The stock market has done well to start 2023, and both the S&P 500 (^GSPC -0.29%) and the Nasdaq Composite (^IXIC -0.19%) hit new highs on Thursday. Some upbeat high-profile earnings reports have helped stoke optimism about how the rest of the year could shape up better than doomsayers have projected.
Even amid a more positive market environment, though, some companies are having trouble with their businesses. In some cases, the problems are specific to the company, while others signal broader difficulties across industries or even the whole economy. All those factors play a role in declines early Thursday for Southwest Airlines (LUV -0.90%) and Sherwin-Williams (SHW -1.19%), and below, you'll see more on the issues affecting both stocks and what investors should take away from their latest financial reports.
Southwest is still taking flak from holiday travel woes
Shares of Southwest Airlines fell 5% on Thursday morning. The airline stock dropped as investors got a look at the financial impacts of critical execution mistakes following winter storms in late December during the peak holiday travel season.
Southwest's fourth-quarter financial results were mixed. Operating revenue of $6.2 billion hit a new record, rising 7.7% from pre-pandemic levels in the holiday quarter in 2019. That capped record sales of $23.8 billion for 2022 as a whole. However, the airline lost $220 million in the quarter, working out to $0.38 per share on an adjusted basis.
Southwest blamed its operational disruptions for costing the company about $800 million on a pre-tax basis, which was directly responsible for the quarterly loss. The airline said that it has seen booking activity for January and February travel drop, which could cost it another $300 million to $350 million in revenue for the first quarter of 2023. Longer-term, Southwest has seen more encouraging trends for travel in March and later, but the airline expects that it will lose money again in Q1.
For the full 2023 year, Southwest expects capacity to rise 16% to 17%. The open question, though, is whether passengers will fill those seats. At this point, the company is doing everything it can to restore confidence in its system and keep its customers loyal. However, there's still considerable doubt as to whether Southwest will be able to earn back its once-formidable reputation for customer service.
Sherwin-Williams can't paint over investor concerns
Shares of Sherwin-Williams fell more sharply, losing 9%. Financial results for the paint specialist were mixed, with solid quarterly figures but nervousness about what the future will bring.
Sherwin-Williams enjoyed an 11% rise in sales for the full year, hitting a new record of $22.15 billion on a 9.8% increase in Q4 revenue. Adjusted earnings of $1.89 per share for the quarter were up 41% year over year, helping the paint specialist end the year with earnings of $7.72 per share. Sherwin-Williams pointed to margin expansion and ample cash flow in supporting both business operations and the return of capital to shareholders through stock repurchases and dividend payments.
However, Sherwin-Williams issued guidance that gave investors pause. The company expects first-quarter revenue to be flat to up mid-single-digit percentages. For the full 2023 year, though, Sherwin-Williams forecasts flat to lower sales, with top-line declines of as much as mid-single-digit percentages. Adjusted earnings of $7.95 to $8.65 per share could also reflect a potential slowdown in growth rates.
Investors have hoped that companies would keep up their momentum in 2023, even in the face of macroeconomic headwinds. Both Sherwin-Williams and Southwest will have to expend considerable effort to stay on a long-term growth trajectory as they face challenges in the coming year.
