Sherwin-Williams Q4 2024 Earnings Report

Choice Hotels International EPS Results

• Actual EPS: $2.09
• Consensus EPS: $2.07
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $1.81

Choice Hotels International Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $5.32 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Choice Hotels International Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 10:00AM ET

Choice Hotels International (NYSE:CHH), together with its subsidiaries, operates as a hotel franchisor in the United States and internationally. It operates through Hotel Franchising & Management and Corporate & Other segments. The company franchises lodging properties under the brand names of Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Ascend Hotel Collection, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Studios, WoodSpring Suites, Everhome Suites, Cambria Hotels, Radisson Blu, Radisson RED, Radisson, Park Plaza, Country Inn & Suites by Radisson, Radisson Inn & Suites, Park Inn by Radisson, Radisson Individuals, and Radisson Collection. Choice Hotels International, Inc. was founded in 1939 and is headquartered in North Bethesda, Maryland.

Sherwin-Williams Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning. Thank you for joining The Sherwin Williams Company's review of 4th Quarter and Full Year 2024 results and our outlook for the Q1 and full year of 2025. With us on today's call are Heidi Pets, President and CEO Al Mistysian, Chief Financial Officer Paul Lang, Chief Accounting Officer and Jim Jay, Senior Vice President, Investor Relations and Communications. This call is being webcast simultaneously in listen only mode by Issuer Direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes.

[Operator]

This conference call will include certain forward looking statements as defined under the U. S. Federal securities laws with respect to sales, earnings and other matters. Any forward looking statement speaks only as of the date of which such statement is made, and the company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward looking statements is provided in the company's earnings release transmitted earlier this morning.

[Operator]

After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Jim Jay.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, and good morning to everyone. Sherwin Williams delivered strong 4th quarter results that concluded a record year for the company. In what remained a very choppy demand environment, full year consolidated sales increased slightly driven by our deliberate and targeted investments to gain share and overcome softness in core accounts. Our gross profit dollars and margin expanded, EBITDA dollars and margin expanded and adjusted earnings per share grew by a near double digit percentage to $11.33 a share. Consolidated sales in the 4th quarter increased by a low single digit percentage and gross margin improved slightly over a very strong level a year ago.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

As we expected and previously described, year over year growth in SG and A moderated to a low single digit level. Adjusted earnings per share in the quarter increased by 15.5%. In terms of our segments in the Q4, Paint Stores Group sales increased in the range we expected, led by high single digit growth in residential repaint and protective and marine. Consumer Brands Group sales decreased in the range we expected, all related to unfavorable FX as volume and price mix were slightly positive. Within Performance Coatings Group, sales were slightly below expectations as strength in packaging and coil was offset by softness in other divisions.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Adjusted margin expanded year over year in all three operating segments. The slide deck accompanying our press release this morning provides more detail on 4th quarter segment performance. Let me now turn it over to Heidi, who will provide a few full year 2024 highlights before we move on to our 2025 outlook and your questions.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Thank you, Jim, and Happy New Year to all of those that are listening. I hope you had a wonderful holiday season and are geared up for the year ahead. I know you're eager to get to our 2025 outlook, but first I want to take a moment to reflect on what our 64,000 dedicated global employees have achieved over the last year. I am proud of what our team has delivered in 2024. We entered the year amidst an extremely choppy demand environment that quite frankly never improved meaningfully.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We knew this was a possible scenario and we doubled down on controlling what we could control. We stayed true to our strategy. We made targeted investments, focused on share gains and executed on our enterprise priorities. We continued to deliver innovative solutions for our customers and in a disruptive competitive environment, Sherwin Williams stood out by being a consistent, reliable and dependable partner. In addition to the strong margin expansion and earnings growth that Jim described a moment ago, it was another very good year of cash generation, which was $3,200,000,000 or 13.7 percent of sales.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We continued to execute our disciplined approach to capital allocation during the year, including $2,500,000,000 which we returned to shareholders for share repurchases and dividends. In terms of CapEx, we invested $1,100,000,000 including approximately $532,000,000 for our new headquarters and R and D center,

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

which we expect to begin occupying this year. We ended 2024 with a net debt to adjusted EBITDA ratio of 2.2x.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Looking at our reportable segments on a full year basis, paint stores grew by a low single digit percentage. Residential repaint drove the segment growth and increased by a mid single digit percentage. This was strong performance given anemic existing home sales and is the clearest example of a return on our prior investments. New residential and commercial both increased by low single digit percentages in a challenging rate environment. Flattish year over year segment margin reflects our continued growth investments, which we are confident will continue to drive above market sales over the long term.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Consumer Brands had a challenging year on the top line with lower sales resulting from soft DIY demand and unfavorable FX. Adjusted segment margin expanded back to our target level due to higher fixed cost absorption in the manufacturing and distribution operations within the segment. At the same time, we maintained our investments to support our customers despite weaker than expected volume in North America. Performance Coatings sales vary by division and geography. Acquisitions added a low single digit percentage in the year, but was offset by unfavorable price mix and FX.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Goyle was the strongest performer driven by new account wins. We're also pleased with packaging, which returned to growth as we won new accounts and recaptured the majority of previously lost share, just as we indicated we would. Industrial wood was up mid single digits driven by an acquisition. Accelerated share gains in auto refinish were not enough to overcome softness in core accounts driven by lower insurance claims. General Industrial, our largest division remained under the most pressure during the year with softness in heavy equipment demand.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Adjusted segment margin expanded to 18%, the highest level since the Valspar acquisition in 2017. Throughout 2024, we continued to operate from a position of strength. In fact, our confidence in our strategy along with our team's ability execute, led us to increase several of our midterm financial targets at our Investor Day this past August. I am confident we will achieve those targets over time given a more consistent demand environment. As we begin 2025, I'm also highly confident that nobody is better positioned than Sherwin Williams.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

During our October earnings call, we were among the first to describe the demand environment as softer for longer, with an expectation that the first half of twenty twenty five would likely remain choppy. 3 months later, we have seen little evidence to change that view and given the indicators that we do see several end markets may not improve until 2026. On the architectural side of the business, residential repaint demand has become slightly more encouraging as existing home sales have begun to show modest signs of recovery and Harvard's lira index shows a return to very slight growth. Residential repaint remains our single largest share gain opportunity and we significantly outperformed the market in 2024 given our targeted investments in sales reps, training and digital tools just to name a few. We would expect similar outperformance in 2025.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Looking at new residential, year over year growth in single family starts has been choppy over the last several months. Rate cuts have had little impact and mortgage rates remain well above 6%. We would expect to continue strengthening our homebuilder customer relationship to outperform the market. In commercial, we've been clear that we expect completions to be soft in 2025 as year over year multifamily starts have been mostly down by double digit percentages since the middle of 2023. Even if commercial starts do pick up in 2025, which seems unlikely given a consistently soft architectural billing index, they won't turn into painting and completions until well into 2026.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Property maintenance spending still appears to be idling in neutral. On the DIY side, we do not currently see a macroeconomic catalyst driving meaningful improvement in consumer demand. On the industrial side, the PMI numbers for manufacturing in the U. S. And Europe have been negative for multiple months, with Brazil and China being slightly positive.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We expect coil to grow again, driven by significant new account wins over the past year and a continued focus on new accounts this year. We're also confident in packaging

