The Sherwin-Williams Company (SHW) Q3 2026 Earnings Report, Transcript and Summary

Good morning. Thank you for joining the Sherwin Williams Companies review of the third quarter 26 and our outlook for the fourth quarter and full year of 2026. With us on today's call are Heidi G. Petz, chair, president, and chief executive officer Benjamin E. Meisenzahl, chief financial officer Paul Lang, chief accounting officer and James R. Jaye, senior vice president, investor relations and communications. This conference call is being webcast simultaneous in listen only mode by Axis Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes. This conference call will include certain forward looking statements as defined under the U.S. federal securities laws with respect to sales, earnings, and other matters. Any forward looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events, or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions. I will now turn the call over to James R. Jaye.

Good morning to everyone, and thank you for joining our call. Sherwin Williams continued to deliver strong top line growth despite persistent softness in demand across our end markets. Our above market performance reflects continued execution of our strategy new account and share of wallet wins, and a clear return on prior growth investments. Consolidated sales grew by a high single digit percentage. Inclusive of mid single digit price mix and low single digit contributions from acquisitions and volume. We have grown consolidated volume every quarter this year. Sales in the quarter grew at or above our guidance in all 3 segments. As we talked about at our Investor Day last month, our strong top line growth will be a key driver of robust earnings growth and incremental margins. As the inflationary cycle ultimately moderates. Reported gross margin in the quarter was primarily impacted by higher raw material and supply chain related costs. Dilution from the Suvenil acquisition and higher growth in lower margin reportable segments. Gross margin is flat year to date. Excluding the dilutive impact of Suvenil. Reported SG&A expense increased by a mid single digit percentage but decreased 50 basis points as a percent of sales. The increase was driven primarily by incremental costs related to the Suvenil acquisition and higher employee service costs to support higher than expected year over year sales. We continue to expect full year reported SG&A increase by a mid single digit percentage including a low single digit contribution from Suvenil. Adjusted diluted net income per share increased by approximately 1% EBITDA increased 3.4% while adjusted EBITDA grew 3.3% to $1.4 billion and adjusted EBITDA margin of 20.5% remained within our targeted range. Net operating cash decreased in the quarter and has grown 10% or $232 million year to date, driven by higher year to date net income and lower year to date use of cash for working capital. We returned $749 million to shareholders in the quarter $3 billion year to date through share repurchases and dividends. Our balance sheet remains strong and we ended the third quarter with a net debt to adjusted EBITDA ratio of 2.4x. Let me now turn it over to Heidi, who will provide some color on third quarter segment performance before moving on to our outlook and your questions.

