Paints & Coatings

## Executive Summary * The Paints & Coatings industry is undergoing a fundamental transformation driven by an accelerating shift towards sustainable, regulatory-compliant coatings, creating a clear divide between innovators and laggards. * Persistent macroeconomic headwinds, including high interest rates and inflation, are suppressing demand, particularly in consumer and new construction segments, leading to a "softer for longer" demand environment. * Technological innovation, especially in digital tools for color matching and application, alongside "smart" functional coatings, has become a critical battleground for product differentiation, customer retention, and margin protection. * Revenue growth is bifurcated, with M&A-driven players and those in resilient industrial segments outperforming companies exposed to soft DIY markets. * Despite top-line pressures, leading firms are maintaining robust profitability through strong pricing power, operational efficiency, and a strategic focus on high-value, technologically advanced products. * The competitive landscape is actively being reshaped by significant M&A activity, as companies strategically acquire new capabilities and divest non-core assets to optimize their portfolios. ## Key Trends & Outlook The Paints & Coatings industry is undergoing a fundamental transformation, driven by stringent global regulations and growing demand for sustainable products. Aggressive regulatory actions, such as the U.S. EPA's classification of PFAS as hazardous substances under CERCLA on April 17, 2024, and California's SCAQMD Rule 1113 capping most architectural coatings at under 50 g/L VOC, are forcing immediate product reformulation. This shift is not merely a compliance cost but a significant commercial opportunity, allowing innovators to capture share and command premium pricing for eco-friendly solutions. Leaders are actively launching new products to meet this demand, while laggards risk portfolio obsolescence, with key regulations taking full effect between 2025 and 2027, making sustainable R&D the most critical long-term value driver. Masco's launch of BEHR PREMIUM PLUS ECOMIX Plant-Based Paint & Primer in November 2025, the first 100% all-acrylic paint to meet USDA BioPreferred Program's 20% renewable-material requirement, exemplifies this proactive strategy. In the near term, the industry faces significant demand headwinds from a challenging macroeconomic environment. Persistently high interest rates, with the FOMC expecting the federal funds rate to be 4.1% by year-end 2025, have cooled the housing market, directly impacting the critical repair and remodel (R&R) and new construction segments. This has led to notable softness in consumer-facing and DIY channels, forcing companies to navigate a "softer for longer" demand landscape into 2026. This pressure is evident in the performance of consumer-focused segments, such as the -12% year-over-year sales decline in Masco's Decorative Architectural division in Q3 2025. The greatest opportunity lies in leveraging technological innovation to address sustainability demands. Companies developing advanced digital platforms and "smart" functional coatings can create durable competitive advantages and unlock new, high-margin markets. Axalta Coating Systems, for instance, is rolling out its Nimbus digital platform to 40,000 body shops in 2026, while Masco's Behr Paint Company launched its ChatHUE™ AI tool in September 2025 for paint color selection. The primary risk is failing to adapt to the dual pressures of regulatory change and macroeconomic softness, leading to margin compression and market share loss for companies with undifferentiated product portfolios. ## Competitive Landscape The Paints & Coatings industry is dominated by large global players but is undergoing significant consolidation, evidenced by major M&A activity like Sherwin-Williams' $1.15 billion acquisition of BASF SE's Brazilian decorative paints business (Suvinil) in October 2025. This dynamic environment is shaping how companies compete and differentiate themselves. Some players, like Sherwin-Williams, compete by controlling their own distribution through a vast network of company-owned stores, giving them direct access to the professional painter. Sherwin-Williams' Paint Stores Group, with its strategy of opening 80-100 new stores annually, is the prime example, allowing it to aggressively gain market share even in a down market. This vertically-integrated direct distribution model provides unparalleled market intelligence, direct customer relationships, and significant pricing power, though it entails high fixed costs. Others, such as Axalta Coating Systems, focus on technological leadership in high-performance industrial and transportation coatings, creating sticky customer relationships through specialized products and digital tools. Axalta's focus on the automotive sector, supported by a suite of digital color management tools like Irus Scan and the upcoming Nimbus platform, exemplifies this model. Gaining over 2,200 net new body shops in 2025 is direct evidence of its success, leveraging deeply embedded customer relationships and premium pricing, despite requiring continuous R&D investment. A third approach, exemplified by Masco's Behr brand, relies on building strong consumer brand equity and leveraging a strategic partnership with a major retailer like The Home Depot. This model provides massive scale and distribution reach with lower capital intensity, with Masco's Behr brand driving over $900 million in annual PRO Paint sales. The key competitive battlegrounds are now in digital ecosystems for contractors and R&D labs developing the next generation of sustainable coatings. Companies are increasingly investing in these areas to enhance customer loyalty, streamline operations, and meet evolving market demands. ## Financial Performance Revenue performance is clearly bifurcating, reflecting varied end-market exposures in a challenging macroeconomic climate. Growth ranges from +7.4% year-over-year for RPM International in Q1 fiscal 2026 to -4.3% year-over-year for PPG Industries in Q1 2025. This divergence is driven by a "soft for longer" environment in consumer-facing architectural markets versus resilience in specialized industrial segments and growth from strategic acquisitions. Companies heavily exposed to DIY and housing turnover are struggling, while those executing successful M&A or serving less cyclical end markets are outperforming. RPM's +7.4% year-over-year growth exemplifies the success of an acquisition-focused strategy, while Masco's -3% year-over-year decline in Q3 2025, dragged by its -12% drop in Decorative Architectural sales, highlights the acute pressure on consumer segments. {{chart_0}} Despite top-line pressures, leading companies are demonstrating remarkable margin resilience and strength. Gross margins for leaders are approaching 50%, with adjusted EBITDA margins in the low 20% range. This profitability is sustained by a combination of factors directly linked to the industry's key trends. Pricing power, derived from strong brands and technologically differentiated products, is allowing leaders to offset raw material inflation. Furthermore, a strategic focus on higher-value, performance-based coatings and operational efficiency initiatives are protecting or even expanding margins. Sherwin-Williams is the standout example, posting a robust 49.2% gross margin and a 21.4% adjusted EBITDA margin in Q3 2025, proving that a superior business model can deliver exceptional profitability even in a weak demand environment. Raw material volatility remains a persistent headwind that leaders are successfully managing through these strategies. {{chart_1}} Capital allocation strategies are diverging, with some players aggressively pursuing M&A to drive growth while others prioritize returning significant capital to shareholders. This split reflects different strategic priorities in a mature industry. Companies like Sherwin-Williams and RPM International are using their financial strength to consolidate the market and acquire new technologies or regional access. In contrast, firms like Axalta Coating Systems, having strengthened their balance sheets, are now focused on direct shareholder returns through aggressive buybacks. The strategic contrast is clear: Sherwin-Williams executed a $1.15 billion acquisition of Suvinil in October 2025, while Axalta is accelerating its share repurchase program with a target of up to $250 million in new buybacks in Q4 2025 alone. Balance sheets across the industry appear generally healthy and are being managed prudently. Leverage ratios are at manageable or even record-low levels. Strong cash flow generation from resilient margins has allowed companies to maintain financial flexibility. This strength enables the diverse capital allocation strategies seen across the sector, from funding large acquisitions to executing substantial share buybacks without over-leveraging. Axalta's achievement of its lowest-ever net leverage ratio of 2.5x serves as a representative proof point of the industry's solid financial footing. {{chart_2}} ```