Image source: Sherwin-Williams.

The performance of paint specialist Sherwin-Williams (SHW 1.97%) over time has greatly rewarded long-term shareholders with share-price appreciation and dividend income. Recently, the combination of a healthy housing market and the strategic acquisition of rival Valspar (VAL) has helped send Sherwin-Williams stock to new all-time record highs. Coming into Thursday's second-quarter financial report, Sherwin-Williams investors were expecting solid and steady growth on its top and bottom line. Yet results fell short of their expectations, and some worry about whether the company can sustain its past pace of growth into the future. Let's take a closer look at Sherwin-Williams and its results to see what lies ahead for the paint maker.

Sherwin-Williams can't avoid runs, drips, errors

Sherwin-Williams' second-quarter results represented a departure from its usual practice in failing to exceed investor expectations. Revenue of $3.22 billion rose 2.8% from the year-ago quarter, but that was less than the 5% growth rate that most of those following the stock had wanted to see. Similarly, net income grew 8% to $378.1 million, but even after accounting for expenses related to the Valspar acquisition, adjusted net earnings of $4.06 per share were a dime less than the consensus forecast among investors.

Taking a closer look at Sherwin-Williams' results, the company's segments looked a little different than they have in recent quarters. As usual, the paint stores group posted sales gains, with the top line rising 6.2% on comparable-store sales growth of 5.2%. The segment earned more than half a billion dollars during the quarter, rising 17% thanks primarily to higher sales volumes for paint. Profit margin jumped more than two percentage points to 24.1%.

However, the remainder of Sherwin-Williams' businesses were under pressure. The consumer group saw rare declines, suffering a nearly 3% drop in sales that sent profits down 5% from a year ago. The company blamed the drop on tough comparisons following last year's introduction of the HGTV Home paint line during this period, and improved operating efficiency wasn't enough to offset higher spending on overhead expenses. The global finishes group took a 1% hit on dollar-based sales figures, and the Latin America coatings remained under pressure with an 11% fall in sales.

Sherwin-Williams CEO John Morikis still accentuated the positives. "We are pleased to report record sales and earnings per share from the continued positive sales volume and strong operating results of our paint stores group," Morikis said, "and operating margin improvements in our global finishes group." The CEO also pointed to the 31 net new locations that the paint store division opened during the first half of 2016.

Why are Sherwin-Williams investors nervous?

Unfortunately for the company, Sherwin-Williams made some less optimistic predictions about its coming earnings. The paint-maker expects sales to rise by low- to mid-single digit percentages, which would be on the low side of the current expectation for 5% growth on the top line. Earnings of $4.10 to $4.30 per share would similarly be below the consensus forecast for the quarter, although the figure includes a net downward impact of a dime per share due to acquisition expenses and income-tax provisions.

For the full year, Sherwin-Williams said that it expects just low single-digit percentage increases in net sales. The company said that it was raising its guidance for the full year to $11.65 to $11.85 per share, and although that was less than the $12.50 to $12.70 per share it anticipated in last quarter's release, the new figure includes a net reduction of $0.85 per share to account for acquisition and income tax impacts. That leaves the net guidance basically unchanged from where it was in April.

At this point, Sherwin-Williams investors are looking forward to the Valspar deal closing. The merger got approval from Valspar shareholders in June, and the two companies believe that closing will happen by the end of the first quarter of 2017. Sherwin-Williams received a second request for merger information from the Federal Trade Commission in connection with the merger, but that's not unusual for a deal of this size.

Investors weren't happy with Sherwin-Williams' results, sending the stock down 6% in pre-market trading following the announcement. After such a long history of strong growth, it would be disappointing to see Sherwin-Williams start to lose its momentum, but shareholders are starting to worry more about that possibility becoming reality.