Thank you, Jim. I want to start by thanking our more than 64 thousand employees around the world. Their hard work, dedication, and commitment to taking care of our customers continues to set Sherwin Williams apart. Even in a challenging environment, our teams are finding new ways to win, grow with customers, and outperform the market. Our third quarter sales performance reflects the strength of our strategy and the value customers are placing on our products and services. We continued to generate strong new account growth deepen relationships with existing customers and gain meaningful share across the business. At the same time, we acknowledge that the sales to earning conversion in the quarter was below our standard. And we will continue to act with urgency to drive greater efficiency throughout the organization. Actions taken in the third quarter, together with those we previously disclosed, are expected to deliver approximately $25 million in 2020 savings. We are pursuing additional opportunities in the fourth quarter that we expect to further strengthen our cost structure provide incremental benefits in 2027 as we are committed to making Sherwin Williams a faster, more responsive, and even more efficient company. As we have often said, we do not run this business for a perfect quarter. We run it to consistently outperform the market and create long term value. And on a year to date basis, we are delivering on the commitments we made. We are gaining share across our end markets. We continue to implement targeted pricing and cost actions designed to mitigate inflationary pressures. Excluding the dilutive impact of the Suvenil acquisition, consolidated gross margin is flat year to date. At the same time, we continue to make targeted growth investments that are further separating us from our competitors, while adjusted SG&A growth has moderated in each of the last 2 quarters. We are maintaining the midpoint of our full year adjusted diluted EPS guidance which we raised in July. I continue to have the utmost confidence in our team, and we are moving forward with the determination and a clear focus on what we can control. Looking at our segment results in the third quarter, I will begin with the Paint Stores group, which grew by a mid single digit percentage. Price/mix increased by mid single digits, and volume increased by low single digits. Our team delivered growth in all pro segments. Protective and marine continued its momentum as sales increased by a mid teens percentage versus a challenging prior year comparison. It was the ninth straight quarter of at least high single digit growth in this business. This team's combination of technical expertise, and fast reliable service continues to win business in multiple end markets. Including AI infrastructure, energy, water treatment, manufacturing, and processing. Keep in mind that many of these wins also will create reoccurring revenue annuities related to future maintenance. In the commercial business, sales increased by high single digits against a mid single digit comparison in an underlying market that remains soft. These results continue to illustrate the exclusive contracts and new projects we have targeted and won over the last 24 months. And we are confident meaningful additional gains are still ahead. Residential repaint remains our single largest growth opportunity and our targeted investments and relentless focus on new accounts continues to drive above market growth. Sales in the quarter grew by mid single digits against a high single digit comparison. Marking 10 of the last 11 quarters that Sherwin Williams has delivered at least mid single digit growth in this end market. Property maintenance grew by low single digits as did new residential, which outperformed against a backdrop where single family completions were down by a high single digit percentage in the quarter. Segment profit grew by low single digits primarily due to higher net sales partially offset by higher raw material and supply chain related costs as well as increased costs to support higher sales including additional stores, sales reps, and digital capabilities. We have opened 57 gross new stores year to date, which have been offset by the planned and targeted closures that are now behind us as we described last quarter. We expect to be back in our typical range of 80 to 100 net new stores starting in 2027. The 8% price increase that became effective September 1 is tracking as planned and is expected to ramp up to our historical realization range in the first half of next year. In consumer brands group, sales grew as expected driven primarily by the Suvinil and Do It Best acquisitions. Positive low single digit price mix where favorable mix was greater than price, and low single digit FX were partially offset by a mid single digit decrease in volume. Regionally, North America sales increased by low single digits driven by favorable mix, new product offerings, and the Pro-Whoop paints as DIY demand remained muted. Europe grew by mid single digits versus a high single digit comparison driven by share gains. Our legacy Latin America business, excluding Suvinil, increased by a low single digit percentage. As a reminder, we have annualized the Suvinil acquisition as of October 1. Adjusted segment profit and margin in CBG decreased primarily due to higher raw material and supply chain costs incremental SG&A expenses associated with the Suvenil acquisition and unfavorable foreign currency transaction gains and losses. As we have previously shared related to Suvinil, this year is focused on serving our customers while executing on our integration efforts. Which are progressing as expected. Excluding acquisitions, CBG adjusted segment margin for the quarter is in the low 20s. In Performance Coatings Group, sales beat expectations with growth in every division and region. Volume increased at the high end of low single digits, reflecting new account wins and share gains, as demand remained choppy in most end markets. Price/mix increased by mid single digits and FX was a low single digit tailwind. For the second straight quarter, growth was strongest in the General Industrial division, sales increased by a mid-teens percentage. Inclusive of robust volume growth led by construction equipment and transportation. Packaging strength continued as sales increased by a low double digit percentage and also included strong volume growth. This team has delivered a minimum of high single digit sales growth in 8 of the last 9 quarters, Coil also grew by a low double digit percentage driven by construction, HVAC, lighting fixtures and roof decking. Wood and automotive refinish both grew by low single digits. Total group sales expanded in all regions, including a strong double digit increase in Asia, a high single digit growth in North America and Latin America. Adjusted segment profit increased due to higher net sales partially offset by higher raw material and supply chain related costs as well as an increase in employee related costs to support higher sales. The slide deck accompanying our press release this morning provides more detail on third quarter segment results. With that, let me move on to our outlook for the remainder of this year along with some initial considerations related to 2027. The slide deck issued with this morning's press release provides specific sales guidance for the fourth quarter which reflects our normal seasonality and the full year. Given our third quarter performance, we are narrowing our earnings outlook and now expect adjusted diluted net income per share to be in the range of $11.85 to $12.15 per share with the prior midpoint of $12 remaining unchanged. Our slide deck contains other details you may find useful for modeling purposes. You should expect us to act with discipline and urgency over the remainder of the year while remaining laser focused on our strategy of driving our customers' success. As we prepare for 2027, our teams are working through our annual planning process. We will provide you with a more definitive outlook in January as we typically do But at this time, we can provide some initial expectations that may be helpful. From a demand perspective, we expect a continuation of softer for longer with continued choppiness across most end markets. The leading indicators we track point to few positive catalysts at this time. As a result, we will continue investing in the targeted growth initiatives that we know will bring returns, including stores, reps, services, and innovative products. From a cost perspective, we are not immune from inflation. We will continue to manage this variable through targeted pricing actions as needed, disciplined control of general and administrative expenses, and simplification initiatives that drive speed and efficiency. We expect cost savings of approximately $75 million in 2027 inclusive of $25 million related to the restructuring actions taken in this year's second and third quarters as well as cost actions currently under review in the fourth quarter. Given our current visibility we expect raw material inflation to be in the low to mid single digit range for 2027 with the largest year over year impact in the first half of the year before moderating in the second half. We also expect other parts of the cost basket to inflate including energy, fuel, health care, wages, and technology and software licensing. We will continue to take a thoughtful approach to any potential price increases by working closely with our customers balancing the timing and magnitude while continuing to deliver the products, services, and solutions that drive their productivity and profitability. We look forward to providing you with a more detailed outlook during our January call. Sherwin Williams is a proven share gaining compounder built to perform through all cycles. We expect to finish the year with momentum that carries into 2027 supported by a deep and experienced team with a long track record of delivering results and navigating changing market conditions. We are confident that we are a fundamentally stronger company today than the 1 that entered this cycle. Through disciplined investment, have continued to expand our capabilities create new growth platforms and reinforce our differentiators. Our advantage is not rooted in any single asset. It comes from the combination of our people customer relationship, systems, scale, and investments all reinforced by the credibility and trust built over decades. That combination is difficult to replicate and only continues to strengthen. Better positioning Sherwin Williams to serve customers, outperform the market, and create long term value. This concludes our prepared remarks. With that, I would like to thank you for joining us this morning. We will be happy to take your questions.

Certainly. Everyone, at this time we will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. In the interest of time, we do ask that participants please ask 1 question. And once again, if you have any questions or comments, please press 1. Please hold while I poll for questions. Our first question is coming from Gregory Melich from Evercore ISI. Your line is live.

Hi. Thanks. I wanted to follow-up on the pricing, the 8% that you took in the third quarter. You said, I think, that normal would come in through the first half of next year. Do you anticipate that there is some pricing that is needed to stay ahead of raws as you go into next year given the low to mid single number that you just talked about on raws? Thanks.

