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Sherwin-Williams (SHW +4%) brushes over analysts' forecasts in Q2, delivering sizeable beats on its top and bottom lines and raising its FY23 guidance significantly. Positive sentiment surrounded the paints and coatings supplier leading into its Q2 report today, illustrated by shares soaring over +25% from March lows. Several favorable developments, from easing inflationary pressures to homebuilders displaying resilient housing trends, ignited SHW's blazing rally. After delivering figures surpassing raised expectations in Q2, shares are popping off to 52-week highs.

• Consolidated net sales expanded 6.3% y/yr to $6.24 bln, easily toppling analyst expectations and helping fuel SHW's largest EPS beat since 4Q21. The favorable pricing environment touched on by PPG was apparent for SHW in Q2, with each of its operating segments delivering positive yr/yr growth.
• The star of Q2 was SHW's largest segment, Paint Stores Group (PSG), which advanced its top-line by 10% yr/yr to $3.5 bln, assisting in a 280 bp improvement in reported segment margins. Consumer Brands Group (CBG) was also up nicely in the quarter, climbing 5.1% to $945.8 mln, igniting a 470 bp margin increase. Lagging the broader group was Performance Coatings Group (PCG), where sales were mostly flat at 0.3% to $1.79 bln. However, recent acquisitions kept PCG from sinking, adding 4.5 pts to the top line in the quarter.
  • Notable highlights include marine and commercial property maintenance, which ticked up by a double-digit percentage, residential repaint, which edged up by high single digits, and Automotive Refinish, which grew in the high single digits.
• Outside the U.S., SHW painted over brewing concerns sparked by peer PPG Industries (PPG), which remarked that industrial production levels will likely remain low over the near term and discussed cautious consumer buying behavior in Europe and a slower-than-expected recovery in China. Despite this, SHW recorded a double-digit percentage revenue increase in Europe. Also, even though China sales were down by double-digits, SHW is amid a divestiture of its China business, which should be completed in Q3.
• CEO John Morikis still cautioned that the demand environment was not entirely back to normal, noting that demand will likely vary meaningfully by region and end market. In PCG, management warned that North America demand has decelerated while Europe and Asia remain choppy, echoing sentiments expressed by PPG.
• Nevertheless, SHW lifted its FY23 outlook considerably, projecting adjusted EPS of $9.30-9.70, up from $7.95-8.65, and revs enjoying positive low single-digit percentage growth, a massive reversal from its previous estimate of down mid-single digits to flat. SHW pointed to encouraging developments within the end markets that exhibited particular strength in Q2 as factors in its raised guidance.

Overall, SHW's Q2 results underpinned strengthening and resilient trends across multiple end markets, particularly the automotive and repair and remodel housing markets. Although demand remains uneven across geographies and industries, conditions appear to be improving as SHW enters the back half of the year.