The Sherwin-Williams Company’s financial results for the third quarter 2022 show consolidated net sales increased 17.5 per cent to a record US$6.05 billion. Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased to US$1.12 billion, or 18.6 per cent of sales.
“Our team delivered record net sales results in the third quarter as we continued to focus on serving our customers with innovative solutions,” said John Morikis, Chairman and Chief Executive Officer. “Sales grew to US$6.05 billion, a 17.5 per cent increase against a softer quarter comparison last year when raw material availability was highly challenged.
“Consolidated gross margin expanded 110 basis points sequentially and 120 basis points year-over-year to 42.8 per cent. Our margins improved as a result of pricing actions across all businesses and volume increases in all architectural paint end markets in The Americas Group. We generated strong cash flow in the quarter, which enabled us to continue making strategic long-term investments across the business and pursue strategic, bolt-on acquisitions in the Performance Coatings Group, having closed three acquisitions since the beginning of the third quarter.
“In the Performance Coatings Group (which includes automotive finishes), sales grew in every division as a result of pricing actions across all divisions and contributions from acquisitions. Regionally, sales were up strong double-digits in North America and Latin America, and high-single-digits in Asia, partially offset by a mid-single-digit decline in Europe. Segment margin in this group also meaningfully expanded sequentially and year-over-year.”
Consolidated net sales increased mainly due to selling price increases in all segments and higher architectural sales volume in The Americas Group, partially offset by lower sales volume in the Consumer Brands Group. Acquisitions increased consolidated net sales by 1.6 per cent, while currency translation rate changes decreased consolidated net sales by 2.1 per cent.
Income before income taxes increased due to selling price increases in all segments and higher sales volume in The Americas Group. These factors were partially offset by an increase in raw material and other input costs, including higher supply chain costs to serve customers, primarily in The Americas Group and the Consumer Brands Group, and lower sales volume in the Consumer Brands Group.
Net sales in the Performance Coatings Group (PCG) increased due to higher sales volume in most end markets, primarily attributable to selling price increases, and acquisitions, partially offset by lower sales volume outside of North America. Acquisitions increased PCG’s net sales by 5.3 per cent in the quarter, while currency translation rate changes decreased net sales by 5.1 per cent. PCG segment profit increased mainly from selling price increases, partially offset by increased raw material costs. Acquisition-related amortisation expense reduced segment profit as a per cent of net external sales by 280 basis points compared to 330 basis points in the third quarter of 2021. Acquisitions closed over the past twelve months diluted adjusted segment margin by 60 basis points.
Morikis said the company expects the strong positive results of Q3 to continue into Q4, driven by ongoing momentum in The Americas Group and North American industrial end markets, continued price realisation, good cost control, and softer year-over-year comparisons.
“We expect fourth quarter consolidated net sales to increase by a high-single to low-double digit percentage and full year consolidated net sales to increase by a low-double digit percentage,” he said, adding that future demand levels remain unclear.
“In the near term, our team continues to remain focused on new account growth, share of wallet initiatives and managing expenses tightly, given interest rate actions designed to slow US demand and the expectation of continued macro headwinds in Europe and China into next year. Beginning in the fourth quarter, we will take actions to simplify our operating model and portfolio of products sold in the Consumer Brands Group and weigh various options to implement appropriate cost reduction plans in all regions in the Performance Coatings Group, the Consumer Brands Group, and the Administrative segments due to the continued uncertain demand outlook.”