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Architectural Paint - Sherwin Williams


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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

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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.

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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. 

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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.

 

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