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

growth

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

as we gain share and support customers' conversion to our industry leading non DPA coatings by 2026 to comply with European Commission mandates. In Protective and Marine, the project pipeline remains solid, though the timing of starts remains variable. We expect auto refinish demand to remain choppy driven by continued softness of insurance claims, though our share gains should become more evident. Industrial wood will likely track with new residential, given the furniture, flooring and cabinetry end markets it serves. We expect general industrial demand to remain soft throughout the year.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

In summary, the market is not going to give us a lot of help this year. We'll continue to remain very aggressive with a focus on helping our existing customers grow as well as focusing on targeted share gains. Against this backdrop, we are providing guidance that we believe is very realistic. Should the market be better than we are currently assuming, we would expect to outperform the guidance we are providing to start the year. Moving on to our specific outlook, the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the Q1 of 2025.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

The deck also includes our expectations for the full year, where consolidated sales are expected to be up a low single digit percentage and diluted net income per share is expected to be in the range of $10.70 to $11.10 per share. Excluding acquisition related amortization expense of approximately $0.80 per share and restructuring expense of approximately $0.15 per share, adjusted diluted net income per share is expected in the range of $11.65 to $12.05 This is a mid single digit percent increase at the midpoint compared to 20 24's adjusted diluted net income per share of $11.33 We provided a GAAP reconciliation in the Reg G table within our press release. Our slide deck contains several additional data points that provide important context that I'd like to touch on here. Any comparisons described are year over year. From a sales perspective, I'll remind you that the Paint Stores Group implemented a 5% price increase effective January 6.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We would expect this to ramp up to typical 50% to 60% effectiveness over the next quarter. We also are implementing very targeted price increases in specific areas within our other 2 reportable segments. We expect the market facet of raw materials to be up a low single digit percentage in 2025. We expect to overcome these raw material headwinds and deliver full year gross margin expansion, driven by incremental 2025 pricing, simplification efforts across our supply chain as well as our paid stores group, which is our largest and highest gross margin segment growing sales faster than the other two segments. We expect SG and A dollars to grow by a low single digit percentage in 2025.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

This is a more typical level for us and less than last year's 5% increase. This year's increase includes $80,000,000 of operating expenses for our new building, which will be weighted to our second half. We'll also continue to have some operating expense for our current building until we have fully completed our move. As always, we plan to control costs tightly in non customer facing functions and we have a variety of levers that we can pull depending on a material change to our outlook, up or down. As we've previously described, interest expense will be up this year.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

This increase includes $40,000,000 related to refinancing of debt at higher rates, including $850,000,000 in 2024 and approximately $1,000,000,000 expected to be refinanced in 2025. It also includes $20,000,000 of interest related to financing activities of our new buildings. We expect to end the year within our current long term target debt to EBITDA leverage ratio of 2 to 2.5 times. Other general expense items are expected to return to more historic levels in 2025 and increase approximately $75,000,000 due to a gain on sale or disposition of assets of approximately $50,000,000 in 2024 that we do not expect to repeat in 2025 and an increase in our environmental provision of $25,000,000 We expect to open 80 to 100 new stores in the U. S.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

And Canada in 2025. We'll also be focused on sales reps, capacity and productivity improvements, systems and product innovation. Next month at our Board of Directors meeting, we will recommend an annual dividend increase of 10.5% to $3.16 per share, up from $2.86 last year. If approved, this will mark the 47th consecutive year that we've increased our dividend. We expect to continue making opportunistic share repurchases.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We'll also continue to evaluate acquisitions that fit into our strategy. In addition, our slide deck provides guidance on our expectations for currency exchange, effective tax rate, CapEx, depreciation and amortization. Finally, I'll remind you that our Q1 is a seasonally smaller one. For that reason, we will not be making any updates full year guidance up or down until our Q2 is completed and we have a better view of how the paint and coating season is unfolding. Our team is operating with great confidence and accountability as we begin 2025.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

As we have consistently said, it is only a matter of when the demand environment returns to greater strength, not if. And when that shift occurs, we expect to significantly outperform the market. In the meantime, we are not waiting. We often talk about how we operate, success by design. We have a clear and winning strategy.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We have the best team in the industry and we've made the right investments targeting specific markets and sub segments. We know how to deliver solutions for our customers that will make them more productive and more profitable. We continue to have significant new account and share of wallet opportunities in every business and region. We expect to continue winning more than our fair share of these opportunities. I also am highly confident that our enterprise wide efforts related to talent, simplification, digitization, supply chain responsiveness and sustainability will continue to deliver above market growth.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We get rewarded by overcoming obstacles, finding solutions for our customers and delivering results. We are extremely well positioned to continue delivering shareholder value and that's exactly what we intend to do in 2025. This concludes our prepared remarks. With that, I'd like to thank you all for joining us this morning and we'll be happy to take your questions.

[Operator]

Certainly. Everyone at this time, we will be conducting a question and answer session. Your first question is coming from Gregory Melich from Evercore. Your line is live.

[Greg Melich, Analyst at Evercore]

Hi, thanks. Good morning. I wanted to follow-up on the raw material expense as part of the guidance expecting that to rise this year. What commodities or areas are driving that? Are tariffs in any way a factor?

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Yes. Good morning, Greg. It's Jim talking. Couple of different things to think about there. Yes, there are some tariffs that are embedded in that.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Those are tariffs that are already in place mainly related to Asian imports of epoxy, which came into effect September November of last year. We're seeing inflation of low single digits in the raw basket. I would tell you that, that is related to industrial resins, TiO2 is up a bit, solvents up a bit, packaging up a bit. In addition to that tariff that I described, we have potential for others. Those aren't in the guide right now on the raws.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

We'll see how that unfolds. I think you have to also think about some other factors. You have suppliers with capacity rationalization and decommissioning of their plants, which puts pressure on price as well. So we'll see natural gas is up as well and trending upwards, which is another pressure point. So I think up low single digits to start the year and fairly spread out across the year evenly and fairly spread out across the different commodities.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

And Craig, this is Al Mustischian. The one thing I would add is the additional tariffs that we're tracking very closely that are not in our guidance, if those were to occur and they're significant, we would need to go and we're prepared to go out with additional price in specific markets and segments as required. Got it. Thanks and good luck.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Greg.

