The Sherwin-Williams Company

Good morning. Thank you for joining the Sherwin-Williams Company review of second quarter 2023 results in our outlook for the third quarter and full year of 2023. This conference call is being webcast simultaneously in listen-only mode by issuer 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 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 the session to questions. I will now turn the call over to Jim Jay, Senior Vice President, Investor Relations and Communications.

Thank you and good morning to everyone. Joining me on the call today are John Marikis, Chairman and CEO, Heidi Petz, President and Chief Operating Officer, Al Mestician, Chief Financial Officer, and Jane Cronin, Senior Vice President of Enterprise Finance. Sherwin-Williams delivered excellent second quarter results compared to the same period a year ago. These results, coupled with a similar strong performance in the first quarter, led to an excellent first half that exceeded the expectations we laid out back in January. Given the strong first half and current visibility into our second half, we are significantly increasing our full-year guidance, which John will talk about in just a few minutes. But first, let me touch on a few second quarter highlights. Consolidated net sales in the quarter exceeded our expectations and grew by a mid-single-digit percentage. Sales in all three reportable segments came in above our guided range. Gross margin significantly improved sequentially and year-over-year, driven by strong volume in the paint stores group and moderating raw material costs. Pricing discipline remains strong. SG&A expense increased over the prior year quarter, though the year-over-year percentage increase was lower than that of our first quarter. Excluding the impact of incremental acquisition and restructuring costs, SG&A increased 8 percent year-over-year. Approximately 85% of that second quarter increase was related to investments in paint store group long-term growth initiatives, with the remainder driven by increases in compensation and benefits. We are highly confident these growth investments will deliver strong returns and benefit our customers. And while we recognize SG&A expenses higher year over year in the quarter, we ultimately manage the business to drive operating profit and margins. both of which expanded meaningfully in the quarter. We are committed to investing in and profitably growing the business at the same time. Segment margin in all three reportable segments expanded sequentially and year over year. We also delivered strong double-digit growth in adjusted diluted net income per share and EBITDA with adjusted EBITDA margin of 20.9% near the high end of our current long-term 19% to 21% target range. Let me now turn it over to Heidi, who will provide some commentary on our second 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. Second quarter paint stores group sales were ahead of our expectations and increased 10%, driven by mid-single-digit volume growth and continued effective pricing. Segment margin improved 280 basis points to 24.3%. Growth was led by our protective and marine business, which was up strong double digits and was driven by industrial flooring, infrastructure, and oil and gas applications. In our pro-architectural end markets, the strongest performers were commercial and property maintenance, both of which increased by double digit percentages. residential repaint was close behind with sales up by a high single-digit percentage. Demand in this market is being somewhat tempered by the extended period of weak existing home sales. New residential sales were flat against a double-digit comparison, reflecting the softer starts that we saw at the end of last year, which have continued into this year. As we've previously noted, we anticipated new residential would be challenging in 2023. though we are performing better than the market as we continue to focus on new accounts and share gains. Our DIY business was up strong double digits, albeit against a softer comparison where sales were impacted by supply chain challenges. From a product perspective, interior and exterior paint sales were both up high single digits, with interior sales growing faster and representing a larger part of the mix. Sales in our consumer brands group also exceeded our guidance and increased by 5.1% in the quarter, primarily driven by mid-single-digit pricing. Sales in North America, our largest region, increased by a low single-digit percentage. We continue to invest here with our strategic retail partners for growth. In other regions, sales were up strong double digits in Latin America and Europe. Sales in China were down double digits. We expect the previously announced divestiture of the China business to be completed in the third quarter. Adjusted segment margin was 15.7%, up 470 basis points year over year. Sales in the performance codings group increased less than a percent against a strong 15.2% comparison. Volume decreased low single digits, but was offset by mid-single-digit increases in price. Adjusted segment margin increased 420 basis points to 18% of sales, which is within the range we have been targeting for this business. Sales in PCG varied significantly by region. In North America, sales increased low single digits against a nearly 30% comp. Sales in Europe were up mid-single digits. Latin America sales were down less than a percent, also against a strong comp of over 20%. Demand in Asia remained weak, with sales down double digits against a soft period a year ago. From a division perspective, growth was strongest in auto refinish, which is up by a high single-digit percentage, followed by general industrial, which was up a mid-single digit. Industrial wood sales were up less than 1%, as softness and new residential continued to impact demand for furniture, cabinetry, and flooring. Coil sales were down mid-single digits, driven mainly by Europe, which was impacted by last year's Russia exit and against a nearly 40% comparison. Packaging sales were also down low double digits against a 20% plus comp. We anticipated this decline given the near-term destocking by brand owners that we described at our last call. We continue to feel very good about our position and growth prospects in this end market. With that, let me turn it to John for his comments on our outlook for the third quarter and the full year.