Sherwin-Williams' Q3 2025: Contradictions Emerge on Mortgage Rate Impact, Volume Growth, and Restructuring Plans

Date of Call: October 28, 2025

Financials Results

• Revenue: Consolidated sales (Q3) increased at the high end of guided range; updated full-year 2025 sales guidance up low single-digit % vs 2024 (includes Suvinil acquisition, Q4 sales guidance reflects seasonality and Suvinil contribution of low single-digit % to Q4 sales).
• EPS: Adjusted diluted EPS grew 6.5% in Q3; full-year adjusted diluted net income per share guidance $11.25 to $11.45 (prior midpoint $11.35).
• Gross Margin: Gross margin and gross profit dollars expanded in Q3; segment gross margin described as flattish; adjusted EBITDA margin 21.4%, up 60 basis points year-over-year.
• Operating Margin: Segment profit grew mid-single digits and segment margin up 40 basis points in Q3; adjusted EBITDA margin expanded 60 bps to 21.4% (management emphasized SG&A leverage and ~30% incremental margin on low single-digit volume growth in Paint Stores).

Guidance:

• Full-year 2025 sales guidance updated to up low-single-digit % vs 2024 (includes Suvinil).
• Full-year adjusted diluted net income per share now expected $11.25–$11.45 (prior midpoint $11.35 unchanged).
• Q4 sales guidance reflects seasonality and Suvinil contribution; Suvinil is immaterial to EPS in Q4 (one-time transaction costs/inventory step-up).
• Plan to open 80–100 North America Paint Stores in 2025.
• Price actions: 7% Paint Stores Jan 1 effectiveness; targeted increases across other segments/regions.
• Cost/cash: 2025 restructuring savings ~ $40M; run-rate savings ~ $80M; expect higher interest expense; CapEx ~2% of sales in 2026.
• Expect softer-for-longer demand into 1H/possibly beyond 2026; raw materials up low single digits, wages up low single digits, health care up low double digits.

Business Commentary:

* Sales and Market Performance: - Sherwin-Williams reported consolidated sales increased at the high end of the guided range, with the Paint Stores Group and Consumer Brands Group exceeding expectations and Performance Coatings Group in line. - Growth was driven by high single-digit growth in protective and marine coatings, mid-single-digit growth in residential repaint, and low single-digit growth in new residential.

• Price Increase Strategy:
• The company announced a 7% price increase for the Paint Stores Group, set to take effect in January 2026.

• This decision was based on higher expected raw material costs and other cost increases in the coming year.

• Operational Efficiency and SG&A Control:

• SG&A growth for the quarter moderated to the low single-digit percentage level, driven by control of general and administrative expenses.

• The company remains on track for its original guidance of low single-digit percentage increase in SG&A for the full year, including targeted growth investments.

• Consumer Brands Group Challenges:

• Consumer Brands Group sales beat expectations, but with volume down mid-single digits and FX headwinds, primarily due to softness in North America DIY and unfavorable forex in Latin America.
• The company is optimistic about growth opportunities in Europe and the integration of the newly acquired Suvinil business.

Sentiment Analysis:

Overall Tone: Neutral

• Management described a 'solid third quarter' with 'adjusted EBITDA margin expanded 60 basis points to 21.4%' and 'adjusted diluted EPS grew 6.5%,' while repeatedly warning the 'demand environment remains softer for longer' and forecasting minimal near-term catalysts; guidance was tightened upward for sales but EPS range narrowed with cautious commentary on 2026.

Q&A:

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated): Can you give more color on the 7% Paint Stores price increase and how you arrived at that given tepid demand?
  Response: 7% is set to cover expected cost inflation (raw materials/wages/healthcare) while relying on demonstrated value to customers; management will balance price effectiveness with aggressive volume/share-growth efforts.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co): Where would 30-year mortgage rates need to go to catalyze demand in Paint Stores Group?
  Response: Management believes rates around ~6% (or slightly below) historically catalyze stronger existing-home turnover and paint demand.

• Question from Vincent Andrews (Morgan Stanley): How do you define and measure efficiency/return of your multi-year investment spending, and what would make you add or pull back?
  Response: Investments are disciplined by payback to steady-state store/reps profitability and territory-level performance; management sees clear returns and will scale reps/stores tactically based on local performance and outlook.

