The Sherwin-Williams Company

Good morning. Thank you for joining the Sherwin-Williams Company's review of first quarter 2023 results and our outlook for the second quarter and full year of 2023. With us on today's call are John Moricus, Chairman and CEO, Al Mestician, CFO, Heidi Petz, President and COO, Jane Cronin, Senior Vice President, Enterprise Finance, 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 archive 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 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 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. After the company's prepared remarks, we will open up this session to questions. I will now turn the call over to Jim Jay.

Thank you, and good morning to everyone. Sherwin-Williams delivered excellent first quarter results compared to the same period a year ago. Consolidated net sales grew by a high single-digit percentage. ahead of our expectations and were led by a mid-teens percentage increase in our professional architectural end markets. On the industrial side of the business, sales increased in all regions except Asia Pacific. Gross margins significantly improved sequentially and year over year, driven by strong volume in the paint stores group and effective pricing. Cost of goods sold includes higher inflation in wages and other employee-related categories, which were partially offset by a slight decrease in year-over-year raw material costs. We expect to hold the majority of the pricing we have put into the market given the ongoing investments we have made to drive innovation, enhance services, and secure the talent that provides differentiated solutions to help our customers reach their goals and drive their success. Segment margin in all three reportable segments expanded sequentially and year over year. We also delivered strong double-digit growth in diluted net income per share and EBITDA. Additionally, we continued to execute on the portfolio realignment actions we announced late last year, including the divestiture of a non-core aerosol business, which closed on April 1st, and our recently announced agreement to divest our China architectural business. I'd like to highlight just a few of our consolidated first quarter numbers. Comparisons in my comments are to the prior year period, unless stated otherwise. Starting with the top line, first quarter 2023 consolidated net sales increased 8.9 percent to $5.44 billion. Consolidated gross margin increased to 44.5 percent, an improvement of 340 basis points. SG&A expense as a percentage of sales was 31.1 percent, an increase of 140 basis points, driven by investments in the paint stores group's long-term growth initiatives and investments in our people across the company through year-over-year increases in compensation, and other employee-related benefits. Our people remain our key differentiator in the marketplace. Consolidated profit before tax increased $153.7 million, or 33.3 percent. Diluted net income per share in the quarter was $1.84 per share versus $1.41 per share a year ago. Excluding Valspar acquisition-related amortization expense and costs related to previously announced restructuring actions, first quarter adjusted diluted net income per share increased 26.7 percent to $2.04 per share versus $1.61 per share a year ago. EBITDA in the quarter increased $185 million, or 26.7 percent, and with 16.1% as a percent of sales. Let me now turn it over to Heidi, who will provide some commentary on our first quarter results by segment. John will follow Heidi with comments on our outlook before we move on to your questions.

Thank you, Jim. I'll begin with the paint stores group, previously known as the Americas group. We described this change on our last call and in this morning's press release. There's no impact to prior year consolidated results related to this change. Current and prior year segment results have been restated to reflect this change. First quarter paint stores group sales were ahead of our expectations and increased 14.8% driven by high single digit volume growth and continued effective pricing. Segment profit increased by $97.9 million and segment margin improved 120 basis points to 18.4%. Our pro-architectural sales grew by a mid-teens percentage in the quarter. All pro-market segments increased by double digits led by property management and followed by commercial, residential repaint, and new residential respectively. Sales in protective and marine and DIY also increased by double-digit percentages. 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. Moving on to results in our consumer brands group, which again now reflect the addition of a Latin America architectural business in the current quarter and prior year. Sales were well ahead of our guidance and increased by 2.4 percent in the quarter. Performance was better than expected in North America, where sales were down less than 1 percent, and in Europe, where sales were down low single digits. In other regions, sales were up strong double digits in Latin America and down double digits in Asia. Effective pricing led by Latin America was partially offset by a mid-single-digit decrease in volume and low single-digit FX headwinds. The tightness in alkyd resins impacting our ability to produce stains and aerosols improved significantly during the quarter, and we expect this issue to be behind us by the end of the second quarter. Adjusted segment margin was 13%, up 120 basis points year over year. As Jim mentioned, we divested a non-core aerosol business at the beginning of this month. and we also entered into an agreement to divest our China architectural business. We expect these actions will benefit segment margin over time as we drive a return to our high-teens, low-20s adjusted margin target. One-time restructuring costs in the quarter were immaterial. Sales in the performance codings group increased 3.4% against a 20.4% comparison. The increase was driven by low teens pricing and mid single digit sales from acquisitions, partially offset by a low teens decrease in volume, which included the impact from discontinued operations in Russia and a low single digit unfavorable FX impact. Adjusted segment margin increased 390 basis points to 15.7% of sales. This is the fourth straight quarter this team has delivered year over year segment margin improvement driven by execution of our strategy, including effective pricing. Sales in PCG varied significantly by region. In North America, sales increased high single digits against a nearly 30% comp. Latin America sales increased by double digits, also against a strong comp. Sales in Europe were up mid single digits, while sales in Asia were down double digits. From a division perspective, Growth was strongest in auto refinish, which was up by a mid-teens percentage, followed by coil and general industrial, which were both up mid-single digits. All three of these divisions grew against double-digit comparisons. Industrial wood sales were down mid-single digits, as expected, due to slowing in furniture, cabinetry, and flooring related to new residential softness. Packaging sales also were down mid-single digits against a 30-plus comp, with volume down about a point in the remainder due to our exit of Russia and unfavorable FX. We continue to feel very good about our position and growth prospects in this end market. With that, let me turn it over to John for his comments on our outlook for the second quarter and the full year.