SHW Q2 2025: gross margin +60bps despite soft volumes
- Strong market share gains: Despite a challenging demand environment, management highlighted aggressive investments in customer acquisition and maintaining strong relationships with contractors, positioning the company to expand market share across key segments like Paint Stores, new residential, and commercial markets.
- Accelerated cost control and restructuring: The company doubled its restructuring target to approximately $105 million, expecting annualized savings of about $80 million, which will support margin expansion even in a lower sales volume environment.
- Disciplined capital allocation: Sherwin-Williams is managing CapEx prudently—reducing spending by about 20% from initial plans and strategically investing in efficiency projects such as warehouse automation and new store openings, thereby safeguarding long‑term profitability.
- Weaker-than-expected demand trends: Several segments, including architectural coatings and DIY, are experiencing softness—with lower sales volumes and project completions (especially in multifamily and residential) that could compress margins and hinder market share gains.
- Increased cost pressures: The acceleration in restructuring initiatives and early incurrence of new building costs, which were considerably higher than anticipated, add to SG&A pressure, potentially impacting EPS and overall profitability.
- Supply chain inefficiencies and fixed cost challenges: Lower production volumes are straining fixed cost absorption, leading to supply chain inefficiencies that negatively impact gross margins, especially in a volatile volume environment.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +0.7% | The total revenue increased from $6,271.5 million in Q2 2024 to $6,314.5 million in Q2 2025. This marginal gain was driven by improvements in the Paint Stores Group (up 2.3%) and modest geographic gains in North America and EMEAI, which helped partially offset the decline in the Consumer Brands Group (down 4.1%) and the nearly flat Performance Coatings Group (–0.3%). |
Paint Stores Group | +2.3% | Sales grew from $3,619.9 million to $3,702.2 million, likely due to effective pricing actions and positive momentum in professional customer end markets, building on the previous period’s initiatives and market adjustments. |
Consumer Brands Group | –4.1% | Net sales declined from $844.3 million to $809.4 million, a continuation of challenges such as soft DIY demand and unfavorable currency translation impacts observed in earlier periods. |
Performance Coatings Group | –0.3% | The near-flat performance, with sales marginally decreasing from $1,806.4 million to $1,801.1 million, reflects ongoing pressures from FX impacts and modest volume declines, consistent with trends seen in previous quarters. |
Administrative | +100% | The line item doubled from $0.9 million to $1.8 million; although the absolute change is minimal, it likely reflects reclassification or targeted adjustments in operating expenses as part of ongoing cost management and digitization initiatives. |
North America | Increase (from $5,017.2 million to $5,051.6 million) | Sales improved modestly in North America, rising from $5,017.2 million to $5,051.6 million. This growth appears to be driven by the improved performance in the Paint Stores Group and selective mix enhancements, despite persistent challenges in segments like the Consumer Brands Group. |
EMEAI | Increase (from $627.15 million to $631.4 million) | The region posted a slight increase, growing from $627.15 million to $631.4 million. This minimal improvement suggests that modest pricing adjustments and market resilience contributed to stabilizing performance relative to the previous period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Diluted EPS | FY 2025 | Full‐year EPS guidance was reaffirmed without updated figures | Guidance revised downward due to softer architectural sales and supply chain inefficiencies | lowered |
SG&A Expense | FY 2025 | Projected to increase by a low single-digit percentage | Expected to be in the low single-digit target range | no change |
Volume Trends / Production Volumes | FY 2025 | For the Paint Stores Group, volume improvement was expected (residential improvement and stable commercial) | Production volumes for the year were lowered by a low single-digit percentage | lowered |
Consumer Brands Sales | FY 2025 | no prior guidance | Full‐year sales expectations revised downward | no prior guidance |
Performance Coatings Sales | FY 2025 | no prior guidance | Sales guidance was maintained | no prior guidance |
Paint Stores Sales | FY 2025 | no prior guidance | Sales guidance minimally adjusted downward | no prior guidance |
Raw Material Costs | FY 2025 | no prior guidance | Expected slight deflation in the raw material basket resulting in flattish full‐year costs | no prior guidance |
Restructuring Initiatives | FY 2025 | no prior guidance | Restructuring initiatives more than doubled to approximately $105 million or $0.32 per share, with expected savings of $80 million | no prior guidance |
Capital Expenditure (CapEx) | FY 2025 | no prior guidance | CapEx spending reduced by $170 million from $900 million to $730 million (20% reduction, including $300 million for building projects ) | no prior guidance |
