I am holding both LOW and HD and may add on significant weakness tomorrow.
Sherwin-Williams Results Don't Bode Well for Home Depot and Lowe's -- Barrons.com
DOW JONES & COMPANY, INC. 3:40 PM ET 1/16/2019
Symbol Last Price Change
SHW 386.94up +5.5 (+1.44%)
HD 177.04up +0.57 (+0.32%)
LOW 93.96up -0.95 (-1%)
QUOTES AS OF 04:02:03 PM ET 01/16/2019
Sherwin-Williams's (SHW) disappointing fourth-quarter forecast could be bad news for Home Depot(HD) and Lowe's(LOW) , one analyst warns.
Where we were: Sherwin-Williams(SHW) announced preliminary fourth-quarter results below consensus estimates on Tuesday.
Where we're headed: The results could mean investors should rein in expectations for the major home improvement retailers.
Sherwin-Williams's (SHW) slogan is "cover the earth," but, then again, the world is much smaller than it used to be.
The paint maker said it expects to earn $18.53 a share for its full fiscal year, down from a prior range of $19.05 to $19.20, and below the $19.05 a share analysts were expecting. For the fourth quarter, Sherwin-Williams(SHW) said sales increased about 2%, also missing the mid-single-digit increase the company had previously expected. Management called the quarter "disappointing across the board" because of weak store performance in October and November.
The shares initially fell as much as 10% in early trading Wednesday, although the stock has since recovered with the broader market rise. However, the results may not bode well for other paint sellers, including Home Depot(HD) and Lowe's(LOW), writes Deutsche Bank's Mike Baker.
Baker argues that Sherwin-Williams's(SHW) softer comparable sales are a negative for Home Depot(HD) and Lowe's(LOW) own comps, especially Lowe's(LOW), for whom the Sherwin-Williams(SHW) is a key supplier. As of 2017, paint made up about 8% of both home improvement retailers' revenues.
Still, Sherwin-Williams(SHW) did say it saw a rebound in December and early January sales after the October-November lull. Home Depot(HD) and Lowe's(LOW) both have quarters that end in January, "which lessens the negative view on the sales report...though doesn't change it," Baker writes. Moreover, the company said the bounce back should ease some fears that the sales miss reflects a broader downturn in the housing cycle.
Worries about the state of the housing market have persistently dogged Home Depot(HD) and Lowe's(LOW) in recent months. The retailers have been seen as less susceptible to online competition, and Lowe's(LOW) particularly benefited from a new management team that moved quickly to address operational inefficiencies. But those catalysts only carried the stocks so far. Both fell during a tumultuous fourth quarter for stocks, as concerns about the housing market and general market jitters weighed on the shares. That meant that Home Depot(HD) could not return to its spot near the top of the Dow Jones Industrial Average in 2018.
Sherwin-Williams (SHW) was up 1.2% to $386.17 in recent trading. Home Depot(HD) was 0.7% higher at $177.68, and Lowe's(LOW) was down 0.3% to $94.60.
Make the Connection
Barclays downgraded Lowe's(LOW) last week.
Home Depot (HD) and Lowe's(LOW) won't get to grab (SHLDQ) sales just yet.
--Sears Holdings'
Write to Teresa Rivas at teresa.rivas@barrons.com
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