Company Overview
The Sherwin-Williams Company (SHW) has long been a dominant force in the global coatings industry, known for its innovative products, extensive distribution network, and unwavering commitment to customer satisfaction. With a rich history spanning over 150 years, this Cleveland-based giant has continuously evolved to meet the changing needs of its diverse customer base, cementing its position as a leader in the market.
Historical Background
Established in 1866, Sherwin-Williams started as a small paint store in Ohio, quickly expanding its presence across the United States. Over the decades, the company has seamlessly navigated through economic cycles, industry disruptions, and technological advancements, emerging as a true powerhouse in the realm of paints, coatings, and related products.
A key milestone for the company came in 1884 when Sherwin-Williams was incorporated in Ohio, providing the organizational structure to support its growing operations. In the early 1900s, the company began manufacturing and distributing its own branded paints and coatings, moving beyond its original retail model. This allowed Sherwin-Williams to better control the quality and availability of its products. Despite facing challenges such as the Great Depression and two World Wars, the company's focus on innovation and customer service enabled it to continue expanding its footprint. In the 1930s, Sherwin-Williams introduced its iconic Kem-Tone interior latex paint, which became a best-seller, demonstrating the company's ability to develop new products that met evolving customer needs.
Through strategic acquisitions and organic growth, Sherwin-Williams expanded internationally in the latter half of the 20th century, entering markets in Latin America, Europe, Asia, and Australia. The company also diversified beyond architectural paints and coatings into industrial, automotive, and other specialty product lines, strengthening its position as a leading global provider of paint, coatings, and related products.
Business Segments
Sherwin-Williams' success can be attributed to its strategic focus on three key reportable segments: Paint Stores Group, Consumer Brands Group, and Performance Coatings Group.
The Paint Stores Group boasts a network of 4,770 company-operated specialty paint stores in the United States, Canada, and the Caribbean region as of December 31, 2024. This segment caters to the needs of professional contractors, DIY enthusiasts, and industrial customers, marketing and selling Sherwin-Williams and other controlled brand architectural paint and coatings, protective and marine products, OEM product finishes, and related products. During 2024, this segment opened 79 net new stores.
The Consumer Brands Group manufactures and distributes a wide range of branded and private-label architectural paints, stains, varnishes, industrial products, wood finishes products, wood preservatives, applicators, corrosion inhibitors, aerosols, caulks, and adhesives to retailers across North America, Latin America, and Europe. This segment also operates 334 company-operated specialty paint stores in Latin America as of December 31, 2024, serving the needs of home, commercial, and industrial projects for contractors and DIY customers. During 2024, the segment opened 16 net new stores.
The Performance Coatings Group develops and sells industrial coatings for wood finishing, general industrial metal and plastic applications, automotive refinish, protective and marine coatings, coil coatings, packaging coatings, and performance-based resins and colorants worldwide. This segment's products are distributed through the Paint Stores Group, its 324 company-operated branches, a direct sales staff, and outside sales representatives to retailers, dealers, jobbers, licensees, and other third-party distributors. During 2024, the segment added 2 new branches.
Financials
The company's financial performance in recent years has been impressive, with revenues consistently exceeding $20 billion. In 2024, Sherwin-Williams reported total revenues of $23.10 billion, a slight increase of 0.2% from the previous year's $23.05 billion. Net income for 2024 stood at $2.68 billion, up from $2.39 billion in 2023, showcasing the company's ability to navigate challenging market conditions and deliver solid financial results. Net income increased 14.1% to $10.55 per diluted share, while adjusted diluted net income per share increased 9.5% to $11.33 per share.
Breaking down the performance by segment, the Paint Stores Group reported net sales of $13.19 billion, up 2.7% year-over-year, driven by sales volume growth and selling price increases. The Consumer Brands Group had net sales of $3.11 billion, down 7.7% due to a decline in DIY demand in North America, unfavorable foreign currency translation, and the impact of divestitures. The Performance Coatings Group reported net sales of $6.80 billion, down 0.7%, primarily due to selling price decreases and unfavorable foreign currency translation, partially offset by low-single digit volume growth.
The company's consolidated gross profit increased 4.1% to $11.20 billion in 2024, with the gross profit margin expanding to 48.5% from 46.7% in 2023. This was driven by higher sales volumes in the Paint Stores and Performance Coatings Groups, as well as moderating raw material costs, partially offset by lower sales volume in the Consumer Brands Group.
