SHERWIN WILLIAMS CO Q4 FY2024 earnings call

Key Points

• Sherwin-Williams had strong fourth quarter results, concluding a record year. Full-year consolidated sales increased slightly, driven by strategic investments. Gross profit and EBITDA margins expanded, and adjusted earnings per share grew near double-digit.
• In the fourth quarter, paint stores group sales were in expected range, consumer brands group sales affected by FX, and performance coatings group sales slightly below expectations but margins expanded.
• Full-year 2024 highlights included strong cash generation ($3.2 billion, 13.7% of sales), capital allocation with $2.5 billion returned to shareholders, $1.1 billion CapEx including new headquarters/R&D center, and net debt-to-adjusted EBITDA ratio of 2.2x.
• Segments: Paint stores had low single-digit growth with residential repaint driving; consumer brands faced top-line challenges but adjusted margin expanded; performance coatings had varied sales by division/geography but adjusted margin expanded to 18%.

In the fourth quarter, paint stores group sales increased in the expected range, led by high single-digit growth in residential repaint and protective and marine. Consumer brands group sales decreased due to unfavorable FX, but adjusted margin expanded. Within performance coatings group, sales were slightly below expectations, but adjusted margin expanded year-over-year in all three operating segments. On a full-year basis, paint stores grew by a low single-digit percentage with residential repaint driving growth. Consumer brands had lower sales due to soft DIY demand and unfavorable FX but adjusted margin expanded. Performance coating sales varied by division and geography, with coil being a strong performer and packaging returning to growth.

Forward-Looking

• Consolidated sales expected low single-digit growth in 2025. Diluted net income per share expected $10.70-$11.10 excluding certain items, adjusted diluted net income per share $11.65-$12.05.
• SG&A dollars expected low single-digit growth in 2025, including $80 million for new buildings weighted to second half.
• Raw material costs expected low single-digit increase, with gross margin expansion driven by pricing, supply chain simplification, and paint stores group growth.
• Interest expense up due to refinancing at higher rates and building financing.
• Expect to open 80-100 new stores in U.S. and Canada in 2025, recommend 10.5% dividend increase to $3.16 per share, and continue share repurchases.

Risks

• Raw material inflation, including industrial resins, TiO2, solvents, packaging, and potential tariffs.
• Foreign exchange headwinds, particularly impacting Latin America and certain segments.
• Macroeconomic challenges affecting non-residential segments, such as soft demand in general industrial and commercial areas.

Q: 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?

A: Yes, there are tariffs embedded, mainly related to Asian imports of epoxy. Raw basket inflation is low single digits, related to industrial resins, TiO2, solvents, packaging. Suppliers' capacity rationalization and natural gas trends also contribute.

Q: Can I ask about a couple of the special items that are in the guidance, particularly the 80 million associated with the new headquarters?

A: The 80 million is a transition year cost, with about a quarter being transition costs like moving/decommissioning old buildings. Estimates need refinement. Environmental spending expected back to normal with no repeat of 2024 gains.

Q: On the share gain opportunity, can you help frame how that looks to you in terms relative to the PPG business?

A: Focus on segments/regions, with res repaint as a key area. Kelly Moore business integration is behind us, and PPG opportunity is ripe. Focus on quality sales and customer value, with time lag in some segments.

Q: 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?

A: Possible positive comps if macro improves, but commercial expected soft in second half. Mitigating with other segments like res repaint.