Interest Expense | FY 2025 | no prior guidance | Total investment estimated to be $115 million, inclusive of $95 million SG&A and $20 million interest expense | no prior guidance |
Share Repurchases and Acquisitions | FY 2025 | no prior guidance | Continued opportunistic share repurchases and pursuit of targeted acquisitions, with the Souvenir acquisition expected to close | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Sales | Q2 2025 | Essentially flat year-over-year | 6,314.5 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Market Share Gains | Emphasized in Q1 2025 (residential repaint focus ), Q4 2024 (targeted investments and new account activity ), and Q3 2024 (unprecedented share gains and competitive positioning ). | Focus on aggressive market share gains across segments and seizing a “once in a career opportunity” in competitive positioning. | Increased emphasis on capturing market share despite softer demand, with a consistent commitment to competitive positioning. |
Demand Trends and Outlook | Consistently discussed in Q1 2025 (choppy demand, segment challenges ), Q4 2024 (softer for longer outlook, sluggish housing and commercial activity ), and Q3 2024 (ongoing choppiness with potential resurgence in remodel demand ). | Highlights a “very choppy demand environment” with detailed segment-specific adjustments and cautious near-term outlook. | Persistent caution with evolving, segmented approaches to navigating a choppy demand backdrop. |
Cost Management, Restructuring, and SG&A Pressures | Addressed in Q1 2025 (cost control, digitization and SG&A reduction ), Q4 2024 (tight cost control and self-help initiatives ), and Q3 2024 (tactical SG&A investments to drive growth ). | Expanded restructuring initiatives (increased target from $15M to $105M, with anticipated savings) and adjusted SG&A due to new building costs and growth investments. | An accelerated shift toward deep restructuring and tighter cost discipline amid market challenges. |
Pricing Strategy and Margin Expansion | Discussed in Q1 2025 (effective price increases in Paint Stores, supply chain efficiencies driving margin ), Q4 2024 (targeted and timely price increases with gradual mix improvements ), and Q3 2024 (disciplined pricing alongside mix impact considerations ). | Reinforced disciplined pricing with effective increases across segments and continued gross margin expansion despite some mix pressure. | Steady focus on disciplined pricing that supports consistent margin expansion despite challenges in product mix. |
Capital Allocation, Store Expansion, and Operational Efficiency | Highlighted in Q1 2025 (share repurchases, dividends, and strategic store growth ), Q4 2024 (strong cash generation and shareholder returns with new store plans ), and Q3 2024 (robust store expansion and efficient cost management with operational refinements ). | Demonstrates healthy capital returns, reduced CapEx guidance, and continued aggressive store expansion along with operational efficiency improvements. | Consistent capital allocation and store growth strategies, supporting efficient operations despite a challenging market. |
Supply Chain Efficiency and Raw Material/Tariff Pressures | Covered in Q1 2025 (supply chain efficiencies aiding margins ), Q4 2024 (focused on raw material inflation and tariff tracking with simplification efforts ), and Q3 2024 (improved inventory management and monitoring feedstock cost increases ). | Notes adjustments to production resulting in some supply chain inefficiencies, with raw material costs showing modest deflation in parts but ongoing tariff-related pressures in key areas. | Ongoing challenges with managing supply chain efficiency amid persistent tariff pressures, with slight improvements in raw material cost trends. |
Strategic Acquisitions and Integration Risks | Addressed in Q1 2025 (excitement over the Suvinil acquisition and use of established playbooks for integration ) and in Q4 2024 (a consistent, opportunistic approach without reliance on acquisitions ); no mention in Q3 2024. | Not mentioned in Q2 2025. | Reduced emphasis in the current period, suggesting a temporary pause in acquisition talks while integration risks remain managed from previous activity. |
Regulatory Compliance and Industry Mandates | Not mentioned in Q1 2025, Q4 2024, or Q3 2024. | Not mentioned in Q2 2025. | This topic is not a current focus across the periods. |
Macro-Financial Risks and Interest Expense Concerns | Discussed in Q1 2025 (acknowledgment of a choppy macro environment, tariff uncertainties, and higher interest rates affecting segments ), Q4 2024 (housing market challenges and higher refinancing impacts noted ), and Q3 2024 (general macro concerns with hopes for rate cuts, albeit cautiously ). | Highlights a challenging macro-financial environment with persistent choppy demand and broader economic uncertainty, along with an implicit focus on managing interest expense pressures. | Continued caution regarding macroeconomic volatility and higher interest expenses, with efforts to navigate these risks remaining a key part of the strategic narrative. |
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Demand Outlook
Q: Why expect softer demand later?
