Sherwin Williams : Quarterly Reporting Document

NEWS

The Sherwin-Williams Company

• 101 W. Prospect Avenue

• Cleveland, Ohio 44115

•

[phone]

The Sherwin-Williams Company Reports 2023 First Quarter Financial Results

CLEVELAND, April 25, 2023 - The Sherwin-Williams Company (NYSE: SHW) announced its financial results for the first quarter ended March 31, 2023. All comparisons are to the first quarter of the prior year, unless otherwise noted.

SUMMARY

• Consolidated net sales increased 8.9% in the quarter to $5.44 billion
• • Net sales from stores in U.S. and Canada open more than twelve calendar months increased 14.2% in the quarter
• Diluted net income per share increased 30.5% to $1.84 per share in the quarter compared to $1.41 per share in the first quarter 2022
• • Adjusted diluted net income per share increased 26.7% to $2.04 per share in the quarter compared to $1.61 per share in the first quarter 2022
• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased 26.7% to $878.2 million in the quarter
• Reaffirming full year 2023 diluted net income per share guidance in the range of $6.79 to $7.59 per share, including acquisition-related amortization expense of $0.81 per share and restructuring expense of $0.25 to $0.35 per share
• • Reaffirming full year 2023 adjusted diluted net income per share guidance in the range of $7.95 to $8.65 per share

ORGANIZATIONAL AND REPORTING CHANGE

Effective January 1, 2023, the Company changed its organizational structure to manage and report the Latin America architectural paint business within the Consumer Brands Group to more closely align demand and service model trends with its current business strategy. The Latin America business was formerly part of The Americas Group, which has become the Paint Stores Group concurrent with this change. The Company will report segment results for the newly realigned Paint Stores Group and Consumer Brands Group, for both current and prior periods presented, beginning with the first quarter of 2023.

CEO REMARKS

"We delivered strong results in the first quarter, with higher than expected consolidated net sales, sequential and year-over-year expansion in gross margin, and double-digit percentage growth in diluted net income per share and EBITDA," said Chairman and Chief Executive Officer, John G. Morikis. "Segment margin expanded sequentially and year-over-year in all three of our reportable segments. We also continued to invest in growth initiatives across the business during the quarter while returning cash to our shareholders through an increase in our quarterly dividend and an investment of $301.7 million to repurchase 1.3 million shares.

"In the Paint Stores Group, sales in all end markets were up double-digit percentages, driven by strong volume and led by protective & marine, property maintenance, commercial and residential repaint. In the Consumer Brands Group, North America DIY sales remained soft, while our Pros Who Paint business was up by a double-digit percentage. Sales were also up by a double-digit percentage in Latin America. Demand remained soft in Europe and China. We're pleased with this Group's progress on the previously described portfolio realignment. In April, we completed the divestiture of a non-core aerosol business and finalized an agreement to divest our China architectural business. In the Performance Coatings Group, sales were up in all regions except Asia Pacific. Growth was strongest in Automotive Refinish, which was up by a mid-teens percentage, followed by low-single digit increases in General Industrial and Coil Coatings. As expected, Packaging was down, impacted by very difficult comparisons, as was Industrial Wood, given weakness in residential end markets."

FIRST QUARTER CONSOLIDATED RESULTS
				Three Months Ended March 31,
			2023			2022			$ Change		% Change
	Net sales	$	5,442.4		$	4,998.7	$	443.7		8.9	%
	Income before income taxes	$	614.8	$	461.1	$	153.7		33.3 %
	As a % of sales		11.3 %			9.2%
	Net income per share - diluted	$	1.84	$	1.41	$	0.43		30.5	%
	Adjusted net income per share - diluted	$	2.04		$	1.61	$	0.43		26.7	%

Consolidated net sales increased primarily due to selling price increases in all segments and higher architectural sales volume in the Paint Stores Group, partially offset by lower sales volumes in the Consumer Brands and Performance Coatings Groups. Acquisitions increased consolidated net sales by 1.8%, while currency translation rate changes decreased consolidated net sales by 1.0%.

Income before income taxes increased due to selling price increases in all segments and higher sales volume in the Paint Stores Group. These factors were partially offset by increased investments in long-term growth initiatives, lower sales volumes in the Consumer Brands and Performance Coatings Groups, and higher employee-related costs.

Diluted net income per share included a charge of $0.20 per share for acquisition-related amortization expense.

FIRST QUARTER SEGMENT RESULTS
Paint Stores Group (PSG)
				Three Months Ended March 31,
			2023			2022			$ Change		% Change
	Net sales	$	2,859.1		$	2,491.3	$	367.8		14.8 %
	Same-store sales (1)		14.2%			3.8%
	Segment profit	$	526.7		$	428.8	$	97.9		22.8 %
	Reported segment margin		18.4%			17.2%

1. Same-storesales represents net sales from stores open more than twelve calendar months.

Net sales in PSG increased primarily due to higher sales volumes across all end markets, as well as selling price increases. PSG segment profit increased due primarily to higher paint sales volume and selling price increases, partially offset by continued investments in long-term growth strategies and higher employee-related costs.

