SHERWIN WILLIAMS CO

The Sherwin-Williams Company is engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean region, Europe, Asia and Australia. The Company operates in more than 120 countries. The majority of sales for the reportable segments traditionally occur during the second and third quarters. The Company experiences competition from many local, regional, national and international competitors of various sizes in the manufacture, distribution and sale of its products. Key competitive factors across segments include technology, product quality, product innovation, breadth of product line, technical expertise, distribution, service and price.

The Company is a leading manufacturer and retailer of paint, coatings and related products to professional, industrial, commercial and retail customers. In the Paint Stores Group, competitors include other paint and wallpaper stores, mass merchandisers, home centers, independent hardware stores, hardware chains and manufacturer-operated direct outlets. In the Consumer Brands Group, domestic and foreign competitors include manufacturers and distributors of branded and private-label paint and coatings products as well as other paint and wallpaper stores, mass merchandisers, home centers, independent hardware stores, hardware chains and manufacturer-operated direct outlets. The Performance Coatings Group has numerous competitors in its domestic and foreign markets with broad product offerings and several others with niche products. The Company had sales to certain customers that, individually, may be a significant portion of the sales and related profitability of the Consumer Brands Group and Performance Coatings Group, but the loss of any single customer would not have a material adverse effect on the overall profitability of either segment. During 2025, no individual customer accounted for sales totaling more than ten percent of the Company's sales.

The Company generates revenue through three reportable operating segments: Paint Stores Group, Consumer Brands Group and Performance Coatings Group, plus an Administrative function. The Paint Stores Group operates 4,853 ¹ company-operated specialty paint stores in the United States, Canada and the Caribbean region, each servicing architectural and industrial paint contractors and do-it-yourself homeowners. The Consumer Brands Group manufactures and distributes a broad portfolio of branded and private-label architectural paint, stains, varnishes, industrial products, wood finishes products, wood preservatives, applicators, corrosion inhibitors, aerosols, caulks and adhesives to retailers, including home centers and hardware stores, dedicated dealers and distributors throughout North America, Latin America and Europe, and also operated 307 ² company-operated specialty paint stores in Latin America. The Performance Coatings Group develops and sells industrial coatings for wood finishing and general industrial applications, automotive refinish, protective and marine coatings, coil coatings, packaging coatings and performance-based resins and colorants worldwide, and distributed products through 317 ³ company-operated branches, a direct sales staff and outside sales representatives. Approximately 63% ⁴ of the total sales of the Consumer Brands Group in 2025 were intersegment transfers of products primarily sold through the Paint Stores Group.

The Paint Stores Group consisted of 4,853 ⁵ company-operated specialty paint stores in the United States, Canada and the Caribbean region at December 31, 2025. Each store markets and sells Sherwin-Williams and other controlled brand architectural paint and coatings, protective and marine products, OEM product finishes and related products. The majority of these products are produced by manufacturing facilities in the Consumer Brands Group. During 2025, the Paint Stores Group opened 80 ⁶ net new stores, consisting of 83 ⁷ new stores opened and 3 ⁸ stores closed. Net sales for the Paint Stores Group were $13.6059 billion ⁹ in 2025, compared to $13.1880 billion ¹⁰ in 2024. Income before income taxes for the Paint Stores Group was $3.0615 billion ¹¹ in 2025, compared to $2.9026 billion ¹² in 2024. The Paint Stores Group's Gross profit as a percent of Net sales increased in 2025 primarily due to growth in Net sales from favorable selling prices and moderating raw material costs.

