Sherwin Williams (SHW) reported Q1 results this morning the big number for investors was a 1.5% increase in sales to a RECORD number. For those consider Sherwin a “housing stock”, the question is: With housing starts and sales plummeting, how is this possible? The short answer is that Sherwin is not a “housing stock” but a “international coatings” company.
— Sales increased 1.5% to a record $1.782 billion
— EPS was $.64 per share, above our current guidance range of $.56 to $.61
— Price increases and cost reductions announced in 1Q08 will continue to be more fully implemented
— EPS range $1.45 to $1.60 for 2Q08. Reaffirming EPS range of $4.70 to $4.85 for the full year (current PE for 2008 of 11.7 times earnings)
How did the international operations do? The Global Group’s net sales in the quarter increased 14.8% to $461.9 million (26% of total sales) when stated in U.S. dollars due primarily to volume gains, selling price increases, currency translation impact and acquisitions. Stated in U.S. dollars, segment profit of the Global Group for the quarter improved $7.7 million, or 21.7%. CEO Christopher Connor said “We continue to be pleased with the strong sales improvements of the foreign business units in our Global Group and the continued growth they have been achieving in the architectural, industrial maintenance, OEM and automotive finishes product lines.”
For Q2 and the remainder of 2008, Connor said, “We expect diluted net income per common share for the second quarter to be in the range of $1.45 to $1.60 per share compared to $1.52 per share last year. For the full year 2008, we now expect a low single digit percentage increase in consolidated net sales over 2007. With annual sales at that level, we are reaffirming our March 24, 2008 guidance that our diluted net income per common share for 2008 will be in the range of $4.70 to $4.85 per share compared to $4.70 per share earned in 2007.”
SHW acquired 4.1 million shares of its common stock through open market purchases during the quarter and had remaining authorization at March 31, 2008 to purchase 22.9 million shares.
Let reverse the argument. Let’s say that Sherwin is a housing stock, plain and simple. Why wouldn’t you buy shares of a housing stock when the industry is in a depression and the company will still manage to break even or have a slight increase in earnings over the previous year. A year, that was a record year by the way. We are not running up against “weak comparisons”. Let’s also not forget the dividend increase…
Wouldn’t this be the poster child for a value stock? Considering it is down 18%, clearly has very strong management, cash position, stable dividend and is a market leader in its industry?
Now, if it isn’t a housing play because of its diversification of businesses then, doesn’t the same argument hold true? Shouldn’t we then say in that scenario that it is being lumped in with stocks it really is not that related to and for that reason (as well as the financial ones) it falls into a the “value” category?
Either way, it is just dirt cheap…
Disclosure (“none” means no position):Long SHW
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One reply on “Sherwin Williams: The "International Coatings" Company”
I’m with you on this one Todd. I own Sherwin as well and it is worth much more than it is currently priced at. Strong, stable cash flows, a growing international business, and a domestic unit with dominant economics that will indeed grow when times are better. Their free cash returns on tangible capital are approaching 50%, by my calculations. I think, at some point, the company will carry a better valuation by the market, but not yet.