SHERWIN WILLIAMS CO Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Sherwin-Williams executed strategy and delivered solid first quarter results despite challenging demand environment. Consolidated sales within guided range, Paint Stores Group growth offset by softness in other segments.
• Gross margin and gross profit dollars expanded. SG&A decreased due to good spending control. EBITDA margin and dollars expanded. Adjusted EPS grew 3.7% to $2.25 per share.
• Continued disciplined capital allocation: $352 million in share repurchases and 10% dividend increase.
• Focus on innovation to provide customers with productive and profitable solutions. Executed on simplification and digitization to drive efficiencies.
• Announced Suvinil acquisition, expected to close in second half of 2025, complementing Latin America business.

Segment Performance

• Paint Stores Group: Sales grew low single-digits percentage, with price mix up mid-single-digits and volume down low single-digits. Contribution from price mix includes January 2025 increase and residual of February 2024 increase. Opened 18 new stores in the quarter.
• Protective and Marine: Grew high single-digits percentage, driven by oil and gas, water and wastewater, high performance flooring, and high value infrastructure projects.
• Residential Repaint: Sales increased mid-single-digits percentage despite existing home sales softness. New residential up low single-digits percentage.
• Commercial and Property Maintenance: Sales remained under pressure due to weak commercial construction completions and delayed CapEx spending.
• Consumer Brands Group: Sales within expected range. Over half of decrease due to unfavorable FX, remainder from soft DIY demand in North America. Adjusted segment margin expanded to 21.3% due to supply chain efficiencies and disciplined G&A control.
• Performance Coatings Group: Sales below expectations. FX, price mix, and volume down low single-digits, partially offset by low single-digits contribution from acquisitions. Packaging was bright spot with high single-digits growth. Coil recovered in March. Industrial wood down, General Industrial under pressure, Auto refinish under pressure but with new account wins. Adjusted segment margin decreased 60 basis points.

Guidance

• Reaffirming full year sales and earnings per share guidance provided in January. Updated full year outlook to be provided in July when paint and coating season and global economy trajectory are clearer.
• Second quarter sales guidance provided. Raw materials expected to be up low single-digits percentage in 2025, likely at higher end of that range due to tariffs.

Risks

• Tariffs impacting raw materials such as applicators, pigment, extenders, industrial resins, and packaging, though materiality is manageable.
• Choppy demand environment affecting various segments, particularly Commercial and Property Maintenance.
• Potential need for additional price increases if tariffs persist and cannot be fully offset by other means.

Question and Answer

Q: Good morning. Thanks for taking my question. A question on the pricing environment and tariffs. It sounds like you have relatively low exposure from a tariff perspective. If you do start to see raw materials inching up at all in small parts of your basket, do you feel like you have an ability to put that pricing through? And I know normally you don't tend to raise price during the kind of heart of the paint season, but if tariffs warrant that, is that something that you would consider as we look through 2025?

A: Hi, John. Good morning. This is Jim. Let me take a run at that first and maybe talk about raws in general and then turn to Al to answer some of the additional parts of your question. So if we look at our first quarter of 2025, raws were flat year-over-year. With the tariffs starting to come into place, our second quarter guide for raws is going to be a little bit higher than we initially thought, as those tariffs start to go into effect this past month here. For '25, we're still in the range as you saw on our slide deck where our raws are going to be up a low single-digits percentage, but I would say more likely at the higher end of that low single-digits. And the tariffs to your point most of our raw materials are in the region that we're manufacturing, but we are seeing some impact mainly on areas like applicators, a little bit on pigment and extenders, a little bit on industrial resins is where we're seeing it, a little bit on packaging as well. So those are the areas that overall the materiality of it is something that we can manage. I'll ask Al maybe to add a little color to that as well.

Q: Good morning. Great start to the year. I had a follow-up question on price mix for the stores, up mid-single-digits. Was that mostly price or if it's maybe half-half with mix, what is that mix component to that equation?

A: Yes. Mike, it was predominantly price and I give the stores team a lot of credit. They really did a great job coming into this price increase, giving our customers enough lead time, before the increase was implemented. They did additional training in the field, which provided a strong and better effectiveness this year versus last year. If you recall, we talked last year about we were up 0.5%, which was split evenly between price and volume. So we got off to a little bit slower start on price effectiveness last year and it ramped up, as we got through the second quarter and into our third quarter. And again, I think they did a really nice job of making sure the price went in and it was effective. The mix side of that is as res repaint is growing at a mid-single-digits percentage, which is absolutely taking market share in a down market. That has a positive mix shift relative to the other segments like commercial and property maintenance. So that would be the mix side of it, but it was predominantly price.

Q: Thank you. Could you talk a little bit more about COGS and gross margins, just because you had volume down across the three segments? You said raws were flat, but the cost performance kind of looks better than that with no diseconomies from the volume, and no benefit from raws and the margins were up. So is there anything else in there that we should be thinking about? And likewise on the SG&A, it was down in the first quarter, but you're still projecting it up low single-digits for the full year. Were you flexing that a little bit in the first quarter just given the volume challenges and maybe that has to be made up later in the year? What was the cadence of that going to look like?

A: Yes, Vincent. On the gross margin, the selling price increase certainly in Paint Stores Group had a predominant effect on that. And as Paint Stores Group grows faster than the other segments, it does lift our gross margin. And then, we also had supply chain efficiencies in the quarter. I think the team through the continuous improvement work they're doing, the simplification work they're doing is really finding their stride, if you will, that as we get increased volume, they're able to drive efficiencies through our operations. So those would be the three main drivers there. On SG&A, I think we didn't flex, I wouldn't say, we flexed our SG&A down specifically in the first quarter. I think when we go back to July of last year and look when we were looking at the first half of 2025 and the full year 2025, we understood that, we'd be under continued pressure from a demand environment. So we proactively attacked SG&A on all fronts across all segments and including admin and you're seeing the results of that. That being said, we're going to continue to add 80 to 100 stores. We're going to continue to add the reps associated with that and strategic investments across the other segments that over the course of the year, you're going to see some of that pick up. We'll give you a better view of the second half in July, when we have a better view of the demand environment. And as we typically have done, if we believe demand is going to be stronger or our gross margin is going to be stronger, you can guarantee that we'll flex our selling customer facing investments in the second half accordingly, as we have typically done in the past. But again, we'll give you an update on that in July.