Sherwin Williams Co. Earnings: Margins Suffer for Five Quarters Straight, Profit Drops

S&P 500 (NYSE:SPY) component Sherwin Williams Co. (NYSE:SHW) reported a lower net income in fourth quarter, missing analysts’ estimates. 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 Fourth Quarter

Results: 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.

Actual vs. Wall St. Expectations: SHW fell short of the mean analyst estimate of 84 cents per share. Analysts were expecting revenue of $2.05 billion.

Quoting Management: 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.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 1.8 percentage points to 42.8% 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 14.4% to $2.48 billion in the third quarter. The figure rose 9.9% in the second quarter from the year earlier and climbed 18.5% in the first quarter from the year-ago quarter.

The company fell short of estimates last quarter after beating the mark the quarter before with net income of $1.71 versus a mean estimate of net income of $1.70 per share.

Net income has increased 8.5% year over year on average across the last five quarters. The biggest gain came in the first quarter, when income climbed more than twofold from the year earlier quarter.

Looking Forward: For next quarter, analysts have a more positive outlook about the company’s expected results. The average estimate for the first quarter of the next fiscal year is 70 cents per share, up from 67 cents ninety days ago. The average estimate for the fiscal year is $4.84 per share, a rise from $4.80 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), Builders FirstSource, Inc. (NASDAQ:BLDR).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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

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