Smith & Wesson and Sherwin-Williams Just Raised the Bar
Jul 25th 2012 3:12PM
Updated Jul 25th 2012 3:22PM
Delivering earnings guidance above analyst expectations is obviously a bullish sign, as over time, earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.
Sometimes things don't work out as planned, though, so we'll pair up the brighter outlook with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best and brightest stock pickers are as optimistic about a company's long-term potential as the company itself, then maybe investors should take notice, too.
CAPS Rating (out of 5)
Prior or Consensus EPS Estimate
Current EPS Guidance
|Smith & Wesson (NAS: SWHC)||***||$0.12||$0.16 to $0.19||Q1, fiscal 2013|
|Sherwin-Williams (NYS: SHW)||***||$6.19||$6.20 to $6.40||2012|
Don't blindly buy into their heady outlook; you still need to do some research. Use the announcement as a starting point for additional research.
Unplugging the cable
Smith & Wesson came out with guns blazing this quarter, reporting that sales were up 28% while per-share profit rifled ahead to $0.27, handily beating the $0.17 analysts were targeting. With a 135% surge in backlog, it looks like there will be plenty of business to come for the gun maker.
FBI background checks for firearms purchases have soared almost 64% since 2006 and are up 11% so far this year from the prior period. While the law enforcement agency says there's no definite correlation between background checks and gun sales -- just as Smith & Wesson's backlog doesn't easily translate into sales -- one can still make the assumption that if more people are looking to buy guns, there will be more sales.
Last quarter, Sturm, Ruger & Co. (NYS: RGR) actually had to stop taking orders at one point because they were coming in so fast and furiously, so it's no surprise Smith & Wesson is shooting up the charts. Even the tragic shooting in Aurora, Colo. didn't put a dent in sales. In fact, they surged in the Colorado town as background checks for firearms spiked 25% from normal levels -- though, as CAPS All-Star leohaas points out, "We in the US don't need an excuse to buy more guns."
Let me know on the Smith & Wesson CAPS page if your portfolio will be locked and loaded with this top-notch gunslinger.
A broad canvas
Coatings maker Sherwin-Williams painted its quarterly results black as net sales rose 9%, generating a 31% increase in adjusted net profits.
Sales were led higher by its paint stores group, which largely caters to the professional painter. Sales jumped almost 15% as higher volumes -- but also higher prices -- led the way. The cost of titanium dioxide -- the stuff that makes paint (and the creme in an Oreo cookie!) white -- soared, along with most commodities last year, but Sherwin-Williams has been able to pass those costs along. Yet fatigue is likely settling in, as DuPont (NYS: DD) reported that its profit fell 3% in the latest quarter, in part from softening demand for TiO2. DuPont is the world's biggest producer of titanium dioxide and is expanding TiO2 capacity.
Sherwin's consumer and global finishes groups also saw higher sales, largely as a result of the price increases, which belies the weakness in housing. As the Commerce Department just reported, June sales of new homes tumbled more than 8%. More new homes being built means more gallons of paint being sold. I've been bearish about the paint mixer's prospects because of the continued weakness of the housing market, but the stock has proved me wrong thus far by rising 20% since I rated it to underperform on CAPS.
With recent acquisitions, it created a new Latin America group, but that saw revenues decline, primarily because of unfavorable currency rates. Since Valspar (NYS: VAL) is also counting on Latin American economies for growth initiatives, this could be the segment to watch.
With 90% of 466 CAPS members believing the paint shop will continue outperforming the market, it's obvious I'm in the minority, but tell me on the Sherwin-Williams CAPS page or in the comments section below if you agree it will be difficult to continue whitewashing the housing market's decline.
Raise your sights
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The article Smith & Wesson and Sherwin-Williams Just Raised the Bar originally appeared on Fool.com.Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Sherwin-Williams. The Motley Fool has a disclosure policy . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days .
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