[Operator]

Thank you. Your next question is coming from Vincent Andrews from Morgan Stanley. Your line is live.

[Vincent Andrews, Analyst at Morgan Stanley]

Thank you and good morning.

[Vincent Andrews, Analyst at Morgan Stanley]

Could I ask about a couple of

[Vincent Andrews, Analyst at Morgan Stanley]

the special items that are in the guidance, particularly the $80,000,000 associated with the new headquarters? I know we've talked a lot in the past about the CapEx and the sale leaseback associated with the HQ, but I think this is the first we've talked about there being such a substantial incremental cost to using this new facility. So I'm just curious if you can help us understand what those are. I don't know in my head I would think the new facility would be more efficient from an energy and a water and all that type of thing. So what's driving the $80,000,000 and how much of it is one time in nature versus non recurring?

[Vincent Andrews, Analyst at Morgan Stanley]

And then you also have a step up in the environmental spending and I know that can be that can fluctuate year to year. So is there something special about the spend this year that may not recur next year or is this a new baseline? Thank you.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Vincent. I'll start with the new building. And the way I think about it is this is a transition year for us as a company as we're not moving into the we're going to start occupying the building as the year goes on. And as we talked about, this is predominantly second half loaded. I thought I'd be remiss if I didn't include some estimate in our cost base to say that as we get better line of sight on the timing of the occupying the building, we can refine that estimate on our July call.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

About 20, I'd say, a quarter of that 80 are, what I call transition costs, whether that is moving costs or decommissioning costs related to our old buildings. And yes, they are more efficient. However, I've got a headquarters building that I've been in for 90 years that is fully depreciated. We've made I would say we've made measured repairs to the existing building knowing we were going to get out of this building. But if you look at the ongoing service costs and things depreciation and things like that, we'll get a better line of sight of that when we're completely into the building, new buildings we're operating and we can kind of figure out what's working, what's not working.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

So these are estimates that need to be refined. The other comment I would make on the non operating, our assumption is we're going to get back to a more normal environmental cost. These are going to be more first half of an impact because we had credits last year. We don't expect to repeat those. I don't think it I would consider it a step up in environmental provision.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

I think we've made good progress on remediation and the further we get with remediation, the environmental provisions will get much clearer. So I think this more of a payback to normal expense in environmental versus maybe some credits in 2024 that I don't expect to repeat.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Vincent.

[Operator]

Thank you. Your next question is coming from David Begleiter from Deutsche Bank. Your line is live.

[David Begleiter, Managing Director at Deutsche Bank]

Thank you. Good morning. Heidi, on the share gain opportunity, can you help frame how that looks to you in terms relative to the PPG business? And looking back to the last year, how much of the Kelly Moore business did you end up picking up? Thank you.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Yes. Good morning, David. Let me start with Kelly Moore just because sequentially, obviously, that's I would say largely or significantly behind us. I don't know that we shared a number and I'm certainly not prepared to share a number today, but I would tell you given how complementary that business model was to us relative to some of the key segments, I'll point to Respiry Paint. We were able to I think be very well positioned.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

The team was very aggressive to make sure that we were focused on customer continuity and that we were the house that they wanted to transition to. So we're in a good position there. We expect that to continue into the run rate. As I look at the PPG sale, I would first describe that as an opportunity that we just came out of our national sales meeting and was not able to address over 10,000 of our store managers or reps. And I would tell you right with opportunity is the general sentiment.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

When you think about breaking that down in terms of how we look at the share gain opportunity, I think you have to start by segment, and also a little bit by region, size of contractor. We're largely focused with the crossover between property management, certainly commercial, new residential. So we're going to continue to be very aggressive to make sure that we are best positioned across those segments. I will also tell you, we are very focused on quality sales and making sure that we're targeting the customers that candidly value what it is that we do and what we bring to bear with our reps, our stores, our delivery, our tools, everything that we can put in front of them to make these contractors even more profitable than they are today is where we're going to focus. But there's a bit of a time lag.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

If you think about the speed in which we're able to pick up a res repaint contractor, While that's not easy and the team is working very hard to do so, you kind of see that return more quickly versus someone more in the property maintenance commercial space might be working will be working on projects that just simply have longer lag periods or could be bigger sized projects in play that are already committed to. So we're working really hard to really try to sync up as the market does recover. We'll see how back half of twenty twenty five goes. But as we look into twenty twenty six, we want to make sure that we are absolutely best positioned to take that share.

[David Begleiter, Managing Director at Deutsche Bank]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, David.

[Operator]

Thank you. Your next question is coming from John McNulty from BMO Capital Markets. Your line is live.

[John McNulty, Managing Director - Chemicals Analyst at BMO Capital Markets]

Yes, good morning. Thanks for taking my question. So I guess you sounded like there was at least a little bit of optimism in some of the paint store group end markets, particularly resi repaint. I guess, can you help us to think about what your customers are saying about their backlog? I know it's a seasonally kind of odd time or early time, but where is that optimism coming from?

[John McNulty, Managing Director - Chemicals Analyst at BMO Capital Markets]

Can you help us to think about that?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Yes. John, I'll start, here. I think you're right. I mean, we did indicate that there's moderate optimism, if I could kind of even moderate the word optimism. We're aggressively partnering with these contractors that are in the current environment, while the market is still kind of choppy.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

You've seen, I'm sure, certainly the lira indicators that paints, likely going to hold up overall, over everything else. But I would tell you part of this is making sure that our teams are looking to intercept. As you look at our current Res Re Paint contractors, our existing contractors, helping them growing their business, helping them market their business, helping them get more leads, close more leads so that they can become more profitable. And then in terms of pursuing share gains and new customers, there is a lot of disruption out there and we are going to continue to be consistent laying in stores, reps, tools, making sure that they're prepared. But I'll hand it over to Al.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Any additional comments you want to make here relative to some of the indicators?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, John. I think I'd just reinforce that we do expect that the demand environment will improve as the year goes on. And I'd highlight that as we've talked about on our Q3 call, as we talked about on this call, the first half is going to continue to be choppy and a continuation of what we saw in our second half twenty twenty four. Our sales guidance, if you will, for the first half would be up or down low single digits and then up low to mid single digits in the second half with our paint storage group being at or above the high end of those ranges. And you're going to we do expect some macro improvement as the year goes on, but we also expect to annualize some of the bigger headwinds on our core business that we saw throughout 2024 that we should with the aggressive new account activity and share wall activity that each of the teams have completed, we start seeing more volume as we go into the second half.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

And as you would expect, our earnings will flow in a similar fashion. We expect to be up year over year in our first half, but not nearly as much as we do expect to see in our second half.