Hey, Gregory. it is Benjamin Meisenzahl. Yeah. On the 8% price increase for stores, I mean, we. We are going to continue to manage pricing just like you have seen us do all year. We have had more of a staggered approach. And we have gone when we have needed. And that is the consistent part of our process here. And I think the headline for you is you know, the pricing that we are going out with, it is behaving as intended. And it is helping to offset the continued cost basket inflation that Heidi talked about. And so the issue we have, it is not pricing power. But it is the timing of the price cost realization in this you know, rapidly changing, inflationary environment. And so as we progress into the fourth quarter here and then to your question into 2027, you should expect that we are going to continue to watch that cost basket. I think we have decent visibility of what is coming. And just like you have seen us do since the start of the year, we are going to pace the pricing, as we need it. And that balance of the price cost basket, you are going to continue to see us do that then when pricing does roll over, just like you have seen in prior cycles, that is when we would expect to get that margin expansion just like you have seen in each inflationary cycle before. Thank you, Gregory.

Thank you. Our next question is coming from Jeff Zekauskas from JPMorgan. Your line is live.

Thanks very much. I was wondering about your comment about gross margins for the year being flat exclusive of the penalty from Suvenil. It looks to me then that the penalty year to date is about $65 million. Is that the correct number, or maybe 35 basis points of gross margin? And if so, do those costs go away in 2027? And how do you know, connect that with the normal margins of Suvenil, which I think are double digit. And then I think Akzo was grousing about your pricing actions in Brazil being negative. Maybe you could talk about that as well for Suvinil. that is really 1 question if you put it all together.

That was a multipart, 1 part question, Jeff. Good morning. And by the way, great to see you and many of you on the call here at our recent analyst day last month. I am gonna start with the second question. And then the second part of your 1 part question and then hand it over to Benjamin Meisenzahl. In terms of, pricing actions in Brazil, there is nothing broad based. You are not going to see anything unique in any discounting. I mean, we are very consistent across all regions. And so where there might be some short term opportunistic or strategic campaigns, which are really kind of more micro promotions, if you will, to be opportunistic, you will see that. But absolutely not. You are not going to see any broad based discounting. Yeah.

And, Jeff, to the first part of your question, you know, we are calling out our gross margin without Suvenil.

And we have done that a little bit in the prior quarters as well. We have had that dilutive impact at the gross margin level going back to the fourth quarter of last year because of their cost structure. And so the point we are trying to show as we try to reconcile what is happening with gross margin is that business mix, especially for businesses like Suvenil that we have not annualized yet. Do have a dilutive impact to the gross margin piece. We talked about at our investor day, you know, the cost to serve is very different parts of our businesses. And so there is times when gross margin is going to be diluted. Because you have growth in businesses that might have a lower gross margin. They also might have a much lower SG&A base as well. And so what we are trying to reconcile there for you is that business mix did play, a part of that there. And if I come back up to a higher level and look at our total gross margin in general, I would characterize probably half of the decrease in margin related to the price cost, the supply chain cost fuel, the things that Heidi called out in the opening remarks. And half of it to business mix where you have not only the Suvenil piece, but you also have higher growth in some of our lower gross margin businesses, in PCG and CBG. And so, I think this is why again, at our Investor Day, we talked about adjusted operating being a better barometer. And even though that is under pressure here in the quarter as well, that points to where the operating margin you know, growth. that is the value creation piece of the equation there. Thank you, Jeff.

Thank you. Your next question is coming from Vincent Andrews from Morgan Stanley. Your line is live.

Thank you, and good morning. I wanted to follow-up on the Consumer Brands PBT margins. Obviously, I heard everything you have said about Suvenil so far, but it would also just look, even if you X that out that the underlying consumer brand margins, you know, a little softer in the quarter. Clearly, there is a raw material issue. But that is the segment where you are seeing the least amount of price versus the other 2 are up mid singles. This 1's only up low single. Can you talk about what you are doing from a price perspective there and when you think in that particular segment, you will be able to match price with the raw material inflation that you are seeing?

Thanks, Vincent. Yeah. I mean, if I talk about price, in CBG, and I will remind you too. I mean, this is a smaller business, so some of the magnitude and the swings especially with, global supply chain being embedded in there, it does have, you know, a bigger magnitude of move on the gross margin piece. But I think what I would say with, you know, the consumer brands group is we have done pricing there. I think that if I had to compare it against all 3 of the reportable segments, it is probably the area where we still have some opportunity and that is. That. Because of strategic choices. I mean, we have talked about putting a premium on volume, and watching both the timing and magnitude to make sure we pace with, you know, what is actually happening, in the cost baskets. There is obviously a little bit of pressure there. But if I looked at gross margin, altogether, on an adjusted basis, yeah, you are 430 basis points, backwards. It really boils down to 2 things. I mean, 1 of them is, again, the Suvenil impact that is approximately 70% of that impact. And then the other part of it is just the timing with higher raw material costs and supply chain costs and that is inclusive of, again, what we have in our global supply chain business where they have been, realizing a lot of the fuel and supply chain costs. You think about the high cost of diesel, and other energy costs that we do not fully move into the businesses until we do our annual, you know, kind of standard cost process. And so very consistent there with how we have reported that out, but that is obviously putting pressure on the segment. Thank you, Vincent.

Thank you. Our next question is coming from Salvator Tiano from KeyBanc Capital Markets. Your line is live.

Yes. Thank you very much. Just want to see what your what you have experienced the past few months in. With regard to The US housing market demand, whether it is the Paint Stores Group or CBG. Can you provide a little bit about the cadence of sales over Q3 and what you are seeing in October, And then line of sight, you have in the next few months as we are getting -- you know, we got that interest rate and mortgage spike.

