Sherwin-Williams CEO Forecasts Plummet in Paint Demand in 2023
Sherwin-Williams is shifting its business model to brace for decreased paint demands.
A cooling housing market as a result of increased mortgage rates, inflation, supply shortages and other variables have impacted numerous sectors across home building. That includes the top paint manufacturers.
Sherwin-Williams CEO John G. Morikis announced during a company earnings call in late January the company expects a “very meaningful deceleration of demand” for their paint products.
“We will not be immune from what we expect to be a very challenging demand environment in 2023,” Morikis said. “Visibility beyond our first half of the year is limited. On the architectural side, U.S. housing will be under significant pressure this year. Slowing existing home sales and continued high inflation also will be headwinds.
“On the industrial side, we have already seen a slowdown in Europe, and the same is beginning to appear in the U.S. across several sectors. In China, COVID remains a factor and the trajectory of economic recovery is difficult to map.”
Morikis has been the CEO of the Cleveland-based company since 2016.
Sherwin-Williams’ stock price plummeted nearly nine percent after the company’s earnings reports, from $247.09 a share to $225.06 by the end of the day. It has since rebounded roughly five percent and was trading at $235.51 when the markets closed on Feb. 8.
According to Natalie Lung of Yahoo, existing home sales have declined year-over-over for 16 consecutive months. Coupled with increased mortgage rates, new residential volume “could decline 10%-20% this year,” she writes.
“(Sherwin-Williams) is focusing on investing, adding stores and growing the market share of its residential repaint business — its largest and fastest growing segment, which includes paints and coatings for inside and outside the home — saying that factors such as home-price appreciation and aging housing stock can help offset the impact from slowing existing home sales.”
Shifting Housing Market
Surging mortgage rates hit record lows in 2021 but increased dramatically in a span of 12 months.
Interest rate increases have major ramifications on mortgage payments. A 30-year fixed-rate loan at three percent on a $400,000 home with a 20 percent down payment, or $80,000, would cost roughly $1,350 per month for principal and interest. A six percent loan for that same home would cost $1,900 a month. That’s a difference of $550 a month.
Bankrate reported December 2022 was the 11th consecutive month with declining home sales. The median home price in the U.S. reached a record high $413,800 in June, but has since retreated to $366,900, according to Bankrate.
Last week, National Association of Home Builders chief economist Rob Dietz said at a press briefing at the International Builders’ Show in Las Vegas that a “recession is underway” for home builders, according to Construction Dive.
“We’ve never had a period where home prices have declined and there has not been a recession,” Dietz was quoted as saying. “I think the rest of the economy will feel it in 2023 via slowing economic output and rising job losses.”