The Sherwin-Williams Company (SHW) on Q1 2021 Results - Earnings Call Transcript

Operator: Good morning. Thank you for joining the Sherwin-Williams Company's Review of First Quarter 2021 Results and our Outlook for the Second Quarter and Full Year of 2021. Jim Jaye: Thank you. Good morning, everyone. Sherwin-Williams delivered terrific results in the first quarter. The momentum with which we exited the fourth quarter continued in the first quarter. We entered the quarter with strong expectations and we finished stronger. We capitalized on extremely robust demand across both architectural and industrial markets, leading to sales in two of our segments that exceeded the guidance we provided at the beginning of the quarter. We generated double-digit growth once again in residential repaint as well as in new residential and DIY. We also generated double-digit growth in our industrial business with improvement in every region. Before getting into some of the specific numbers, I'll remind you that in February our Board of Directors approved and declared a 3-for-1 stock split in the form of a stock dividend to make the stock more accessible to employees and a broader base of investors. Trading of our shares on a stock-split-adjusted basis began on April 1, 2021. All share and per-share amounts in today's press release and conference call commentary have been adjusted to reflect the 3-for-1 stock split. Additionally, all comparisons in our prepared commentary this morning are to the first quarter of 2020 unless otherwise specified. So starting with the top-line. First quarter 2021 consolidated sales increased 12.3% to $4.66 billion. Consolidated gross margin decreased 20 basis points to 45.4% due to greater-than-anticipated raw material cost inflation. John Morikis: Thank you, Jim and good morning, everyone. We're off to a tremendous start in 2021. Credit goes to all 61,000 members of our team who are serving our customers at a high level, aggressively pursuing and capturing new business and managing through transitory disruptions in the supply chain. There is no better team in the industry. Operator: Thank you. At this time, we will be conducting a question-and-answer session. Thank you. And our first question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question. Ghansham Panjabi: Hey, guys. Good morning. John Morikis: Good Morning. Ghansham Panjabi: I just want to think about 2021 at this point, John from a volume standpoint versus perhaps what your thoughts were coming into the year. Are there any outliers on the positive or negative side relative to your initial view as it relates to the various verticals across your three operating segments? I'm just asking because 1Q sales was above your initial guidance. 2Q is guided above us and The Street as well, but your full year guidance is -- for sales is still pretty much intact and I realize that Wattyl is part of that. But just curious on your thoughts on the various verticals? John Morikis: Yes. Let me take a run at it and I'll have Al jump in because we're getting a little bit into the forecast here, Ghansham. I'd say from a performance standpoint, we feel really good about the momentum that each of our segments are producing. I'd say the return if you will of the GI business and the Industrial Wood business at the pace that it's coming is a -- is pleasing to us. We expected that to occur, and it's coming in at a pretty robust pace. We've long spoken about how we've tried to position the business as both defensive and growth. In those markets impacted by COVID, we are we believe positioned very well to capture that. So to your point GI and Industrial Wood are growing. If you look at the segments in our TAG business, the residential, repaint, new res really doing quite well as well as DIY. I'd say, we are expecting continued traction in our commercial property management businesses. So I'd say, every element of the industrial business outside of the Protective and Marine business, which is showing sequential growth has been really improving well. And quite frankly every element of the architecture will sit on every cylinder. But let me ask Al to jump in regarding the forecast as well. Al Mistysyn: Hey, Ghansham, this is Al. And as I said on our January earnings call, we did have a weaker first half last year and a stronger second half. So it was important that we got off to a strong start in the first half. As you mentioned, we did start off the first quarter strong, and we're ahead of our guidance. Honestly, the second quarter sales guidance was closer to where we expected it to be based on the strong trends, we saw coming out of the fourth quarter into our first quarter those continued strong trends, especially in TAG and PCG. So those momentums carried and we're going against a weaker second quarter last year. But that being said, the first quarter is a small quarter for us. And as we typically do, we wait and get through the second quarter before we give an update on the full year. And as John mentioned in his opening remarks, which generally would be in July. So as John mentioned in his opening remarks, we're prepared to give an update on the full year sales and EPS guidance at our June 8 financial community presentation. So, not too far in the future, but gives us a good outlook and more data points to give you a better view of the year. John Morikis: Yes. It's a little earlier update than we -- as Al mentioned, we normally would do that coming out of the second quarter. So a little bit earlier in June, but it will give us an opportunity given some of the challenges that are in the market right now to give you an update at that time. Ghansham Panjabi: Okay. And then just second question, I mean, on the pricing side for TAG. Obviously, you got a price increase through effective February 1. But your raw material guidance is basically more than 2x what it was three months ago for the year. So I guess what would you need to see to sort of adjust pricing in TAG as the year unfolds? And also remind us when was the last time TAG saw multiple price increases in one given -- in any given year? Thanks so much. John Morikis: I'd say, this Ghansham -- I'll take you back. We I believe have demonstrated that conviction and determination to put pricing in. Your point is a good one. As we entered the year, we put some pricing in and then this natural disaster came in in February. What would we see? Well, we continue to focus in on efficiencies through our own facilities, our own approach. Positive mix shift, which we're seeing right now at a pretty aggressive rate with customers moving up in quality helped to offset some of that. But I would say this that we're not taking additional pricing off the table. We'd prefer quite frankly not to go out in the midst of the painting season. We've got painting contractors that are out there quoting projects right now and we'd prefer to work through those prices -- those projects with them on those prices. But I think we've demonstrated in the past a willingness to do that if we need to. I'd say the other piece comes with the loyalty that we build and the way in which we handle these situations. We've often talked about, while we're not hoping for compression in margin as Al just mentioned, we accept a little margin compression. And it's part of the relationship that we've built we think it's unique. When our customers see us out with pricing, they know it's real. When we're out with pricing, we need it. If we find ourselves in this situation unable to offset it in pricing that -- raw material pricing that remains at an elevated level we'll be out with additional pricing. Al Mistysyn: Yes. Ghansham let me just add to that. As John talked about in his opening remarks, our focus is on operating margin expansion. And volume is the number one driver of that and you're seeing that in our first half. And our expectation is that we'll see that momentum going into our second half, but also selling price increases that have been planned. And I've brought in that to not just TAG, but across all the segments. And my expectation is that we will offset full year raw material increases dollar for dollar. We expect to get leverage on SG&A. That will more than offset that gross margin contraction. And that's typical. As you know gross margin -- short-term gross margin contraction is typical in an inflationary environment. We've shown our discipline to get pricing increases. To your question, you go back to 2010, 2011 and 2012 and we were out with six price increases in 22 months. And coming out of that you saw our gross margin not only recover, but expand from almost 600 basis points from 2013 through 2016. So the discipline is there and it's still there. And as John talked about we're providing solutions to our customers that they value. And this is why it's really important that we offset that raw material increases 85% of our cost of goods sold. And to provide those services and solutions at the high level our customers are expecting, we need to offset those raw materials. And as John said if raw materials inflation persists at these high levels, we will need to go out with another price increase later this year. And then we believe we're in that same environment. As raw materials moderate, we'll start