Yep. Good morning. I will take that. I will. I am going to give you a-- maybe a just a brief snapshot by segment because the devil's always in the details. They are related to housing. If I start with our residential repaint segment, obviously, this is an area that we continue taking market share. A lot of the indicators remain soft, but if you look at our new account activity, it remains very strong. And importantly, not just the new account activity. it is our active accounts which continues to grow. This for us is really a good barometer of the size and the frequency of these purchases. So even though single family is soft, there is still more square footage that is being installed, and that becomes an annuity for us. Now and over time as the market recovers. We are gonna continue to find new ways to help these contractors grow and be productive, and we are continuing to win. I will remind you that segment is the area where we have the largest opportunities to grow. Next, I will take you to the commercial segment. We are outperforming Obviously, there is soft multifamily completions, and we are taking meaningful market share These sales are up year over year all 4 quarters. Of 2025 and all 3 quarters of 2026. So I would tell you while the market is seeing generally solid multifamily starts since the start of 2025, we should begin to inflect those to more positive completion, well into 2027. Certainly, there is a lot of support from an AI infrastructure standpoint, you know, providing even more opportunity I really believe no 1 is better positioned to win in that space than we are. Next, if I go to new residential, we are outperforming soft completions. And despite homebuilder sentiment, has been-- is the lowest it is been since 2012. We are still taking share. In Q3, our single family completions, down high single digits on average in the market, and Sherwin's new res was up low single digits. So that just goes to show you we continue to take share there. So broad based, that is kind of a snap as we think about the quarter and a bit of the short term outlook.

Yeah. And I will just add 1 thing to what Heidi said there. And just, again, as a reminder, as we are building our guidance, whether it is for the fourth quarter or even as we go into to 2027, we are not building that on a macro recovery that we do not control. And we talked a lot about that at Investor Day that you see us focused on the things we can control. Heidi called out some of the, cost restructuring savings that are impacting not only 2026, but we gave you a preview, to what we expect in 2027. And so that gives you an idea and shows you the levers that we are still able to pull out on durable structural cost out that will help us, you know, combat some of the things that you are going to see with some of the economic indicators. Thank you, Sal.

Thank you. Our next question is coming from Arun Viswanathan from RBC. Your line is live.

Great. Thanks for taking my question. Maybe I could just get some initial thoughts. I know that in the release, you guys commented that you do expect choppy conditions to kind of continue as you head into 2027. Could you just elaborate on what you are seeing there? Are your customers still kind of trepidatious and across different verticals? And on a related note, do you expect to kind of see mid-single-digit and maybe low single digit volume to continue? Or how does that kind of work out?

Arun, I will take the first part and hand it over to Benjamin, on the second part. I would tell you, it obviously varies by segment. If I just covered some of the housing segments. But if I take you to a few areas where we tell you there is a bullish outlook, protected marine is a great example. We are intentionally positioning this business to be exactly where our customers want us to be. And the reason I point that out because if you think about historically, more of a focus on maybe gas and the like. This portfolio is really looking more broadly at water data centers, semiconductor, energy, pharma, and infrastructure. Where demand remains strong. And that is supported by public funding, owner CapEx, and then the maintenance opportunities. So there is really a bright spot here. And I would tell you, energy activity is rebounding in midstream. Downstream, and LNG and maintenance work. Upstream remains selectively volatile. And is more sensitive to oil price movement, but we are seeing some really good kind of green shoots there We have covered a lot of the housing, but if I give you just a big picture view across the performance coatings business where you have got some bright spots here, we pointed out general industrial. For us, we are up mid teens. This has been a really good growth, and I would. You know, in general finishing and heavy equipment, has been up double digits. So there is some really good new business that we are chasing, to offset some of that core softness. Packaging, up low double digits. This is the 2 piece bev end. Up double digits. Food and household products are up high single digits. And. Sorry. The 2 piece Ben up double digits. Our bev end is still under pressure. But you are seeing a lot of continued, activity there. Coil up low double digits, and there is strength that we are seeing in construction, HVAC, lighting fixtures, and roof decking. And then, obviously, AI is gonna be a nice tailwind for us there. Our refinish business continues to grow. I think there is some stability in the large shops that have been largely flat through 2026. Medium shops, are down mid single digits, and small shops are seeing some continued pressure as well. But you are seeing our ability to chase new business wins offsetting the core. We are going to see in refinish some temporary share shift that we are very confident that we will earn back in the short term. But the team has been out aggressively chasing, new accounts. And I will hand it to Benjamin E. Meisenzoll E. Meisenzoll to answer the other part of your question, Arun.

Yeah. Yeah. Arun, you had asked about, you know, pricing going into next year considering that we have got you know, the raw materials, talking about low to mid single digit. I would not frame it all around pricing. I mean, we are getting price. We are going to continue to take appropriate actions where needed. But it is not a question of just how much more price, and this is why you see us calling out some of the structural cost, activities as well. And so it is improving the overall price-to-cost equation through multiple different avenues. And so I am not gonna give a company wide percentage. I mean, even as I talked about the realization curves, they vary by business, by customer. By geography, and we are thoughtfully managing each piece and part of those as we go into next year. And I will again, you know, and as we have talked about since April, have good visibility into the cost environment. We are gonna remain disciplined on pricing. And we will take additional cost action and price action, where the economics require it. Thank you, Arun.

Thank you. Our next question is coming from Aleksey Yefremov from Barclays. Your line is live.

Thank you. Good morning. Heidi, I think you mentioned that your price cost situation, you are you are not happy with it. Was it the case that the costs in increased faster than you expected? In the third quarter or were you not able to raise the price as much as expected, or is it something else?

Well, I am not happy. I am never happy with it because there is always more I am going to have Benjamin walk you maybe through some of the details here.

