Sherwin-Williams' Q3 2025: Contradictions Emerge on Paint Stores Growth, SG&A Spending, Pricing, and Volume Outlook

Date of Call: October 28, 2025

Financials Results

• Revenue: Consolidated sales increased at the high end of guided range; company updated full-year 2025 sales guidance to be up a low single-digit percentage versus 2024 (includes Suvinil acquisition contributing a low single-digit lift in Q4).
• EPS: Adjusted diluted EPS grew 6.5% in Q3; full-year adjusted diluted net income per share guidance narrowed to $11.25 to $11.45 (prior midpoint $11.35).
• Gross Margin: Gross margin and gross profit dollars expanded versus prior year; segment gross margin described as flattish (supply-chain inefficiencies partially offset improvements).
• Operating Margin: Adjusted EBITDA margin expanded 60 basis points to 21.4%; Paint Stores segment margin +40 bps year-over-year; Performance Coatings segment profit and margin decreased (mix and higher costs).

Guidance:

• Q4 sales guidance reflects normal seasonality and includes Suvinil; Suvinil expected to increase consolidated Q4 sales low-single-digits with an immaterial negative EPS impact.
• Updated full-year 2025 sales: up low single-digit % vs 2024; adjusted diluted EPS now $11.25–$11.45.
• Plan to open 80–100 North America Paint Stores in 2025 (on track).
• Announced 7% Paint Stores price increase effective Jan 1; targeted price increases across other segments/regions.
• Raw materials expected up low-single-digits in 2026; healthcare up low-double-digits; wages up low-single-digits.
• Restructuring expected to deliver ~$40M savings in 2025 and ~$80M run-rate going forward.
• CapEx expected to normalize to ~2% of sales next year; interest expense expected higher due to financing.

Business Commentary:

* Strong Paint Stores Performance: - Paint Stores Group reported a mid-single-digit percentage increase in sales, with price mix up at the high end of low single digits and volume up low single digits. - This performance was driven by clear evidence of successful growth investments, despite a market with negative existing home sales and lack of improvement in demand.

• Gross Margin and SG&A Control:
• The company saw an expansion in adjusted EBITDA margin by 60 basis points to 21.4%, with segment profit in the quarter growing by a mid-single-digit percentage.

• This improvement was due to leverage on SG&A and operational efficiency, despite flattish gross margin.

• Suvinil Acquisition and Strategic Growth:

• The Suvinil acquisition is expected to increase consolidated sales by a low single-digit percentage in the fourth quarter.

• This addition is anticipated to bring profitable growth opportunities and contribute to the Consumer Brands Group's Latin America portfolio.

• Price Increase Strategy:

• A 7% price increase was announced for the Paint Stores Group, the highest since the COVID inflation spike.
• This was driven by higher year-over-year increases in raw material and other cost basket components, balanced with aggressive volume growth.

Sentiment Analysis:

Overall Tone: Positive

• Management described a "solid third quarter," noting "gross margin and gross profit dollars expanded," "adjusted EBITDA margin expanded 60 basis points to 21.4%," 6.5% adjusted EPS growth, $864M returned to shareholders, and repeated confidence that strategy and investments are delivering outperformance despite a softer demand environment.

Q&A:

• Question from Ghansham Panjabi (Robert W. Baird & Co.): Can you give more color on the 7% Paint Stores price increase and how you arrived at that number?
  Response: 7% is set to offset expected cost inflation and fund growth investments while balancing gallon-growth objectives; effectiveness will vary by segment and mix.

• Question from Jeffrey Zekauskas (JPMorgan): What mortgage-rate level would likely catalyze demand for Paint Stores Group?
  Response: About ~6% (or slightly below) mortgage rates should drive stronger existing-home turnover and boost demand.

• Question from Vincent Andrews (Morgan Stanley): How do you define the efficiency/ROI of your investment spending and what dictates pacing?
  Response: A disciplined, territory-level ROI process for stores and reps measures time-to-steady-state profitability; investments are delivering returns and pace is adjusted based on local performance.

• Question from John McNulty (BMO Capital Markets): Early thoughts on Suvinil actions, synergies and profitability implications?
  Response: Suvinil adds low-single-digit consolidated sales in Q4 and is slightly accretive; a ~$525M business with mid-teens EBITDA today that we expect to grow to high-teens/low-20s EBITDA over the midterm via systems and synergies.

