated $0.01 of charges to integrate our recent acquisitions, will be between $0.80 and $0.90 per share. For the full year 2012, we estimate that operating earnings per share, which exclude an estimated $0.05 of charges to integrate our recent acquisitions, will be between $4.15 and $4.55. Based on this guidance, our operating earnings per share in 2012 will grow between five percent and 15 percent. ”

“In light of our strong 2011 results and our outlook for 2012, we are increasing our quarterly dividend by 12 percent, raising the quarterly dividend from $0.34 per share to $0.38 per share,” said Cutler.

Competitors to Watch: Parker-Hannifin Corp. (NYSE:PH), Magnetek, Inc. (NYSE:MAG), Tech/Ops Sevcon, Inc. (NASDAQ:TO), United Technologies Corp. (NYSE:UTX), General Electric Company (NYSE:GE), Sauer-Danfoss Inc. (NYSE:SHS), Dover Corporation (NYSE:DOV), Thomas & Betts Corporation (NYSE:TNB), Roper Industries, Inc. (NYSE:ROP), and Crane Co. (NYSE:CR).

To contact the reporter on this story: Derek Hoffman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com