Yeah, Aleksey, I would say, and as I mentioned earlier here, you know, the price is working as we expected. There are other parts of the cost basket, you know, that are, you know, conversion, the fuel, other things that some of them could be temporary in nature that we are gonna protect against having to pass to our customers in price because we would expect that, you know, at some point, you get, some moderation there. And so not everything the cost basket that goes up turns ultimately into hey. We are passing that into price. But as I mentioned earlier, it is working. And this staggered approach, you know, we went earlier this year with stores. We went again in September. On the industrial side of the business, you have seen us go at many, many more you know, cadences that have, you know, different magnitudes and timing. that is consistency. I mean, that. that is how we have we have been able to manage through the prior cycles. And so I think you read into, you know, us you know, not being happy, you know, it is -- we are making strategic choices, and we are doing everything we can to try to keep the margin from falling behind. I feel very good what we are doing from a dollar point of view, and that is been a central ask of our teams, you know, back since the start of the year when we, you know, started doing a lot of the pricing increases. But you also see this as our commitment to continue to manage that price cost balance, and everything that we are doing, pricing, the cost out actions that we talked about, are all there to make sure that we can we can get back to that margin growth.

And, Aleksey, we see this as short term pressure. We know how to take pricing, get price, successes that we have the volume the price, and the customers with us on the other side of price activity, and so we are going to deliver that. Thank you, Aleksey.

Thank you. Your next question is coming from Michael Rehaut from Melius. Your line is live.

Thanks. Good morning. Appreciate you taking my question. Wanted to zero in on the price mix dynamic for 2026 and maybe how to think about 27 at least more from the mix side. I know price is something that, you know, you are still working through perhaps in terms of how to approach 2027. But if you could remind us on price mix, you know, up mid single digits for the full year, on 2026. How much of that is price versus mix? And if you think about your, you know, going into 2027 in terms of how your product and new products and other initiatives are tracking, how we should think at least about mix as an impact to sales growth for 2027?

Hey, Mike. it is Benjamin E. Meisenzoll. You know, we generally do not break out the price mix component. And as you can imagine, just the complexity of the different product offerings, you have, all the way down to you have got paint, you have got non paint, and other things that go on in there. And so we historically have not broken apart. That price mix piece here. But I can I can tell you that you know, part of the benefit that we get there is that on the paint side, the premium uplift that our stores work through, and even on the industrial side, because it gives our customers a better opportunity to be more productive? And so that is an important part that is embedded there, you know, in our operating model here, we do lean heavily on, our ability to keep you know, moving up in that premium mix. You have heard us talk in prior quarters about our ability to walk people up to the premium piece. As we go into 2027 and we look at mix, we are a little. You know, you look at our midterm targets, and we have talked about our midterm targets for stores being mid to high single digits. You look at industrial being more of a mid single digit, inclusive of acquisitions, and you look at consumer brands group being more of a low single digits. A little bit inverted right now, and you see that a little bit in the quarter, and that is why we are calling mix out so much where you have got CBG with their acquisition of Souvenil. And then with the tailwinds that we are seeing in the industrial business, it that is--it is upside down temporarily. And so we still strongly believe in our midterm targets, and we believe in our ability to get, Stores Group growing. At that mid to high single digits. This is why you continue to see us make investments even in the downturn because of our confidence of what that segment's going to do when, the volumes inflect. And especially in an inflationary environment, this is where premium plays to our to our benefit to our strategy because we are ultimately solving for how we help our customers be more productive and these premium products are obviously a key to helping them to do just that.

And this is Jim. I think it is also part of what you saw at the Investor Day for those that were here, the innovation, the investment we have made in the new R&D center. Just down the road here from our headquarters is going to continue to drive that premium product mix that you know, ultimately drives our customers productivity. Thanks for the question, Mike.

Thank you. Your next question is coming from Chris Parkinson from Wolfe Research. Your line is live.

Hey. This is Harris on for Chris. Thanks for taking my question. Lately, there is been a little bit of talk about FX volatility in Brazil. Questions about the economic outlook, interest rates post election. Just with Suvenil, I would be curious to hear your thoughts on how you are thinking about managing to get out in front of that and any way to, you know, frame the risks that you see there that could potentially be coming up? Thanks.

Hey, Harris. it is Benjamin E. Meisenzoll. I mean, if you look at the news, you know, the last 24 hours or so, you can imagine we have had a lot of discussions around just Brazil in general. It goes beyond just, you know, Suvinil. We are not gonna break out, obviously, what you know, we think all those impacts are. But what I can tell you is, you know, when you. When you have seen devaluation, whether it is in Brazil, whether it is in other countries, We have very good line of sight to you know, which parts of the cost basket, you know, might be denominated in US dollars. You think about raw materials and other things. And so, know, we know where to go there. And I think the team in Latin America you have had other countries with similar issues, they are really, really good at going out and getting that price when you have the, currency impacting the business there. And so I have a high degree of confidence, you know, that we will we will be able to, you know, to manage and watch that and react appropriately. And then, obviously, there is other impacts, you know, throughout, you know, the income statement and the balance sheet that, you know, could have, you know, big impacts if, you know, if this devaluation holds. But, the message I would tell you is hey. We. We are used to managing this. This is not something that is a shock to, you know, to our business, and so you should expect that we are going to continue to manage that way just like we have with the other cycles. Thank you, Harris.

Thank you. Your next question is coming from David Begleiter from Deutsche Bank. Your line is live.

Thank you. Good morning. Heidi and Benjamin, just on pricing in the paint stores group, is the message that we may not-- we should not expect a typical January 1 price increase next year because you are still working through the September price increase and managing the overall price cost dynamic. But maybe get a price increase in the group later in the year. Is that the message? Thank you.

