What happened
During a rough week for the market, Sherwin-Williams (SHW +1.71%) was an unusual winner. The paint company delivered a strong first-quarter earnings report and benefited from a broader rotation out of growth stocks and into safer stocks. According to data from S&P Global Market Intelligence, the stock was up 15.7% for the week as of Thursday at 12:55 p.m. ET.
Image source: Getty Images.
So what
Remarkably, Sherwin-Williams has gained ground every day this week even as the S&P 500 is down by close to 1%, a sign that investors see the building materials company as a good holding during this period of macroeconomic uncertainty.
Shares jumped 9.4% on Tuesday after the company showed off its strong Q1 results, which assuaged investors' concerns that challenges like a slowing housing market or inflation could be taking a toll on its business.
Revenue rose 7.4% to $5 billion, topping the consensus estimate of $4.91 billion, with same-store sales up 3.8% in its Americas segment. Revenue in its performance coatings business, which includes specialized products sold to commercial customers, jumped by 20.4% to $1.65 billion, but increased raw material costs erased any profit gains.
NYSE: SHW
Key Data Points
In fact, operating margins fell in all three of its business segments, mostly due to rising costs, though supply chain issues were a factor as well. As a result, adjusted earnings per share slipped from $2.06 in the year-ago quarter to $1.61 this time, though that still beat expectations at $1.55.
"Our team delivered results in line with our expectations in an environment characterized by strong demand, ongoing cost inflation, and choppy raw material availability that improved meaningfully in the final weeks of the quarter," said CEO John Morikis.
Following the report, analysts' notes on the stock and the quarter were mostly positive.
Now what
Based on Sherwin-Williams' guidance, management does not think the profit headwinds will last. For the year, it's targeting adjusted earnings per share in the $9.25 to $9.65 range. At the midpoint, that's ahead of the consensus estimate of $9.31 per share, and would represent 16% growth. Management expects its year-over-year comparisons to get easier and supply chain challenges to alleviate as 2022 progresses.
The company also forecast top-line growth in the high-single-digit to low-double-digit percentage range.
Sherwin-Williams has been a longtime outperformer. Its latest report should only give investors more confidence that the company can continue to deliver strong returns.
