The Sherwin-Williams Company

Good morning. Thank you for joining the Sherwin-Williams Company's review of third quarter 2023 results and our outlook for the fourth 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 of 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 third quarter results compared to the same period a year ago. These results follow our strong first half, and we are again increasing our full year guidance, which John will talk about in just a few minutes. But first, let me touch on a few third quarter highlights. Consolidated net sales were within our guidance range. Consolidated gross margin expanded significantly, sequentially and year over year. driven by pricing discipline and moderating raw material costs. To reiterate our commentary from last quarter, we are committed to investing in and profitably growing the business at the same time. A high single digit increase in SG&A over the prior year third quarter reflects those investments, which are deliberately being made at a higher level to take advantage of current market uncertainty. and are aimed at driving the success of our customers and growth across all businesses. Operating margin expanded year over year and adjusted diluted net income per share grew by a double digit percentage. EBITDA also grew by a double digit percentage with adjusted EBITDA margin of 20.7% near the high end of our current 19 to 21% target range. In addition, we returned $566 million to our shareholders through dividends and share repurchases during the quarter. Let me now turn it over to Heidi, who will provide some commentary on our third 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. Third quarter paint stores group sales increased 3.6 percent against the challenging 21.5 percent comp. The increase was driven by continued effective pricing and higher pro-architectural volume, excluding new residential. Segment margin improved sequentially and year-over-year to 25.9 percent, driven by pricing discipline and moderating raw material costs. Protective and marine was the fastest-growing in the quarter, driven by strong volume as sales increased by a double-digit percentage against a mid-teens comparison. Industrial flooring, infrastructure, and oil and gas applications remain key drivers. In our pro-architectural end markets, commercial sales were strongest, increasing by a high single-digit percentage versus a high teens comparison. Residential repaint sales increased by a mid-single-digit percentage amid continued softness in existing home sales and against a 20% comparison. While this is a solid performance in the current environment, we are not satisfied, and res repaint continues to be our largest opportunity for growth. Property maintenance sales grew by a low single-digit percentage against a mid-20s comparison, New residential sales were down mid-single digits, with volume down high single digits against a mid-20s comparison. As we've previously noted, we anticipated new residential would be challenging near term, given prior softness in single-family starts. We expect our continued share gains and new account wins to become more and more apparent as starts improve. Our DIY business was down low single digits against a very difficult low 30s comparison. From a product perspective, interior paint sales were up low single digits, and exterior paint sales were flat, both against double-digit comparisons in last year's third quarter. Sales in our consumer brands group decreased by 4% in the quarter, primarily due to the divestiture of the China architectural business and softer DIY demand in North America, which was partially offset by selling price increases. Sales in North America, our largest region, decreased by a mid-single-digit percentage against a double-digit comparison. The pros-who-paint category continued to grow, while DIY demand remained muted by inflationary pressures on consumers. We continue to invest here with our strategic retail partners for growth. In other regions, sales were up high single digits in Latin America and low double digits in Europe. Sales in China were down high double digits as we completed divestiture of the business on August 1st. Adjusted segment margin was 13.8%, which was lower than a year ago, primarily due to lower sales volume and lower fixed cost absorption due to lower production volumes. Sales in the performance codings group decreased 1% against a low teens comparison. Volume decreased by a high single-digit percentage, but was partially offset by positive low single-digit contributions from pricing, FX, and acquisitions. Adjusted segment margin increased to 19.1% of sales, primarily due to pricing discipline and moderating raw material costs. Sales in PCG varied significantly by region. Sales were strongest in Europe and increased by a mid-teens percentage. Latin America sales increased by low single digits against a mid-teens comp. North America sales decreased mid-single digits against a 20% comp. Demand in Asia remained weak with sales down double digits against high single digit growth a year ago. From a division perspective, growth was strongest in our industrial wood business, which was up by a low double-digit percentage against a mid-single-digit comparison. This growth reflects our ECA acquisition, share gains, and a potential bottoming of new residential construction. We expect to gain further momentum in this business as we close October 1st on the previously announced acquisition of Germany-based specialized industrial coatings holding, comprised of the Oscar Nolte and Klump Coatings businesses. We are gaining share and seeing steady demand in auto refinish, where sales increased by a mid-single-digit percentage against a high single-digit comparison. Sales in coil and general industrial both decreased by low single-digit percentages against challenging comparisons and varied widely by region. Packaging sales were down by a mid-teens percentage against a high single-digit comparison. We anticipated this decline given the near-term destocking by brand owners that we described earlier this year. Packaging sales in the quarter were also slightly impacted by the fire at our Garland, Texas plant. Our business continuity team is executing our contingency plans to minimize customer impacts from this event near-term. Longer term, we continue to feel very good about our position and growth prospects in this end market, and we expect to bring additional capacity online at our Tour New France plant by early 2024. With that, let me turn it to John for his comments on our outlook for the fourth quarter and the year.