to see our margins recover and then grow long-term, as we see our continuous improvement processes take effect and we're able to hold on to a majority of those price increases. John Morikis: Yes. Ghansham, I might add one additional point to that and that is that while we're not cavalier about it, we're very sensitive to pricing and what it means to our customers. It does represent a relatively small percentage of their total cost of goods. Al mentioned that raw materials represent 85% of our COGS. If you look at a painting contractor, it represents about the same percent of their cost of paint on the project. Majority of their costs are -- I'm sorry 85% labor, the remainder cost. So it's a relatively small percentage of their total cost of goods. So we're disciplined in it. We're sensitive to it. But we also know to Al's point, if we're doing our job providing solutions to our customers, helping them make more money, disciplined in our approach to their understanding and when we're out there with the need for it. Ghansham Panjabi: Very clear. Thanks so much. John Morikis: Thank you. Al Mistysyn: Thank you. Operator: Next question is coming from the line of Bob Koort with Goldman Sachs. Please proceed with your question. Bob Koort: Thank you very much. Good morning. I wanted to ask – you gave some moderation maybe in the rate of growth in TAG in the second half, and I think you sort of explained why a second ago. But I was wondering, if you could help me think about implications on the DIY component there. I think that's maybe what 15% or 20% of your sales through the stores. What do you see on that comparison as you get into the second half? And would it be any different than what you would report in the consumer group? Thanks. John Morikis: Thanks, Bob. I'd say, as you mentioned DIY was very strong. And as we've previously indicated, we do expect DIY eventually to revert back to a more normal low single-digit rate as stay-at-home orders – I'm sorry, yeah, stay-at-home orders begin to ease and people begin returning back. So comparisons will be more challenging beginning in the second quarter of this year. Our belief is that as a company, we've really been working hard to position the company strategically to be able to capitalize on whichever way the market tilts. So, if in fact DIY reverts back our position as it relates to the pro segments, our industrial business, we think that we're going to be the winner if you will as it shifts one way or the other. We've worked very hard to position the company to be able to capitalize on the market, whichever way it turns. On the DIY side through our stores then while we might see some of that revert back, the pros will be higher on the CBG side or Consumer Brands Group side. It's a largely driven DIY business, but we are working hard with many of our customers on the pro who paints in there as well as an initiative for the company. You've heard us speak about the commitment that we have there, the investments that we have there, and quite frankly, the determination that we have there. And so whichever way the table tilts Bill – Bob, we believe we're going to be on top of it. And we quite frankly, don't discriminate to which segment it comes from. We're just very determined to be the one leading in each of those segments. Al Mistysyn: Yeah, Bob. And I would expect, if you looked at those two businesses combined, so as John talked about moderating DIY and stronger in the other segments, we still expect our second half to be up mid- to high single digits in those combined architectural businesses if you will. John Morikis: And I think if you look at the comparison – maybe Al you can talk about the 2019 versus 2021. I think if you look Bob, not just at the comparison to the most recent year, if you look back to the previous year, we're still growing at a pretty impressive rate. Al Mistysyn: Yeah. I think you'd be looking close to a low double-digit increase over that second half period as well. John Morikis: So we're not giving it back. We're fighting along with our customers to keep it. Bob Koort: And a quick follow-up, you mentioned in your prepared slides growth – pretty impressive growth in the interior paint segments. Can you give us some characterization of willingness to have the do-it-for-me contractors back in homes? John Morikis: Yeah. Actually, it's a good observation you make because we did see strong double-digit growth, actually both in interior and exterior. But the interior is such a large percentage when that beast moves it's really terrific for us. In the res repaint, it's a second straight 20% quarter growth we've had. And as I mentioned in the prepared remarks, over five years of consecutive double-digit growth, this is a team that's just really focused in executing on a lot of the terrific efforts to be able to capitalize on that. We've got a new leader there in Heidi Petz, a very aggressive leader. And we're excited to see what she brings to this business as well, because I would tell you these contractors are bullish. They're returning back into this interior work with a greater pace and greater comfort by their customers. The macro data is strong, when you look at existing home sales up 12% year-over-year for March. The LIRA projecting mid-single-digit growth. Even the NAHB Remodel Index, I think it hit a record this period 86 greater than the record previously of 82. So contractors are clearly confident and bullish. We expect this is going to be another record year for us in residential repaint. There's good momentum, and you should expect us to be pushing that pedal all the way to the floor in this segment. Operator: Thank you. Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your question. Steve Byrne: Yes. Thank you. John Morikis: Hey, Steve. Steve Byrne: We're just looking at your – yes, good morning and thank you for taking my questions. If I look at your full year guide, it kind of implies second half in TAG being kind of mid-single-digit sales growth at best. Is it fair to assume that that's just stale? It would seem that you would – your pricing actions could approach that if you push more price and that wouldn't leave any room for volume growth. Is this just conservative and thus fairly stale? Al Mistysyn: Yeah, Steve. What I said to Ghansham, we're going to look at updating our full year sales and EPS guidance at the June 8th, FCP conference. So – and it didn't make sense to me to try to take a look at one segment adjust the sales and not the whole company. So we're going to give you an update for all the segments and the full year at that meeting. John Morikis: Let me be very direct though, Steve. We're feeling very good very strong about our architectural performance and we expect a very strong performance going forward here. Steve Byrne: Okay. And then help me better understand your thinking on taking more price actions. It seems that you're kind of waiting to see whether these raws remain at these levels. I'm not – I'm a bit surprised you wouldn't take advantage of this, clearly, inflationary situation and push price now given the comments you just made about your pro contractors, the cost of your paint is a relatively small fraction. It is the concern about maintaining that loyalty enough to really absorb this and not push price? Help me understand that, a little better. John Morikis: Yeah. Steve, I want to be clear on that as well. When you talk about absorb, I want you to really picture this, right? We've been out with pricing. We're working through that pricing. The effectiveness of that pricing is important to us right now. When you say absorb, I want to put that in context. We're talking about that we will as we have in the past temporarily accept some minor compression as we work and build through that loyalty and communicate to our customers our intentions and our plans. And so as Al mentioned, we expect to recover dollars this year. My view on this is very simple. I would give up a little press – I would say accept a little compression in the short term, when I know that in the long term, I'm going to come out of this with the customer and the price. And that's been our model in the past and it's worked very successfully. And it's a cadence that our customers have learned to expect and appreciate from us. And I challenge anyone to give any exception to the idea that not trying to run for a perfect quarter versus the years or decades that we've built this relationship with our customers shouldn't take priority over trying to go out immediately and adjust. We'll get it. We know we will. We'll work with our customers. And by the way we'll come out of it with a more loyal customer as a result of the way we handle it. Al Mistysyn: Yes. And Steve I'd just add to that where we could on the industrial side which really saw a rapid increase in the raw materials over the last 30, 60 days we just delayed the pricing maybe 30 days, so we can go out with a higher increase than we had planned. And so we saw some of our groups or businesses out April 1. But we are out across all businesses and all divisions. And we talked about expecting to see a kind of growth in the selling price realization from around 1.7% in our first quarter a little over 2% in our second quarter. And then we'll evaluate