So, you have a business with ~40-45% ROA with very little incremental capital required to run and grow the business. Capex intensity is also ridiculously low (0.7% of sales in 2021) which is more or less similar to annual depreciation. ROA for this segment was consistently above 40% in the last five years. While it is a simple business growing mostly at a Mid-Single-Digit (MSD) rate, it is also a ridiculously profitable business.Īt first glance, operating margins appear to be fine but not quite extraordinary which has been hovering around ~20% in the last five years however, you need to look at Return on Assets (ROA) of this segment to appreciate the economics of TAG. Some DIY (Do-It-Yourself) homeowners, and mostly industrial and architectural paint contractors visit these stores to buy one of the Sherwin Williams branded paint (please note consumer paint business is generally referred as "architectural" in the industry). Sherwin Williams Company Operated Store (Ithaca, NY) If you live in the US, you may have visited one of these stores or at least may have noticed it. Sherwin Williams has almost 5,000 company operated stores all over the Americas. Since TAG is by far the most important segment for Sherwin Williams, let's start with this segment. Sherwin Williams reports its business primarily in three operating segments: The Americas Group (TAG), Consumer Brands Group, and Performance Coatings Group. Subscribe Section 1: Sherwin Williams Business Model Section 6 Final Words: Concluding remarks on Sherwin Williams, and disclosure of my overall portfolio. I also elaborated on my framework for terminal value multiples which is a frequent question I receive from subscribers. Section 5 Valuation and Model Assumptions: Model/implied expectations are discussed here. Section 4 Management and Incentives: Sherwin Williams' management and incentive structure is discussed in this section. Section 3 Capital Allocation: Even though both PPG and Sherwin Williams generated a lot of shareholder wealth over the decades, I documented how Sherwin Williams' capital allocation strategy helped outperform PPG. While these companies seem to be diverging in strategic direction, I discussed why I think Sherwin Williams is likely making the right decision. Section 2 Competitive Dynamics: While the competitors vary by region, I primarily focused on the rivalry between Sherwin Williams and PPG Industries. Unit economics of the stores, industry/macro factors, as well as margin structure of each of the operating segments are highlighted here. Section 1 Sherwin Williams Business Model: Sherwin Williams' three operating segments are dissected in this section. Here's the outline for this month's Deep Dive: Of course, there is much more to the Sherwin Williams story and how/why they have compounded over the decades. Sometimes, all it may require is selling products in a consolidated industry that is staple of society. 20 years:īerger Paints (India): ~389x or ~35% CAGRīerger Paints (Nigeria): ~8x or ~12% CAGR Source: KoyFin (5 December, 2022) *Data available since 1968, therefore actual "since IPO return" is different than shown for Sherwin Williams and PPGīasically, most of the players in this industry have outperformed S&P 500 over the last 20 years, some clearly more so than others! For companies to generate massive shareholder wealth, they don't necessarily need to invent airplanes, automobiles, or any mind bending innovation. Here's how some of the successful paint companies fared around the world during this timeframe i.e. Over the last 20 years, S&P 500 and NASDAQ 100 became ~5x and ~11x respectively. You would probably be surprised how much shareholder wealth was created in the public markets across the world by this "boring" industry. Sherwin Williams is perhaps my favorite Deep Dive in 2022. Some may even wonder it might be more fun to watch paint dry than studying a paint business! Personally, it was, in fact, the opposite. When much of the Silicon Valley or broader tech world is currently under the spell of the magic of Generative AI or ChatGPT, it may be somewhat monotonous to study a company that was founded in 1866 in Cleveland, Ohio.
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