The Consumer Brands Group manufactures and distributes a broad portfolio of branded and private-label architectural paint, stains, varnishes, industrial products, wood finishes products, wood preservatives, applicators, corrosion inhibitors, aerosols, caulks and adhesives to retailers, including home centers and hardware stores, dedicated dealers and distributors throughout North America, Latin America and Europe. The Consumer Brands Group also consisted of 307 ¹³ company-operated specialty paint stores in Latin America at December 31, 2025. Approximately 63% ¹⁴ of the total sales of the Consumer Brands Group in 2025 were intersegment transfers of products primarily sold through the Paint Stores Group. Net sales for the Consumer Brands Group were $3.1664 billion ¹⁵ in 2025, compared to $3.1080 billion ¹⁶ in 2024. Income before income taxes for the Consumer Brands Group was $509.6 million ¹⁷ in 2025, compared to $589.9 million ¹⁸ in 2024. The Consumer Brands Group incurred most of the Company's capital expenditures related to ongoing environmental compliance measures, manufacturing capacity expansion, operational efficiencies and maintenance projects at sites currently in operation. The Performance Coatings Group develops and sells industrial coatings for wood finishing and general industrial (metal and plastic) applications, automotive refinish, protective and marine coatings, coil coatings, packaging coatings and performance-based resins and colorants worldwide. This segment distributed products through the Paint Stores Group, its 317 ¹⁹ company-operated branches, a direct sales staff and outside sales representatives to retailers, dealers, jobbers, licensees and other third-party distributors. Net sales for the Performance Coatings Group were $6.7952 billion ²⁰ in 2025, compared to $6.7973 billion ²¹ in 2024. Income before income taxes for the Performance Coatings Group was $942.7 million ²² in 2025, compared to $1.0279 billion ²³ in 2024. The Performance Coatings Group's Gross profit decreased $38.1 million ²⁴ compared to the same period in 2024 primarily due to an unfavorable impact from selling prices attributable to product mix.

In October 2025, the Company completed the acquisition of BASF SE's Brazilian decorative paints business (Suvinil) for approximately $1.15 billion ²⁵. The acquired business develops, manufactures and sells products under the Suvinil and Glasu! brand names and is reported within the Consumer Brands Group. In March 2025, the Company completed the acquisition of a European coil and industrial coatings company for approximately $80 million ²⁶, reported within the Performance Coatings Group. In June 2025, the Company completed the acquisition of a domestic regional floor covering provider for an immaterial purchase price, reported within the Paint Stores Group. During 2025, the Company implemented certain restructuring initiatives to simplify its operating model and reduce the cost structure within the Administrative function, as well as the Consumer Brands and Performance Coatings Groups, resulting in provisions of $111.0 million ²⁷ for severance and other restructuring expenses. The Company also recorded trademark impairment of $17.8 million ²⁸ in the Performance Coatings Group related to restructuring activities. The Company purchased 4.8 million ²⁹ shares of its common stock for treasury purposes through open market purchases during 2025 for $1.6564 billion ³⁰. The Company paid $789.8 million ³¹ in cash dividends during 2025. The Company issued $500.0 million ³² of 4.30% senior notes due 2028, $500.0 million ³³ of 4.50% senior notes due 2030 and $500.0 million ³⁴ of 5.15% senior notes due 2035 in a public offering in July 2025. The Company entered into a new 364-day senior unsecured delayed draw term loan credit agreement in August 2025 which provided for a $750.0 million ³⁵ US dollar-denominated senior unsecured DDTL and a €250.0 million ³⁶ Euro-denominated senior unsecured DDTL, and the Company exercised the full amount of the draw in September 2025 to fund the acquisition of Suvinil.

Consolidated Net sales increased 2.1% ³⁷ in the year to $23.5743 billion ³⁸ compared to $23.0985 billion ³⁹ in 2024. Net sales from stores in the Paint Stores Group open more than twelve calendar months increased 1.7% ⁴⁰ in the year. Diluted net income per share decreased 2.7% ⁴¹ to $10.26 ⁴² per share in the year compared to $10.55 ⁴³ per share in 2024. Adjusted diluted net income per share increased 0.9% ⁴⁴ to $11.43 ⁴⁵ per share in the year compared to $11.33 ⁴⁶ per share in 2024. Consolidated Gross profit increased $320.4 million ⁴⁷, or 2.9% ⁴⁸ in 2025 compared to the same period in 2024. Consolidated Gross profit as a percent to consolidated Net sales increased to 48.8% ⁴⁹ in 2025 from 48.5% ⁵⁰ in 2024. Net income was $2.5685 billion ⁵¹ in 2025 compared to $2.6814 billion ⁵² in 2024. The Company generated Net operating cash of $3.4516 billion ⁵³, or 14.6% ⁵⁴ of Net sales in the year.

