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Investors are not viewing Sherwin-Williams' (SHW -3%) lowered Q4 EPS guidance as much of a "happy accident" today: shares are taking a tumble. The paint and coatings giant's expected 6.1% yr/yr sales growth for Q4 does manage to meet the lower-end of its prior guidance for mid-to-high single-digit percentage growth. However, a slower than expected recovery in raw material availability and labor constraints pressured SHW's high-margin segment, The Americas Group, leading to a sizable anticipated earnings miss for the quarter. SHW expects EPS of just $1.35, about $0.20 below the low-end of its prior guidance.

• Raw material availability has been a thorn in SHW's side for much of the past year, negatively impacting gross margins in each of the last three quarters as costs soared. For example, margins shrunk 20 bps yr/yr in Q1, 320 bps yr/yr in Q2, and a massive 630 bps yr/yr in Q3. As a result, SHW has seen its margins narrow from 45.4% in Q1 to 41.6% in Q3.
• The margin impact is not limited to just SHW. Its peers have also been dealing with worsening supply chain disruptions and increasing raw material costs. For example, PPG Industries (PPG) noted similar headwinds throughout FY21 and expects those headwinds to linger until "well into 2022." SHW expressed a similarly bearish sentiment, stating that raw material and labor shortages will persist into Q1.
• The primary issue with these shortages is that they mainly affect SHW's The Americas Group (reaching 75% of the total impact in Q3), which commands higher margins than its other segments and makes up over half of its total revenue. For example, in Q3, raw material availability put an estimated high-single-digit percentage dent in The Americas Group sales.

The good news is that SHW notes that despite the lowered Q4 guidance, demand remains strong, as it has throughout FY21. Furthermore, we expect certain themes to provide nice contributions in FY22, such as continued interest in home improvement and an ongoing recovery in miles driven, which should provide a solid tailwind for SHW, more than likely during the back-half of the year. Elsewhere in the industry, Lowe's (LOW) stated just last month that as home prices continue to appreciate, it is "very bullish" on the long-term health of the home improvement industry. In automotive, Advance Auto Parts (AAP) sees vehicle miles driven continuing to improve versus 2020 and 2019 as the economy continues to reopen, which should increase collision shop volume, boosting SHW's automotive refinish business.

Bottom line, SHW is positioned to benefit from meaningful trends that should take place toward the back half of 2022, making the slight pullback today a nice entry point for buy-and-hold investors.