Ahead of the company’s Q3 print, which is scheduled for an October 24, after market release, Sherwin-Williams (SHW 371.70, +12.27 +3.41%) brushes out all-time highs above the $377 level despite updating Q3 guidance for the impact of Hurricanes Harvey, Irma and Maria.
Management noted that in the days surrounding Hurricanes Harvey, Irma and Maria, company-operated paint stores, manufacturing facilities and distribution centers in the affected regions suspended daily operations to ensure the safety of employees and comply with instructions of the local authorities. Based on a preliminary assessment, the short-term impact of these unprecedented events is expected to reduce revenues in The Americas Group by a range of $50-70 million in Q3. The company expects Q3 sales and profit to be negatively impacted by the lost sales days, costs related to clean up and recovery efforts and tightened supply of propylene and ethylene based raw materials.
Importantly, due to the impact of the storms and earthquakes, SHW now anticipates core net sales in Q3 will increase a low single digit percentage compared to Q3 last year. The previous expectation for SHW’s core net sales in the quarter had been a low to mid single digit percentage increase.
The company’s expected incremental sales from the Valspar acquisition remain unchanged at about $1.0 billion in Q3. At that anticipated sales level, the company is revising their expectation for diluted net income per common share in Q3 to be in the range of $3.40-3.70 per share compared to their previous expectation of $3.70-4.10 per share and $4.08 per share earned in 3Q2016. This includes a $1.10 per share charge from costs associated with the Valspar acquisition, and includes an EPS increase of $0.40-0.60 per share from Valspar operations. The increase from Valspar operations includes an acquisition financing expense charge of $.40 per share in Q3. Also, 3Q16 earnings included a $0.24 per share charge for acquisition-related costs.
Lastly, management noted that given recent strength in the U.S. and Canada, the company should be able to recover from some of the Q3 earnings shortfall during the remainder of the year. As mentioned, full Q3 results are scheduled for an October 24, after-hours release.