What's Happening: Shares of Sherwin-Williams (NYSE:SHW) fell 10% on Thursday after the company reported its second-quarter earnings, falling short of analyst estimates. Sherwin-Williams reported revenue of $3.13 billion, up 2.9% year over year but $130 million shy of the average analyst estimate. EPS of $3.70 missed analyst expectations by $0.11, although it rose 25.9% year over year.
Why It's Happening: While Sherwin-Williams' results were disappointing relative to analyst expectations, profitability improved considerably during the quarter. The company's gross margin increased 2.5 percentage points year over year to 48.8% as the cost of goods sold declined (even as revenue rose). Operating margin rose to 16.2%, up from 14.1% during the same period last year.
Revenue from Sherwin-Williams' paint stores rose 5.4% year over year to $1.985 billion, with comparable-store sales rising 3.9% and 22 new locations opened during the first six months of this year, while revenue from the consumer segment rose 13.1% year over year to $490 million. The global finishes segment suffered a 7.1% sales decline, bringing in $506 million in revenue, and the Latin America coating segment saw sales fall by 17.2% to $150 million. Both of these declines were driven by unfavorable currency translation rate changes.
Sherwin-Williams expects 3%-5% revenue growth during the third quarter, along with EPS between $3.75 and $3.90. For the full year, the company expects to report EPS between $10.60 and $11.00, well above the $8.78 in per-share earnings reported during 2014.
Sherwin-Williams had previously guided for revenue growth between 6-8% for the second quarter, and the company fell well short of that range. Investors aren't wrong to be disappointed by the revenue miss, but the company's results did improve substantially compared to the second quarter of last year.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.