Sherwin-Williams (SHW 374.90, -22.90, -5.76%) is trading down this morning after lowering
guidance for Q4 this morning. Sales in Q4 were up only 2% yr/yr as compared to
prior guidance of a mid-single digit percentage increase. Adjusted EPS for
guidance for 2018 was lowered to approximately $18.53. This compares to October
guidance of $19.05-19.20.
This is some pretty rough guidance. So, what happened?
SHW concedes that its Q4 performance was disappointing across the board relative to its outlook in October. Revenue fell well short of prior guidance due in large part to weak sales growth by its North American stores in October and November.
Store sales rebounded somewhat in December, but not enough to bring in the quarter. Sales for its Consumer Brands and Performance Coatings Groups also fell short of expectations. The revenue shortfall was the primary driver of the significant EPS miss in the quarter.
SHW did not provide a lot of color in its press release. Investors will have to wait for its full Q4 report and 2019 outlook on January 31. However, SHW provided some clues on its Q3 call in October. SHW noted that there has been an increasing number of stories suggesting that the peak of this economic expansion may be behind us. SHW pays particularly close attention to the US construction and remodeling markets, which have also shown signs of weakening. The company has also been focused on integrating Valspar, which was a major acquisition for SHW. It closed in 2017. Synergy targets for both 2018 and longer term remain on track.
The stock has fallen from near $480 in late September to around $377 today in the pre-market. The main catalyst has been back-to-back disappointing earnings results in Q3 and now apparently in Q4 as well. A slowing construction/remodeling market is a big hurdle for SHW and rising interest rates are not helping.
Also, the competition is keeping companies like SHW on their toes. Home Depot (HD) and Lowe's (LOW) have been pretty aggressive on prices. Those companies have an advantage in that they sell lots of other items so they bring in good foot traffic whereas SHW is more of a paint-only destination. Looking ahead, we are a bit cautious heading into that company outlook for 2019 on January 31. With two rough quarters, SHW may be pretty cautious about its 2019 outlook.
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