What happened
Sherwin-Williams (SHW 0.36%) posted slightly better-than-expected earnings for the fourth quarter, but the company's outlook for 2023 was well short of what investors had expected. The market is forward-looking, and shares of Sherwin-Williams traded down as much as 11% on Thursday morning following the results.
So what
Sherwin-Williams paints and coatings are used in a wide range of industries, from aerospace to manufacturing to housing. The company earned $1.89 per share in the fourth quarter, beating expectations by $0.03, thanks to strong pricing power in its industrial coatings division. The consumer division, meanwhile, saw net sales fall primarily due to lower volumes.
For the year, Sherwin-Williams generated $22.15 billion in revenue, up 11.1% from 2021. Net sales from stores in the U.S. and Canada increased by 11.7% in the year. Consumer operations in Europe and Asia struggled, but the company was able to extract margin improvements from its industrials arm.
"Sherwin-Williams delivered strong fourth quarter results compared to the same period a year ago, including high single-digit percentage sales growth, significant year-over-year gross margin improvement, expanded adjusted operating margins in all three segments, strong double-digit adjusted diluted net income per share growth and strong EBITDA [earnings before interest, taxes, depreciation, and amortization] growth," CEO John G. Morikis said in a statement.
Now what
The company isn't nearly as confident heading into 2023. Sherwin-Williams forecast 2023 adjusted earnings per share of between $7.95 and $8.65, well below the consensus analyst estimate for earnings of $10.14 per share. First-quarter revenue is expected to be flat to up slightly year over year, and full-year revenue is expected to be down to flat.
Sherwin-Williams sees headwinds all over the place. Higher interest rates have caused a slowdown in U.S. housing, which is likely to impact its consumer and architectural business, and management is concerned the industrial slowdown it saw in Europe in 2022 could spread to the U.S. this year. China continues to face an uncertain economic future due to COVID-19 concerns.
"We will not be immune from what we expect to be a very challenging demand environment in 2023," Morikis said. "Visibility beyond our first half of the year is limited."
Sherwin-Williams is a well-regarded company and has a long track record of paying dividends in good times and bad. Long-term investors have no reason to be concerned that the company can not weather the current storms. But with so many challenges hitting at the same time, there isn't much reason for optimism that Sherwin-Williams can outperform in 2023.
