Executive Summary / Key Takeaways

• Resilient Outperformance in a Challenging Market: Sherwin-Williams continues to demonstrate robust performance, particularly in its Paint Stores Group, by aggressively gaining market share and leveraging strategic investments despite a "softer for longer" demand environment expected to persist into 2026.
• Strategic Investments Fueling Growth: The company's disciplined capital allocation, including opening 80-100 new stores annually and investing in sales representatives and digital tools, is driving above-market growth and strong incremental margins, especially in residential repaint and protective & marine segments.
• Disciplined Financial Management: SHW maintains strong liquidity and cash flow generation, enabling consistent shareholder returns through dividends (47 consecutive years of increases) and opportunistic share repurchases, while managing debt and integrating strategic acquisitions like Suvinil.
• Technological Edge and Operational Efficiency: Sherwin-Williams differentiates itself through innovative product solutions, digital tools like the Pro Plus app, and a highly efficient direct distribution model, which collectively enhance customer productivity and profitability, strengthening its competitive moat.
• Outlook Focused on Execution: Despite anticipated cost inflation and macroeconomic headwinds, the company's updated 2025 guidance reflects confidence in its ability to drive profitability through pricing actions, restructuring savings, and relentless focus on operational control.

A Legacy of Leadership in Coatings

The Sherwin-Williams Company, established in 1866, has forged a formidable presence in the global paints and coatings industry. Structured into three core segments—Paint Stores Group (PSG), Consumer Brands Group (CBG), and Performance Coatings Group (PCG)—along with an Administrative function, SHW serves a diverse customer base ranging from professional contractors and industrial clients to do-it-yourself homeowners across North and South America, the Caribbean, Europe, Asia, and Australia. This extensive reach and deep market penetration are foundational to its enduring strength.

The company's history is marked by strategic growth, notably the 2017 acquisition of Valspar, which significantly expanded its market footprint and product offerings. More recently, SHW has continued its inorganic growth strategy, acquiring a metal packaging coatings business in October 2024 and a European coil and industrial coatings company in March 2025, both integrated into the Performance Coatings Group. In June 2025, a domestic regional floor covering provider joined the Paint Stores Group. A significant expansion in the Consumer Brands Group occurred in October 2025 with the $1.15 billion acquisition of BASF SE (BASFY)'s Brazilian decorative paints business, Suvinil, a market leader with annual sales of approximately $525 million.

Competitive Moats and Technological Edge

Sherwin-Williams operates in a highly competitive landscape, vying with global giants like PPG Industries (PPG), AkzoNobel (AKZOY), and RPM International (RPM). SHW's primary competitive advantages, or "moats," stem from its unparalleled direct distribution model, strong brand recognition, and a relentless focus on customer-centric technological solutions. Unlike competitors who may rely more on broader distribution channels or specialized industrial applications, Sherwin-Williams' extensive network of company-owned stores and direct sales force provides superior customer accessibility, service, and real-time market intelligence.

The company's technological differentiation is not confined to a single breakthrough material but rather a comprehensive ecosystem designed to enhance customer productivity and profitability. This includes innovative product formulations that offer superior performance, such as the "Gallery Series" providing a factory finish on cabinets, trim, and millwork, which has expanded into a total system from primers to topcoats to make contractors more efficient on job sites. Digital tools, exemplified by the "Pro Plus app," empower contractors to better manage their businesses, secure leads, and streamline operations, directly addressing the high cost of labor in painting projects. In the Performance Coatings Group, SHW is at the forefront with "industry-leading non-BCA coatings" for packaging, supporting customers' conversion to comply with European Commission mandates by 2026. These integrated solutions provide tangible benefits: contractors save time and money, leading to increased efficiency and higher-quality outcomes. This focus on practical, value-added technology strengthens customer loyalty and allows SHW to command pricing power, even in a challenging market, by delivering solutions that directly impact its customers' bottom line. The company's new R&D center in Cleveland, expected to be fully occupied by spring 2026, underscores its commitment to continuous innovation and maintaining this technological lead.

Financial Performance: Resilience in a Choppy Environment

Sherwin-Williams has demonstrated remarkable financial resilience despite a persistently challenging macroeconomic backdrop. For the three months ended September 30, 2025, consolidated net sales increased 3.2% to $6.36 billion, with gross profit expanding to $3.13 billion, representing a gross profit margin of 49.2%. Adjusted diluted net income per share grew by 6.5% to $3.35. Over the first nine months of 2025, consolidated net sales rose 1% to $17.98 billion, while net income reached $2.09 billion. The company's adjusted EBITDA margin expanded 60 basis points to 21.4% in the third quarter of 2025.

The Paint Stores Group (PSG), SHW's largest segment, was a key driver of this performance. In Q3 2025, PSG net sales increased 5.1% to $3.84 billion, with same-store sales up 3.6%. This growth was fueled by a mid-single-digit price/mix increase and low single-digit volume growth, a testament to SHW's growth investments rather than broad market improvement. The segment significantly outperformed the market, with protective and marine sales up low double digits, residential repaint growing mid-single digits (despite negative existing home sales since 2022), and commercial sales up mid-single digits (outperforming double-digit declines in multifamily completions). PSG's segment profit grew by a mid-single-digit percentage, with segment margin expanding 40 basis points, reflecting an impressive over 30% incremental margin on low single-digit volume growth due to SG&A leverage.

