Sherwin-Williams (SHW) Q3 2026: Gross Margin Falls 140bp as Costs Outpace Price

Sherwin-Williams (SHW) third-quarter 2026 results show sales still growing while the gross margin fell 140 basis points as raw material costs ran ahead of price increases. The company filed its 10-Q for the quarter ended September 30 on October 27, 2026, and held its earnings call the same day [1][2]. Three questions framed the quarter: whether paint store volume could keep growing after an 8% price increase on September 1, whether pricing could protect the gross margin, and whether the consumer brands segment could sustain its second-quarter margin improvement. Paint store volume kept growing, so the market-share case held. The consolidated gross margin fell 140 basis points year over year because pricing lagged costs, and the consumer brands improvement did not carry into the third quarter [1][2]. Overall, the growth engine is intact, but margins are under pressure until the price increase is fully realized. The company narrowed its full-year adjusted EPS guidance to $11.85 to $12.15 and kept the midpoint unchanged [2].

Sherwin-Williams is one of the world's largest coatings companies. Its core business is a network of company-operated paint stores in North America and the Caribbean, 4,853 at the end of 2025, whose main customers are professional painting contractors [3]. The Consumer Brands Group sells retail brands and makes most of the paint sold in the stores; 63% of its 2025 sales were intersegment transfers [4]. The Performance Coatings Group sells industrial coatings to industrial customers [5].

Raw material costs outpaced price increases

The consolidated gross margin fell from 49.2% to 47.8%, which was worse than the company expected in July. At that time, the company expected high-single-digit raw material inflation in the second half and a full-year gross margin flat with the prior year at the guidance midpoint [6]. In the second quarter, the gross margin had fallen only 20 basis points year over year [7]. The 10-Q attributes the third-quarter decline to mix, including Suvinil dilution and faster growth in lower-margin segments, and to higher raw material and supply chain costs [1]. The CFO said each factor accounted for about half of the decline [2].

Businesses without Suvinil were also under pressure. The Paint Stores Group gross margin fell because of raw material and supply chain inflation; based on segment data, it was about 55.2% versus about 55.7% a year earlier [1]. The Performance Coatings Group gross margin also fell on raw material inflation, and its pre-tax margin was 13.4% versus 13.7% a year earlier [1].

The price-cost gap absorbed most of the sales growth. Consolidated net sales rose 7.9% to $6.86 billion, but pre-tax income grew only 0.3%, and adjusted diluted EPS was $3.63, up 1.1% [1]. Management said the 8% price increase is tracking as planned and will be fully realized in the first half of 2027. The company expects low- to mid-single-digit raw material inflation in 2027, with the largest impact in the first half, and does not plan its customary January 1 price increase for now [2]. Whether the gross margin stops falling depends on whether price realization moves faster than cost inflation.

Consumer Brands margin improvement did not last

The Consumer Brands Group margin fell sharply. The segment's adjusted margin had been 24.5% in the second quarter, versus 22.4% a year earlier [8]. Third-quarter segment net sales rose 21.7% to $937.4 million, but acquisitions contributed 21.5 percentage points and currency 1.0 point, leaving sales down about 0.8% excluding both [1]. Organic volume fell by a mid-single-digit percentage, and North American demand was soft [1][2].

Weaker demand and acquisition costs pushed segment profit lower. Pre-tax segment profit was $146.2 million, down 7.1%, and the margin fell from 20.4% to 15.6%. Segment SG&A rose $43.6 million, mainly because of Suvinil [1]. Management said the adjusted margin fell because of raw materials, Suvinil integration costs and currency, while the underlying margin excluding acquisitions remained in the low 20s [2]. The company's adjusted margin figure itself was not disclosed in the material. Suvinil passed the one-year mark on October 1 [2].

Paint store volume held up after the price increase

Paint store volume kept growing. Paint Stores Group net sales rose 4.7%, with a mid-single-digit contribution from price and low-single-digit volume growth. All professional end markets grew: protective and marine by a double-digit percentage, commercial by a high-single-digit percentage and residential repaint by a mid-single-digit percentage [1]. Same-store sales rose 3.9%, slightly below 4.2% in the second quarter [1][9]. Segment profit rose 2.1%, while the margin fell from 24.9% to 24.3% because of higher raw material costs and investment in sales reps and stores [1].

Conclusion

The third-quarter results confirm market-share gains in the paint stores but weaken the view that pricing can cover raw material costs in time. Cash generation has not been affected so far: operating cash flow for the first nine months was $2.591 billion, versus $2.359 billion a year earlier [1]. The next tests come in the fourth quarter and the first half of 2027: whether the gross margin decline narrows once Suvinil is in the comparison base, and whether the paint store gross margin and consumer brands organic volume stop falling. The material does not say whether the company changed its view of second-half 2026 raw material inflation.

Sources

[1] SHW 10-Q filed 2026-10-27 · Q3 2026 MD&A and segment information, 2026-10-27, Sherwin-Williams 10-Q, https://www.sec.gov/Archives/edgar/data/89800/000008980026000056/ [2] SHW Q3 2026 earnings call 2026-10-27 · call summary, 2026-10-27, Sherwin-Williams earnings-call [3] SHW 10-K filed 2026-02-19 · Paint Stores Group business and store base, 2026-02-19, Sherwin-Williams 10-K, https://www.sec.gov/Archives/edgar/data/89800/000008980026000008/shw-20251231.htm [4] SHW 10-K filed 2026-02-19 · Consumer Brands Group business and intersegment supply, 2026-02-19, Sherwin-Williams 10-K, https://www.sec.gov/Archives/edgar/data/89800/000008980026000008/shw-20251231.htm [5] SHW 10-K filed 2026-02-19 · Performance Coatings Group business, 2026-02-19, Sherwin-Williams 10-K, https://www.sec.gov/Archives/edgar/data/89800/000008980026000008/shw-20251231.htm [6] SHW Q2 2026 earnings call 2026-07-28 · full-year 2026 guidance detail, 2026-07-28, Sherwin-Williams earnings-call, https://gateway.drillr.ai/mcp/private [7] SHW 8-K filed 2026-07-28 · Q2 2026 statement of consolidated income and segments, 2026-07-28, Sherwin-Williams 8-K, https://www.sec.gov/Archives/edgar/data/89800/000008980026000046/shwearningsrelease2q2026.htm [8] SHW 8-K filed 2026-07-28 · Q2 2026 Consumer Brands Group results, 2026-07-28, Sherwin-Williams 8-K, https://www.sec.gov/Archives/edgar/data/89800/000008980026000046/shwearningsrelease2q2026.htm [9] SHW 8-K filed 2026-07-28 · Q2 2026 results summary, 2026-07-28, Sherwin-Williams 8-K, https://www.sec.gov/Archives/edgar/data/89800/000008980026000046/shwearningsrelease2q2026.htm