• Question from John McNulty (BMO Capital Markets): Early thoughts on Suvinil actions, synergies and profitability into 2026?
  Response: Suvinil increases Q4 consolidated sales by a low single-digit % and is slightly accretive in Q4; management expects mid‑teens EBITDA today moving into high‑teens/low‑20s over the midterm as systems and synergies are implemented.

• Question from Aleksey Yefremov (KeyBanc Capital Markets): Is your cautious second-half-2026 view based on specific signals or conservatism?
  Response: It's pragmatic — based on current forward indicators and lack of consistent positive catalysts; if market rebounds faster, the company will be prepared to accelerate.

• Question from Michael Harrison (Seaport Research Partners): What are contractors saying about backlogs and visibility over the next 3–6 months and which Paint Stores submarkets are stronger/weaker?
  Response: Contractor signals show some improvement in commercial (including multifamily) but management needs sustained trends; visibility is longer (9–12 months) for commercial pipeline, with possible pickup late in back half or early 2027.

• Question from Matthew Deo (Bank of America): Can you flesh out the Q4 implied guidance and reasons for deceleration in year-over-year growth?
  Response: Q4 consolidated sales expected up low-to-mid; third-quarter beat driven by stronger exterior gallons—Q4 depends on regional exterior seasonality (Southeast/Southwest) and is not indicating a structural change beyond normal seasonal/mix factors.

• Question from Michael Sison (Wells Fargo Securities): How do you expect pricing capture in 2026 and is it structurally better than historically?
  Response: Management expects targeted price increases across businesses to offset cost inflation but pricing effectiveness will be tempered by softer demand and mix; they will aggressively pursue volume while balancing price realization.

• Question from John Ezekiel Roberts (Mizuho Securities): How are industry gallons trending by subsegment and are some down high single-digits?
  Response: Company declined to give granular gallon breakdowns, stating gallons are challenged across most end markets but Sherwin‑Williams is outperforming the market and growing volume despite a down market.

• Question from Patrick Cunningham (Citigroup): Why did Performance Coatings show negative operating leverage despite positive sales and what to expect in Q4?
  Response: Negative leverage driven by unfavorable regional and business mix (Europe acquisition growth, Latin America declines) and higher costs to support sales; management expects mix moderation, gross margin improvement and SG&A leverage to improve segment profit in Q4.

• Question from Joshua Spector (UBS): For Paint Stores volumes into 2026, should base-case be flattish or down low-single digits?
  Response: No firm 2026 outlook given today; initial considerations start at up-or-down low single digits, with potential to reach sustainable up low-single-digit volumes if share gains and new-account activity accelerate.

• Question from David Begleiter (Deutsche Bank): Given competitor weakness, why not raise prices more to pressure competitors?
  Response: Management will not react solely to competitors; they prioritize balancing gallon growth with price effectiveness, timing price actions strategically to allow customers to plan and preserve long-term share gains.

• Question from Kevin McCarthy (Vertical Research Partners): Any price increases planned for Consumer Brands or Performance Coatings beyond Paint Stores?
  Response: Yes — targeted price increases across businesses and regions to offset overall cost-basket inflation.

• Question from Garik Shmois (Loop Capital): Is the ~30% incremental margin in Paint Stores this quarter a sustainable benchmark?
  Response: Historically mid-20% incremental margins are typical on low-single-digit volume growth; this quarter's ~30% reflected recent cost reductions and mix; future incremental margins will depend on where volume growth occurs and regional mix.

• Question from Eric Bosshard (Cleveland Research): What organic growth did Consumer Brands see and how should we think about 2025 volume/pricing into 2026?
  Response: DIY remained pressured with little organic growth; premium gallons and exterior sales helped margin in Q3, and management will push premium mix and pricing to offset volume weakness into 2026.

• Question from Laurence Alexander (Jefferies): Are you pulling forward share gains in the downturn or still expect amplified gains in recovery?
  Response: Management does not view share gains as pulled forward; they expect to outpace the market by ~1.5–2x and believe recent exclusive wins create structural advantages that will amplify gains when the market recovers.