• Question from Aleksey Yefremov (KeyBanc): Is your view of a soft H1 '26 conservatism or based on data?
  Response: It's pragmatic—current leading indicators and lack of consistent positive catalysts point to continued softness, not conservative bias.

• Question from Michael Harrison (Seaport Research Partners): What are contractors saying about backlogs and which Paint Stores submarkets are stronger/weaker?
  Response: Commercial/multifamily is outperforming with improving starts; sight line is 9–12 months and any meaningful pickup likely late H2 or early 2027.

• Question from Unknown Analyst (Bank of America): What explains Q4 implied deceleration in year-over-year growth?
  Response: Q4 guide is up low-to-mid; Q3 beat was aided by stronger exterior sales and regional seasonality (Southeast/Southwest); nothing structurally different beyond normal seasonality and mix.

• Question from Michael Sison (Wells Fargo): Will pricing capture be structurally better in 2026 and beyond?
  Response: Hard to project beyond 2026; company will aggressively pursue gallon growth while balancing price effectiveness—price/mix realization will be influenced by segment mix.

• Question from John Ezekiel Roberts (Mizuho): How are industry gallons trending by subsegment?
  Response: Management declined to quantify by subsegment, saying gallons are likely down across most end markets but Sherwin is outperforming the market.

• Question from Arun Viswanathan (RBC Capital Markets): Could Paint Stores comp be mid- to high-single-digits next year given share gains and price?
  Response: No firm 2026 outlook yet; planning process will refine views—company expects to keep taking share but does not assume market recovery.

• Question from Patrick Cunningham (Citi): Why negative operating leverage in Performance Coatings despite positive sales?
  Response: Unfavorable regional and business mix (Europe acquisitions, Latin America declines) and higher costs reduced gross margin; management expects mix moderation and margin improvement in Q4.

• Question from Joshua Spector (UBS): Should investors assume flattish Paint Stores volumes for 2026?
  Response: No definitive 2026 volume guide yet; initial consideration is up-or-down low single-digits and management will pursue share gains to drive sustainable low-single-digit volume growth if possible.

• Question from David Begleiter (Deutsche Bank): Why not raise prices more to pressure competitors like Pittsburgh Paint?
  Response: Strategy is disciplined—balance volume growth with price; company will not react to each competitor action and will prioritize long-term customer planning and execution.

• Question from Kevin McCarthy (Vertical Research): Any price increases planned for Consumer Brands or Performance Coatings?
  Response: Yes—targeted price increases are planned across businesses and regions to offset rising cost baskets.

• Question from Christopher Parkinson (Wolfe Research): Can Sherwin sustain ~50% gross margin without volume recovery?
  Response: No—sustaining ≥50% gross margin implies consistent volume growth; Paint Stores can help drive margin when volumes return but cannot guarantee 50% absent recovery.

• Question from Gregory Melich (Evercore): How much did volume hurt gross margin and what volume needed for 100 bps lift?
  Response: Supply-chain inefficiencies from lower production cost the company low-double-digit to low-30 bps; volume is the primary driver of operating margin and low-single-digit volume growth will be accretive.

• Question from Garik Shmois (Loop Capital): Is 30% incremental margin a sustainable benchmark?
  Response: Historically Paint Stores expect mid-20% incremental margins on low-single-digit volume growth; this quarter benefited to ~30% from cost control and premium mix, but future incremental margins will vary by segment and region.

• Question from Eric Bosshard (Cleveland Research): What was organic growth in Consumer Brands and outlook for volumes/pricing?
  Response: Little organic growth—DIY remains pressured while pros are improving; premium gallon growth aided margins in Q3 but more volume is needed.

• Question from Charles Cerankosky (Northcoast Research): How significant is investor-driven rehab activity to res repaint?
  Response: Remodeling is more favorable than new residential and provides opportunity, but it's not large enough to offset broader choppiness in res repaint overall.

• Question from Laurence Alexander (Jefferies): Are you pulling forward share gains or will there be amplification on recovery?
  Response: Not pulling forward—company targets 1.5–2x market outperformance and believes current wins create structural advantages that will amplify share gains when market recovers.

