Sherwin-Williams Q3 2026: sales +7.9%, but gross margin fell 1.4 pts and only buybacks lifted EPS

Sherwin-Williams, the largest US paint and coatings company, grew third-quarter 2026 net sales 7.9% to $6.86 billion, with every one of its three segments selling more. But profit did not keep up. Higher raw material and supply chain costs pushed the gross margin down to 47.8% from 49.2%, interest on a larger debt load rose, and net income slipped 1.5% to $821.0 million. Diluted earnings per share (EPS) still edged up 0.9% to $3.38, but only because there were 2.5% fewer shares to divide the profit among after buybacks. Management narrowed its full-year adjusted EPS range to $11.85–$12.15 and said leading indicators "point to muted demand over the remainder of the year and into 2027."

This analysis is based on the earnings press release (Exhibit 99.1 to the 8-K filed October 27, 2026). The full 10-Q has not been filed yet, so the cash flow statement, the detailed explanation of gross margin, and the size of the Suvinil acquisition's contribution are not yet available.

Results

*Sherwin-Williams does not report an "operating income" line. Operating margin here is gross profit minus SG&A and other general expense ($1,202.9M vs. $1,177.4M), divided by net sales: the share of each sales dollar left after running the business, before interest and taxes. Same method as our Q2 report.

Where the growth came from

The release says consolidated sales grew because of "higher Net sales in all reportable segments, inclusive of the October 2025 acquisition of Suvinil, and selling price increases, which impacted Net sales by a mid-single digit percentage." Suvinil is a Brazilian paint brand bought in October 2025, so this quarter still includes a full quarter of sales that did not exist a year ago. That support starts to fade in Q4, when the acquisition is a year old.

The release does not say how much of the 7.9% came from Suvinil. Since the company describes the volume gains in its two largest segments only as "low-single digit," most of the growth is price and acquisition, not more gallons sold.

Segment performance

Paint Stores Group is the company-owned chain of 4,853 stores that sells mostly to professional painters and contractors. It is well over half of sales and about 70% of segment profit, so it is the segment that matters most. Sales rose 4.7%, "primarily due to selling price increases, which impacted Net sales by a mid-single digit percentage, as well as low-single digit percentage sales volume growth." Same-store sales (sales at stores open more than a year, which removes the effect of new openings) rose 3.9%, a little below Q2's 4.2%. Every professional end market grew: protective and marine coatings (bridges, tanks, ships) by a double-digit percentage, commercial by a high single digit, and residential repaint by a mid single digit. Segment profit grew only 2.1%, and the margin fell 0.6 points, because of "higher raw material and supply chain related costs and increased costs to support higher sales, including investments in additional sales reps and stores." The chain added 12 net stores in the quarter but has no net new stores for the first nine months, against 61 a year earlier.

Consumer Brands Group sells Sherwin-Williams' other brands (Valspar, Dutch Boy, Minwax, Krylon, Suvinil) through retailers like home centers. Sales jumped 21.7%, but the release credits "the acquisition of Suvinil, favorable foreign currency translation and a positive shift in mix, partially offset by soft demand in North America." In other words, the growth was bought and helped by currency, while the core North American retail business was weak. Segment profit fell 7.1% and the margin dropped from 20.4% to 15.6%. Even adjusted for Valspar amortization and restructuring, the margin fell from 23.3% to 18.3%. The causes named are higher raw material and supply chain costs, extra overhead from Suvinil, and foreign currency transaction losses.

Performance Coatings Group makes industrial coatings (for packaging, coil steel, wood, auto refinish and general industrial uses) and was the healthiest segment. Sales rose 8.8% on mid-single-digit price increases and low-single-digit volume growth. General Industrial, Packaging and Coil each grew by a double-digit percentage. Segment profit rose 6.2%, though the margin still slipped from 13.7% to 13.4% on the same raw material pressure.

Margins: price has not caught up with costs

Gross margin (the share of sales left after the direct cost of making the product) fell 1.4 points to 47.8%. Cost of goods sold rose 10.8%, faster than sales at 7.9%. The CEO named the causes: "higher raw material and supply chain related costs and by mix, including dilution from Suvinil and higher growth in lower margin reportable segments." "Mix" here means that the lower-margin Consumer Brands and Performance Coatings segments grew faster than the high-margin Paint Stores. She added that, excluding Suvinil, the year-to-date gross margin is flat with last year. The release does not give the quarter alone on that basis.