• Question from Patrick Fischer (Goldman Sachs): What drove acceleration across four Paint Stores SBUs in Q3 while residential stayed flat?
  Response: Acceleration was driven by demonstrating Sherwin‑Williams' differentiated value in a competitive environment (commercial, exterior, and other end-market wins), not simply pricing rolling through.

Contradiction Point 1

Mortgage Rate Impact on Demand Recovery

It involves the company's expectations regarding the impact of mortgage rates on demand recovery in the residential repaint market, which is crucial for investor expectations and market strategy.

What level do mortgage rates need to reach to stimulate demand in the Paint Stores Group? - Jeffrey Zekauskas(JPMorgan Chase & Co, Research Division)

2025Q3: Mortgage rates around 6% have historically shown positive application responses. The company anticipates that mortgage rates around 6% or slightly below should drive stronger existing home turnover and support demand. - [Allen Mistysyn](CFO)

What is driving the inflection point in the stores business? Why are prices down in Consumer Brands? - Jeffrey J. Zekauskas(JPMorgan)

2025Q2: Considering where we are today and our current sight line, we just don't see the catalyst for the mortgage rates to drop into a meaningful area right now. - [Heidi G. Petz](CEO)

Contradiction Point 2

Volume Growth in Paint Stores Group

It involves the company's outlook on volume growth within the Paint Stores Group, which is a key indicator for market performance and share of wallet.

Should we expect a flat volume environment in 2026 as the base case? - Joshua Spector(UBS Investment Bank, Research Division)

2025Q3: Our current outlook is for low single-digit volume growth, depending on market demand dynamics. We'll have more clarity after our annual planning in January. - [Allen Mistysyn](CFO)

What would gross margins have been if volume had remained flat or increased? - Greg Melich(Evercore ISI Institutional Equities)

2025Q2: Our current growth rate expectation is 2.5% to 3%, significantly higher than the 1.5% to 2% we've seen in the past. - [Allen J. Mistysyn](CFO)

Contradiction Point 3

Restructuring Savings and SG&A Control

It involves the company's approach to restructuring and cost control, which is critical for operational efficiency and profitability.

Can you discuss the efficiency of your investment spending over the past two years and the reasons for continuing these investments in a potentially volatile 2026? - Vincent S. Andrews(Morgan Stanley, Research Division)

2025Q3: We've accelerated our restructuring program, doubled the target from $40 million to $80 million and announced that we expect these cost savings to be fully realized in 2026. - [Heidi Petz](CEO)

Can you discuss SG&A spending and provide guidance? - John P. McNulty(BMO Capital Markets)

2025Q2: We are opening 80 to 100 stores this year and expect to accelerate our restructuring initiatives with savings of $80 million annually. - [Allen J. Mistysyn](CFO)

Contradiction Point 4

Volume Growth Expectations

It involves changes in financial forecasts, specifically regarding volume growth expectations, which are critical indicators for investors.

Can you outline the steps you plan to take with the Suvinil acquisition, including potential synergies and profitability levels? - John McNulty (BMO)

2025Q3: Our current outlook is for low single-digit volume growth, depending on market demand dynamics. - [Allen Mistysyn](CFO)

How will you address raw material price increases from tariffs? Would you consider raising prices during the paint season if needed? - John McNulty (BMO)

2025Q1: Volume improved by 6% to 7% in the first quarter. - [Heidi Petz](CEO)

Contradiction Point 5

Pricing Strategy and Tariffs

It involves the company's pricing strategy and how it plans to address tariffs, which directly impacts the company's ability to manage costs and pass on increases to customers.

What factors influenced the 7% price increase for Paint Stores Group? How was this increase determined? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated)

2025Q3: The 7% price increase is driven by higher year-over-year increases in raw material costs and other components of the cost basket. - [Allen Mistysyn](CFO)

Did the mid-single-digit price increase in Paint Stores Group result from pricing or mix? - Mike Sison (Wells Fargo)

2025Q1: The mid-single-digits increase was predominantly due to price, with effective communication and training on price implementation. - [Al Mistysyn](CFO)