as we normally do month-to-month and take action where we need to. And certainly we would tell our customers first and then communicate to The Street. Steve Byrne: Okay, very good. Thank you for that. Al Mistysyn: Thank you, Steve. Operator: Our next question is from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question. Jeff Zekauskas: Thanks very much. When I look at your SG&A costs sequentially, maybe they're down I don't know $145 million. And that seems unusual given your historical pattern. And you had very, very nice sales growth. What's keeping the SG&A costs so low? Is there something unusual in the first quarter? Al Mistysyn: Jeff I would say -- and our SG&A was actually consolidated all in up about 1.4%. And the costs are related to new stores reps continued investment in Consumer Brands and the customer programs and additional services and reps in our Performance Coatings Group and then the e-commerce initiative continued investments there. We do have a decrease -- a continued decrease in travel year-over-year. That hasn't -- we haven't really fully turned that back on. But as these economies start reopening we'll see some of that. I would say in the environment we're in we're going to focus on continuing to put investments in. And where we can offset non-value activities and/or some of our back-office functions we'll do the savings there to help offset those investments. But we're going to continue to invest in this environment. And you should expect to see increase in -- modest increase in our SG&A going forward. Jeff Zekauskas: Was there unusual management compensation last year? And if you think about management comp in 2020 related to -- relative to 2021 should it change much? Al Mistysyn: Yes, I think Jeff we set full year targets at the beginning of the year and the comp will be dependent on our achievement of those targets. If you look sequentially from the fourth quarter to the first quarter and -- fourth quarter last year to first quarter this year, we would have more comp in our fourth quarter last year. As we typically do we true-up our accrual towards the end of the year. And with the strong fourth quarter we had we did have more comp expense in our fourth quarter including stock comp. Jeff Zekauskas: Okay. Thank you very much. John Morikis: I might just add just because I think it's an important part of your first question. I understand you were asking kind of the decline or management of the SG&A. But I think it is important going back to the question that Steve asked earlier about pricing, the investments that Al mentioned we'll continue to make because we believe that's an important element in our strategy. So, while we're managing expenses in many areas we're also investing in many critical areas. And that's what in fact allows us to execute on the strategy and which allows us to stand in front of our customers having provided a solution that allows them to make more money and ask for more money when we need to. So, I think your question is a great one. But I want to be clear that while we're managing the expense we're also investing in critical areas as well. Jeff Zekauskas: Thank you so much. John Morikis: Thanks Jeff. Operator: Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question. P.J. Juvekar: Yes, hi. Good morning. I had just a clarification question on the Consumer Brands. Sales were up 25% in the quarter, which was a large number. And a year ago sales were down 5%. So, was there something going on with inventories maybe last year as pandemic approach into 1Q that big boxes took inventories down and they're building it now, or is there something else going on like you had exited the Ace business? So, what are the puts and takes in this 25% growth number in Consumer Brands? Al Mistysyn: P.J. that's -- if you go back to the first quarter of 2020 that was certainly -- the Ace impact was part of it. Really we had a difficult because of COVID Asia-Pacific was down really big and impacted our first quarter and even some of the moderation we saw in our other international businesses. We really had a strong first quarter with our international businesses up. When I say strong double digits we're talking 50%-plus. We saw a nice flow-through there. And the sell-through on the DIY side was still strong with our retail partners both here and outside the US. P.J. Juvekar: Thank you for that clarification. And now with your net debt-to-EBITDA close to 2.5 times should we expect Sherwin to get more aggressive in M&A? Especially as the recovery continues, what kind of acquisitions would be at the top of your shopping list? John Morikis: Well, P.J., I'd say you should expect us to see a lot of activity, mainly in the industrial piece. And our pipeline looks very robust. So, we've got a number of projects that we're working we hope to have completed this year. I'd say that it's important to again understand our strategy. As a reminder we're very focused on unique and differentiated solutions and the solutions that can help our customers achieve their success at a greater rate. And when -- thinking about that is pretty simple. We believe that the greater success our customers have the more they view us as a valued partner. So, we're not focusing on trying to be everything to everyone, everywhere. We're not focused on commodities. We're focused on those elements of unique differentiation high value infrastructure is an example, areas that we can help expedite a production line lower, energy costs, improved color loss, whatever it might be as well as technologies that we can buy and broaden through our distribution. So, we are determined to do this. But we also believe, we're unique in this sense as well that we're positioned very well given the Valspar acquisition as well as just the positions that we've had and are growing not to require acquisitions for growth. Our focus right now is on prioritizing our growth opportunities. And so, it's an exciting time here at Sherwin-Williams, where you're looking at where do we invest, where do we go, and not because we don't know where to go. It's just, there's so many opportunities for us to grow. And that's what our PCG team, our Performance Coatings Group leaders, Justin Binn, our new group -- Justin Binns, our new Group President there and our leadership teams there are really focusing in on. So, we're excited about M&A as an important lever. We expect more activity going forward here, but a very disciplined approach, not only in the financial modeling but where we're going to go. We're not, like I say, just trying to buy a book of business. We're looking at good strategic values, and not what's necessarily available driving our strategy. It's what we see going on and pursuing it and making it happen. P.J. Juvekar: Great. Thank you. John Morikis: You bet. Al Mistysyn: Thanks, P.J. Operator: Our next question is from the line of John McNulty with BMO Capital Markets. Please proceed with your question. John McNulty: Yeah. Thanks for taking my question. The first one would just be on the Consumer Brands Group. Can you speak to where you see the industry in terms of inventory? And is there any necessary catch-up just given the strength that you've been seeing in the markets, but also some of the supply chain disruptions? And maybe how that may flow through as we're looking through the rest of the say the next couple of quarters? John Morikis: Well, I'd say that there are some challenges, as you mentioned. I think there's a pretty good inventory level in the channel for the most part. But, I'd also say that this natural disaster is just that, it was a disaster. And I also believe that this is a way in which you respond to demonstrate your DNA to your customers. And in our 155th year of doing business, we still utilize these challenges such as this natural disaster to demonstrate why a relationship with Sherwin-Williams is valuable. And so in the face of adversity, we love that our teams are running into the center of the fire working to collaborate with our customers to position them for success, responding, and quite frankly, trying to minimize the disruptions. We think we're unique in our asset base. We think we're unique in our experience. We think we are unique in our ability to respond. And we're trying to utilize every aspect of our assets, our facilities, our people to be able to do that. And I really believe, John, that we'll exit this closer to our customers than ever. And we -- I say that because we're utilizing these assets. It could be -- we've got a very robust fleet of tractor trailers and delivery vehicles. And so, even on the home center front, when product becomes available we're not waiting for someone to come begging a transportation company to come pick up our products or to be responsive to ours. We own those. Those are ours. Those are our people our assets. We can dictate those same with our 4500 stores. I know you asked primarily about the home centers, but same stands true with our own stores, located in the communities they serve with well-trained highly qualified leaders in those stores with inventory close to the customers. We've got reps on both the store's front and the home center front. And so what we're trying to do is be as responsive as we can. And so, while there is