Sherwin-Williams Reports 2023 Year-End, 4Q Financial Results

The Sherwin-Williams Company announced its financial results for the year and fourth quarter ended Dec. 31, 2023. All comparisons are to the full year and fourth quarter of the prior year, unless otherwise noted.

Consolidated net sales increased 4.1% in the year to a record $23.05 billion. Net sales from stores in the Paint Stores Group open more than 12 calendar months increased 6.8% in the year.

Diluted net income per share increased 19.8% to $9.25 per share in the year compared to $7.72 per share in the full year 2022. Adjusted diluted net income per share increased to $10.35 per share in the year compared to $8.73 per share in the full year 2022.

Sherwin-Williams generated net operating cash of $3.52 billion, or 15.3% of net sales, in the year. Adjusted EBITDA increased 17.5% in the year to $4.24 billion or 18.4% of net sales.

“Sherwin-Williams delivered solid fourth quarter results, with positive sales growth and significant year-over-year gross margin improvement,” said Heidi G. Petz, president and CEO. “We continued our accelerated growth investments in the quarter, which we are confident will continue to drive profitable above-market growth in future periods. Sales in all three reportable segments were within or better than our guidance.

“In our architectural businesses, commercial and residential repaint were the strongest performers, while DIY remained challenging,” Petz reported. “In our industrial businesses, growth varied by division and region, reflecting ongoing choppiness in the market. Paint Stores Group and Performance Coatings Group segment margins expanded year over year.

“For the full year, sales grew to a record $23.05 billion, gross margin expanded to 46.7% (which is well within our current targeted range) and adjusted diluted net income per share increased 18.6% to a record $10.35 per share,” added Petz. “We generated strong net operating cash in the year, which enabled us to continue to invest in customer-focused innovation, while returning $2.06 billion to shareholders through dividends and share repurchases.

“From a segment perspective, Paint Stores Group overcame a difficult demand environment characterized by challenging conditions in new residential and existing home sales markets to deliver high-single digit percentage growth against a low-teens comparison, while also expanding its segment margin,” noted Petz.

“Consumer Brands Group faced weak DIY demand, but grew in its targeted Pros Who Paint market and completed the divestiture of non-core aerosol product lines and its China architectural business. Performance Coatings Group generated sales growth in a market that was highly variable by region and business, further integrated recent acquisitions and delivered strong adjusted segment margin.”

In the fourth quarter of 2023, consolidated net sales were $5.252.2 billion, up 0.4%, with sales primarily up  due to an increase in Paint Stores Group net sales volume. This growth was partially offset by lower net sales volumes in the Performance Coatings and Consumer Brands Groups.

Income before income taxes was $474 million, down 4.2%, down primarily due to continued investments in long-term growth strategies, higher employee-related expense, including incentive-based compensation expense, and higher environmental expense, partially offset by moderating raw material costs year-over-year.

Fourth Quarter Segment Results

Net sales in the Paint Stores Group (PSG) were $2,944.6 million, up 2.3%. Net sales in PSG increased primarily due to low-single digit percentage net sales volume growth driven by protective and marine, commercial and residential repaint end markets.

PSG segment profit was $567.3 million, which was up 14.8%. This increase was due to growth in net sales volume and moderating raw material costs, partially offset by continued investments in long-term growth strategies and higher employee-related expenses.

Net sales in the Consumers Brand Group (CBG) were $692.3 million, down 7.1% primarily due to a mid-single digit percentage decrease in net sales volume due to demand softness in North America and the divestiture of the China architectural business which decreased net sales by approximately 3% year-over-year, offset by increases in Latin America and Europe.

CBG segment profit was $3.6 million, down 89.7%, primarily due to lower net sales volume and higher foreign currency transaction losses driven primarily by the Argentine Devaluation of $30.8 million. These decreases were offset by benefits from moderating raw material costs.

Net sales in the Performance Coatings Group (PCG) were $1,6142 million, an increased of 0.4%, primarily due to acquisitions and favorable currency translation, which both increased net sales by a low-single digit percentage. Growth was led by the Industrial Wood including acquisitions, Coil and Automotive Refinish businesses, offset by decreases in the Packaging and General Industrial businesses.

PCG segment profit was $220.3 million, up 40.1%, primarily as a result of moderating raw material costs, partially offset by lower net sales volume, an increase in selling costs and the Argentine devaluation of $11 million.

Liquidity and Cash Flow

The company generated $3.52 billion in net operating cash during the year. This strong cash generation allowed the company to return cash of $2.06 billion to shareholders in the form of dividends and share repurchases, reduce short-term borrowings and long-term debt and fund the acquisition of German-based SIC Holding GmbH, a Peter Möhrle Holding venture comprised of Oskar Nolte GmbH and Klumpp Coatings GmbH during the year.

“We enter 2024 with confidence in our team’s ability to outperform the market given our customer-focused differentiated services and solutions,” said Petz. “These solutions drive customer productivity and profitability and position us to create value in any environment. Our strategy is proven and unchanged, and we have the right people, the right culture and the right brands to deliver.

“While the macro environment feels more encouraging than it did a year ago, uncertainties remain,” Petz observed. “We expect to see some recovery in new residential construction, moderation in commercial construction, choppiness in repair and remodel and few catalysts in DIY. We expect Auto Refinish and Protective & Marine demand to remain strong and gradual improvement in Industrial Wood and Packaging, with less clarity in General Industrial.

“As we look at our entire cost basket, we see modest raw material deflation, though continued escalation of wages and other costs has led us to implement a 5% price increase in Paint Stores Group effective Feb. 1,” Petz noted. “We expect gross margin expansion, and strong cash generation will enable us to remain committed to our disciplined capital allocation approach.

“Against this backdrop, we expect first quarter 2024 consolidated net sales will be up or down a low-single digit percentage compared to the first quarter of 2023,” Petz concluded. “For the full year 2024, based on the indicators we see at this time, we expect consolidated net sales to be up a low to mid single digit percentage. With annual sales at this level, we are introducing adjusted diluted net income per share guidance of $10.85 to $11.35 per share, which represents 7% growth from 2023 at the mid-point. We remain steadfast in our focus on maximizing shareholder value.”