The Sherwin-Williams Company (NYSE: SHW) announced its financial results for the third quarter ended September 30, 2023. All comparisons are to the third quarter of the prior year, unless otherwise noted.
SUMMARY
- Consolidated net sales increased 1.1% in the quarter to $6.12 billion
- Net sales from stores in the U.S. and Canada open more than twelve calendar months increased 3.0% in the quarter
- Diluted net income per share increased 12.6% to $2.95 per share in the quarter compared to $2.62 per share in the third quarter 2022
- Adjusted diluted net income per share increased 13.1% to $3.20 per share in the quarter compared to $2.83 per share in the third quarter 2022
- Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in the quarter increased 12.6% to $1.27 billion, or 20.7% of net sales
- Generated net operating cash of $2.60 billion, or 14.6% of net sales, during the first nine months of 2023
- Increasing full year 2023 diluted net income per share guidance to a range of $9.21 to $9.41 per share, including acquisition-related amortization expense of $0.80 per share and restructuring-related net expense of $0.09 per share
- Increasing full year 2023 adjusted diluted net income per share guidance to a range of $10.10 to $10.30 per share
CEO REMARKS
“Sherwin-Williams delivered strong third quarter results in an environment where demand remained highly variable by end market and region, and against a challenging prior year comparison,” said Chairman and Chief Executive Officer, John G. Morikis. “Consolidated net sales were within our guidance range, and consolidated gross margin of 47.7% expanded significantly both sequentially and year-over-year driven by pricing discipline and moderating raw material costs. As we previously indicated, we have deliberately chosen to continue investing at this time in multiple growth initiatives and solutions for our customers, which is reflected in higher SG&A costs in the quarter compared to a year ago. While we executed on these initiatives, we continued to create shareholder value as adjusted diluted net income per share and EBITDA grew by double digit percentages, and we returned $566 million to our shareholders through dividends and share repurchases during the quarter.
“From a segment perspective, sales growth in Paint Stores Group was led by protective and marine and commercial, with residential repaint and property maintenance also delivering growth. As expected, sales in new residential softened due to slowing completions, though we are confident in continuing share gains. Segment margin expanded, and we opened 16 new paint stores in the quarter. The sales decrease in our Consumer Brands Group was largely the result of the divestiture of the China architectural business and softer demand in North America, as the DIY consumer remained under pressure. Conversely, the Group’s sales in Latin America and Europe increased by double digit percentages. In the Performance Coatings Group, the Industrial Wood and Automotive Refinish businesses delivered growth. Sales decreased in our General Industrial and Coil businesses and varied widely by region. As expected, industry-wide destocking continued to impact our Packaging business. Segment margin improved given pricing discipline and moderating costs.”
| THIRD QUARTER CONSOLIDATED RESULTS | |||||||
| Three Months Ended September 30, | |||||||
| 2023 | 2022 | $ Change | % Change | ||||
| Net sales | $ 6,116.7 | $ 6,047.4 | $ 69.3 | 1.1 % | |||
| Income before income taxes | $ 1,009.0 | $ 877.2 | $ 131.8 | 15.0 % | |||
| As a % of sales | 16.5 % | 14.5 % | |||||
| Net income per share – diluted | $ 2.95 | $ 2.62 | $ 0.33 | 12.6 % | |||
| Adjusted net income per share – diluted | $ 3.20 | $ 2.83 | $ 0.37 | 13.1 % | |||
Consolidated net sales increased primarily due to selling price increases in all segments, which impacted sales by a low-single digit percentage, and modest net benefit from acquisitions and divestitures and favorable currency translation rate changes. This growth was mostly offset by a low-single digit volume decrease primarily driven by the Consumer Brands and Performance Coatings Groups.
Income before income taxes increased primarily due to benefits from selling price increases in all segments and moderating raw material costs. These factors were partially offset by lower fixed cost absorption in Consumer Brands due to lower production volumes, lower sales volumes in the Consumer Brands and Performance Coatings Groups, continued investments in long-term growth strategies and higher employee-related expense. Increased costs within the Administrative Segment, including environmental expense and asset disposals, also reduced Income before income taxes.
Diluted net income per share included a charge of $0.19 per share for acquisition-related amortization expense and a charge of $0.06 per share related to discrete income tax expense associated with the divestiture of the China architectural business.
| THIRD QUARTER SEGMENT RESULTS Paint Stores Group (PSG) | |||||||
| Three Months Ended September 30, | |||||||
| 2023 | 2022 | $ Change | % Change | ||||
| Net sales | $ 3,537.1 | $ 3,414.0 | $ 123.1 | 3.6 % | |||
| Same-store sales (1) | 3.0 % | 20.7 % | |||||
| Segment profit | $ 917.5 | $ 741.3 | $ 176.2 | 23.8 % | |||
| Reported segment margin | 25.9 % | 21.7 % | |||||
| (1) | Same-store sales represents net sales from stores open more than twelve calendar months. |
Net sales in PSG increased primarily due to benefits from selling price increases, which impacted sales by a low-single digit percentage. Sales volume was approximately flat year-over-year, driven by higher pro architectural sales volume, excluding new residential volume which decreased by a high-single digit percentage. PSG segment profit increased due primarily to selling price increases and moderating raw material costs, partially offset by continued investments in long-term growth strategies and higher employee-related costs.