Yeah, David. that is not the. The message is we are not announcing anything on our call today. I would also tell you the messages we are going to do what we do every month, which is look at all the input costs And if we do need to go, we will unapologetically go. So there is no message other than it is not a message for today. Thanks, David.

Your next question is coming from Josh Spector from UBS. Your line is live.

Yeah. Hi. Good morning. I was wondering if you could talk a little bit more about your ability for share gains in Paint Store Group in 2027. I guess, if you look at the last few years, you made more investments in SG&A. In prior years, you made other kind of increased investments. Now with a little bit more of a mix, we are doing consolidation of some stores, we are doing cost savings So I would just be curious. Mike, it seems like you have outperformed the market maybe a couple percent, 2%, 3% this year. Are you able to do that next year based on what you have in place today? Or does that outperformance shift based on kind of what you have already harvested from prior investments?

So, Josh, in a lot of areas, I would tell you we are just getting started. I mentioned earlier in residential repaint where we are clearly taking market share. it is the it is the segment where we have the largest share gains ahead. As we continue to take share across the board. I would also remind you, maybe as a backdrop here, we talked about this throughout 2026. We do believe it is only a matter of time when demand is gonna pick up in The US. Due to the continued severe shortage of single family homes in the country. As well as the continued growth of the addressable square footage that is ultimately gonna need to be repainted. there is a lot of market share to be gained between now and when that mark-- and the market does start to move. So you are going to see us continue to come out with very strategically placed investments that are customer facing that support where we know we can get, and we have proven we can get a return. Across some of these segments. So, yes, there is. There is ample and sufficient market share ahead. Thank you, Josh.

Thank you. Your next question is coming from John McNulty from BMO. Your line is live.

Yeah. Thanks for taking my question. Maybe just to flush out the incremental service costs that you highlighted where that was a it sounds like a decent piece of the SG&A jump. Can you help us to think about how much of it was just general inflationary pressures on the service side versus investing, whether it is on the staffing side or what have you. I guess, can you help us to think about that just how it impacted you in the quarter? And then how you see that trending as we look out over the next 12 months or so.

Hey, John. it is Benjamin E. Meisenzoll. Yeah. When you break out the SG&A growth, you know, in the quarter, a big chunk of that is still the nonannualized Suvenil, and I am happy that this is the last quarter we have got to be calling that out every single time. But that is obviously a big chunk of that. And then if you look -- so if you look at the half that is you know, not the Suvinil piece, yeah, we called out the employee service and benefit costs. I mean, our sales are running higher than what we had initially expected at the start of the year. And for all those, you know, sales reps, stores, you know, tech reps that are on sales, you know, plans, You know, you can imagine that, there is higher cost to support that higher sale there. And so we do not wanna break out individual pieces and parts of that. I mean, we do low single digit merit increase each year, and so there is a component of that in there. But all in all, I mean, again, a big part of that, again, our SG&A growth is you know, the Suvenil piece that goes away after this quarter. And then, really heavier on the service side related to, cost to service the higher sales. Thanks, John.

Thank you. Your next question is coming from Steve Forbes from Guggenheim Partners. Your line is live.

Good morning. Heidi and everyone. Heidi, maybe just shifting to the morning. The consumer brands group was I was curious if you can maybe just frame for us so we can better understand the volume performance in the quarter versus expectation And then given the 4Q volume guidance for the segment, do you have a line of sight to recapturing neutral to positive volume growth? Or what are you sort of seeing in that sort of DIY or consumer segment as it pertains to, you know, sort of deferral of project spend? Any sort of directional commentary around you know, consumer macro forces?

Yep. Steve, good morning. I would tell you first and foremost on the DIY side, on the market, we do see continued softness. We also talked about the consumer brands group a lot about the Pro-Whoop segment, which is the kind of the remodeler and flipper. We do continue to see growth here. It is still on a small base. But certainly more promising. We have talked a lot about. We do not see a catalyst naturally in the market here on the DIY side, but I will hand it to Benjamin E. Meisenzoll E. Meisenzoll to give you a perspective on how we are thinking about guidance.

Yeah. Steve, the volume, you know, was a little bit weaker again, mainly for some of the DIY comments that Heidi talked about there in the third quarter. If you look at the full year guidance, so you know, for what we have given for CBG and everything on the volume price front, you know, pretty consistent on a full year basis to what we provided back in, you know, in July. And so we are gonna continue to work with the segment there. We have made a lot of the investments, you know, on the pros who paint, and Heidi called that out earlier. That is an outsized area where we can continue to get share and perform. So you are going to see us do that there. But, yeah, the volume, you know, we have been pretty consistent with. that is been a challenge this year. We are bumping along the bottom there, and you should expect to see, you know, some more of that as we go into 2027. Thank you.

Your next question is coming from Ghansham Panjabi from Baird. Your line is live.

Yeah. Thank you. Good morning, everybody. On the Performance Coatings Group segment and, you know, the volume resilience in that segment, considering the macro that we have had for a while now, Do you expect the volume to sort of continue? I mean, it is been pretty impressive with GI growth. Packaging. And then in auto refinish to some extent. Just curious as to your thoughts on not just 4Q, but also as we cycle into 2027. Thank you.

Yeah. Ghansham, good morning. We do expect that to continue, and I think, ultimately, the barometer of strength is our is our, you know, successful, I would tell you, record high new business wins that we are seeing on the PCG side. And so that pipeline health is very, very positive. So, yes, we do absolutely expect to see a continuation of that volume, growth. Thanks, Ghansham.

