The Sherwin-Williams Company

Good morning. Thank you for joining the Sherwin-Williams Company's review of fourth quarter 2022 results and our outlook for the first quarter and full year of 2023. With us on today's call are John Marcus, Chairman and CEO, Al Misteson, CFO, Heidi Petz, President and COO, Jane Cronin, Senior Vice President, Corporate Controller, and Jim Jay, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by issue or direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately two hours after this conference call concludes. 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 on which the 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. After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Jim Jay.

Thank you and good morning to everyone. Sherwin-Williams delivered strong fourth quarter results compared to the same period a year ago, including high single-digit percentage sales growth, significant year-over-year gross margin improvement, expanded adjusted operating margins in all three segments, strong double-digit diluted net income per share growth, and strong EBITDA growth. Sales in our professional architectural end markets increased by a high teens percentage. On the industrial side of the business, sales were up by double-digit percentages in North and Latin America, partially offset by softer conditions in Europe and Asia. From a cost perspective, year-over-year inflation remained significant in the quarters. But we are encouraged by a modest sequential decrease in raw material costs for the second quarter in a row. Additionally, we made solid progress on the targeted restructuring and cost reduction actions we announced on our last call. The results of which we expect to begin benefiting us in the first half of 2023. Throughout the quarter, we remain focused on customer solutions and executing on continuous improvement and business optimization activities. We also identified opportunities and prepared for what we currently expect will be a challenging operating environment in 2023. I'd like to highlight just a few of our consolidated fourth quarter numbers. Comparisons in my comments are to the prior year period unless stated otherwise. Starting with the top line, Fourth quarter 2022 consolidated net sales increased 9.8% to $5.23 billion. Consolidated gross margin increased to 42.7%, an improvement of 320 basis points. SG&A expense as a percentage of sales decreased by 40 basis points to 29.8%. Excluding one-time costs related to our previously announced restructuring actions, gross margin improved sequentially to 42.9% in the fourth quarter of 2022 from 42.8% in the third quarter of 2022, and SG&A as a percentage of sales decreased 110 basis points as compared to the prior year. Consolidated profit before tax increased $186 million, or 60.2%. Diluted net income per share in the quarter was $1.48 per share versus $1.15 per share a year ago. Excluding Valspar acquisition-related amortization expense and costs related to previously announced restructuring actions, fourth quarter, adjusted diluted net income per share increased 41% to $1.89 per share versus $1.34 a year ago. Adjusted EBITDA in the quarter increased $281 million, or 52.7%. Let me now turn it over to Heidi, who will provide some commentary on our fourth quarter results by segment. John will follow Heidi with his comments on our full year 2022 results, as well as our 2023 outlook, before we move on to your questions.

Thank you, Jim. I'll begin with the Americas group, where sales increased 15.7%, driven by mid-single-digit volume growth and continued effective pricing. Segment profit increased by $126.4 million, and segment margin improved 210 basis points to 17.2%. Our pro-architectural sales grew by a high teens percentage in the quarter, led by property management and followed by new residential, commercial, and residential repaint, respectively. Sales in protective and marine, DIY, and Latin America all increased by double digits but were below the TAG segment-guided range. From a product perspective, interior and exterior paint sales were both strong, with interior sales growing faster and representing a larger part of the mix. We opened 40 net new stores in the fourth quarter and a total of 72 net new stores in 2022. Moving on to our consumer brands group, sales decreased by 2.4% in the quarter, which was better than our guidance. Sales decreased due to lower volume sales and low single-digit FX headwinds partially offset by price increases. Sales were slightly positive in North America and Europe, but more than offset by significant continued weakness in China, due in large part to COVID-related lockdowns. Customers managed their inventories as inflation continued to pressure DIY paint demands from consumers for the segments. Tightness and alkyd resins also impacted our ability to produce stains and aerosols. Adjusted segment margin was 11.3%, up 500 basis points year over year. We also made good progress in the quarter on the China architectural and aerosol restructuring actions that we described last quarter. The actions in the fourth quarter resulted in $25.6 million in one-time restructuring costs and a $15.5 million impairment charge. Sales in the performance codings group increased 4.2% and were driven by mid-teens pricing, partially offset by a low double-digit decrease in volume. Mid-single-digit sales from acquisitions were offset by a mid-single-digit unfavorable FX impact. Adjusted segment margin increased 530 basis points to 14.2% of sales. This is the third straight quarter that this team has delivered year-over-year segment margin improvement, driven by execution of our strategy, including effective pricing actions. Sales in PCG vary significantly by region. In North America, sales increased double digits against a challenging comp. Latin America sales also increased by double digits against a strong comp. Sales in Europe decreased high single digits against a double-digit comparison and amidst continued economic slowing. Sales decreased by a low team's percentage in Asia against a double-digit comparison, and as COVID lockdowns continued to impact demand. From a division perspective, growth was strongest in COIL, which was up by a low double-digit percentage, followed by auto refinish and general industrial, which were both up mid-single digits. Packaging was down low single digits, driven by negative double-digit FX impact in Europe and Asia, and against an extremely strong comparison last year of over 30%. We continue to feel very good about our packaging position and expect this to be a recession-resilient performer. Industrial wood was down low teens as the housing slowdown is impacting furniture, flooring, and cabinetry markets. Similar to Consumer Brands Group, Performance Coatings made good progress on its portion of the targeted restructuring actions that we described in our last call, resulting in $22.2 million in one-time costs in the quarter. With that, let me turn it to John for his comments on our full-year results and our 2023 outlook.