At first glance, recent earnings from
Sherwin-Williams didn’t have much in common, with the former cutting its outlook while the latter provided strong guidance.
Yet looking more closely may indicate that consumers still have an appetite for home improvement, although their spending is shifting.
Late Tuesday, Whirlpool (ticker: WHR) delivered a mixed first quarter, and warned that the North American appliance industry won’t expand this year, a much more conservative forecast than it had issued previously, when it noted that the industry could climb as much as 3%.
Whirlpool got a boost during the pandemic as more people stayed at home, with the stock reaching all-time highs in the first half of 2021. Still it’s not surprising that the company sees a rockier road ahead. Shares are down 20.2% so far this year.
People don’t need to buy long-lived appliances very frequently—meaning that new washer they got during the first lockdown is still going strong. Whirlpool also is still dealing with higher input costs, particularly rising steel prices, as well as supply chain disruptions.
Whirlpool, like many other companies, have passed on a lot of those increased costs to the consumer, as evidenced by the strong margins in its North American business in the first quarter. Yet higher prices may be the real sticking point, as consumers are putting off purchases they may need to finance in the face of rising interest rates.
“Consumers are postponing big ticket purchases like home renovations and furniture,” writes Jefferies’ analyst Jonathan Matuszewski, following his firm’s recent survey of more than 3,400 shoppers. The findings revealed that 38% of respondents are waiting to pull the trigger on more expensive items “to reduce the impact of higher prices.”
That is a worry—and it dovetails with Whirlpool’s results. Nonetheless, it’s not an overwhelming majority of consumers, and it may not be a widespread harbinger of tougher times for home improvement overall. Last week, UBS analyst Michael Lasser met with
Home Depot’s (HD) management team, including its chief executive and chief financial officers, who “offered a confident and upbeat tone.”
Lasser highlighted that Home Depot “hasn’t seen evidence of a drop off in big ticket items or consumers trading down” and that it hasn’t seen consumers pulling back like they did in previous recessions. “In 2000, Home Depot witnessed that consumers traded down to more opening price points,” he added. “During the recession in the 2007-2008 period, the company saw a sizable drop in big ticket.”
On a brighter note, this morning Sherwin-Williams’ (SHW) first quarter came in ahead of expectations, as did its reaffirmed full-year guidance.
Sherwin-Williams’ do-it-yourself business saw a decline in comparable sales, although that was against particularly high year-ago levels, while its pro businesses all showed increases. The company noted that price increases it has enacted should help to ease margin pressure, but that shouldn’t weigh too heavily on demand, given its strong outlook. The stock is down about 23% this year.
In addition, Sherwin-Williams said that it’s seeing increased availability of raw materials. With prior shortages it had prioritized pro customers, so easing constraints is good news, given that it could free up more products for consumers, “which should facilitate volume recovery in a strong demand environment,” writes CFRA analyst Richard Wolfe.
The fact that Sherwin-Williams is still upbeat about the year may indicate that though consumers are cutting back due to record inflation, they aren’t totally forgoing home improvement, instead focusing on less expensive projects.
The company cited strength in its architectural and industrial end markets, but its Americas business—Sherwin-Williams’ biggest division which accounts for more than half of sales—includes key categories like property maintenance, new residential buildings and residential repaint. Therefore its robust forecast is a positive signal for home spending. Indeed, in its press release, Sherwin-Williams said that “backlogs remain strong” in its Americas business.
Earlier this month, Barron’s argued that home-improvement retailers had fallen too far, given that there are factors that can spur consumers to keep improving their living spaces even if the housing market finally starts to cool. The recent commentary from Sherwin-Williams and Home Depot’s executive team echoes that sentiment.
Although it makes sense for investors to be somewhat cautious about housing in the face of climbing interest rates and increasing unaffordability, that doesn’t necessarily mean that home improvement will fall in tandem.
Moreover, any easing of inflation could lead to consumers spending again as “delayed spend is different from forgone spend,” Matuszewski writes. “Home price appreciation will minimize the impact on home-improvement outlays.”
Even if a postpandemic America means we’re home staring at the walls less frequently, there’s still plenty of reason to keep them looking fresh.
Write to Teresa Rivas at [email protected]