The Sherwin-Williams Company

Good morning. Thank you for joining the Sherwin-Williams Company's review of first quarter 2025 results and our outlook for the second quarter and full year of 2025. With us on today's call are Heidi Petz, Chair, President, and CEO, Al Mastician, Chief Financial Officer, Paul Lange, Chief Accounting Officer, 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 of which the 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.

Thank you and good morning to everyone. Sherwin-Williams continued to execute our strategy and delivered solid first quarter results, with the demand environment remaining challenging as we expected. On a year-over-year basis, consolidated sales were within our guided range, with growth and paint stores group offset by softness in our other two segments. Gross margin and gross profit dollars expanded. SG&A decreased due to continued good spending control. EBITDA margin and dollars expanded, and adjusted earnings per share grew by 3.7% to $2.25 a share. We also continued to execute our disciplined capital allocation strategy, investing $352 million in share repurchases and increasing our dividend by 10%. Let me now turn it over to Heidi, who will provide some additional color on the first quarter before moving on to our outlook and your questions.

Thank you, Jim, and good morning to everyone. I want to begin by thanking our 64,000 global employees for their sheer determination and willingness to solve challenges as we navigate a wide variety of near-term pressures. We're staying true to our strategy, which is continuing to deliver innovative solutions for our customers which makes them more productive and profitable. We expected and prepared for a bumpy 2025, and we are executing our playbook as planned. Looking at our specific results in the quarter, I'll begin with the paint source group. Sales grew by a low single-digit percentage with price mix up by mid-single digits and volume down low single digits. The price mix component includes our January 2025 price increase, which is ramping up as expected, along with the residual impact of our February 2024 increase. We would expect the contribution of price to be lower going forward, as we have now annualized the February 2024 increase. Protective and marine grew fastest in the quarter and increased by a high single-digit percentage, driven by oil and gas, water and wastewater, high-performance flooring, and high-value infrastructure projects. Residential repaint sales increased by a mid-single-digit percentage despite continued softness in existing home sales as our prior growth investments continued to deliver a return. New residential increased by a low single-digit percentage as we continued to secure incremental relationships with new customers. Commercial and property maintenance sales remained under pressure as expected. given weak commercial construction completions and delayed CapEx spending. We expanded segment margin by 120 basis points, 18.4%, while continuing to invest in growth by opening 18 new stores in the quarter. Consumer brands group sales were within our expected range. More than half of the decrease was due to unfavorable effects, with the remainder driven mainly by soft DIY demand in North America. Despite the lower sales, adjusted segment margin expanded to 21.3%. The improvement in adjusted segment margin was due to supply chain efficiencies and continued discipline in controlling general and administrative expenses while maintaining investments to support our customers' growth. I also want to reiterate how excited we are about the Souvenir acquisition we announced during the quarter. We expect this transaction to close in the second half of this year, Souvenir is a market leader with multiple profitable growth opportunities and is run by an outstanding management team. I'm confident it will be a great addition to the consumer brands group and an excellent complement to our existing Latin America business. Performance coatings group sales were below our expectations. FX, price mix, and volume all decreased by low single-digit percentages but were partially offset by a low single-digit contribution from acquisitions. Regionally, Europe and North America decreased by mid-single-digit percentages. Asia and Latin America decreased by low single-digit percentages. From a division perspective, packaging was a bright spot in the quarter, with high single-digit growth driven by new accounts and the recapture of temporarily lost shares. Coil sales were down but recovered meaningfully in March after a slow start, and we still project full-year growth for this business. Industrial wood sales were down against a strong prior year comparison that included an acquisition. General Industrial, our largest division, remained under pressure as expected with softness and heavy equipment demand. Auto refinish also remained under pressure, although negative FX accounted for almost half of the decline we saw in the quarter. We are encouraged by meaningful new account wins in this business. which are currently being more than offset by softness in core accounts driven by lower insurance claims. SG&A expense in the segment decreased by a low single-digit percentage due to good cost controls. Adjusted segment margin decreased 60 basis points, 16.5% due to lower sales. And before moving on to our outlook, I would also like to note the good work being done in our administrative function to control costs or SG&A was down a mid-teens percentage in the quarter, partially offset by higher non-operating costs. Our continued focus on simplification and digitization should continue to drive further efficiencies over time. During our last two conference calls, we communicated that we expected demand in most of our end markets to remain choppy at least through the first half of 2025, with some not likely to gain momentum until 2026. we are seeing this play out with some additional uncertainty in the market related to tariffs. We also communicated that we are well positioned to outperform the market and that we are highly confident in the clarity of our strategy and importantly, our team's deep experience and ability to out-execute in this environment. With regard to tariffs, I'll remind you that approximately 80% of our consolidated revenue is in the United States, with less than 2% in China. In addition, the vast majority of our raw materials are sourced in the region where we are manufacturing. Whenever there is disruption, there is significant opportunity to demonstrate what makes Sherwin-Williams so unique. We are determined to expand our competitive moat in the current environment. Moving on to our specific outlook, the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the second quarter of 2025. Additionally, we are reaffirming the full-year sales and earnings per share guidance we provided in January. The other data points we provided at that time also remain unchanged. As is typical, we'll be able to provide an updated full-year outlook in July when we have a better view of how the paint and coating season is unfolding, along with potentially greater clarity on the trajectory of the global economy overall. We know there's a lot of uncertainty in the market right now. What is certain is our strategy, our resolve, and our ability to assess, adapt, and pivot regardless of the obstacles in front of us through the pandemic and industry-wide supply chain crisis and record inflation to name just a few. We've demonstrated our ability to deliver in up cycles, down cycles, and now a choppy cycle. We have a strong track record of delivery for our customers and ultimately for our shareholders. We continue to operate with confidence, accountability, and our success by design mindset. We are aligned on aggressively pursuing above market growth, making targeted investments that deliver a clear return, controlling general and administrative spending, and executing on our enterprise priorities. And above all, we are focused on being the source of stability, predictability, and reliability for our customers. providing them with solutions that increase their productivity and profitability. This concludes our prepared remarks. With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.