The company did get leaner on overheads: SG&A (selling, general and administrative costs) fell to 30.2% of sales from 30.7%. That saved half a point of margin, but it was not enough to offset the 1.4-point gross margin drop.

Below operating profit, interest expense rose 18.9% to $139.3M, which the release attributes to "an increase in debt." Total debt (short-term borrowings plus current and long-term debt) was $11.80B at September 30, up from $11.52B a year earlier, though below the $12.07B we noted at June 30.

What the headline numbers hide

• EPS growth came from buybacks, not profit. Net income fell 1.5%, but diluted weighted-average shares fell 2.5% (to 242.8M from 249.0M), which turned a profit decline into a 0.9% EPS gain. In the quarter the company returned $749.0M to shareholders: $194.3M in dividends and, by our subtraction, about $554.7M in buybacks. Over nine months it bought back 7.1 million shares and returned $2.98B in total.
• Two items worked against this year's comparison. Q3 2025 included a $23.8M gain on the sale of assets, while Q3 2026 had a $2.4M loss. The effective tax rate also rose to 22.8% from 21.4% ($242.5M of tax on $1,063.5M pretax income). Working the other way, Q3 2025 also carried a $10.6M environmental provision that did not recur, and foreign currency transaction losses rose to $16.6M from $6.6M. Taken together, these items roughly offset the buyback lift.
• Adjusted EPS tells the same story. The gap between GAAP EPS ($3.38) and adjusted EPS ($3.63) is $0.25: Valspar acquisition amortization ($0.21) and severance and restructuring ($0.04). Both items were almost identical a year ago ($0.20 and $0.04), so adjusted growth (+1.1%) is close to GAAP growth (+0.9%).
• Cash conversion is solid. Operating cash flow for the first nine months was $2.59B against net income of $2,199.3M, about 1.18 times profit. The release does not give the prior-year figure.
• Receivables and inventory grew faster than sales. Accounts receivable rose 15.2% to $3,598.1M and inventories 11.9% to $2,547.0M versus a year earlier, compared with 7.9% sales growth. Part of this is Suvinil, which was not on the balance sheet a year ago, and the release does not split it out. The 10-Q should show whether the rest reflects slower customer payments or stock building.
• The balance sheet is stretched. Shareholders' equity fell to $3.98B from $4.43B as buybacks exceeded profit. Current liabilities ($9.85B) are well above current assets ($7.03B), because $1.50B of long-term debt is now due within a year and short-term borrowing rose to $2.35B.

On balance the quarter is clean: the buyback lift (2.5% fewer shares) roughly offset a higher tax rate and the lapping of a $23.8M prior-year asset-sale gain, so a near-flat EPS fairly reflects a business whose profit is flat while margins shrink.

Takeaway: Sherwin-Williams is still winning sales in a weak market, but its costs are rising faster than its prices. Gross margin fell 1.4 points, a much wider gap than Q2's 0.2 points, and only buybacks kept EPS above last year. The next quarter loses the Suvinil boost, so price increases now have to do the work alone.

Did last time's read hold up?

Our Q2 report said the Q3 results should show two things: whether Paint Stores volume held up after the September 1 price increase, and whether gross margin recovered toward last year's level. The first held: Paint Stores again grew volume by a low single digit alongside mid-single-digit price, and same-store sales were +3.9%. The second did not: gross margin moved further from last year, to 47.8% versus 49.2%, as raw material and supply chain costs kept rising. Q2 also flagged that the guidance implied a slower second half. Q3 confirmed it: adjusted EPS growth slowed to +1.1% from +7.7% in the first half.

Outlook

The adjusted range was narrowed around an unchanged midpoint of $12.00, while the top of the GAAP range was cut by $0.10. The CEO said "customer sentiment and the leading indicators we track point to muted demand over the remainder of the year and into 2027."

Our read: after nine-month adjusted EPS of $9.67, the full-year range implies fourth-quarter adjusted EPS of about $2.18–$2.48, compared with $2.23 in Q4 2025 (our subtraction: $11.43 minus $9.20). That is roughly −2% to +11%, so the low end allows for a decline. Q4 also loses most of the Suvinil acquisition growth after its October anniversary. Two things to watch in the Q4 report (likely late January, based on the usual cadence): whether the gross margin gap to last year narrows as price increases take hold, and whether Paint Stores volume keeps growing now that management expects demand to stay muted into 2027.