[John McNulty, Managing Director - Chemicals Analyst at BMO Capital Markets]

Thanks very much for the color.

[Operator]

Thank you. Your next question is coming from Chris Parkinson from Wolfe Research. Your line is live.

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

Great. Thank you. So in addition to some of the gross spend in terms of stores and sales associates, you've also been spending a decent amount on product breadth and some new products in PSG and kind of getting up on some of the price points. And it sounds like you're pretty enthusiastic on some stuff in PC as well. Could I just ask what are the 2 to 3 largest growth or opportunities that you see in 2025 and 2026 when you step back as CEO regardless of what the macro environment does?

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

Where are you the most excited? Thank you.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Yes, great question. I think there's a number of items. I would point to where we see continued strength. We would expect to outperform res repaint. Again, I'm going to point to that as an example.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

You mentioned how we're looking at product introduction. It's a really good call out because when you think about not only the mix benefit that we see from an emergent standpoint, but our ability to bring solutions to these contractors that value productivity above all, the cost of labor being a significant part of the total cost of the job. We're able to bring technologies. They are more in the premium space because they are absolutely helping these crews to save time, ultimately money on these job sites. And so there's mixed favorability, certainly, which we love because we want to continue to stay kind of cutting edge as leaders and innovating in that space to help these contractors.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

So that will be the biggest piece. I think if you look on the performance side, similar to what I mentioned in prepared remarks as well, I would point to coil and packaging as the 2, 3 there. You've got a lot of focus here. Again, the market is not going to help us, but the team has been relentlessly focusing on new accounts, new business wins, fully expect us to continue to do that in both of those segments.

[Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Chris.

[Operator]

Thank you. Your next question is coming from John Roberts from Mizuho. Your line is live.

[John Roberts, Managing Director at Mizuho Financial Group]

Thank you. Do you expect non resi to be down all 2025? Or do we have easy comps in the back end of the year where you might actually have some positive comps?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. John, it's possible that we could have positive comps. There's obviously a number of macro things that have to improve to help us. The biggest being, as you get into interest rates and we've talked about property maintenance and the CapEx shortfalls that we've seen or the lack of investment, I should say, that we've seen, we're again cautiously optimistic as the year goes on. You see some of that improve.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

I think commercial, we've been very clear. We do expect to see that drop in our second half, knowing that we've been really aggressive at pursuing new opportunities to try to mitigate that. As the market goes, we're not immune to that macro slowdown, but we certainly are doing everything we can to mitigate it with these other segments, including P and M and trying to accelerate our resi repaint to help minimize that.

[John Roberts, Managing Director at Mizuho Financial Group]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Josh.

[Operator]

Thank you. Your next question is coming from Josh Spector from UBS. Your line is live.

[Josh Spector, Executive Director at UBS Group]

Yes. Hi, good morning. I wanted to ask on the CapEx guidance. So I mean, a few things there. One, I guess the $200,000,000 of building spend, is that because the cost of the headquarters is higher?

[Josh Spector, Executive Director at UBS Group]

Or are you now doing more or something different there? And then ex that, even the $700,000,000 guide is a bit higher than probably the $500,000,000 that we're modeling longer term. Is there more growth investments that you're doing that is worth calling out now? Or is there some reason why your sustainable CapEx should be higher looking 2, 3 years out? Thanks.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Josh. Let me the new buildings $200,000,000 is just the combination of finishing up our R and D center in our headquarters. As you know, we will get reimbursed for a portion of the headquarters CapEx in financing, but it all sits in CapEx. And I'm happy to say this will be the last year you'll hear us talk about CapEx for our new buildings. On the core CapEx, we've targeted 2% of sales.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

I expect to be in that target long term. In 2025, we are investing in additional architectural capacity that we've talked about, about our Statesville factory with our confidence in our long term growth initiatives within Paint Stores Group, within Consumer Brands Group, we'll fill that capacity up in a fairly short period of time. And then we're also investing in warehouse automation. As we've talked about with labor constraint in manufacturing distribution, we continue to look for opportunities to automate in those areas to take more weight off the back of our people. So long term, we'll see the benefits of that.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

The last thing I'd say is approximately 60% of our CapEx is or has a return on it and we expect to continue to see efficiencies out of our global supply chain related to that. Thank you, Josh.

[Josh Spector, Executive Director at UBS Group]

Thank you.

[Operator]

Thank you. Your next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.

[Duffy Fischer, Analyst at Goldman Sachs]

Yes, good morning guys. Question on price. So last year you asked for $5,000,000 in February. This year you asked for $5,000,000 in January. So can you do the after action review?

[Duffy Fischer, Analyst at Goldman Sachs]

How much did you get last year? What was the shape of that kind of throughout the year would be 1? And 2, how much of that old price still gets anniversary this year? And then does the shape of this year's price look different because you asked for it earlier, would you guess?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Duffy, I think what we talked about on the price last year, let me start with that. It improved, as the year went on and we had talked about coming into our second half that we'd see a more typical effective rate. So I would say it probably took us longer than we had planned. I would think learning from that, we really led in with a lot of discipline training in the field, making sure we gave our customers enough lead time to get ahead of it. And I would expect that our effectiveness in price will be better earlier this year than it was last year.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

It still will take over the next quarter to get to the effectiveness we want, but you'll see a much better effectiveness in our first half this year than you saw last year. And then the annualization, yes, there's some annualization on the increase last year. And obviously, because we went out earlier this year, we'll see more effectiveness in the Q1.

[Duffy Fischer, Analyst at Goldman Sachs]

Great. Thank you, guys.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Tobey.

[Operator]

Thank you. Your next question is coming from Ghansham Panjabi from Baird. Your line is live.

[Ghansham Panjabi, Senior Research Analyst at Baird]

Thank you. Heidi, as you kind of think about the 6 verticals within PSG, has your 2025 outlook changed in any material way versus your view when you reported 3Q earnings back in October, especially in commercial maybe?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

No, it hasn't. And I think Al characterized that really well just a few minutes ago relative to how we're looking at commercial in general. If the market does fare better than we're expecting, we expect to outperform the market. But I think this becomes a softer for longer, with eyes towards 2026 at this point, Ghansham.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Ghansham. I would just add, I think maybe the rate cuts that the Fed have been doing have not had the effect on the longer term rates that we were expecting. Mortgage rates are still up in that high 6% range. All things that you're talking nuances related to where we were in October and today, but I think we're in line, if you will, across each of the different segments to say, it's plus or minus a little bit, but we're right in line.

