Sherwin-Williams (SHW, Financial) reported a disappointing second quarter of 2025, with its steepest EPS miss in over five years, despite revenue of $6.31 billion meeting analysts' expectations. The miss was due to high expenses from accelerated restructuring and ongoing weak DIY demand in North America. The company also issued a lower FY25 EPS guidance of $11.20-$11.50, down from the previous $11.65-$12.05 range, and a net sales outlook of a low-single-digit percentage change, reflecting caution in a challenging demand environment.
The company's restructuring efforts were prominent in Q2, incurring $59 million in pre-tax expenses, doubling previous initiatives to streamline operations amid softer demand. Additionally, the rapid progress on new buildings led to $40 million in pre-tax transition costs, increasing financial strain. Despite short-term expense inflation and profitability pressure, these actions aim to enhance SHW's operational efficiency and competitive edge in the long run, targeting market share gains as the market recovers.
The Paint Stores Group (PSG) was a positive aspect, with sales increasing 2.3% year-over-year, driven by mid-single-digit price hikes that offset a low-single-digit decline in sales volume. Strong professional demand in protective and marine coatings and a slight rise in residential repaint supported this segment. However, softer new residential activity and cautious consumer spending limited volume growth, highlighting the challenge of maintaining volume in a weak housing market.
In contrast, the Consumer Brands Group (CBG) faced challenges, with sales dropping about 4% due to soft DIY demand in North America. This decline reflects broader constraints on consumer discretionary spending, exacerbated by high interest rates and economic uncertainty, as cost-conscious households defer DIY projects.
The Performance Coatings Group (PCG) saw flat sales year-over-year, as gains from recent acquisitions were offset by lower selling prices and an unfavorable product mix. Weak demand in general industrial applications was partially balanced by strength in packaging and coil coatings, though currency headwinds in Latin America and changing customer preferences added complexity. This stability indicates a mixed scenario, with strategic acquisitions providing some protection against underlying softness.
Sherwin-Williams's significant EPS miss in Q2, driven by increased restructuring costs, accelerated building expenses, and sluggish DIY demand, highlights the challenges of a weak housing market and soft consumer trends. While restructuring efforts aim for long-term benefits by enhancing competitiveness, they intensified current quarter headwinds, leaving investors to consider short-term difficulties against future potential.