some choppiness, if you will, from an inventory standpoint and we're working through those, it's getting better every day. We clearly see this as a transitory issue that we're dealing with. We believe we'll get on top of it. And our goal is to be on the other side, have customers point to Sherwin-Williams and say, we want the rest of you to be just like this. John McNulty: Got it. No, that makes sense. And then I guess maybe just as a follow-up on the cost side. I think there's obviously a lot of focus on the pet chem side of it. I guess can you speak to some of the other cost baskets, whether it's on the TiO2 and pigment front, or tinplate? It does seem like there's just a lot of general inflation. So, it may not just be the spike up and back down that we're seeing in pet chems, but there maybe more consistent inflation in some of the other buckets. Can you help us to quantify that or think about that as you're progressing throughout the year? Jim Jaye: Yes. John, I'm happy to take that one. Let me just begin by reiterating a little bit what John and Al have been saying. This whole area of raw material inflation is a transitory issue for us. It's not new for us. We've demonstrated an ability to manage through this many times in the past and we'll get through this as well. You're absolutely right. In our first quarter raws were up by mid-single-digits year-over-year. The biggest driver there was on the petrochem side: monomers resins, solvents, packaging materials. And as you would imagine that hit our Performance Coatings Group a little bit harder with their greater exposure to the pet chem side. That trend is continuing here into our second quarter. If you look at propylene, ethylene, epoxy, HDPE, all of those commodities, they're the highest we've seen in many years and some are at record levels. You take a look at what's driving that across the chemical industry, we've seen a number of things. It was already a challenging environment related to COVID-19. John mentioned Winter Storm Uri. We had 168 production facilities that were offline and disrupted production for an extended period. There's still 60-plus of those facilities offline. Refineries have been operating at below-average utilization rates due to depressed demand for transportation fuels. You've got the demand, as we've talked about screaming both on the architectural and industrial side. So, I mean that's the petrochem side. I know you asked about some of the others. We're seeing similar dynamics there as well. Steel is -- we're seeing increases, supply tightness due to unplanned mill shutdowns, coronavirus outages high demand. So, that's impacting our costs on steel pails and drums. On the TiO2 side, I would say the market's getting a little bit tighter there as well, driven by high demand. You've got the stimulus packages, construction demand, recovery of industrial demand. You've got low inventories and logistical constraints. So, I think TiO2 is moving as well. For all those reasons is why we took up our guide for the year there moving up to that high-single low-double-digit percentage for the full year. 2Q should be the peak. That's how we see it right now. That capacity will come back online. Some of these costs we think will start to moderate. But, as Al mentioned, we'll give you a better view of that at our June 8, FCP event. John McNulty: Thanks very much for the color and the detail. Appreciate it. John Morikis: You bet, John. Operator: Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question. David Begleiter: Thank you. John, Al, in Performance Coatings, it looks like in Q2, you'll be above 2019 levels, pretty meaningfully. Why – how is that being driven by? Al Mistysyn: Yes. David, you're absolutely right. We should be up high single-digits, low double-digits versus 2019. And I think it's all the things that John talked about in his opening remarks by division. I'll let him jump in on that. John Morikis: Yes. Love to, because I think we're really optimistic about our entire industrial business. All divisions in all regions delivered year-over-year growth in the first quarter. If you look at the market manufacturing, PMI is positive in every region, customer is positive. We do believe that the vaccines should drive stability and comparisons will be favorable moving forward. But this is a terrific leadership team that's leaning forward aggressively and should bode well for us the balance of 2021. As I run through the businesses and I talked about them briefly in my prepared remarks, but if you look at some of these that have really been terrific performers and I'd start with the strong double-digit gains in our industrial wood, we've got really good momentum here. If you look at furniture, kitchen cabinets, flooring, many of these correlate to new residential. We expect that momentum to continue through the first half. And note that the second half, while it may become a bit more challenging as the year goes, this is a team that's really planting a lot of really good seeds with our customers, growing not only through existing customers, we like to say share of wallet but also in new customers. And it's a really good leadership team here. We have high expectations. Talk about our GI business and coming in second with a high teens number is a good place to be. Every region here was up double-digits as well except North America, and North America was up mid-single digits and it continues to show momentum. Again, PMI here is very positive and we expect demand to improve. Good share gains here. We're driving the business in a very positive way. Packaging is another one where demand for food and beverage and cans remains very robust. I've spoken repeatedly about our non-BPA coating. That is continuing to gain traction. Both we and our customers in packaging are investing in additional capacity. We've got terrific partners, good partnership and we anticipate strong demand going forward here for quite some time. I'm really proud of what this team has accomplished. They've delivered for us every quarter since we've acquired Valspar. And between the packaging and coil, not only have we seen terrific growth but we've long been asked about diversifying our business. This really helped us to diversify our business both the packaging and coil. And in coil we see really nice growth. Resumption in commercial projects is picking up, growth in appliances. And again, I've talked about the – new business wins in this business have really been strong in all regions. So this is another terrific leadership team. And then our automotive refinishes I think has really been something that I've been talking about very positively for a number of quarters. And again this is another terrific quarter for this team. Like others in the market, we experienced significant growth in Asia and to a lesser degree but still significant in Europe. But our strength is here in the Americas. And we believe we're continuing to gain share here through our focus on new accounts and installations, innovation. I mentioned installations in my prepared remarks. We've got more systems and products going here in North America, more installs I believe than we've ever had. I think it's the highest rate we've ever had for this business. And that clearly bodes well for us going forward. And that's in the face of miles driven and collision shop volume that's still off pre-COVID levels. So this industrial business is proving to be everything that we had hoped to do and be. We still have some work obviously in the area of operating margins. Pleased with the momentum that the team has. But there's still a lot of upside. We still think there's upside in the operating margins as well as cash and got, as I mentioned a leadership team that will deliver that. So we're looking forward to it. David Begleiter: And John that sounds – that's very impressive and one of the reasons why you'll be raising your segment sales guidance I guess in June 8. But doesn't that imply that the full year guidance could be also conservative as you really – Performance Coatings itself should be up meaningfully versus current guidance? John Morikis: Well, like I said, we would normally give you an update at the end of the second quarter. We're going to move that up into early June and we'll give you an update then. But if you're sensing a little bit of bullishness or confidence in all of our voices, I'd say that's probably appropriate. David Begleiter: Thank you very much. Al Mistysyn: Thank you, David. Operator: Our next question is from the line of Mike Sison with Wells Fargo. Please proceed with your question. Mike Sison: Hey, guys. Nice quarter. John Morikis: Hey, Mike. Mike Sison: Just one quick one on Consumer Brands Group. If you were able to hit sort of the up part of the outlook for full year, you'd need third and fourth quarter to be flattish to up on really tough comps. So if that were to occur, is that really just driven by trends in DIY sustaining, or are there things that your team is doing there to create some growth and maybe have some – gain some shelf space so on and so forth? John Morikis: Yes. I'd say – I mentioned earlier, the PROs who paint is an important initiative one that we expect. Mike I feel really good. We had a terrific year and we continue to post some