[Ghansham Panjabi, Senior Research Analyst at Baird]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Kasham.

[Operator]

Thank you. Your next question is coming from Mike Sison from Wells Fargo. Your line is live.

[Mike Sison, Analyst at Wells Fargo]

Hey, good morning. I wanted to get a better feel for maybe some of the headwinds in 2025 in the sense that it doesn't sound like demand is going to be much better in 2025 versus 2024. You got in 2024, you generated pretty good EPS growth of 10%. So if you think about 2025, SG and

[Mike Sison, Analyst at Wells Fargo]

A increase is going to be a little bit less year over year.

[Mike Sison, Analyst at Wells Fargo]

Demand does get much worse. So just curious what else is sort of impeding better EPS growth and maybe hoping your momentum this year would be kind of mirror our Guardian's so.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. I don't know we're going to be that good as The Guardian. But yes, Mike, I think we do have some headwinds additional to what we maybe would have saw in 2024. We try to call those out, 1, with higher interest expense, with the higher rates. We refinanced $850,000,000 in Q3 of 2024 at a higher rate.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Our expectation is the $1,000,000,000 we refinanced in Q3 of 2025 will be at a higher rate plus the financing for of our new building is a headwind. The non operating cost getting back to a more normal level is a headwind. And we're not hiding behind those, Mike. We fully we saw it coming. We expect that our performance with price volume, managing our SG and A to your point, getting on top of the low raw material and other cost basket increases, which year over year is going to be a little bit of a headwind.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

But I think the incremental new building costs on our second half, so I'm carrying that plus I'm carrying my existing buildings granted the existing buildings at a lower level. That $0.30 gets you to $12.15 at the midpoint, up about 7%. So I think that's kind of where we were coming into 2024 and then we saw a little bit better improvement in gross margin. We did manage our SG and A tighter in 2024 than what we had planned. So we got a little bit more of a lift in 2024 and I think coming into 2025 we're in a similar place if you could take out the incremental new building costs.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

And Mike, I would add just from an operating perspective, I think 2 of the macro headwinds that certainly we're not immune to single family housing starts have been down year over year for 3 consecutive months and 5 of the last 8 months. So we're managing through that. And then the multifamily housing completes are slowing given some extended periods of soft starts. So there are dynamics that we're going to continue to fight through and compete within them, but I think there's certainly no lack of headwinds as we enter the year.

[Mike Sison, Analyst at Wells Fargo]

Got it. Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Yes, Mike.

[Operator]

Thank you. Your next question is coming from Jeff Zekauskas from JPMorgan. Your line is live.

[Jeffrey Zekauskas, Analyst at JP Morgan]

Thanks very much. Some building products companies have talked about adverse weather and certainly it's been cold. When you look at your Q1 or you look at January, is that something that's affected you relative to last year? And then for Al, in the Consumer Brands Group, the margins for the 1st 3 quarters year over year relative to last year were up about 10 percentage points. And in the final quarter, they were up maybe 2%.

[Jeffrey Zekauskas, Analyst at JP Morgan]

Were there LIFO true ups or some LIFO dynamic that led to the sort of change in margin differential in the Q4?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Jeff, let me start. The cold weather is we expect that in January. It's our smallest quarter of the Q1. I think where we kind of focus our view is more in our Southeast and Southwest. And yes, we have more coal there, but I think there's time as we ramp through the quarter to get that back to the we believe we're within guidance, if you will, right now.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

I think when you look at consumer and that's a very good point that we saw in the 1st three quarters and talked about the fixed cost absorption adjustments that we made between GS our global supply chain, which is embedded in our consumer to stores and our paint performance coatings group to true up those costs. No impact on gross margin, but yes, that impacted the 1st 3 quarters. We annualized those adjustments in our 4th quarter. And if you look at our Q4, the increase was primarily due to good cost control. I think that team has done a nice job managing their costs as the year has gone on to the tighter volumes.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

However, without really sacrificing service and options to our customers and partly offset by lower gross profit dollars related to the lower sales. We did still see some benefit in supply chain efficiencies, but going into 2025, our expectation would be those will be incremental improvements because those one time adjustments, if you will, are no longer happening.

[Jeffrey Zekauskas, Analyst at JP Morgan]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Jeff.

[Operator]

Thank you. Your next question is coming from Chuck Cerankosky from Northcoast Research. Your line is live.

[Chuck Cerankosky, Managing Director & Research Analyst at Northcoast Research]

Good morning, everyone. We've got some very favorable demographic indications for future housing demand. And Heidi and Al, how might you expect it to evolve on the existing home sales and new housing starts without substantial changes in indicated, they haven't been responding to Fed cuts as expected. So how might what might be the scenarios you see that the housing markets could improve on the supply side? Thank you.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Chuck. I think, you're absolutely right in the sense that, as existing home turnover has been backwards over 36 months in a row, there's pent up demand that because household formations continue to be strong, there's still over $1,000,000 1,000,000 dollars We've started life goes on. People get married, people have children and that just creates more pent up demand, which may mean Chuck, which may mean that interest rates don't need to get back to we were thinking, boy, you'd have to get back to 5% before you start seeing some movement. We saw interest rates drop into that or 30 year mortgage drop into that 6%, 6.5% range and we saw a nice uptick in existing home turnover. So I think we might see a different view of the world at slightly higher interest mortgage rate gets people to move start moving and turning homes more, which would then really impact res repaint, industrial wood or coil business on the appliances side and things of that nature.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

I just think it as we see it as we put it out in our guidance, more second half kind of impacts. It just takes even when an existing home starts to turn or to sale or new residential picks up, it just takes time to filter through to the painting side of that.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

And in the meantime, I think what's really important in terms of kind of what we can control in this environment, I'll take you back to the where we started last year with this it's when not if. In the meantime, as we focus on partnering from an existing home sales, res repaint contractors and they'll take you to our national builders or regional builders on the new res side, making sure that we are partnering with them in new and innovative and creative ways, to really help them solve for their biggest pain point, obviously, which is affordability, as we all know. So I do think that there's it's masked now, because the market hasn't moved. But when the market does move, Chuck, I'm very confident that we're going to be able to demonstrate a different level of partnership with these builders as a result of the team's effort.

[Chuck Cerankosky, Managing Director & Research Analyst at Northcoast Research]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Chuck.

[Operator]

Thank you. Your next question is coming from Mike Harrison from Seaport Research Partners. Your line is live.