Sherwin-Williams continues to invest in its long-term growth strategies, including expenses to support net new store openings, digital technologies, and other initiatives, which contributed to a 5.0% increase in selling, general, and administrative expenses to $7.42 billion in 2024.
The company also generated strong cash flow, with net operating cash of $3.15 billion, or 13.7% of net sales, in 2024. Annual free cash flow stood at $2.08 billion.
In terms of geographic performance, net external sales in the company's North America region, which includes the United States, Canada, and the Caribbean, account for slightly less than 80% of total net sales. Sales in the EMEAI region (Europe, Middle East, Africa, and India) account for slightly less than 10% of total net sales, with the remaining global regions accounting for the residual balance. No individual country outside of the United States is individually significant.
Liquidity
As of December 31, 2024, Sherwin-Williams maintained a strong financial position with a debt-to-equity ratio of 0.5041. The company held cash and cash equivalents of $210.4 million and had unused capacity under its various credit agreements of $3.27 billion. The current ratio stood at 0.79, while the quick ratio was 0.4571, indicating the company's ability to meet its short-term obligations.
Innovation and Research & Development
Sherwin-Williams' commitment to innovation has been a key driver of its success. The company continuously invests in research and development, introducing new and improved products that cater to the evolving needs of its customers. This focus on innovation has allowed Sherwin-Williams to stay ahead of the curve, introducing cutting-edge technologies and solutions that enhance productivity, efficiency, and sustainability for its clients.
One of the most significant initiatives undertaken by Sherwin-Williams in recent years has been the construction of its new global headquarters and research and development center in Cleveland, Ohio. This state-of-the-art facility, scheduled for completion in 2025, will serve as the company's nerve center, housing its administrative functions and providing a hub for its research and innovation efforts.
Resilience and Adaptability
Despite the challenges posed by the COVID-19 pandemic and the ongoing global economic uncertainty, Sherwin-Williams has demonstrated its resilience and adaptability. The company has successfully navigated supply chain disruptions, raw material cost fluctuations, and changing customer preferences, leveraging its diverse product portfolio and strong distribution network to maintain its competitive edge.
Future Outlook
Looking ahead, Sherwin-Williams' management team remains cautiously optimistic about the company's prospects. For the full year 2025, the company expects consolidated sales to increase by a low single-digit percentage. Diluted net income per share is projected to range from $10.70 to $11.10, excluding acquisition-related amortization expense of $0.80 per share and restructuring expense of $0.15 per share. Adjusted diluted net income per share is expected to be in the range of $11.65 to $12.05, representing a mid-single-digit percent increase at the midpoint compared to 2024's $11.33.
The company anticipates that the market basket of raw materials will be up a low single-digit percentage in 2025. Despite this, Sherwin-Williams expects to overcome raw material headwinds and deliver full-year gross margin expansion. SG&A dollars are expected to grow by a low single-digit percentage in 2025. Interest expense is projected to increase, including $40 million related to debt refinancing at higher rates and $20 million for financing activities of the new buildings.
In terms of expansion, Sherwin-Williams plans to open 80 to 100 new stores in the U.S. and Canada in 2025. The company also plans to recommend a 10.5% increase in the annual dividend to $3.16 per share, demonstrating its commitment to delivering value to shareholders.
The company's strategic focus on geographical expansion, product innovation, and operational efficiency is expected to continue driving growth and profitability. Sherwin-Williams' recent acquisition of BASF's Brazilian architectural paints business, Suvinil, for $1.15 billion is a testament to its ambitious growth strategy, as it seeks to capitalize on the promising opportunities in the Latin American market.
Conclusion
In conclusion, The Sherwin-Williams Company's enduring success can be attributed to its relentless pursuit of innovation, its diversified business model, and its unwavering commitment to serving the evolving needs of its customers. As the company navigates the challenges and opportunities of the ever-changing coatings industry, investors can take comfort in Sherwin-Williams' proven track record of innovation, adaptability, and financial strength. With a clear strategic vision, robust financial performance, and a commitment to sustainable growth, Sherwin-Williams is well-positioned to continue its legacy of success in the years to come.