terrific numbers in our CBG business. We've got terrific partners here and they're committed to growing and we're committed to growing and investing in our businesses together. I think the way it exactly plays out from a timing perspective and kind of shifts in the market, that's yet to be seen. But we're committed to this business and we're committed to our customers. And one way or the other we're going to help them be better at what it is they're doing. And we're willing to execute on that, invest in it and deliver on it. And you can count on that leadership team, wonderful leadership. Already you could see some of that work as Al mentioned in different parts of the world. But got a leadership team here in Brian Patton and Todd Rea that are doing a wonderful job, getting close to our customers and really delivering for them. And we expect that to continue. We're holding them accountable to do that. Mike Sison: Great. Thank you. John Morikis: You bet. Al Mistysyn: Thanks, Mike. Operator: Our next question is coming from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question. Vincent Andrews: Thank you and good afternoon, everyone. Just wanted to ask you maybe Al on the inventory level. You mentioned in your prepared remarks that it's down $100 million or so year-over-year, despite sales being up $500 million and raws are obviously up. So just curious about two things; one, is there any risk of any sort of supply constraints on your side that might curtail some volume upside? It sounds like maybe moat risk maybe in the second quarter or potentially later in the year particularly if they're -- we have another bad hurricane season or something like that? And then secondly, I'm just curious if you're seeing -- maybe this is more in The Americas Group, but I'll ask it for the rest of the segments as well whether some of your smaller competitors are at all volume-constrained as far as you can tell? And is that providing opportunities for you? John Morikis: Yes. Vincent why don't I take that? Because I think the raw material supply issue is something that I tried to touch on before. And I would say that, as Jim mentioned that 168 facilities in the petrochem industry going offline. It had an impact on not just the paint industry, but many industries. And as diversified as we are in supply base and geographically, when something like this happens it's a significant natural disaster. It's going to impact many industries. It has impacted us. And so, we're working hard with our suppliers. To be very clear we want to be the ones that stand out amongst our customers with the greatest supply, but there are challenges right now. And a natural disaster like this is going to be challenging. As I mentioned and we have mentioned repeatedly, we believe it's transitory. We think that we'll get on top of this. I think the fact that we have the tenure in our leadership team in our global supply chain, as well as procurement gives me great confidence the asset base that we have and the responsiveness and quite frankly the willingness to do whatever it is. Where we can get product in, we'll ship it from wherever we can make it the fastest to get it to our customers to serve them properly. And we're doing a lot of that right now. And so, it is a real issue. It's getting better, but it's one that we've dealt with. And as far as our competitors, yes, I'd say, as I mentioned all of our competitors are feeling the same pressures. What I'm really proud of and I've mentioned these leaders Heidi Petz, Justin Binns, Brian Patton every one of them when we talk, there's not one of them that are sitting there talking about, Boy there are challenges. The challenges that we're talking about are how quickly we can grow, how fast we can be in front of our customers, how fast we can be in front of our competitors' customers. And so while some might be in a similar situation from a raw material, very few have the ability to respond like Sherwin-Williams. And yes, we're trying to take advantage of that. We're trying to turn those into customers. So you should expect that we're aggressively in front of those customers right now talking about our products our services and how we can help our customers make money. Vincent Andrews: Okay. And maybe just as a quick follow-up. I think in TAG you talked about property management being down. So maybe if you could just give us a little bit more color on how the trends are moving there both sequentially and year-over-year and what you expect for the rest of the year? John Morikis: Yes I'd say recovery would be choppy would be the best way that I would describe that. It's improved sequentially, but was down by mid-single digit in the quarter. As we went through the quarter, the results got better. Now some of that came from comparisons that were a little bit easier. But we believe that, there's a meaningful recovery underfoot in this business. I'd say that aligns with Dodge whose non-building starts are forecasted to rebound in the mid to high single digit range. We continue to gain good momentum here by diversifying this business. And I'd say that -- when you look at our property management I'd say, we're in a leadership position here. We've got great determination to continue to grow. But I'd say, also I think it's important is we're seeing more activity in our Southeast and Southwestern divisions where there are fewer, I'll call them governors -- or COVID governors compared to the Midwest and Eastern areas. I'd say that comps are more favorable over the rest of the year. But again, just as we've talked earlier we're not waiting for comps to get easier to be a way to demonstrate. We're on attack. We're attacking right now. And a lot of these customers, some of this might fall a little bit between property maintenance and a little bit of the commercial side. But if you look at the tourist industry, many are starting and expecting for that to pick up. And we expect some of those facilities as they start to get better utilization rates to again begin investing more in that business as well. So we're positioned really well. We're -- we've got I believe a good strong leadership position here great relationships and a lot of determination. Vincent Andrews: Thanks so much. Look forward to the event in June. John Morikis: Thanks Vincent. Operator: The next question is from the line of Kevin McCarthy with Vertical Research. Please proceed with your question. Kevin McCarthy: Yes, good afternoon. Within the US would you speak to the regional trends that you saw in the quarter in your US architectural business and whether or not there was a topline impact from Uri? And then looking out maybe over the medium term, I'd be curious to hear your thoughts on demographic trends? More people seem to be moving to Florida and Texas. Is that an issue that's hit your radar screen from the point of view of strategy or capital allocation as it relates to your store base for example? John Morikis: Yes. We love people moving regardless of where they move and we like them to paint and change their mind on the color a couple of times while they're doing that. So we're positioned very well. The Southeast and Southwestern divisions are terrific markets for us. The density of our stores is high there, but there's still plenty of opportunity. We talked about resuming our store count new stores up into the 80-plus range. We're excited about that. I think we have good coverage in the divisions that are the benefactors of some of that movement, but there's still opportunities and we love the shift that might be taking place if it be permanent or temporary. If you look at -- you talked about the demographic or the performance by area. The largest growth that we had was in our Canadian division. This team has been working really hard at executing up there over the last few years. We've been making a lot of investments. So quite frankly our expectations are high for this division, but they're delivering. I'd say as I mentioned the Southeastern division is another area a terrific leader in Todd Wipf down in that area that has been down there for quite some time and is doing a terrific job leading his team. Midwestern Southwestern and the Eastern divisions came in, in order and I'd say, all of them have terrific leaders and are executing. So I was trying to be cute there, Kevin about the move. But the reality is, is that as there's shift in demographics we think we're really well positioned. And we'll capitalize on it wherever it goes largely because of our relationships with the contractors that are going to be on the receiving end. Kevin McCarthy: Understood. And then just on the housekeeping side, how would you characterize the level of earnings dilution associated with your divestiture of Wattyl? Al Mistysyn: Yeah, Kevin, if you look at the remaining three quarters, the impact on consumer would be about close to 5%. And then the profit is immaterial. Hence the portfolio reviews that we complete on a regular basis looking at customer’s brands, businesses we set midterm -- it's got to be not just sales targets but scale and growth targets. And we have to look at our operating margin, RONA, and cash flow. And we don't believe these businesses or programs can meet those targets, we decide they could be