Consumer Brands Group (CBG)
				Three Months Ended March 31,
			2023				2022			$ Change	% Change
	Net sales	$	872.7			$	852.2		$	20.5			2.4 %
	Segment profit	$	93.8	$	81.5	$	12.3			15.1 %
	Reported segment margin		10.7%				9.6%
	Adjusted segment profit (1)	$	113.8	$	100.9	$	12.9			12.8 %
	Adjusted segment margin		13.0%				11.8 %

1. Adjusted segment profit equals Segment profit excluding the impact of restructuring costs and acquisition-related amortization expense. In CBG, restructuring costs were approximately $1.0 million in the first quarter of 2023 and acquisition-related amortization expense was $19.0 million and $19.4 million in the first quarter of 2023 and 2022, respectively.

Net sales in CBG increased primarily due to selling price increases and strong growth within Latin America, partially offset by lower sales volumes in all other regions. Currency translation rate changes decreased CBG's net sales by 1.7%. CBG segment profit increased primarily due to selling price increases, partially offset by lower sales volume and inflation in wages and other employee costs. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 220 basis points in the first quarter of both 2023 and 2022.

Performance Coatings Group (PCG)
				Three Months Ended March 31,
			2023				2022			$ Change	% Change
	Net sales	$	1,709.8			$	1,654.1		$	55.7			3.4 %
	Segment profit	$	218.9	$	144.5	$	74.4			51.5 %
	Reported segment margin		12.8%				8.7%
	Adjusted segment profit (1)	$	268.8	$	195.1	$	73.7			37.8 %
	Adjusted segment margin		15.7%				11.8 %

1. Adjusted segment profit equals Segment profit excluding the impact of acquisition-related amortization expense and restructuring costs. In PCG, acquisition-related amortization expense was $50.0 million and $50.6 million in the first quarter of 2023 and 2022, respectively. Restructuring costs in the first quarter of 2023 were not significant.

Net sales in PCG increased primarily due to selling price increases in all end markets and incremental sales from acquisitions, partially offset by lower sales volumes in Asia and Europe. Acquisitions increased PCG's net sales by 5.4% in the quarter, while currency translation rate changes decreased net sales by 1.9%. PCG segment profit increased primarily as a result of selling price increases, partially offset by higher employee-related costs. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 290 basis points compared to 310 basis points in the first quarter of 2022.

LIQUIDITY AND CASH FLOW

The Company generated $88.2 million in net operating cash during the first quarter of 2023 primarily as a result of higher profit, despite a normal seasonal increase in working capital requirements. This cash generation, along with an increase in our short-term borrowings, allowed the Company to return cash of $458.2 million to our shareholders in the form of dividends and share repurchases in the quarter. The Company purchased 1.3 million shares of its common stock during the first quarter. At March 31, 2023, the Company had remaining authorization to purchase 43.9 million shares of its common stock through open market purchases.

2023 GUIDANCE
		Second Quarter				Full Year
		2023				2023
	Net sales	Up or down low-single digit %			Down mid-single digit % to flat
	Effective tax rate				Low twenty percent
	Diluted net income per share				$6.79	-	$7.59
	Adjusted diluted net income per share (1)		$7.95	-	$8.65

1. Excludes $0.81 per share of acquisition-related amortization expense, and $0.25 to $0.35 per share of restructuring expense.

"While our first quarter was strong, it is also a seasonally smaller quarter, and our outlook for the full year remains unchanged at this time," said Mr. Morikis. "Visibility remains limited, and we continue to expect a very challenging demand environment in the back half of 2023 against difficult comparisons. On the architectural side of the business, we are seeing demand softness in new residential and the Consumer Brands Group DIY. On the industrial side, Europe and China have yet to fully recover, and we're seeing increased pressure in North America. We will continue to prioritize what we can control, by maintaining a focus on recession resilient markets, growing new accounts and share of wallet, continuing appropriate growth investments in stores and sales representatives, and managing price-cost dynamics. We remain confident in our differentiated strategy, capabilities and product and service solutions, and we continue to expect to outperform the market.

"Against this backdrop, we expect 2023 second quarter consolidated net sales growth to be up or down a low-single digit percentage compared to the second quarter of 2022. For the full year 2023, we continue to expect consolidated net sales to be down a mid-single digit percentage to flat compared to full year 2022. Our full year 2023 diluted net income per share guidance remains unchanged at $6.79 to $7.59 per share, including acquisition-related amortization expense of $0.81 per share and restructuring expense of $0.25 to $0.35 per share, compared to $7.72 per share in 2022. Full year 2023 adjusted diluted net income per share is expected to be in the range of $7.95 to $8.65 per share compared to $8.73 per share in 2022."

CONFERENCE CALL INFORMATION

The Company will conduct a conference call to discuss its financial results for the first quarter, and its outlook for the second quarter and full year 2023, at 11:00 a.m. EDT on Tuesday, April 25, 2023. Participating on the call will be Chairman and Chief Executive Officer, John Morikis, along with other senior executives.

The conference call will be webcast simultaneously in the listen only mode by Issuer Direct. To listen to the webcast on the Sherwin-Williams website, click on https://investors.sherwin-williams.com/financials/quarterly-results/, then click on the webcast icon following the reference to the Q1 webcast. An archived replay of the webcast will be available at https://investors.sherwin-williams.com/financials/quarterly-results/ beginning approximately two hours after the call ends.