The Sherwin-Williams Company

Good morning. Thank you for joining the Sherwin-Williams Company's review of first quarter 2026 and our outlook for the second quarter and full year of 2026. With us on today's call are Heidi Petz, Chair, President, and Chief Executive Officer, Ben Meisenzahl, Chief Financial Officer, Paul Lang, 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 access newswire 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 strong sales in a quarter characterized by heightened global uncertainty and persistent demand softness in most end markets. Our growth investments and ongoing new account and share of wallet initiatives continue to yield results. as sales exceeded guidance on a consolidated basis and in all three reportable segments. Consolidated sales grew by a high single-digit percentage, inclusive of a low single-digit contribution from the Souvenir acquisition. Reported gross margin expanded by 90 basis points, inclusive of a dilutive impact from Souvenir. This was the 14th quarter out of the last 15 quarters we have delivered year over year gross margin expansion. Against a challenging prior year comparison, SG&A increased by a mid single digit percentage, excluding the anticipated headwinds from our non-annualized acquisition of Souvenir, non-annualized operating costs and depreciation related to our new buildings, and foreign currency translation that we anticipated to unfavorably impact our SG&A as a percent to sales by approximately 100 basis points. Our full year guidance of a low single digit increase in SG&A remains unchanged. Adjusted diluted net income per share in the quarter increased by a mid single digit percentage. And adjusted EBITDA increased by a high single digit percentage. Net operating cash improved by $200 million, driven by an increase in net income and working capital being a lower use of funds. Our full year guidance for adjusted diluted net income per share remains unchanged. We continue to execute our disciplined capital allocation strategy in the quarter by returning $773 million to shareholders through share buybacks and dividends. We ended the first quarter with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.5 times. Let me now turn it over to Heidi who will provide some color on first quarter segment performance before moving on to our outlook and your questions.

Thank you, Jim, and good morning to everyone. I want to begin by thanking our more than 64,000 employees for executing our strategy in what remains a very challenging operating environment. We are continuing to deliver reliability, consistency, and solutions for our customers. at a time when these are more valuable than ever. Our differentiation continues to widen the gap between Sherwin-Williams and our competitors, as evidenced by our strong top line and robust new account growth across the business. Looking at our segment results in the first quarter, I'll begin with Paint Stores Group, which grew by a mid-single-digit percentage. Price mix and volume both increased by low single-digit percentages with price mix increasing more than volume. Effectiveness of our January 1st price increase is trending slightly better than expected. Our protective and marine team continued to deliver impressive growth for us as sales increased by double digits versus a high single digit comparison. It was the seventh straight quarter of high single digit growth in this business. In the commercial business, sales increased by mid single digits in what remains a choppy market. reflecting our very targeted and ongoing share gain efforts. These efforts are also evident in residential repeat, which returned to mid-single-digit growth in the quarter. Low single-digit growth in property maintenance was encouraging, while demand in new residential remained very challenging as we anticipated. Segment profit grew by low single digits, with segment margin basically flat. We opened 21 new stores during the quarter and as planned closed 27 or about half a percent of total PSG stores. As we have done for decades, we continually assess and optimize our store portfolio to drive profitability, strengthen operational flexibility, drive improvement in return on net assets employed, and ensure we maintain the highest level of service for our customers. we still expect to open 80 to 100 new stores for the year. Consumer brand sales exceeded our expectations, driven by high teens' growth from the souvenir acquisition. Price mix and FX both increased in the low single-digit range and volume decreased in the mid-single-digit range. Group sales excluding souvenir increased by low single digits, driven by high teens' growth in Europe and high single-digit growth in our legacy Latin America business. Softness persisted in North America where sales decreased by low single digits. Adjusted segment margin increased driven by the strong top line with flow through of 34.3%. In performance codings group, sales increased slightly above the mid single digit range we expected with growth in every division and region. These results reflect the strong new account growth focus we had spoken about over the last year as demand in our underlying core business is still declining in some end markets. Volume in the quarter grew by a low single digit, acquisitions were slightly positive, price mix was flat, and FX was a tailwind. Automotive refinish sales increased by a low teens percentage, driven