better served with somebody else. Kevin McCarthy: Okay. Thank you very much. Operator: Our next question is coming from the line of Duffy Fischer with Barclays. Please proceed with your question. Duffy Fischer: Yeah. Good morning fellows. John Morikis: Hey Duffy. Al Mistysyn: Hey Duffy. Duffy Fischer: Hi guys. Just one question for me. I just want to triangulate a couple of Al's comments. So you talked about volume being the biggest driver of margin expansion. But if you use your EBIT number and just look at the incremental margins, TAG came in at 46% year-over-year, consumer was 39%. But consumer grew a lot more than TAG did. So can you just talk about the puts and takes of why TAG was able to have meaningfully higher incremental margins than consumer even though it didn't have the volume growth? Al Mistysyn: Yeah. I would say Duffy the -- a couple of reasons. Strong volume in TAG, the high same-store sales increased 8.2% versus a strong 7.4% last year. And the product mix within TAG was favorable. Residential repaint was strong. DIY was strong. New res was strong. We saw double-digit growth in exterior. So -- and the price increase effectiveness was strong in our first quarter, all leading to that high flow-through of 46%. Consumer flow-through at 39%. I'll just say it happy -- really happy with that strong flow-through. And the team has been and we've talked about this investing in the Pro who paints in our home center channels, driving those investments. We also had a little bit of a mix shift as Asia Pacific and Europe grows faster than the U.S. Even though we're seeing nice improvement in the operating margins there, it does dilute our consolidated margins. So those are kind of the high-level factors that would impact that. And the last thing I would say is the consumer’s price increase did come in a little bit -- on a little bit more of a lag in the first quarter -- towards the end of the first quarter to our second quarter. And then they also get the benefit of the Ace business being -- us walking away from the Ace business. Duffy Fischer: Perfect. Okay, thank you guys. John Morikis: Thanks Duffy. Operator: Our next question is from the line of John Roberts with UBS. Please proceed with your question. John Roberts: Thank you. I want to make sure we beat to death this raw material and inventory issue that's there. Did you have to shift your production mix at all due to any limited availability of raws? Did you maybe have to make more vinyl instead of acrylic or more urethane instead of epoxy? John Morikis: Yeah. I'd say, we're shifting all the time though John. The timing of arrivals of raw materials or the plants that is going to be manufactured – manufacturing, we might have seen a little bit more of that than usual here given the obvious situation. But I'd say that's something that we do. And when I mentioned earlier about the strength of doing business with Sherwin-Williams that's the benefit of a company like ours, the capacity that we have, the assets that we have, quite frankly the purchasing power that we have. There's a lot of opportunities on an everyday basis. Here now with this situation as products become available, we're able to utilize our assets the best ability -- to our best ability. John Roberts: And then are you still seeing strong spray equipment sales in the stores as a leading indicator consistent with some of the growth outlooks that you've projected? John Morikis: Yes we are. John Roberts: All right. Thank you. John Morikis: Thanks John. Operator: The next question comes from the line of Edlain Rodriguez with Jefferies. Please proceed with your question. Edlain Rodriguez: Thank you. Good afternoon guys. John Morikis: Good afternoon. Edlain Rodriguez: One quick one. Like in terms of the businesses that are still under some pressure like commercial paint, Protective and Marine, and a little bit of auto refinish, like are you seeing any real fundamental improvement in those businesses? And when do you expect to start seeing maybe pre-COVID levels in some of those businesses? John Morikis: I would say that we're seeing sequential improvement in all of them and we expect that to continue. The timing on pre-COVID levels, we'd like to see that obviously sooner than later. We're working hard with our teams to be able to reach those levels. A little hard to give that projection by division in this format, but you should expect that that is absolutely our intent. Edlain Rodriguez: Okay. Thank you. John Morikis: Thank you. Operator: Our next question is from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Arun Viswanathan: All right. Thanks for taking my question here guys. I guess, I just wanted to circle back at a lot of the strength that you've seen and your expectations maybe in future periods. So, obviously, you've seen double-digit growth in resi repaint for many periods. That seems like it's actually going to continue. But you've also seen a recovery on the new side. If you were to just think about those two dynamics, do you feel that paint stores will continue to grow next year at a say 1.5 to two times the market clip? John Morikis: Yes. Arun Viswanathan: Okay. That was easy. And then I guess maybe on the industrial side similarly, we have a nice recovery going on now. But you saw some nice strength in refinish. You've discussed packaging at length. What areas of that business are potentially still below normal that you may expect to see recovery in future periods as well? John Morikis: In the industrial business you're asking? Arun Viswanathan: Yes. John Morikis: Yeah. I would absolutely say that we're pleased with the momentum in our automotive refinish. There's a lot of seeds that are being planted. Our expectations for that business are very high. I think even with the growth that we are experiencing in GI and industrial wood, we expect that momentum to continue. I'd say coil is going to continue to grow. You know what, let me just save some time here. We have expectations for every one of those divisions to continue to grow. There's a lot of upside. Our position in the market there's -- we're not sitting here with an enormous amount of market share here where we can't grow. I mean, there's opportunities in every one of those businesses. We believe we have the product technology, the assets and most importantly the people to be able to execute on that. And so our expectations are very high for each one of those businesses, both on the sales and operating margin from both perspectives. Arun Viswanathan: Thanks, John. John Morikis: You bet. Jim Jaye: Thanks, Arun. Operator: Our next question is from the line of Garik Shmois with Loop Capital. Please proceed with your question. Garik Shmois: Great. Thanks. Just one question for me. Just looking for some clarification on TAG pricing and just recognizing there could be some upside later this year. But of the -- you got 1.7% in the first quarter. You expect 2% or better the following quarters. Is that 2% total, or is that 2% on top of the 1.7% you just got? I'm assuming, it's the same as your last outlook but I just wanted to be sure. Al Mistysyn: Yes. That's 2% in total and it's maybe even a little bit better than the prior effectiveness of price increases that we've done. Garik Shmois: Great. Thank you. Al Mistysyn: Thanks. Operator: Our next question is from the line of Mike Harrison with Seaport Global. Please proceed with your question. Mike Harrison: Hi, good afternoon. John Morikis: Hey Mike. Mike Harrison: I wanted to dig in a little bit on this opportunity with PROs who paint at Lowe's. And it sounds like they've talked about some success in bringing these people into the stores. Do you have any metrics that you can share on what kind of benefit you've seen in the paint aisle? And maybe talk about what specific product lines at Lowe's you're gearing toward the PRO market or how you're positioning to better serve them. John Morikis: Mike, we do have metrics, none that we can share. I mean, these would be our customers' metrics that we feel, it's very important in that relationship for them to discuss and to share. And I would also say, even from a product offering targeting those customers -- and I'll talk about our stores and maybe use that to reflect on the business that you're asking about. If you look at our high-end products, many of those are sold to the DIY customer, but many are also sold to the residential repaint contractors. So, I don't know that you would find customers in our stores that are professional, that are not buying some product at nearly every price point that we offer. And so the work that we're doing on the PROs that paint, targets the same type of breadth of product. There are customers that are maybe very high-end or upscale homes that want to use the very best. And there are others quite frankly that might be in different price points, but have also recognized that the largest cost of their goods -- cost of goods is in labor and they make more money using a higher-quality paint. So, we're not only designing products for PROs or DIY customers. We're designing products for the end application with the idea of the applicator in mind. So, we do build some PRO products, largely on the commercial side that are maybe more geared towards that application. But when