[Michael Harrison, Analyst at Seaport Research Partners]

Hi, good morning. We haven't really talked at all about labor costs yet today. I was wondering if you can comment on how changes in immigration policy could impact your business as well as that of your paying contractor customers to the extent that changes in policies could lead to some impacts on labor availability?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Yes. Good morning, Mike. Well, I would tell you that it's not a new topic for us. I think, 150 year old company, we've certainly seen a lot of administrations. And I do think with what we're seeing here, we've been looking at solving for helping our contractors work through some of these challenges that might be it's too early to tell how this is going to impact the country, let alone our industry and our company.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

But I would tell you what's most important for us regardless of where that does go is we're going to continue to stay laser focused on helping our customers be productive. And so if I take you to a job site and you think about a constrained labor, we've got the crew on-site. Our number one job is to get these contractors and applicators on and off the job site as quickly as possible. So that impacts everything from application to touch up, avoiding having to come back on the job site. And so the controllables, again, what we are already doing and we'll continue to do are focusing on the right technologies, that help these contractors be efficient.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

We are investing a course in our delivery and in our service so that we can be accurate and precise in terms of delivery timing. So we're not putting contractors in a position where their crews are idle and waiting. Certainly, our field reps that we've laid in, this is really critical in terms of problem solving real time, contractors having access, again, so that they're not waiting idly and have crews waiting. So there's a whole host of investments that we've been putting behind this. Now if and when and how this impacts us, again, too early to tell, but we're going to make sure that we're best positioned to help our contractors to be prepared and for them to win in this environment.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Mike.

[Operator]

Thank you. Your next question is coming from Mike Leithead from Barclays. Your line is live.

[Michael Leithead, Analyst at Barclays Capital]

Great. Thanks. Good morning, everybody. I just wanted to drill into the paint stores 2025 sales guidance of up low to mid singles. Is it fair to think of price at sort of the higher end of that low single digits and then maybe volume probably at the lower end of that low single digits?

[Michael Leithead, Analyst at Barclays Capital]

And then within that volume, is there a meaningful dispersion in your expectations between say the 5 or 6 different verticals within the segment?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Mike, I think you're correct. I think price will be stronger than volume, especially as you ramp up going through the year. I would say res repaint, we'd expect to be at or above the high end of that range, continuing the market share gains and momentum we experienced in the second half of twenty twenty four, which was actually up a high single digit number. I think Heidi talked about the other verticals. We do think new res maintains a positive momentum and throughout the year.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

And then I think commercial property maintenance, she touched on both of those. The 2 I would also touch on P and M within our paint storage group, I do think up low low to mid. And then DIY, I mean, I think is going to be flattish in the first half and then possibly improve as existing home turnover improves.

[Michael Leithead, Analyst at Barclays Capital]

Great. Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Mike.

[Operator]

Thank you. Your next question is coming from Arun Viswanathan from RBC Capital Markets. Your line is live.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Great. Thanks for taking my question. Good morning. Just curious, if you think about Q1, obviously impacted by weather, maybe you expect kind of the Q2 to Q4 kind of sales growth to be above Q1 levels? And if so, would that be the same for all of the segments or mostly for PSG?

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Thanks.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Arun, I would say it's not I wouldn't point to the weather in our Q1. Our Q1 is a small quarter. I think it's a continuation of the choppiness we saw in our 4th quarter. And then as the year unfolds, you're going to see varying degrees across the segments. Let's be clear, res repaint, we are very confident you're going to see consistent mid single digit growth, if not improving.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

I think between the other paint storage group segments, I think we just touched on those that new res I think is pretty consistent and the others will improve except for commercial as the year goes on. I think within our industrial businesses, we're very excited about our packaging group and the improvements we saw in our Q4 and the continuation of that, not to mention the European standard and regulation that goes in the first half of twenty twenty six. So we ought to we're going to see customers converting to our non BPA epoxy, which we believe is first in class. I think we've talked about auto refinish and our optimism, and we talk about claims being down double digits. I think when you look at North America in our 4th quarter, you're seeing the new account wins that got us into a low single digit improvement and we expect that to improve as the year goes on in 2025 as you annualize some of these claims data, you'll see improvement in that area.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

We're also we've talked about coil, the new wind gains there and that consistency of that team and that's going to continue in 2025. And then industrial wood, we've talked as new residential improves, existing home turnover improves, it really impacts cabinets, flooring, furniture and the expectations that improves as the year goes on. I think general industrial has seen the biggest headwinds. They take longer to come out of that and I'm not expecting that we'll see improvement throughout 2025.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Arun.

[Operator]

Thank you. Your next question is coming from Aleksey Yefremov from KeyBanc Capital Markets. Your line is live.

[Aleksey Yefremov, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Thank you. Good morning. Well, hopefully sales and demand improve in 2026 or perhaps later. Can you tell us what kind of demand improvement can you current footprint of stores and associates accommodate before you need to ramp up SG and A investments? So would it be 5%, 10% and then you need to ramp SG and A or perhaps a higher number?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

I'll start and I'll ask Al to come in. I would tell you we have the capacity. I think the fact that again the market is not going to help us. We're out aggressively focused on taking share. We've got the capacity relative to stores.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Having said that, we're going to continue as part of our capital allocation that Al laid out laying in 80 to 100 new stores throughout the year. And that will be largely focused on geographies where we know we have opportunity to grow and win. But by and large, I don't know that there's a magic number per se. I mean, we've our ability to help these contractors to grow, is within our capacity. Our ability to help our contractors travel from store to store is well within our capacity.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Yes.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

The only thing I would add to that, Alexia, think of it as from a rep standpoint, it's a really variable kind of cost that we can ramp up as we see volume improving 1 to 2 quarters out with our forecasting models. I think Heidi said that we're adding 80 to 100 stores a year that gives us great capacity to handle any res repaint or other segment increases.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Alexey.

[Operator]

Thank you. Your next question is coming from Kevin McCarthy from Vertical Research Partners. Your line is live.

[Kevin McCarthy, Partner at Vertical Research Partners]

Yes. Thank you and good morning. I have two questions, one for Heidi and one for Al. Maybe to start off with Heidi on the subject of pricing, I think you mentioned in your prepared remarks, you're pursuing increases in Consumer and Performance Coatings in addition to the paint store hikes that we already talked about.