by high single digit volumes. The growth was broad-based, with sales up by double digits in all regions, providing further evidence of the value we are delivering in this end market to win new business. Packaging continued its strong performance as sales increased by high single digits against a high single-digit comparison. General Industrial, Coil, and Wood also delivered solid growth. Group sales expanded in all regions, including double-digit increases in Asia Pacific and Europe. Adjusted segment profit for the group increased by mid-single digits and segment margin was flat. Higher incentive compensation related to the strong year-over-year sales, along with the significant FX headwinds, drove segment SG&A higher, resulting in muted flow-through. These same dynamics, in addition to our non-annualized new building costs, also drove SG&A higher within the administrative segments. The slide deck accompanying our press release this morning provides more detail on second quarter segment results. Now, moving on to our guidance. The assumptions we provided in our January call and slide deck largely remain intact. What hasn't changed is that our customer feedback, as well as the indicators we track, continue to signal little support for meaningful recovery in most end markets. What has changed is the Middle East conflict which has added further complexity and uncertainty in navigating the macro landscape. Our team has repeatedly demonstrated its ability to manage through crises, most recently during the pandemic and the U.S. supply chain disruption, to name just a few. I am highly confident we are well equipped to manage through this newest challenge and continue supporting our customers at the highest levels. Let me provide some perspective here. First, we expect to see some negative impacts on demand from recent events as the year progresses. So it is difficult to predict the magnitude at this time given the highly fluid nature of the situation. But I will remind you that this is our fourth year in a row we have been operating with the expectation of getting no help from the market. We know we are operating in a share gain environment and we will continue to be very aggressive here. We see opportunity in uncertainty. We will continue to support our existing and new customers by being the most reliable and consistent business partner in our industry. From a raw material perspective, our first objective is certainty of supply. The good news is that over 80% of our consolidated revenue is in North America. The majority of raw materials for these sales are sourced in region and remain largely insulated from supply disruptions tied to Strait of Hormuz volatility. In areas such as Asia Pacific and EMEA, where supply could become more challenged, we are managing risk closely. Our focus over many years on building strong relationships with strategic suppliers versus transactional ones is a competitive advantage and should continue to serve us well. In terms of raw material price-cost dynamics, costs for oil, natural gas, and key petrochemical feedstocks, such as propylene, have inflated and remain volatile. As we have previously indicated, sustained inflation in these commodities typically takes about a quarter or two before we begin seeing an impact in our P&L. Specifically, we would expect to see these inflating costs impacting us more materially as we move through the second quarter and into the second half of the year. Our industrial business is seeing inflationary pressures first, starting in APAC and EMEA and to a smaller extent in North America. More recently, we have started to see the inflationary impacts in our North and South American architectural businesses. This leads us to increase our full-year raw material inflation outlook to the range of up low to mid single digits. In this environment, we continue to focus on securing incremental volume, balanced with appropriate and decisive pricing and cost-out actions that allow us to maintain the products, services, and supply solutions which drive productivity and profitability for our customers. In terms of pricing, we are out across the business with incremental targeted actions by customer, geography, and end market. As a result, our expectation for consolidated price mix for the year increases to the high end of our low single-digit range. We are actively working to limit these increases for our customers by accelerating meaningful and aggressive cost reduction actions, At the same time, we expect continued volatility in the raw material environment as the year progresses, and we are prepared to implement additional increases if necessary. The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the second quarter of 2026. Our consolidated sales and earnings guidance for the full year are unchanged, though our deck outlines some adjustments in the mix of volume, price, and FX. The deck also contains other details you may find useful for modeling purposes. Sherwin-Williams remains well-positioned to outperform the market. 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. We remain deeply focused on the success of our customers while continuously assessing and adapting to market conditions and controlling what we can. Whenever there is uncertainty and disruption, there is significant opportunity to demonstrate what makes Sherwin-Williams so unique. 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.