Thank you. Your next question is coming from John Roberts from Mizuho. Your line is live.

Thank you. Could you talk a little bit about M&A opportunities? I think Liquid Nails failed to close its sale and Akzo's European refinish business is now on the market.

John, good morning. it is Heidi. I assume you know it is Heidi because I do not sound like Benjamin E. Meisenzoll. How about that? Yeah. We are absolutely. As we always do, we will take an active look at assets that fit within our strategy and accelerate our strategy. I think you have also seen that while we will kick tires on assets, we are also, not in the business to overpay for them. And so you know, if the right assets were to fall out of the sky, you mentioned a few of them, You should expect that, yeah, we will take a hard look at that if it makes sense for our business and the value for what we would. What we think would make sense. Thanks, John.

Thank you. Your next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.

Yeah. Good morning. Just trying to get at the 11% year-on-year in the quarter. Volume looks like it is up probably 1. So your unit COGS looks like it is up 10%. But a lot of the basket, if you think, you know, health care, labor, TiO 2 is quite a bit below 10%. So can you walk through what was up more than 10% in the basket? Kind of what are the things really dragging that up? And then roughly how much of a hit was that relative to what you expected in the quarter?

Hey, Duffy. it is Benjamin E. Meisenzoll. A big part of. I am gonna call out just, hopefully, again, the last time. A big part of that increase in COGS is related to Suvinil, about roughly 30% of that. So if you exclude Suvenil out of that, our COGS is up still up at the low end of a high single digit. To compare against, sales more mid-single-digit without Suvinil. And so I think that is a good comparison for you there. But several drivers. I mean, first, we had strong sales growth and higher, you know, higher volumes, which naturally just would increase the absolute base cost of our COGS. And then as we have been talking about, we also have experienced that higher raw material and supply chain cost there is also, you know, that mix factor that I talked about earlier. And so, when you look at the different, you know, components there, and I mentioned earlier the. You know, being able to have price getting over raw materials, we feel pretty, you know, balanced in that respect there. We did have. Obviously, you know, waiting for the end of the spring painting season. Or the summer painting season, I am sorry, for stores groups. You really only had 1 month of pricing in the third quarter where I am gonna get 3 months of that pricing in the fourth quarter. And so this goes back to just that realization timing of, you know, the curvature of, you know, pricing and the other cost out activities that we have. You know, not necessarily always, you know, being in the same perfect quarter every single time. And so, I would say, again, both price and the cost out are gonna help, you know, normalize that cost of goods sold to sales ratio. And, as you can imagine, we are going to keep working through, different actions to close that gap. Thank you, Duffy.

Thank you. Our next question is coming from Kevin McCarthy from Vertical Research. Your line is live.

Yes. Thank you, and good morning. A few questions on your protective and marine business. Hoping you could help us unpack, the marine portion relative to the strength that you cited in protective across infrastructure, data centers, water, and other verticals there. And then maybe more importantly, you know, you had a difficult comp here, and you grew double digits against the double digit comp. So how much runway do you continue to see in protective and marine as you look into 2027?

Kevin, I am gonna start with the second part of your question.

there is a tremendous amount of runway, I will tell you, in our protective and marine division and you said it. A lot of the AI, you know, we talk a lot about data centers. that is just the tip of the iceberg. it is the AI infrastructure build out that supports all of that where we are extremely well positioned across a lot of our different segments. But where we sit today, there is we are largely protective. We do have some marine business. that is that is part of the reason as we were looking at some other assets out there where we think that there could be a complement to our portfolio. That we are really largely protective, in terms of the totality.

Yeah. Kevin, it is Jim. And I think the other thing too to remember here, and, Heidi, said it in her prepared remarks, is think about Protective and Marine as. there is an annuity there too. All this new business that we are winning, all this build out comes over time with maintenance coatings, whether it is flooring, whether it is oil and gas, storage tanks, whether it is, you know, any number of opportunities. So we feel good about the runway on new, but also over the longer term, the maintenance piece. And thank you for your question.

Thank you. Your next question is coming from Mike Harrison from Seaport Research Partners. Your line is live.

Hi. Good morning. You have talked a little bit about, the premiumization that you are seeing across some of your product lines. I was wondering if you can give us a sense of how the Emerald Symmetry product that you introduced in the spring is progressing relative to your expectations. And I guess, how does the traction that you are seeing with that product compare to past launches in that kind of ultra premium or top of the line category?

We are very pleased, Mike, with how the how Symmetry has not only launched, but the adoption And this is. Remind you, this is actually the best product we have ever manufactured, and it satisfies not only superior performance characteristics, but also our sustainability agenda because it is a plant-based VOC-- rather, zero VOC product. So we are very pleased with the track that we are getting here. But back to your, I think, your ultimate question around the premiumization, this just goes to prove, again, to my earlier point, especially in an inflationary environment. We can get products in the hands of our contractors' customers that help them be more productive, on the job site and you know, faster application and getting crews on and off of job sites with these premium products, their total cost is 85% of their total cost is labor. So our ability to get them into premium products to help them save time on the job site is a cost benefit to our customers. And so again, it plays to our strategy here of helping them to make them as productive as possible as in this environment. Thanks, Mike.

Thank you. Our next question is coming from Abigail Ebert from Wells Fargo. Your line is live.

Good morning. Thanks for taking my question. Just wanted to follow-up on your comment on Refinish with the share shift. Could you provide some color on where you are seeing that happening and what, in your opinion, caused this?

Yeah. I will be very brief in my comment here, Abigail. I would tell you it is share shift, not share loss. So it is singular, not plural. And it is an isolated incident that we are very confident that we can demonstrate not only the. Our unique value proposition and earn this back, but it is what you said is spot on. It is temporary. Thanks, Abigail.

