Sherwin Williams Co. Earnings Cheat Sheet: Margins Keep Shrinking, but Net Income Increases

S&P 500 (NYSE:SPY) component Sherwin Williams Co. (NYSE:SHW) reported its results for the third quarter. Sherwin-Williams is a manufacturer and distributor of paint, coatings and related products. While its professional, industrial, commercial and retail customers are mainly in North and South America, the company also has operations in Europe, Asia and the Caribbean.

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Sherwin Williams Earnings Cheat Sheet for the Third Quarter

Results: Net income for the specialty retail company rose to $179.9 million ($1.71 per share) vs. $175.3 million ($1.60 per share) in the same quarter a year earlier. This marks a rise of 2.6% from the year earlier quarter.

Revenue: Rose 14.4% to $2.48 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: SHW was about in line with expectations as the mean analyst estimate of $1.70 per share. It beat the average revenue estimate of $2.43 billion.

Quoting Management: Commenting on the third quarter and nine months financial results, Christopher M. Connor, Chairman and Chief Executive Officer, said, “We are encouraged by our improving sales results across most domestic architectural segments generated by our Paint Stores Group in the quarter. We are pleased with the continued sales development in the Global Finishes Group and the corresponding improvement in core operating results. Our operating segments continue to control costs and implement price increases in an effort to keep pace with rising raw material costs.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 2.9 percentage points to 41.8% from the year earlier quarter. Over that time, margins have contracted on average 2.1 percentage points per quarter on a year-over-year basis.

Revenue has risen the past four quarters. Revenue increased 9.9% to $2.35 billion in the second quarter. The figure rose 18.5% in the first quarter from the year earlier and climbed 18.6% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company topped expectations last quarter after falling short of forecasts in the second quarter with net income of $1.66 versus a mean estimate of net income of $1.77 per share.

The increase in profit last quarter comes after net income fell in the previous quarter. In the second quarter, net income declined 1.4% to $179.1 million.

Looking Forward: The outlook for the company’s results in the upcoming quarter is unfavorable. The average estimate for the fourth quarter is 81 cents per share, down from 86 cents ninety days ago. The average estimate for the fiscal year is $4.80 per share, down from $4.89 ninety days ago.

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) and Builders FirstSource, Inc. (NASDAQ:BLDR).

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(Source: Xignite Financials)