What happened
Slowing household and international demand for paint took a bite out of Sherwin-Williams' (SHW -1.10%) earnings in the second quarter. Investors weren't pleased, sending Sherwin-Williams shares down more than 10% in Wednesday morning trading.
So what
The macro environment got the best of Sherwin-Williams in the second quarter. The paint and coatings company earned $2.41 per share in the quarter on revenue of $5.87 billion, falling short of analyst expectations for $2.78 per share in earnings on sales of $6.03 billion.
CEO John G. Morikis in a statement said that performance coatings and professional construction demand held up strong, but international sales and sales to do-it-yourselfers took a hit.
"The slower North America DIY demand trend we previously described ... did not improve and we experienced tight supply in certain resins, in particular alkyd resins, which significantly impacted our North America non-paint sales," Morikis said. "Internationally, demand deteriorated faster than anticipated in Europe, and no meaningful recovery occurred in China following the lifting of COVID lockdowns, both of which meaningfully impacted Consumer Brands Group and Performance Coatings Group sales."
Gross margin was up from the previous quarter, but at a slower pace than anticipated due to slower sales in key areas and higher raw material costs.
Now what
Sherwin-Williams does not expect its challenges to resolve quickly. The company lowered its guidance for full-year 2022 earnings to $8.50 to $8.80 per share, down from previous guidance of $9.25 to $9.65 per share. Even at the high end that guidance is well below the consensus $9.38-per-share estimate.
Sherwin-Williams is a solid long-term performer, but there isn't much the company can do to escape macroeconomic woes including supply chain issues and demand uncertainty. Investors need to reassess expectations, and the stock is getting hit as a result.