A: Management noted that deteriorating areas include new residential, coil coatings, and DIY markets, suggesting a cautious view for later demand amid a choppy environment. -
Restructuring Savings
Q: What are the restructuring savings?
A: They doubled the program to about $105M, expecting annual savings of roughly $80M from cost‐cutting measures, which should start flowing in the second half. -
Margin Impact
Q: How sensitive are margins to volume?
A: Even with a low single‐digit volume decline, careful price increases drove a 60bps gross margin uptick this quarter, despite inventory and production challenges. -
SG&A & Inventory
Q: What’s the SG&A outlook with new building costs?
A: Adjusted SG&A, excluding new building charges, remains tight—about 3.8% adjusted growth—with some added cost from accelerated new building expenses that management is controlling. -
Consumer Brands Pricing
Q: Why did Consumer Brands store prices decline?
A: The decline reflects a mix impact from store closures and a shift from company‐owned to dedicated dealers, resulting in a slight price mix effect. -
SG&A Spend Details
Q: Is SG&A increase due to headcount or stores?
A: Increases are primarily driven by new store openings and additional reps, rather than blanket headcount additions, all managed with tight cost discipline. -
CapEx Reductions
Q: Where are CapEx cuts coming from?
A: CapEx was reduced from $900M to $730M by delaying certain projects while progressing on key initiatives like architectural capacity and warehouse automation. -
Growth Outlook
Q: How is future growth being positioned?
A: Management expects market share gains through focused investments, targeting a growth rate in PSG between 2.5% and 3% as underlying demand improves. -
Market Share & Rates
Q: What rate level will boost volumes?
A: The consensus is that if mortgage rates dip to below 6%, it, together with improved consumer confidence, will favor better market conditions. -
Subsegment Share Gains
Q: Which subsegments will capture market share?
A: The focus is on commercial, new residential, and property maintenance, where targeted conversion efforts are already yielding market share gains. -
PCG Margins
Q: What drove the PCG margin compression?
A: Increased costs to support sales—partly from promotional and acquisition-related expenses—led to roughly 60bps margin drag, though overall stability is maintained. -
Raw Materials & Pricing
Q: What’s the outlook for raw material costs?
A: Management expects modest deflation later in the year driven by improvements in petrochemical components like solvents and select resins, offsetting tariff‐induced pressures. -
Refinish/Productivity
Q: Is there improved productivity in refinish?
A: While underlying consumer behavior remains challenged, new account wins and productivity enhancements point to long‑term market share strength in refinish. -
Repaint Trends
Q: How are repaint backlogs evolving?
A: Contractors report stable backlogs with marginal increases in bid activity, which supports confidence in maintaining market share amid low volume growth. -
Transfer Accounting
Q: How are volume differences affecting transfer accounting?
A: Temporary imbalances are expected; lower production gallons remain in Consumer Brands, with adjustments planned as production schedules realign. -
Supply Chain Efficiency
Q: What caused supply chain inefficiencies this quarter?
A: Adjusted production schedules to match lower sales volumes led to less absorption of fixed costs, though improved planning is expected in the second half. -
Volume Outlook 2026
Q: Will weak volumes extend into 2026?
A: The current outlook suggests potential volume softness into early 2026, but proactive investments in PSG aim to mitigate the risk. -
New Construction
Q: How are new construction markets in PSG?
A: New residential and commercial markets are tracking sideways—bouncing along with modest fluctuations, as anticipated from current project timing. -
Growth Spend
Q: Has growth spend allocation shifted amid layoffs?
A: Yes; management is aggressively reallocating spend to acquire quality accounts, even as competitors undergo employee reductions, reinforcing customer value focus. -
Pricing Strategy
Q: How does pricing factor into market share gains?
A: Sherwin’s strategy remains focused on value delivery rather than competing solely on price, emphasizing consistent quality and service over pure discounting.