SHW

Sherwin-Williams remains a franchise-quality compounder. The Paint Stores Group — 4,853 stores and growing 80 net last year toward an 80–100 store opening plan for 2026 — drove a 3.2% sales gain almost entirely through pricing (mid-single-digit price increases partially offset by a low-single-digit volume decline), which is the signature of a business with real pricing power. Gross margin expanded to 48.8% from 48.5% as raw-material costs moderated, operating cash flow rose 9.5% to $3.45B (14.6% of sales), and with capex cut 25.5% to $798M the company threw off roughly $2.65B of free cash that funded the Suvinil acquisition, a 9.2% dividend increase to $790M, and buybacks (shares down 1.4%). ROE of 55.9% is elite. This is exactly the kind of durable, cash-generative business you want to own through a cycle.

But the FY2025 numbers also show a business idling. Revenue grew just 2.1% to $23.6B, net income actually fell 4.2% to $2.57B, and reported diluted EPS slipped 2.7% to $10.26 (adjusted EPS was roughly flat at $11.43 vs $11.33). Management is explicit that the 'softer-for-longer demand environment is expected to continue in 2026,' with continued economic pressure on customer buying behavior and Performance Coatings core expected to stay flat. Interest expense is guided up about $85M in 2026 on Suvinil term loans, the new HQ/R&D center, and higher refinancing rates — a direct headwind to EPS. The balance sheet is efficient but stretched: long-term debt climbed 14% to $9.32B, cash is a thin $207M, current liabilities exceed current assets, and retained earnings collapsed 85.8% to $1.03B as capital return outran earnings — the high ROE is partly a leverage artifact.