Management expects the softer-for-longer demand environment to continue in 2026. Within the Paint Stores and Consumer Brands groups, management anticipates continued economic pressures to impact customer buying behavior in 2026. The outlook for the Performance Coatings Group is varied by end market and region with an expectation that the core business remains flat, however, new account wins and favorable business sales mix should drive growth. At the business unit level, management expects modest growth in Automotive Refinish, Industrial Wood and General Industrial while Packaging sales are anticipated to be flattish. Coil sales are expected to be slightly negative due to demand softness. Management expects raw material costs could be impacted by evolving tariff policies. Management expects these costs and employee-related expenses to contribute to a low-single digit percentage increase, offset by cost saving simplification efforts across the supply chain such as capacity and productivity improvements. The Company plans to expand its footprint by opening 80 to 100 ⁵⁵ new stores in the United States and Canada in 2026.

The Company's investments in sales reps, training and digital tools, coupled with home builder relationships are expected to drive growth opportunities within the Paint Stores and Consumer Brands groups. The Company's differentiated strategy, Success by Design, continues to deliver innovative and productive solutions for customers. Significant opportunities exist for each business, and the Company will continue to support its growth strategy by executing initiatives within its enterprise priorities, including talent, simplification, digitization, supply chain responsiveness and sustainability. The Company expects to continue to evaluate acquisitions that align with its strategy.

Management expects raw material costs could be impacted by evolving tariff policies. Management expects these costs and employee-related expenses to contribute to a low-single digit percentage increase, offset by cost saving simplification efforts across the supply chain such as capacity and productivity improvements. The Company implemented certain restructuring initiatives during 2025 to simplify its operating model and reduce the cost structure within the Administrative function, as well as the Consumer Brands and Performance Coatings Groups, with provisions of $111.0 million ⁵⁶ for severance and other restructuring expenses. As of December 31, 2025, the restructuring initiatives are complete and the remaining amounts accrued are expected to be substantially paid out by the end of the second quarter of 2026.

The Company has a strong liquidity position, with $207.2 million ⁵⁷ in cash and $3.649 billion ⁵⁸ of unused capacity under its credit facilities at December 31, 2025. The Company is, and expects to remain, in compliance with all financing covenants. Long-term debt maturities due in 2026 are $350.1 million ⁵⁹, which were fully repaid in January 2026 with short-term borrowings. The Company expects to spend less than 2025 for capital expenditures in 2026, which it will fund primarily through the generation of operating cash. Core capital expenditures are targeted to be approximately 2% ⁶⁰ of Net sales in 2026 and are expected to be for investments in various productivity improvement and maintenance projects at existing manufacturing, distribution and research and development facilities and new store openings.

With the long-term debt maturities refinanced during 2025 and the interest related to the delayed draw term loans to fund the Suvinil acquisition, coupled with the incremental interest expense related to the new global headquarters and research and development center and the higher interest rates used to refinance the long-term debt maturities due in 2026, Interest expense is expected to increase by approximately $85 million ⁶¹ in 2026. The Company's capital deployment strategy remains balanced and consistent. The Company plans to return value to its shareholders through the payment of dividends and repurchases of common stock. On January 26, 2026, the Board of Directors increased the quarterly cash dividend to $0.80 ⁶² per share. This quarterly dividend, if approved in each of the remaining quarters of 2026, would result in an annual dividend for 2026 of $3.20 ⁶³ per share, or a 31% ⁶⁴ payout of 2025 diluted net income per share. The Company had remaining authorization from its Board of Directors at December 31, 2025 to purchase 29.6 million ⁶⁵ shares of its common stock.