[Kevin McCarthy, Partner at Vertical Research Partners]

How would you can you elaborate

[Kevin McCarthy, Partner at Vertical Research Partners]

on that? How would you characterize prospects for positive pricing contributions from those 2 segments in 2025? And then, for Al, what is the level of foreign exchange drag that you're baking into your guide in light of the recent dollar strength? Thank you.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Yes. Thanks, Kevin. I'll start. The comment that I shared relative to pricing for the segments is that it would be very targeted within the segment. And so you look at that through the lens of regions and geography.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Obviously, we're not going to announce here today what those specific actions are, but where we know we need to get price, we're going to be very aggressive and make sure that we do so.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. Kevin, I think on a consolidated basis, FX, we expect to be a headwind of about 1%. But when you really break that out, it's more pronounced in our Latin America teams, in which case you'll see maybe mid teens impact on Latin America, which translate to about a mid single digit impact on consumer and then roughly a 2% impact on our Performance Coatings group.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Kevin, I would just add, you asked about the specific pricing. I'd point out in the slide deck, there's a slide that may be very helpful in there that for the year breaks out volume price FX by segment. So you might want to use that as a guide.

[Kevin McCarthy, Partner at Vertical Research Partners]

Thank you very much.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

You bet. Thanks, Kevin.

[Operator]

Thank you. Your next question is coming from Adam Baumgarten from Zelman and Associates. Your line is live.

[Adam Baumgarten, Managing Director at Zelman & Associates]

Hey, good morning, everyone. You talked about gross margin expansion in 2025. Can you maybe put a finer point on the magnitude you're anticipating and that's embedded in your guidance? And also should we think about that as relatively even across the quarters or more second half weighted?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes, Adam. We'll not give you an exact number, but you would expect our gross margin expansion to be let me put it this way. It will be less than it was that we saw in 2024 on a year over year basis. As the year progresses, I would expect to see our gross margin get stronger in our second half versus our first half because of the expectation that volume improves. The price increases are meant to offset raw material costs inflation of the low single digits, other cost basket increases of low single digits.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

And that's I view that as probably about 75% of the increase. We're also continuing as we've talked about self help initiatives with simplification. We expect acquisition synergies to continue to progress, both sales synergies, but also on cost synergies. And then, we do expect low single digit production volume increases that with the cost controls that our supply chain teams have put in place that we get some efficiencies out of that and get some small improvements and a tailwind on supply chain efficiencies in 2025. Those wrap together probably about a quarter of the improvement.

[Adam Baumgarten, Managing Director at Zelman & Associates]

Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Adam.

[Operator]

Thank you. Your next question is coming from Garik Shmois from Loop Capital Markets. Your line is live.

[Garik Shmois, Managing Director at Loop Capital Markets LLC]

Hi, thank you. In consumer brands, just wondering if

[Garik Shmois, Managing Director at Loop Capital Markets LLC]

you could speak to how DIY and propane volumes were in the 4th quarter and any color on how you expect them to trend in 2025 would be great?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

So I'll start with DIY. I think we've covered this earlier, certainly weaker than expected. I will share given from a CVG standpoint, the importance of these customers' strategic partnerships that we have, continue to invest in making sure that we are taking their success and our success. And this is really important that we're laser focused on ensuring that as the market does recover that we and they are best positioned on that run up. In terms of Pro Paints, I'm going to jump let's leave it over to Al here.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. I think the Pro Paints, we are under pressure in our Q4. I think that being said, we've maintained our investments in the Pro Paints, understanding that we don't react to a short term headwind. We stay focused on the longer term and fully expect as think about as the paint stores or sorry, as the existing home turnover improves, we ought to see pro paint improvements in that segment and also DIY improvements in that segment as the year goes on. And that's kind of how we laid out the plan from a top line standpoint for consumer brands, really similar to how we were looking at Paint Stores Group first half, second half.

[Garik Shmois, Managing Director at Loop Capital Markets LLC]

That's helpful. Thank you.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thanks, Derek.

[Operator]

Thank you. Your next question is coming from Patrick Cunningham from Citi Investment Research. Your line is live.

[Patrick Cunningham, Analyst at Citigroup]

Hi, good morning. I'm curious on the latest thoughts on the M and A pipeline. Should we maybe expect less of a focus on M and A this year given some elevated capital spends, end markets relatively challenging. Any update to your thinking on

[Patrick Cunningham, Analyst at Citigroup]

some of the more sizable coatings businesses that are coming to market?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

This is a really consistent approach that we take here. We're always going to be looking. I don't know that I would characterize this as more or less within the year. I think it would be a very steady hand at understanding where our portfolios are, where we want to drive growth within the portfolio by segment. And if there is opportunity to accelerate our strategy, whether it's a technology, a brand or a region, we're always looking.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

But we will go back to our capital allocation policy in general. Absent all the items that I'll walk through, we'll look at that. But we absolutely do not need M and A to grow. We're going to continue to focus on putting our foot on the gas where we know we have a right to win today. But should something attractive come along, you can assume that we're going to take a look at that.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Patrick.

[Operator]

Thank you. Your next question is coming from Steve Byrne from Bank of America. Your line is live.

[Steve Byrne, Research Analyst at Bank of America Securities]

Yes, thank you. I had a follow-up on the labor pool. Just curious whether you're hearing from your paint store customers anywhere in the country, in particular, where they're already seeing an impact of the deportation initiative on their labor pool. And if this is a realistic impact this year, do you think that it might be more impactful on the pro that paints and maybe shifts more to the paint stores business or might it shift more to DIY? Any thoughts on that and or regional impacts in your view?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

Steve, I think it's too early to tell. We're not hearing by and large, we're not hearing frankly a lot of commentary about this impacting contractors on the store side or the propopane side relative to their labor pools. It does certainly reinforce, I think, our position in the market to be able to get ahead of these issues and focus on productivity. I think this just continues to put us in a leadership position there. In fact, I can tell you, I've been out with over a dozen customers since the start of the year.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

And if there's one scene that's consistent, it's an acknowledgment that you guys are you're there when you say you're going to be there. Who would have thought simply doing what you say you would do would be a differentiator? But the fact that we're staying true to our focus on solving for their profitability and their productivity, I think that positions us very nicely to be able to help when if and when and how this does impact them. In terms of any kind of toggling or switch between stores and consumer and Provo Paints, I don't see that happening or in any material way. I think that that's going to be a dynamic that will impact everybody kind of equally.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. Steve, the only thing I would add to that, to think that there'd be a shift back to DIY, it's just hard to see that when you look at over a long period of time the trend from do it yourself to do it for me because of some of the macroeconomic situation we have in the U. S. With an aging demographic, the average age of a home in the U. S.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Is 40 years old, which makes for more complex type of renovations or projects. There's a lot of equity in homes that allow people to view it as an investment to improve their homes for future value. And there's a this trend of baby boomers staying in place longer and doing upgrades to their home because they know they're going to be there longer and typically they got more equity that they can hire out a contractor. So it's hard to see a flip from back to do it yourself over the longer term. Thank you, Steve.

[Steve Byrne, Research Analyst at Bank of America Securities]

Thank you.

