Sherwin-Williams CEO Says Profit Conversion Fell 'Below Our Standards' As 2027 Savings Target Hits $75 Million
Heidi Petz said more cost actions are under review for the fourth quarter, with raw material inflation seen running into 2027.
Sherwin-Williams CEO Heidi Petz said on the company's third-quarter earnings call Tuesday that the "sales-to-earning conversion in the quarter was below our standards," and management pointed to cost savings of approximately $75 million in 2027. The paint maker also narrowed its full-year adjusted earnings outlook to $11.85 to $12.15 a share, keeping the $12 midpoint.
Savings partly identified, partly still under review
Petz said the company will "continue to act with urgency to drive greater efficiency throughout the organization." Actions taken in the third quarter, together with those previously disclosed, should deliver approximately $25 million of savings in 2026.
The approximately $75 million expected for 2027 includes $25 million from restructuring actions taken in the second and third quarters, plus cost actions that are still under review in the fourth quarter. Management said those fourth-quarter steps would add incremental benefits in 2027.
Shares were down about 3% to $325.48 in Tuesday trading, giving the company a market value of $81.4 billion.
Inflation expected to persist into 2027
Petz said raw material inflation should run in the low to mid single digit range in 2027, with the largest year-over-year impact in the first half before it moderates in the second. She said energy, fuel, healthcare, wages and technology and software licensing costs should also rise.
Chief Financial Officer Benjamin O'Shea told an analyst that the company's problem is "not pricing power," but the timing of price-cost realization. The 8% paint stores price increase that took effect September 1 is tracking as planned, he said, and Petz said it should ramp to historical realization levels in the first half of next year. Asked whether a January price increase is coming, Petz said nothing was being announced and that if costs require it, "we will unapologetically go."
O'Shea said adjusted gross margin was down 430 basis points, about 70% of it from the Souvenir acquisition, with the rest from raw material and supply chain timing.
Sales strong, earnings per share barely moved
Sherwin-Williams develops, makes and sells paint and coatings; its stores group, consumer brands group and performance coatings group all grew sales at or above guidance. Consolidated sales rose by a high single digit percentage. Adjusted earnings per share rose about 1%, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) grew 3.3% to $1.4 billion, a 20.5% margin.
The company returned $749 million to shareholders in the quarter and $3 billion year to date. Petz said it expects a continuation of soft demand and choppy end markets in 2027, with few positive catalysts from leading indicators.
Management said it will give a more definitive 2027 outlook on its January call, along with the results of the fourth-quarter cost actions.
Sources
- Sherwin Williams reports mixed Q3 results; updates FY26 outlook (NYSE:SHW) | Seeking Alpha — seekingalpha.com
- Sherwin-Williams Reports Lower 3Q Profit, Narrows Outlook — MarketWatch
- Sherwin-Williams: Q3 Earnings Snapshot — Associated Press
- SHW Q3 Earnings Lag Estimates on Higher Costs, Sales Beat — Yahoo Finance
- Sherwin-Williams stock drops on earnings miss; costs pressure margins (SHW:NYSE) | Seeking Alpha — seekingalpha.com
