Architectural Paint - Sherwin Williams

[BG2008]

I downloaded 30 year financials on Sherwin Williams from Gurufocus and I was astounded to learn that Sherwin Williams revenue only fell from a peak of $8.0bn in 2007 to $7.1bn in 2009.  Given how the housing bubble bursting put a screeching halt to new construction and how most people will probably elect to defer painting their homes in 2008/2009, why did the revenue held up so well? 

 

What is it about the paint and coating business that makes it such a good business?  The ROA and ROE are just astounding.  I know that Sherwin actually pushed through price increases in 2009. 

Sherwin_Williams_30_Year_Financials.xlsx

[rb]

The financials are impressive. But I think you're looking at it a bit wrong in the 08-09 period. The building (I include here flippers etc) came to a stop before 08. So that doesn't get much representation in 08-09. Besides that the builders use cheap, low margin stuff so it doesn't have that big of an effect.

 

The other part is that painting is not such an optional activity. Aside from a group of people that can't sit still most normal folks leave painting until it it really must be done. Also while the great recession was ugly in the grand scheme not so many people were affected - maybe 10%? Paint is also not such an expensive product.

 

The most impressive aspect is that they were able (or even thought) to pass a price increase during 08-09 especially since paint is quite a competitive industry. I guess the paint companies must play really nice with eachother.

[BG2008]

Is the paint industry really competitive when everyone plays nice?  I'm trying to figure out what is it in the structure that allows everyone to play nice?  I'm starting to notice that any industry that is heavily consolidated with 3-5 major players where it is hard to bring on new capacity can do quite well over time even if it seems like the industry is competitive.  Car rental is heavily consolidated yet they try to under cut each other all the time. 

 

Regarding the financials, I simply took a peak year and a bottom year and compared the two.    I would beg to differ that painting is not such an expensive product.  I would say that it is cheaper relative to knocking down walls and putting in fixtures.  But it's still a $500-$2,000 cost to paint a 1,000 sqft space.  Where I live, that's really just for the supplies and does not include the labor. 

[rb]

Yea playing nice depends on the industry. Auto rentals is concentrated and don't play nice. Cellphone carriers looks like they try to undercut each other but they actually play nice. Breakfast cereals have quite a few players but play very nice. Looks like paint also plays nice. The key is to figure out the industries.

 

Man paint things must be crazy in NYC. Up here in Toronto it runs me about $50 per gallon for high quality Benjamin Moore paint (contractor grade is about $25 a gallon and the contractor BM is actually pretty good stuff). Each gallon gives you about 400 sqft of wall coverage. 500-2000 would mean 10-40 gallons of paint. Yes I'm ignoring sandpaper, plastic sheeting and rags.

 

[Jaygo]

Sherwin is on my radar big time right now. (not as an investment right now ) Its not a bellwether because paint finishes go last in contruction but I think these guys have a terrible year ahead of them. 

 

I am really interested to see how bad sales get and if it ends up on par with the GFC. I dont short and I dont think its a good candidate either but I bet a few quarters from now they their sales will be rock bottom. 

 

They produce an incredible amount ( weight and volume ) of shitty paint for the contactor market and that scale helps keep cost down for the whole business and allows great returns when a guy comes in to buy ten gallons for his house. Well contractor is dead in the water without a constant flow of new builds and residential is hurting too. 

 

If anyone else follows the paints industry Id love some feedback

[gfp]

3 minutes ago, Jaygo said:

Sherwin is on my radar big time right now. (not as an investment right now ) Its not a bellwether because paint finishes go last in contruction but I think these guys have a terrible year ahead of them. 

 

I am really interested to see how bad sales get and if it ends up on par with the GFC. I dont short and I dont think its a good candidate either but I bet a few quarters from now they their sales will be rock bottom. 

 

They produce an incredible amount ( weight and volume ) of shitty paint for the contactor market and that scale helps keep cost down for the whole business and allows great returns when a guy comes in to buy ten gallons for his house. Well contractor is dead in the water without a constant flow of new builds and residential is hurting too. 

 

If anyone else follows the paints industry Id love some feedback

 

Just anecdotally, we are renovating the interior of our house right now and I have been to several local SW stores often recently.  They have not been busy, but I purposely avoid the mornings when contractors would be in there.  And our local SW stores do a lot of delivery business so it is hard to know how busy they are.  But the stores have been dead - which is nice because I can get in and out quickly and they aren't sold out of most of the products like they were during covid.

 

I would use the local BM affiliate but it is run by someone's idiot nephews and it is painful to buy paint there (it is also more expensive).

 

People paint when houses change hands.  Living currently in a construction site I understand why!  Now, to get back to removing drywall mud from standard poodle hair...

[Jaygo]

Yeah the traffic at any particular store is not relevant. Most volume is delivered to the site or to the shop of a contractor. But that's the low margin business. The high margin is good quality house paint and its also hurting right now.

 

I just consulted a job at a pigment manufacture and all this guy could talk about was how bad things are. He said his products go into everything from A-Z with a colour and they generally get an order 12-18 months before the product is manufactured. Be it plastics, clothing, paint, furniture ect.

 

Their pigments are bagged and shipped to the manufacture globally.

 

 

 

 

 

 

 

[Castanza]

23 minutes ago, gfp said:

 

Just anecdotally, we are renovating the interior of our house right now and I have been to several local SW stores often recently.  They have not been busy, but I purposely avoid the mornings when contractors would be in there.  And our local SW stores do a lot of delivery business so it is hard to know how busy they are.  But the stores have been dead - which is nice because I can get in and out quickly and they aren't sold out of most of the products like they were during covid.

 

I would use the local BM affiliate but it is run by someone's idiot nephews and it is painful to buy paint there (it is also more expensive).

 

People paint when houses change hands.  Living currently in a construction site I understand why!  Now, to get back to removing drywall mud from standard poodle hair...

 

ACE sells BM paint. When we were renovating during Covid it was a pita to get paint from Sherwin Williams. Long wait times on products like their Emerald line and on top of it the local smooth brains messed up the color after we waited 2 months for it to come in! My wife was pissed! Haven't been back since tbh. One thing for sure is paint has gotten pretty damn expensive. ~$70+ a gal is pretty insane if you ask me. Good for business I guess? 

[Red Lion]

5 hours ago, gfp said:

Now, to get back to removing drywall mud from standard poodle hair...

That struck close to home. I’ve done that quite recently. 

[lnofeisone]

On 8/15/2024 at 8:51 AM, Jaygo said:

If anyone else follows the paints industry Id love some feedback

How would you even go about assessing the different segments (low margin, high volume vs. high margin, low volume, etc.). We are in the middle of building an apartment in our basement. We are at about the right stage to get the paint in. I prefer BM but mostly because we know the store manager and we have a good relationship. I could ask our contractor tomorrow however the only thing I heard him complain about is the cost of SSD's bracket and how many more he now has to buy because of code changes due to FL building collapse.