Paint and coating manufacturer Sherwin-Williams (NYSE:SHW) met Wall Street’s revenue expectations in Q4 CY2024, but sales were flat year on year at $5.30 billion. Its non-GAAP profit of $2.09 per share was 1.6% above analysts’ consensus estimates.

Is now the time to buy Sherwin-Williams? Find out in our full research report.

"Sherwin-Williams delivered strong fourth quarter results despite continued demand choppiness in the majority of our end markets," said Chair, President and Chief Executive Officer, Heidi G. Petz.

Company Overview

Widely known for its success in the paint industry, Sherwin-Williams (NYSE:SHW) is a manufacturer of paints, coatings, and related products.

Building Materials

Traditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Sherwin-Williams grew its sales at a tepid 5.2% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Sherwin-Williams’s recent history shows its demand slowed as its annualized revenue growth of 2.1% over the last two years is below its five-year trend.

This quarter, Sherwin-Williams’s $5.30 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months, similar to its two-year rate. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Operating Margin

Sherwin-Williams has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Sherwin-Williams’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years, highlighting the long-term consistency of its business.

In Q4, Sherwin-Williams generated an operating profit margin of 13%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sherwin-Williams’s EPS grew at a solid 10% compounded annual growth rate over the last five years, higher than its 5.2% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

Diving into Sherwin-Williams’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Sherwin-Williams has repurchased its stock, shrinking its share count by 9.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Sherwin-Williams, its two-year annual EPS growth of 13.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Sherwin-Williams reported EPS at $2.09, up from $1.81 in the same quarter last year. This print beat analysts’ estimates by 1.6%. Over the next 12 months, Wall Street expects Sherwin-Williams’s full-year EPS of $11.33 to grow 11%.

Key Takeaways from Sherwin-Williams’s Q4 Results

We struggled to find many positives in these results as its full-year EPS guidance missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.5% to $351.50 immediately following the results.

Sherwin-Williams underperformed this quarter, but does that create an opportunity to invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.