• Question from Patrick Fischer (Goldman Sachs): What drove third-quarter acceleration in four Paint Stores subbusinesses?
  Response: Acceleration driven by Sherwin's differentiated solutions and field execution (new accounts/rep activity and customer-facing actions), not by pricing roll-through.

Contradiction Point 1

Growth Opportunities in Paint Stores Group

It highlights differing perspectives on growth opportunities within the Paint Stores Group, which could impact strategic planning and investor expectations.

What justifies the 7% price increase for Paint Stores Group given raw materials are expected to rise by low single digits? - Ghansham Panjabi (Baird)

2025Q3: We see our growth opportunities in commercial, new residential, property maintenance, and DIY. However, conversion market share gains will be slower in these segments. Residential repaint is up mid-single digits, with significant market share gains. Our investments are accelerating to grow market share faster. - Heidi Petz(CEO)

Which subsegments within the Paint Stores Group do you expect to drive the most share growth in the next 12 months? - Vincent Stephen Andrews (Morgan Stanley)

2025Q2: We see growth opportunities in commercial, new residential, property maintenance, and DIY. However, conversion market share gains will be slower in these segments. Residential repaint is up mid-single digits, with significant market share gains. Our investments are accelerating to grow market share faster. - Heidi Petz(CEO)

Contradiction Point 2

SG&A Spending and Growth Strategy

It involves differing explanations for SG&A spending, which impacts understanding of the company's growth strategy and financial management.

How do you define investment spending efficiency in terms of returns? What factors influence additional investments in choppy market conditions? - Vincent Andrews (Morgan Stanley)

2025Q3: We have emphasized and prioritized investments in growth initiatives to position us for future demand. Despite market challenges, we've seen returns through growth in residential repaint. - Allen Mistysyn(CFO)

Is SG&A spending mainly driven by headcount increases or store count exceeding targets? - John Patrick McNulty (BMO Capital Markets)

2025Q2: The increase is primarily due to new stores and reps. Second half SG&A is expected to grow only low single digits, with discipline on G&A spending. We are managing through the tough environment by leveraging additional stores and reps. - Allen Mistysyn(CFO)

Contradiction Point 3

Impact of Competitor Actions on Pricing Strategy

It highlights differing stances on the impact of competitor actions on pricing strategy, which could affect competitive positioning and financial decisions.

Are there potential price accelerations in consumer brands or PCG? - Kevin McCarthy (Vertical Research Partners)

2025Q3: We have targeted price increases across all businesses to offset cost pressures and ensure strategic customer success. - Allen Mistysyn(CFO)

How do competitor actions influence the strategy for allocating growth investments between PSG and Consumer Brands? - Christopher S. Parkinson (Wolfe Research)

2025Q2: We are being aggressive in customer acquisition, especially in the paint selling season. Our strategy remains focused on market share growth, and we are not cutting back on strategic investments. - Heidi Petz(CEO)

Contradiction Point 4

Pricing Strategy and Cost Management

It involves the company's pricing strategy and cost management approach, which are critical for maintaining profitability and market competitiveness.

Can you explain the 7% price increase for Paint Stores Group? How did you determine this increase considering raw material costs are expected to rise by low single digits? - Ghansham Panjabi (Baird)

2025Q3: Our pricing philosophy is based on providing value to customers and demonstrating value to go to the market. - Heidi Petz(CEO)

Can you explain the relationship between pricing and cost timing this year? - Duffy Fischer (Goldman Sachs)

2025Q1: We went out ahead more on pricing this year. We can still run room for more effectiveness. If cost offsets aren't enough, we may need to go out with another price increase. - Allen Mistysyn(CFO)

Contradiction Point 5

Volume Growth Outlook

It involves the company's expectations for volume growth, which is crucial for assessing market performance and future revenue projections.

Will there be flat volume growth in 2026? - Joshua Spector (UBS Investment Bank)

2025Q3: We can't provide a firm outlook for 2026, but we're looking at up or down low single digits based on commercial and property maintenance. - Allen Mistysyn(CFO)

How are COGS and gross margins being impacted by the volume decline across all three segments? Is SG&A being reduced in Q1 due to volume challenges? - Vincent Andrews (Morgan Stanley)

2025Q1: Our new guidance for the year includes a 2% to 3% volume decline for the year. We're guiding to 6% to 7% operating income growth. - Al Mistysyn(CFO)