you go into a home center, you're going to find those PROs typically shopping throughout the entire product line. Mike Harrison: All right. And also wanted to revisit the Wattyl divestiture. Just wondering kind of what this says about your international expansion plans or strategy on the architectural side. Maybe comment on why Wattyl wasn't a good fit. And it's been a little while since we talked about China on the architectural side. Any comments there? John Morikis: Yes. I'd say, Mike, it's a great question and one I'd like to touch on because, I think it demonstrates the discipline as well as strategy. So my message is -- to a shareholder would be, we are committed. We are committed to growth and we're making investments in those areas that we believe have the opportunity to reach the long-term targets that Al just walked through. We're not interested in just a book of business. We're not interested in practice. We know how to make paint. Our shareholders expect a return on their investment and that's what we're out to do. So we're looking at programs. We're looking at geographies. We're looking at customer programs themselves to understand, which ones are viable and meaningful to both our customers and our shareholders. And in those areas, where we can see the long-term investments paying off, we're going to invest. We're going to get in there and grind out, what needs to be done to win. But we're not going to be in some part of the world -- other part of the world, expending our time and our treasure in areas that doesn't offer the return that our shareholders deserve. Operator: Thank you. Our next question is from the line of Truman Patterson with Wolfe Research. Please proceed with your question. Truman Patterson: Hi, good afternoon everyone. Thanks for taking my questions. I'll try and be quick because I know we're getting late. First question on TAG and Performance Coatings Group. Clearly different pricing dynamics, different raw material baskets and potential inflationary pressures. You all mentioned some gross margin compression near term. Is either segment at risk of just kind of greater compression over the next quarter? And then, either segment, will it take a little bit longer to recover all the inflationary pressures? Al Mistysyn: Yes. Truman, I would say just because of the size of the petrochem side of the basket moving higher than the others short term, we would see more of a compression on PCG. But as you know and as I talked about for the year, we're not focused on gross margin compression or expansion alone. It's a combination of things. We're focused on operating margin growth and that comes in many ways starting with volume. And we are showing strong volumes in Performance Coatings Group in TAG, the selling price increases and as I talked about PCG has incremental selling price increases coming into our second quarter and getting leverage on SG&A. And where we fall out on the operating margin improvement is really driven by that volume first. But you can have confidence in our discipline and resolve about getting price increases, if we need them later in the year to offset dollar for dollar the raw material increases across all businesses. Truman Patterson: Okay. Okay. That's really helpful. So in PCG, primarily a bit more compression just due to raw materials rather than an inability to dip pricing at least moving forward. Okay. And then just -- this has been asked a couple of different ways, but I just want to ask a bit more directly and make sure, I'm not missing anything. DIY in the US through April, you all aren't seeing any slowing whatsoever? And the reason that I'm asking is, it looks like in consumer, the second quarter sales guide looks a little soft, but I think that might include the Wattyl divestiture. So just wanting to understand that. Al Mistysyn: Yes. Truman, it does include about 4% in it for Wattyl. Truman Patterson: Okay. But you're not seeing any deceleration in DIY in April? Al Mistysyn: Let me say it this way. April sales are within our guidance. Truman Patterson: Certainly. John Morikis: You’re a good man, Truman. It's within our guidance. Truman Patterson: All right. Thanks, guys. Good luck on the upcoming quarter. John Morikis: Thanks, Truman. Operator: Our next question is from the line of Justin Speer with Zelman & Associates. Please proceed with your questions. Justin Speer: Thanks, guys. Appreciate it. Just a few questions here. One on, just following up that DIY paint, maybe not through your retail partners, but through your stores. How did the DIY point-of-sale trends look through the quarter to exit the quarter maybe even to April? And maybe, if you could help us maybe understand, in terms of its guidance for the second quarter, how much of that may be tied to managing your retail customers, managing inventories, or perhaps just the supply chain disruptions versus underlying demand slowing? John Morikis: No. I'd say that -- is it -- I'm not quite sure I understand your question. Is it -- Al Mistysyn: I would say, Justin, it's not demand slowing. I think we're showing a strong top line sales guidance. So, it's not related to anything restocking or inventory level holder pushes within the retail channel. But up mid to high teens on a consolidated basis and strong improvements across each of the segments or TAG and PCG in particular, that's driven by the underlying demand trends. That's not anything related to the inventory. CBG down low double digits to mid-teens. We have the Wattyl impact. But even with that guidance, we're still going to be up mid- to high teens relative to the second quarter of 2019. So we're not giving it all back and we're maintaining some momentum there. John Morikis: With an effort on trying to grow, as I mentioned earlier, on the -- through those retail customers with the PROs that paint as well. Justin Speer: For sure. Yes, I recognize there's just tremendous growth. And I know that you're looking at maybe toggling back to low single, but maybe there's some phasing and some timing where maybe we tilt negative and that's what you're guiding to. But it sounds like that's a view towards maybe end demand versus inventory situation, it's more of a view that end demand for whatever reason, the second quarter is going to be a little bit softer year-over-year for your business through retail, but not necessarily -- and then maybe, but I guess the question I have, is that a reflection of the actual end demand to the customer that you're expecting there? John Morikis: Well, what we are saying is that, as people go back to work, they're not going to be home painting. And if that occurs then there is a little less DIY business. We think Sherwin-Williams is uniquely positioned to capture it in other areas of the business. So if people are going back to work and more painters are coming to their homes while they're at work, we're going to pick that up. If the people are going back to work in their plants, the production of those plants are going to be up on -- and going online, we're going to pick it up there. So I can go through in great detail, Justin. But I know you know this business very well and we've had this discussion a number of times. Our view is that we've been working hard, quite frankly, for years for this moment. Whichever way the business tilts, we're there, and we're going to capitalize on it. And if it's in DIY, we're there. If it's in res repaint, we're there. If it's in new residential, property maintenance, commercial, property management, whatever it is, we're there and we're going to capitalize on it. Justin Speer: It makes sense. And, yes, you have a great portfolio to adapt to the dynamics. The last question I have is on the free cash flow margin expectation for this year. You had a very, very strong last year on that front. How are you thinking about the phasing of free cash flow margins this year? Al Mistysyn: Yes. Justin, we are expecting to be even a little bit above the 12.5%, 13% net operating cash targets we've set for ourselves. And then with our CapEx, our core CapEx below 2%, but we also have the building our future $100 million that we talked about. So if I look at net operating cash, less CapEx, we've talked about being above that 11.5%. And I think, we might be a little bit below that just because of the extra $100 million, but I do expect strong net operating cash for the year. Justin Speer: Excellent. Thank you, guys. Really appreciate it. John Morikis: Thanks, Justin. Operator: The next question is from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed with your question. Rosemarie Morbelli: Thank you. Good afternoon, everyone and thanks for taking my question. I have just one quick question on the potential infrastructure bill. How much of your Performance Coatings would benefit from it? And what technologies do you need in order to have a bigger impact? John Morikis: Rosemarie, it's a great question. It's something that has us very excited. Our Protective & Marine business is a terrific business, positioned very well. I think a big part of it -- and I think, you know as well as most that have tried to follow what this infrastructure bi
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Citi Lowers Rating on Sherwin-Williams Amid Housing Market Headwinds