The Consumer Brands Group (CBG) faced headwinds, with Q3 2025 net sales decreasing 2.6% to $770.1 million, primarily due to soft DIY demand in North America and unfavorable foreign currency translation in Latin America. Despite lower sales, adjusted segment margin improved due to a favorable product mix shift and stringent cost control, partially offsetting supply chain inefficiencies from reduced production volumes. The recent Suvinil acquisition is expected to bolster this segment's future performance.

The Performance Coatings Group (PCG) reported Q3 2025 net sales of $1.75 billion, a 1.7% increase, driven by low single-digit volume growth, acquisitions, and favorable foreign currency translation, partially offset by unfavorable price/mix. Packaging was a standout, achieving double-digit growth, while Auto Refinish saw mid-single-digit growth, propelled by market share gains in North America. However, PCG's segment profit and margin declined due to lower gross margin from unfavorable product and region sales mix and higher costs to support sales.

Liquidity and Capital Allocation: Sherwin-Williams maintains a strong financial position, with $241.5 million in cash and cash equivalents and $3.13 billion in unused credit facility capacity as of September 30, 2025. Net operating cash flow for the first nine months of 2025 increased 6.3% to $2.36 billion. The company returned $2.13 billion to shareholders through dividends and share repurchases during this period. In July 2025, SHW issued $1.5 billion in new senior notes to refinance existing debt, and in September 2025, drew on a $1 billion delayed draw term loan to fund the Suvinil acquisition. The company's net working capital, however, decreased to a deficit of $1.33 billion at September 30, 2025, primarily due to increased short-term borrowings.

Strategic Outlook and Guidance

Sherwin-Williams' outlook for the remainder of 2025 and initial considerations for 2026 are framed by an expectation of a "softer for longer" demand environment, with minimal positive catalysts anticipated through at least the first half of 2026. Management explicitly states that the company expects "no help from the market" and is "not immune from these persistent challenging market conditions."

Despite this cautious macro view, the company is strategically positioned for outperformance. Full-year 2025 sales guidance has been updated to be up by a low single-digit percentage versus 2024. Adjusted diluted net income per share for 2025 is narrowed to a range of $11.25 to $11.45, with the midpoint remaining at $11.35. The Suvinil acquisition is expected to contribute a low single-digit percentage increase to consolidated sales in Q4 2025, with an immaterial negative impact on diluted EPS due to transaction and purchase accounting costs.

Strategic initiatives include opening 80 to 100 new North America Paint Stores in 2025 and adding sales representatives to capitalize on market share opportunities. To counter anticipated cost inflation, a 7% price increase for the Paint Stores Group is announced, effective January 1, 2026, alongside targeted increases in other segments. Raw material costs are projected to be up low single digits in 2026, with healthcare costs increasing by a low double-digit percentage and wages by a low single-digit percentage. Restructuring initiatives are expected to yield approximately $40 million in savings in 2025, increasing to about $80 million annually thereafter. Capital expenditures are anticipated to return to a more typical range of around 2% of sales in 2026, following the completion of the new global headquarters and R&D center, which were placed into service in Q2 and Q3 2025.

Risks and Challenges

Sherwin-Williams faces several risks that could impact its financial performance and strategic execution. The prolonged "softer for longer" demand environment and macroeconomic uncertainty pose a significant challenge, potentially impacting sales volumes across various segments. Fluctuations in raw material costs, coupled with increasing healthcare and wage expenses, could pressure gross margins despite pricing actions.

The company is also exposed to environmental liabilities, particularly at sites like Gibbsboro, New Jersey, which accounts for a substantial portion of its environmental accrual. Litigation, including ongoing lead pigment and lead-based paint lawsuits and a recent false advertising claim related to its Firetex FX9502 product, represents a contingent risk. While management believes any potential liability from environmental matters will not materially adversely affect financial condition, liquidity, or cash flow due to the extended resolution timeframe, significant unasserted claims could still emerge. Furthermore, the company's debt levels and compliance with its consolidated leverage covenant (not to exceed 3.75 to 1, with temporary increases allowed after qualifying acquisitions) require continuous monitoring.

Conclusion

Sherwin-Williams stands as a compelling investment opportunity, demonstrating remarkable resilience and strategic acumen in a persistently challenging market. The company's "Success by Design" strategy, characterized by aggressive market share gains, disciplined capital allocation, and a deep commitment to customer-centric innovation, is proving effective in driving outperformance. Its extensive direct distribution network and a suite of productivity-enhancing technologies provide a robust competitive moat against rivals.

While macroeconomic headwinds and cost inflation are expected to persist, SHW's proactive pricing strategies, ongoing restructuring efforts, and strategic acquisitions like Suvinil position it to convert challenges into opportunities. The company's strong cash flow generation and consistent shareholder returns underscore its financial health. For discerning investors, Sherwin-Williams offers a narrative of steadfast leadership, strategic agility, and a clear path to sustained value creation, even as it navigates a complex and evolving industry landscape.