Sherwin-Williams Earnings: Robust Pricing and Resilient Architectural Demand Drive Growth

Sherwin-Williams SHW reported first-quarter results that were largely in line with our expectations as pricing growth more than offset elevated costs. Volume was mixed across Sherwin’s portfolio as strength in residential and professional markets were met with weakness in do-it-yourself, or DIY, and packaging. That said, Sherwin continued to flex its pricing power, with increases in all three segments. Higher operating costs were somewhat offset by moderating materials costs, but both will likely remain a concern for the foreseeable future. Consolidated operating margins expanded almost 300 basis points from a year ago to 13.2%, largely driven by strong pricing. Demand held-up well in the first quarter, but near-term pressure remains amid heightened economic uncertainty. We are maintaining our fair value estimate of $201 per share.

The paint stores group (previously the Americas group) reported strong results as revenue increased almost 15% year over year on high-single-digit volume and price growth. New residential performed well, but will likely see a pullback in the second half of the year. Nevertheless, we maintain our view that property maintenance and residential repaint should help offset this near-term decline. Moderating DIY demand continues to weigh on the consumer brands group despite strength in the segment’s professional line. That said, segment revenue increased 2.4% year over year and margins expanded roughly 110 basis points on strong pricing and strength in Latin America. While its unlikely DIY demand will rebound quickly, professional paint demand should provide some relief for the segment.

Management reiterated its full-year 2023 guidance, expecting full-year revenue to be flat to down low-single digits with a midpoint adjusted earnings per share of $8.30. Our forecast is toward the top of managements guidance as we expect relatively stable demand across Sherwin’s portfolio while moderating raw materials costs should provide some margin relief.