| Consumer Brands Group (CBG) | |||||||
| Three Months Ended September 30, | |||||||
| 2023 | 2022 | $ Change | % Change | ||||
| Net sales | $ 854.8 | $ 890.6 | $ (35.8) | (4.0) % | |||
| Segment profit | $ 101.6 | $ 117.7 | $ (16.1) | (13.7) % | |||
| Reported segment margin | 11.9 % | 13.2 % | |||||
| Adjusted segment profit (1) | $ 117.6 | $ 136.6 | $ (19.0) | (13.9) % | |||
| Adjusted segment margin | 13.8 % | 15.3 % | |||||
| (1) | Adjusted segment profit equals Segment profit excluding the impact of acquisition-related amortization expense. Acquisition-related amortization expense was $16.0 million and $18.9 million in the third quarter of 2023 and 2022, respectively. |
Net sales in CBG decreased primarily due to the divestiture of the China architectural business, which reduced sales by approximately 3.0% in the quarter. Mid-single digit volume declines were partially offset by selling price increases, which impacted sales by a mid-single digit percentage. Lower sales volume growth in North America and Asia were partially offset by higher sales volume growth in Latin America and Europe. CBG segment profit decreased primarily due to lower sales volume and lower fixed cost absorption due to lower production volumes. This was partially offset by benefits from selling price increases and moderating raw material costs. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 190 basis points in the third quarter of 2023, compared to 210 basis points in the third quarter of 2022.
| Performance Coatings Group (PCG) | |||||||
| Three Months Ended September 30, | |||||||
| 2023 | 2022 | $ Change | % Change | ||||
| Net sales | $ 1,724.2 | $ 1,741.7 | $ (17.5) | (1.0) % | |||
| Segment profit | $ 279.7 | $ 236.3 | $ 43.4 | 18.4 % | |||
| Reported segment margin | 16.2 % | 13.6 % | |||||
| Adjusted segment profit (1) | $ 329.4 | $ 286.0 | $ 43.4 | 15.2 % | |||
| Adjusted segment margin | 19.1 % | 16.4 % | |||||
| (1) | Adjusted segment profit equals Segment profit excluding the impact of acquisition-related amortization expense. Acquisition-related amortization expense was $49.7 million in the third quarter of both 2023 and 2022. |
Net sales in PCG decreased primarily due to high-single digit volume declines, partially offset by selling price increases, which increased net sales by a low-single digit percentage. Incremental sales from acquisitions increased net sales by 3.1% in the quarter, while currency translation rate changes added 1.9% to net sales. PCG segment profit increased primarily as a result of moderating raw material costs and selling price increases, partially offset by lower sales volume and increases in selling costs. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 290 basis points in the third quarter of 2023, compared to 280 basis points in the third quarter of 2022.
LIQUIDITY AND CASH FLOW
The Company generated $2.60 billion in net operating cash during the first nine months of 2023, an increase of 103% compared to the same period in 2022, primarily as a result of higher profit and reduced working capital requirements. This strong cash generation allowed the Company to return cash of $1.41 billion to our shareholders in the form of dividends and repurchases of 3.8 million shares of its common stock during the first nine months of 2023. At September 30, 2023, the Company had remaining authorization to purchase 41.4 million shares of its common stock through open market purchases.
| 2023 GUIDANCE | |||||
| Fourth Quarter | Full Year | ||||
| 2023 | 2023 | ||||
| Net sales | Up or down low-single digit % | Up low-single digit % | |||
| Effective tax rate | Low twenty percent | ||||
| Diluted net income per share | $9.21 | – | $9.41 | ||
| Adjusted diluted net income per share (1) | $10.10 | – | $10.30 | ||
| (1) | Excludes $0.80 per share of acquisition-related amortization expense and $0.09 per share of restructuring-related net expense. |
“Given our strong third quarter results, we are increasing our earnings guidance for the full year,” said Mr. Morikis. “Our fourth quarter is a seasonally smaller one, and we continue to expect choppiness by region and end market. More importantly, we continue to see opportunity amid uncertainty, and our businesses are well-positioned. We remain confident in our proven strategy and our differentiated customer-focused product and service solutions, and we expect to continue to outgrow the market.
“Looking at our specific guidance, we expect 2023 fourth quarter consolidated net sales growth to be up or down a low-single digit percentage compared to the fourth quarter of 2022. For the full year 2023, we are increasing net income per share guidance. We now expect our full year diluted net income per share to be in the range of $9.21 to $9.41 per share, versus our prior guidance of $8.46 to $8.86 per share. This includes acquisition-related amortization expense of $0.80 per share and net expense related to the Restructuring Plan of $0.09 per share. Full year 2023 adjusted diluted net income per share is now expected to be in the range of $10.10 to $10.30 per share, compared to our prior guidance of $9.30 to $9.70 per share and $8.73 per share in 2022.”
Source: The Sherwin-Williams
Paints and Coatings Expert 