Thank you. Our next question's coming from Eric Bosshard from Cleveland Research. Your line is live.

Yeah, good morning. Curious. A lot of conversation about the Pro-Whoop paints, are you thinking about the selling proposition for that customer and how that line blurs with what you are doing out of the stores?

So, Eric, if you can picture a kind of Venn diagram, you know, who we service in our stores, these pros that are painting for a living. They are buying paint, largely and only paint. And they are preferring a specialty paint store model with the level of service that the Pro-Whoop paints, is a very complimentary segment that we just are not set up in our specialty distribution model because this contractor is looking for you know, everything else, in terms of house flipping from you know, lumber and electrical to plumbing and everything. So they do prefer more of a home center environment. And so it really plays to our strategy where we want to be able to cover all of the segments that are buying paint and our partnerships, you know, with Lowe's and Menards and others in our consumer brands group, are strategic and very important for that reason. Thanks, Eric.

Thank you. Your next question is coming from Matt Dale from Bank of America. Your line is live.

Good morning, everyone. Thank you for squeezing me in. I really appreciate the commentary on price and costs as we move into 2027. And so as you have given me an inch, I will ask for a lot more. Do you think. If I am just thinking about price costs here, in general, margins, margins pretty good if we put everything we have seen in the grand. In the context of, like, raw material moves to date. And, obviously, you are announcing more price through PSG. You have 3 months for that to bake in but it also sounds like maybe some of that happens next year. You already kind of offsetting a lot of the raw mat inflation effectively in 8% price, though I know net effective will be low as a it is a pretty big knock on. So if I get to my question here, like, can we move to more normalized contribution margins on volume next year if we just you know, take a, you know, freeze frame on where we are on VOS, and what you have announced on price and your expectations there. Is it. Is that possible, or do you still expect kinda more muted contributions to any real volume?

Hey, Matt. it is Benjamin E. Meisenzoll. I think the 1 of the assumptions you are making there is that you can get positive volume next year. As I mentioned earlier, I mean, we are building our model. I mean, our. The algorithm, the guidance we are giving, you know, we are assuming that software for longer, and this is why you see us not only, you know, reacting with price, but as Heidi talked about earlier, the cost that we have done this year that carry into next year. But I think to get maybe to you know, kinda the some of the heart of what you are asking there, We will get--we will get inflection. We have said that volume is number 1 driver of our operating margin. And so we believe that you know, when those inflections happen, you are gonna see that stronger leverage. This is why we are doing all the actions that you see us taking today. And so until then, we are gonna pace pricing with the inflation. Heidi mentioned earlier, we expect in the first quarter to be where the height of that inflection is next year. Maybe that is true. Maybe it is not. But either way, we are going to continue to manage based on what we see and try to stay in front of that as much as possible. As we have talked about today, there are other parts of the cost basket that are going up. And some of those will translate into what we are doing pricing and some will not. But what we do have confidence with and again, we did not, you know, change any of our, our midterm targets when we talked at Investor Day. We continue to have confidence in being able to achieve those targets. You know, through the cycle. But we are obviously operating in an inflationary environment right now, and you are going to see us taking actions to make sure that we know, stay close to that, until we see that volume inflection that I think you are looking for.

And, Matt, what you should expect is to see continued discipline regardless And so it does start with simplification and how we can take complexity out of the business And then, obviously, price is always a lever where. When and where it makes sense, but you should expect just continued discipline. Thank you, Matt.

Thank you. Our next question's coming from Patrick Cunningham from Citi. Your line is live.

Hi. Good morning. What specific factors drove the working capital and operating cash flow pressure in Q3? And how does this affect the outlook for cash generation in the fourth quarter?

Hey, Patrick, it is Benjamin E. Meisenzoll. Yeah. Net operating cash maybe was a little bit lower than what you saw last year. Some of it is related to timing. We had just the phasing of our deferred income tax accruals last year had a had a pretty sizable impact. We still feel very, very good about the cash flow generation even when you look at you know, year to date. I mean, our net operating cash is you know, you know, pretty healthy, up almost 10%. And so I do not I do not have I do not have any concerns with what is happening there. The working capital is a little bit high because of the annualization of Suvenil. When you back out Souvenil, we are we are just slightly higher, maybe 10 basis points as a percent of sales. And so no concerns with, how we are managing working capital either.

And, Patrick, 1 final comment too. I think we all acknowledge, you know, we are not just simply navigating a difficult market. We are using this time in this period to really continue to take outsized market share and to continue to strengthen our competitive position so that we are building a more productive and even more profitable Sherwin Williams coming out of this downturn, and that is what you should expect to see. Thank you, Patrick.

Thank you. That concludes our Q&A session. I will now hand the conference back to James Jaye for closing remarks. Please go ahead.

Thank you, Matt, and thank you, everybody, for joining our call. And especially thank you to our employees for all their hard work in serving our customers and what continues to be a very, very tough environment. I think as we close this call, I hope you heard today that our focus is very clear. We are gonna finish 2026 with strength, and we are building momentum into 2027. And I would like Heidi's line a lot too as well. You know, we are better positioned today than we were entering this cycle. So you should expect when this cycle eventually moderates, that, you will see, a lot of leverage and a lot of good things happen. We like the position we are in. We are very confident where we are headed. And we are gonna keep focusing on outperforming the market and driving that long term value. So appreciate everyone listening, and we are available for your follow ups. Have a great day.

Thank you. Everyone, this concludes today's event. May disconnect at this time, and have a wonderful day. Thank you for your participation.