[Operator]

Thank you. Your next question is coming from Aaron Cieciarelli from Berenberg. Your line is live.

[Aron Ceccarelli, Equity Research Analyst at Berenberg]

Hello, good morning. Thanks for taking my question. Perhaps can you elaborate a little bit on the level of profitability of your market shares gains? Would it be fair to assume that these new accounts come at least at the beginning at the lower level of margins? Thank you.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. Aaron, I wouldn't classify I wouldn't make a broad statement like that. I think, there's a lot of different activities around new account activation. And depending on where that account is in their maturity level and they may come in from a competitor and want a similar price point until they understand all the benefits, services, quality, delivery, that ecosystem that we talk about, our Pro Plus app. And then those are the accounts that we're able to move up because they begin to sense and value what we have to offer.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

But I would not make a blanket statement, say all new accounts are that way.

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

In fact, I would go so far as to say Al made a great point on the maturity of the contractor. Residential repainting a great example where oftentimes coming in new trying to learn and our teams are able to intercept them early in that maturity curve even all the way through to helping them present themselves a professional bid, making sure they've got the yard signs, they're marketing their business. And when they see the value, everything that Al talked about, are focused on selling them and putting them into better product and technologies that are going to make them even more efficient, certainly benefits everybody as well.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Aaron.

[Aron Ceccarelli, Equity Research Analyst at Berenberg]

Thank you.

[Operator]

Thank you. Your next question is coming from Eric Bosshard from Cleveland Research Company. Your line is live.

[Eric Bosshard, CEO at Cleveland Research Company]

Thanks. Two things. First of all, I'm curious in terms of price mix, if you're seeing any sensitivity across the architectural business on the pro side or on the consumer side, trading down or anything you're doing in an environment where there's greater price sensitivity. I know that people pay for value and productivity. That's a given with Sherwin.

[Eric Bosshard, CEO at Cleveland Research Company]

Anything different you're observing or planning for in that area?

[Heidi Petz, CEO, President & Director at The Sherwin-Williams Company]

No. Eric, I would tell you, if anything, it's the opposite. And you said it really well, the value and productivity. As we continue to launch new products, as we continue to focus on getting our contractors on and off job sites, I think it works candidly the other way. And I would say that's true certainly on the Pro side, Pro Hoe Paints and the consumer side.

[Eric Bosshard, CEO at Cleveland Research Company]

And then secondly, in terms of the incremental spend on reps and on the selling effort, helpful to see that, that spend is moderating a bit in 2025. In terms of the payback, any sense or guidance you can give us in terms of the payback curve as you've added them and invested in them? Are they up at full impact in 2024?

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. Eric, you kind of broke up, but I think what you're asking is the timeliness of getting a return on our reps. And as you know, they're predominantly repaint reps. And I think we get a return on those in 1 to 2 quarters as and I think about a density within a market because what we're able to do in our densest markets is take an existing res repaint territory that gets up to a high number of accounts, high level of sales, terrifically successful. We're able to split that territory, seed some of those accounts that maybe weren't getting the attention that quite honestly they deserved.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

We put a new rep in there and they both grow quickly back to where they were or at a higher level. So the return on our rep, especially res repaint rep is really short and then we are getting a return and we expect to see those returns continue into 2025.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you, Eric.

[Operator]

Your next question is coming from Laurence Alexander from Jefferies.

[Carol Cheung, Analyst at Jefferies]

This is Carol Chung on for Laurence Alexander. Maybe just come back to a more general question for the full year 2025. What has to go right for you to hit the high end of the guidance? And what might go wrong given the softer for longer environment, So we look at the lower end of the guidance. Thank you.

[Allen Mistysyn, Senior VP of Finance & CFO at The Sherwin-Williams Company]

Yes. I think where we're going to be within the guidance is going to be dependent on where paint stores group volume is within our high and low end of the range. And I could say that also about the other segments, but really paint storage group is our fastest growing segment, our most profitable segment and where they are in that volume range will dictate where we are from an EPS standpoint.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Thank you.

[Operator]

Thank you. That concludes our Q and A session. I'll now hand the conference back to Jim Jay for closing remarks. Please go ahead.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

Yes. Thank you, Matthew. As we outlined today, we expect the macroeconomic environment to remain choppy in 2025, no surprise there. But at the same time, and I think Heidi said it very well at the beginning, we're not waiting, we're relentlessly pursuing those opportunities that we do see. It's all about success by design.

[James Jaye, Senior Vice President of Investor Relations & Corporate Communications at The Sherwin-Williams Company]

And we have a very proven track record here. We've got a clear and winning strategy, the best team, we've made the right investments and we know how to deliver the solutions for our customers that are going to make them more productive, more profitable, which is really important in this environment. Nobody is better positioned than Sherwin Williams to win in the marketplace and deliver that consistent shareholder value and that's exactly what we plan to do here in 2025. As always, we'll be available for your follow-up calls and thank you again for your interest in Sherwin Williams. Have a great day.

[Operator]

Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

Participants

Executives

• James Jaye, Senior Vice President of Investor Relations & Corporate Communications
• Heidi Petz, CEO, President & Director
• Allen Mistysyn, Senior VP of Finance & CFO

Analysts

• Greg Melich, Analyst at Evercore
• Vincent Andrews, Analyst at Morgan Stanley
• David Begleiter, Managing Director at Deutsche Bank
• John McNulty, Managing Director - Chemicals Analyst at BMO Capital Markets
• Chris Parkinson, Managing Director & Senior Research Analyst at Wolfe Research, LLC
• John Roberts, Managing Director at Mizuho Financial Group
• Josh Spector, Executive Director at UBS Group
• Duffy Fischer, Analyst at Goldman Sachs
• Ghansham Panjabi, Senior Research Analyst at Baird
• Mike Sison, Analyst at Wells Fargo
• Jeffrey Zekauskas, Analyst at JP Morgan
• Chuck Cerankosky, Managing Director & Research Analyst at Northcoast Research
• Michael Harrison, Analyst at Seaport Research Partners
• Michael Leithead, Analyst at Barclays Capital
• Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets
• Aleksey Yefremov, Managing Director & Equity Research Analyst at KeyBanc Capital Markets
• Kevin McCarthy, Partner at Vertical Research Partners
• Adam Baumgarten, Managing Director at Zelman & Associates
• Garik Shmois, Managing Director at Loop Capital Markets LLC
• Patrick Cunningham, Analyst at Citigroup
• Steve Byrne, Research Analyst at Bank of America Securities
• Aron Ceccarelli, Equity Research Analyst at Berenberg
• Eric Bosshard, CEO at Cleveland Research Company
• Carol Cheung, Analyst at Jefferies