Management expects inflationary pressure to continue to impact consumer and manufacturing customer behavior during 2026, including in the United States housing market as a result of elevated mortgage rates and in global industrial markets as a result of softer demand. Although the Federal Reserve cut interest rates in 2025, mortgage rates have remained high and the Company has not experienced meaningful positive impacts on demand for its products that serve these segments of the economy to date. Management expects the recent and continued combination of high interest rates and inflation to continue to impact consumer and manufacturing customer behavior in 2026. In the U.S. construction and housing segments, labor markets are impacted by a number of factors, including high employment levels, unemployment programs and subsidies, immigration laws and volatility in general macroeconomic factors. The Company has in the past and may in the future see project backlogs in these segments due to contractors experiencing a shortage of skilled workers, resulting in an adverse effect on the growth rate of demand for its products.

Policy changes affecting international trade, including import/export restrictions and tariffs, could adversely impact the demand for the Company's products and its competitive position. Government actions taken in connection with the United States-China trade conflict have in the past and could in the future impact business, including sales, imports and exports. The Company's business benefits from free trade agreements, including the United States-Mexico-Canada Agreement and EU-UK Trade and Cooperation Agreement. Efforts to withdraw from, or substantially modify such agreements, in addition to trends such as protectionism or nationalism and the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements, exchange controls or new barriers to entry, could have a material adverse effect on the Company's results of operations, financial condition or cash flow and that of its customers, vendors and suppliers.

Adverse changes in general business and economic conditions in the United States and worldwide, including inflation rates, interest rates, recessionary conditions, and geopolitical conditions, have in the past adversely affected and may in the future adversely affect the Company's results of operations, cash flow, liquidity or financial condition. Unexpected shortages and increases in the cost of raw materials and energy, including petrochemical-derived resins, latex, solvents, and titanium dioxide, have in the past and may in the future adversely affect the Company's earnings or cash flow. The Company is involved with environmental investigation and remediation activities at some of its currently- and formerly-owned sites, and at December 31, 2025, had short-term and long-term accruals for environmental-related activities of $52.7 million ⁶⁶ and $224.9 million ⁶⁷, respectively, with the substantial majority relating to the Gibbsboro, New Jersey site. The nature, cost, quantity and outcome of pending and future litigation, including lead pigment and lead-based paint litigation, could have a material adverse effect on the Company's results of operations, cash flow, liquidity and financial condition. The Company currently has not accrued any amounts for the pending lead pigment and lead-based paint litigation. At December 31, 2025, the Company had total debt of approximately $10.871 billion ⁶⁸, which is an increase of $982.9 million ⁶⁹ since December 31, 2024, and the degree to which the Company is leveraged could have important consequences for shareholders.

Management's message emphasizes that Sherwin-Williams delivered strong 2025 results driven by solid core performance and a focus on operational discipline despite continued demand choppiness. Full year Net sales grew to a record level, and gross profit and gross margin expanded. The Company continued to generate strong cash flow from operations, which was used for investment in capital expenditures, funding acquisitions and returning cash to shareholders through dividends and repurchases of common stock. Management expresses confidence in the differentiated strategy, Success by Design, that continues to deliver innovative and productive solutions for customers. The strategic priorities emphasized for the period ahead include executing initiatives within the enterprise priorities of talent, simplification, digitization, supply chain responsiveness and sustainability. Management expects the softer-for-longer demand environment to continue in 2026. The Company plans to expand its footprint by opening 80 to 100 ⁷⁰ new stores in the United States and Canada in 2026, continue to evaluate acquisitions that align with its strategy and return value to shareholders through the payment of dividends and repurchases of common stock. Interest expense is expected to increase by approximately $85 million ⁷¹ in 2026.