SHERWIN WILLIAMS CO Q3 FY2024 earnings call

• Continued to invest in long-term strategy to capitalize on share gain opportunities. - Impact of hurricanes: ~200 stores closed in 3Q due to Helene, ~225 closed in 4Q due to Milton, most now back online. - Success by design approach: Deliberately making right choices and investments for sustained above-market growth. - Segment details: Protective & Marine up high single digits; Residential Repaint had fifth consecutive mid-single-digit growth; New Residential grew mid-single-digit; Commercial up low single digits; Property Management flat; DIY soft. - Product sales: Interior paint grew faster than exterior due to outdoor delays. - Store openings: 45 net new YTD, expect 80-100 full year.

Paint Stores Group: Sales increased low single digits, volume and price up low single digits; segment margin 24.5% due to higher investments. Opened 45 net new stores YTD, expect 80-100 for full year. Consumer Brands Group: Sales decreased high single digits (inclusive of ~4% FX impact); NA down high single digits, Europe up mid-single digits, Latin America volume/price positive but FX offset; adjusted segment margin 22.9%. Performance Coatings Group: Net sales flat (FX offset volume); adjusted segment margin 18%; Packaging up high single digits, Coil solid growth, Industrial Wood low single digits, Auto Refinish soft, General Industrial facing headwinds.

• Maintaining full year EPS guidance. - SG&A growth in second half expected to moderate to low to mid-single digits. - 5% price increase effective January 6th due to feedstock and wage inflation. - Uncertainties in 4Q due to hurricane timing and industrial holiday shutdowns' impact on demand.

• Uncertainty in hurricane recovery timing affecting sales and demand. - Potential for extended industrial holiday shutdowns impacting certain customer segments. - Feedstock cost uncertainties, including propylene and epoxy resin price fluctuations and tariff impacts.

Q: Could you talk about the cadence of SG&A spend, specifically why more was pulled into 3Q than 4Q?

A: Al Mistysyn mentioned that SG&A expectations for the second half are in line with pre-quarter expectations, with some timing differences. Heidi Petz emphasized investing in long-term strategy to widen competitive moat.

Q: How to think about pricing dynamics for 2024 and 2025?

A: Al Mistysyn said a 5% price increase was due to feedstock and wage inflation, and in 2025, they expect to be in the historical range of 50%-60% driven by national account contracts and competitive dynamics.

Q: On the consumer business, divergence between sales change and earnings change, was it due to inter-segment transfers?

A: Al Mistysyn stated the allocation for inter-segment transfers was the same, with Consumer Brands' segment profit due to global supply chain performance and cost control.

Q: Thoughts on competitive landscape, especially PPG business in North America?

A: Heidi Petz said they focus on premium segments and quality sales, characterizing PPG as a long-term opportunity where they aim to earn customers' business.

Q: View on remodeling demand and its trend?

A: Jim Jaye mentioned a potential home renovation resurgence, with indicators like Lira ticking up, and Heidi Petz highlighted the team's focus on differentiation and serving contractors to be primed for growth when the market recovers.

Q: Size of hurricane impact in 3Q and sensitivity for 4Q, and industrial holiday shutdowns?

A: Al Mistysyn said Hurricane Helene in 3Q impacted stores by less than 1 point, costing ~$0.05 in the quarter, and industrial holiday shutdowns are uncertain with close monitoring of customer demand.

Q: On Paint Stores price increase and customer swing to big box?

A: Al Mistysyn said no significant impact seen, and they focus on providing better service and supply chain resilience to be customers' supplier of choice.

Q: Sentiment of major customers in PSG for 2025?

A: Heidi Petz said broad sentiment is modest back half potential, with differences by segment, like Res Repaint more bullish and Commercial facing challenges.

Q: Outlook for Refinish and Packaging in Performance Coatings Group?

A: Heidi Petz said Refinish has some transitory factors but confidence in share gains and acceleration, while Packaging had high single-digit growth in 3Q with strong momentum into 2025.

Q: Comments on CapEx and SG&A in Consumer Brands?

A: Al Mistysyn explained CapEx timing and disciplined SG&A approach, with investments in selling, digital, and modernization to drive customer productivity and efficiency.

Q: Thoughts on competitive environment and true value do it best?

A: Heidi Petz said it's a moment in the industry, focusing on quality sales in premium sub-segments to serve customers effectively.

Q: CapEx and PCG customer slowdowns?

A: Al Mistysyn said CapEx year-to-date includes reimbursements, and PCG customer slowdowns are broad-based in general industrial, particularly heavy equipment.

Q: COGS decline and competitive pricing in stores?

A: Al Mistysyn said COGS decline was due to supply chain efficiencies and FX, and Heidi Petz noted industry discipline, with focus on upselling and holding the recent price increase.