Paint and coatings industry giant Sherwin-Williams (SHW -0.64%) reported third-quarter results on Tuesday, Oct. 22, that came in below analyst estimates on both top and bottom lines. Adjusted earnings per share hitting $3.37, short of analysts’ expectations of $3.55. Revenue likewise missed expectations, landing at $6.16 billion against the anticipated $6.2 billion.
Despite these misses, there was modest year-over-year growth in both EPS and revenue. Improvements were also seen in operational capabilities, as evidenced by a strengthened gross margin of 49.1%. Despite these advancements, challenges remain, particularly within the Consumer Brands Group, signaling difficulties in consumer demand.
| Metric | Q3 2024 | Analyst Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $3.37 | $3.55 | $3.20 | 5.3% |
| Total revenue | $6.16 billion | $6.2 billion | $6.12 billion | 0.7% |
| Gross margin | 49.1% | — | 47.7% | 1.4% |
| EBITDA | $1.28 billion | — | $1.26 billion | 1.2% |
Source: Sherwin-Williams. Note: Analysts' consensus estimates for the quarter provided by FactSet. EBITDA = Earnings before interest, taxes, depreciation, and amortization. YOY = Year over year.
Sherwin-Williams: An Overview
Sherwin-Williams, a leader in the paint and coatings market, operates through three main segments: Paint Stores Group, Consumer Brands Group, and Performance Coatings Group. The Paint Stores Group caters to professional contractors through a network of company-operated stores. The Consumer Brands Group addresses retail consumers, while the Performance Coatings Group offers specialized coatings for industrial uses.
Recently, Sherwin-Williams expanded its focus to geographic expansion and diversification of its product portfolio. Key to its strategy is innovation and customer relationships, fostering both through its global reach across the Americas, Europe, Asia, and Australia. The company's ability to manage the supply chain effectively and innovate with new product offerings is critical to maintaining its position.
Quarterly Highlights
Several strategic initiatives and operational outcomes affected financial performance in Q3. Sales in the Paint Stores Group hit $3.65 billion, a 3.2% rise, driven by higher average selling prices in the protective, marine, and residential segments. However, the segment saw a 2.4% profit drop, linked to increased costs from strategic investments.
The Consumer Brands Group faced challenges, with sales down 7.5% year over year to $790.5 million, mainly due to soft North American DIY demand and negative currency impacts. In contrast, the group's profit surged by 62.9% due to cost management and improved efficiencies in manufacturing operations.
The Performance Coatings Group maintained stable performance, with sales slightly decreasing by 0.2% to $1.72 billion. The segment profit fell by 7.2% due to weaker North American sales and currency effects. Nevertheless, specific areas within the segment, such as Packaging, Coil, and Industrial Wood, showed resilience, displaying a mixed bag of challenges and growth.
Sherwin-Williams improved its gross profit margin to 49.1% (up from 47.7%), thanks to effective supply chain and raw material management. Challenges such as currency volatility remained, although raw material costs showed signs of moderation, aiding overall margins.
A significant focus included ongoing investments in digital capabilities, yet these initiatives did not significantly contribute to revenue in the latest quarter. Meanwhile, CEO Heidi Petz stressed strength in customer relationships that propel sales in several strategic sectors.
Looking Ahead
Sherwin-Williams reaffirmed its full-year guidance, projecting net income per share between $10.30 and $10.60 and adjusted net income per share in the range of $11.10 to $11.40. The adjusted EPS guidance comes in just short of analysts' consensus estimates of $11.50 adjusted EPS for the year. This outlook reflects anticipation of moderated SG&A expenses and strategic investments nurturing future growth. However, uncertainties remain, with flat to low-single-digit growth expected for fourth-quarter sales, indicative of market demand vulnerabilities and macroeconomic instability.
Investors should watch how Sherwin-Williams navigates these challenges in upcoming quarters. The macroeconomic environment, including inflationary pressures and foreign currency impacts, will likely continue to be areas of concern. Meanwhile, progress in geographic and segment diversification as well as improvements in supply chain management may offer long-term opportunities.
