Sherwin-Williams (SHW) earned 40 cents per share (excluding a charge of 10 cents for the recently enacted health care legislation) in the first quarter of 2010, in line with the Zacks Consensus Estimate. The company earned 32 cents in the year-ago quarter.

Net sales for the reported quarter climbed approximately 1.3% year-over-year to $1.57 billion. The increase was attributable to the favorable impact of foreign currency translation rate changes. The rise was partially offset by the decrease in sales volume of domestic paint. Currency translation rate changes caused consolidated net sales to increase by 2.9% in the reported quarter.

Net sales in the Paint Stores Group declined 5.3% to $850.9 million in the reported quarter. The decline was primarily attributable to the reduced volume of paint sales coupled with the weakness in non-paint sales.

Net sales from stores open for more than 12 calendar months declined 5.4% compared to the year-ago quarter. Profit in the Paint Stores Group division reduced to $47.8 million in the quarter from $56.6 million a year ago, primarily because of lower sales volume and increases in raw material cost. The lower sales volume in the quarter resulted in the segment profit (as a percentage of net sales in the segment) falling approximately to 5.6% from 6.3% last year.

Net sales in the Consumer Group climbed 1.4% year-over-year to $292.1 million in the reported quarter. The increase was mainly attributable to new product introductions. Profit in the Consumer Group segment climbed approximately 24.2% year-over-year to $37.5 million in the reported quarter.

Net sales of the Global Finishes Group rose 16.2% to $421.1 million in the quarter when stated in U.S. dollars because of favorable currency translation rate changes, coupled with increased paint sales volume. The Global Finishes Group’s segment profit stated in U.S. dollars increased year-over-year by $17.7 million in the quarter. The increase was primarily attributable to increased paint sales volume and effective cost control.

Sherwin-Williams repurchased 0.4 million shares of its common stock through open market purchases in the first quarter of 2010 and had an unutilized authorization to buy 10.35 million shares at the end of the quarter. As of December 31, 2009, the company had an unutilized authorization to purchase 10.75 million shares.

Outlook

Sherwin-Williams anticipates net income per share in the second quarter of 2010 in the range of $1.55 to $1.70 per share. Net sales in the second quarter of 2010 are expected to increase in a high-single-digit rate compared to the year-ago quarter. The Zacks Consensus Estimate is $1.50 for the next quarter.

For 2010, the company expects to earn in the range of $4.20 – $4.60 per share, including the unfavorable tax impact of health care legislation. The consolidated net sales for 2010 are expected to increase by a mid-to-high single digit rate above 2009 levels. The Zacks Consensus Estimate is $4.37 for 2010.

Our Recommendation

We currently have a Neutral outlook on Sherwin-Williams in the long-term, implying that it will perform in line with the overall U.S. equity market over the next six to twelve months. We advise investors to retain the stock over the time period.
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