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

SUMMARY

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 twelve 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

Diluted net income per share decreased 6.1% to $1.39 per share and adjusted diluted net income per share decreased 4.2% to $1.81 per share, in the fourth quarter of 2023

Generated net operating cash of $3.52 billion, or 15.3% of net sales, in the year

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) increased 17.5% in the year to $4.24 billion or 18.4% of net sales

Full year 2024 diluted net income per share guidance in the range of $10.05 to $10.55 per share, including acquisition-related amortization expense of $0.80 per share

Full year 2024 adjusted diluted net income per share guidance in the range of $10.85 to $11.35 per share

CEO REMARKS

"Sherwin-Williams delivered solid fourth quarter results, with positive sales growth and significant year-over-year gross margin improvement," said President and Chief Executive Officer, Heidi G. Petz. "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. 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. 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. 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."

 

Consolidated net sales increased primarily 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 decreased 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. Higher non-operating costs including a loss related to the significant devaluation of the Argentine Peso in December 2023 as part of economic reforms implemented by the government of Argentina (Argentine Devaluation) and impairment related to trademarks, also decreased Income before income taxes.

Diluted net income per share included charges of $0.19 per share for acquisition-related amortization expense, $0.16 per share related to the Argentine Devaluation and $0.07 associated with impairment related to trademarks.

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 increased 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.

(1)

   

Adjusted segment profit equals Segment profit excluding the impact of acquisition-related amortization expense, impairment related to trademarks, the Argentine Devaluation and restructuring costs. In CBG, acquisition-related amortization expense was $16.4 million and $18.8 million in the fourth quarter of 2023 and 2022, respectively, impairment related to trademarks and the loss related to the Argentine Devaluation were $23.9 million and $30.8 million, respectively, in the fourth quarter of 2023 and restructuring costs (including associated impairment related to trademarks) were $41.1 million in the fourth quarter of 2022.

   

 

Net sales in CBG decreased 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 decreased 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. Acquisition-related amortization expense reduced segment profit as a percent of net sales by 240 basis points compared to 250 basis points in the fourth quarter of 2022, impairment related to trademarks reduced segment profit as a percent of net sales by 340 basis points in the fourth quarter of 2023, the loss related to the Argentine Devaluation reduced segment profit as a percent of net sales by 450 basis points in the fourth quarter of 2023 and restructuring costs reduced segment profit as a percent of net sales by 550 basis points in the fourth quarter of 2022.

 

(1)

   

Adjusted segment profit equals Segment Profit excluding the impact of acquisition-related amortization expense, the Argentine Devaluation and restructuring costs. In PCG, acquisition-related amortization expense was $47.4 million and $49.5 million in the fourth quarter of 2023 and 2022, respectively, the loss related to the Argentine Devaluation was $11.0 million in the fourth quarter of 2023 and restructuring costs were $22.2 million in the fourth quarter of 2022. 

   

 

Net sales in PCG increased 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 increased 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 $11.0 million. Acquisition-related amortization expense reduced segment profit as a percent of net sales by 300 basis points compared to 310 basis points in the fourth quarter of 2022, the loss related to the Argentine Devaluation reduced segment profit as a percent of net sales by 70 basis points in the fourth quarter of 2023 and restructuring costs reduced segment profit as a percent of net sales by 130 basis points in the fourth quarter of 2022. 

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 our 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. The Company purchased 5.6 million shares of its common stock during the year. At December 31, 2023, the Company had remaining authorization to purchase 39.6 million shares of its common stock through open market purchases.

"We enter 2024 with confidence in our team's ability to outperform the market given our customer-focused differentiated services and solutions," said Ms. 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. 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 February 1. 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. 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."