Sherwin-Williams (NYSE:SHW) saw its rating cut by Citi from Buy to Neutral, with the price target trimmed to $385 from $405, as analysts flagged ongoing challenges in the housing sector that could weigh on near-term performance. As a result, the company’s shares fell over 3% intra-day today.

Citi pointed to sustained pressure from elevated mortgage rates and delayed expectations for Federal Reserve rate cuts, both of which are dampening hopes for a meaningful housing recovery in the second half of 2025. While the firm still views Sherwin-Williams as a strong long-term player with solid market share potential, current conditions suggest limited upside in the short term.

Without clear near-term catalysts, Citi sees the stock’s risk/reward profile as less compelling and recommends investors consider other names better positioned for today’s macro environment. The firm expressed a preference for RPM International, citing its greater exposure to non-residential construction and infrastructure spending trends.

Sherwin-Williams (NYSE:SHW) Earnings Report Highlights

  • Earnings Per Share (EPS) of $2.09, surpassing estimates.
  • Revenue of approximately $5.3 billion, slightly missing expectations.
  • Strong profitability with a 15.5% improvement in adjusted EPS year-over-year.

Sherwin-Williams (NYSE:SHW), a prominent player in the coatings industry, recently reported its earnings for January 30, 2025. The company achieved an EPS of $2.09, surpassing the estimated $2.06. However, its revenue of approximately $5.3 billion slightly missed the expected $5.31 billion. Sherwin-Williams operates through three main segments: Paint Stores Group, Consumer Brands Group, and Performance Coatings Group.

In the fourth quarter of 2024, Sherwin-Williams reported earnings of $1.90 per share, a significant increase of 36.7% from the previous year's $1.39. Excluding one-time items, the adjusted EPS was $2.09, exceeding the Zacks Consensus Estimate of $2.07. Despite this, the company's revenue of $5.3 billion reflected only a 0.9% year-over-year increase, falling short of the $5.31 billion estimate.

The Paint Stores Group drove the rise in consolidated net sales, but this was partially offset by decreased sales in the Consumer Brands and Performance Coatings Groups. Additionally, a 1.3% negative impact from foreign currency translation affected the overall revenue. Despite these challenges, Sherwin-Williams demonstrated strong profitability with a 15.5% improvement in adjusted EPS from the previous year.

Sherwin-Williams faces a volatile market, as highlighted by Market Watch, with sales falling short of market estimates and soft guidance for the first quarter and the entirety of 2025. This has contributed to a decline in its stock price. The company's financial metrics, such as a P/E ratio of 35.86 and a price-to-sales ratio of 4, reflect investor sentiment and valuation concerns.

The company's debt-to-equity ratio of 2.91 indicates a reliance on debt financing, while a current ratio of 0.83 suggests potential challenges in covering short-term liabilities. Despite these financial pressures, Sherwin-Williams remains a key player in the industry, navigating through market fluctuations and striving for growth.

Sherwin-Williams (NYSE:SHW) Earnings Report Highlights

  • Earnings Per Share (EPS) of $2.09, surpassing estimates.
  • Revenue of approximately $5.3 billion, slightly missing expectations.
  • Strong profitability with a 15.5% improvement in adjusted EPS year-over-year.

Sherwin-Williams (NYSE:SHW), a prominent player in the coatings industry, recently reported its earnings for January 30, 2025. The company achieved an EPS of $2.09, surpassing the estimated $2.06. However, its revenue of approximately $5.3 billion slightly missed the expected $5.31 billion. Sherwin-Williams operates through three main segments: Paint Stores Group, Consumer Brands Group, and Performance Coatings Group.

In the fourth quarter of 2024, Sherwin-Williams reported earnings of $1.90 per share, a significant increase of 36.7% from the previous year's $1.39. Excluding one-time items, the adjusted EPS was $2.09, exceeding the Zacks Consensus Estimate of $2.07. Despite this, the company's revenue of $5.3 billion reflected only a 0.9% year-over-year increase, falling short of the $5.31 billion estimate.

The Paint Stores Group drove the rise in consolidated net sales, but this was partially offset by decreased sales in the Consumer Brands and Performance Coatings Groups. Additionally, a 1.3% negative impact from foreign currency translation affected the overall revenue. Despite these challenges, Sherwin-Williams demonstrated strong profitability with a 15.5% improvement in adjusted EPS from the previous year.

Sherwin-Williams faces a volatile market, as highlighted by Market Watch, with sales falling short of market estimates and soft guidance for the first quarter and the entirety of 2025. This has contributed to a decline in its stock price. The company's financial metrics, such as a P/E ratio of 35.86 and a price-to-sales ratio of 4, reflect investor sentiment and valuation concerns.

The company's debt-to-equity ratio of 2.91 indicates a reliance on debt financing, while a current ratio of 0.83 suggests potential challenges in covering short-term liabilities. Despite these financial pressures, Sherwin-Williams remains a key player in the industry, navigating through market fluctuations and striving for growth.

Sherwin-Williams Price Target Lowered to $423 Amid Demand Recovery Concerns

Jefferies analysts reduced their price target for Sherwin-Williams (NYSE:SHW) to $423 from $439, while maintaining a Buy rating. The adjustment reflects a cautious outlook on the timing of a demand recovery and slightly higher interest expense projections for 2025 and 2026.

The revised estimates stem from concerns that consensus forecasts may overly rely on a macroeconomic recovery in 2025, which the analysts believe could face downward revisions in the coming months. Despite these adjustments, Sherwin-Williams shares appear to have already priced in much of this uncertainty.

Jefferies’ model anticipates a potential rally exceeding 20% by the end of 2025, contingent on supportive Federal Reserve policies and the absence of adverse economic shocks. While near-term caution persists, Sherwin-Williams remains well-positioned to deliver long-term value for investors, backed by its robust fundamentals and resilience in the face of macroeconomic challenges, as per the analysts.

Sherwin-Williams Price Target Lowered to $423 Amid Demand Recovery Concerns

Jefferies analysts reduced their price target for Sherwin-Williams (NYSE:SHW) to $423 from $439, while maintaining a Buy rating. The adjustment reflects a cautious outlook on the timing of a demand recovery and slightly higher interest expense projections for 2025 and 2026.

The revised estimates stem from concerns that consensus forecasts may overly rely on a macroeconomic recovery in 2025, which the analysts believe could face downward revisions in the coming months. Despite these adjustments, Sherwin-Williams shares appear to have already priced in much of this uncertainty.

Jefferies’ model anticipates a potential rally exceeding 20% by the end of 2025, contingent on supportive Federal Reserve policies and the absence of adverse economic shocks. While near-term caution persists, Sherwin-Williams remains well-positioned to deliver long-term value for investors, backed by its robust fundamentals and resilience in the face of macroeconomic challenges, as per the analysts.

Sherwin-Williams (NYSE:SHW) Receives "Buy" Rating from Goldman Sachs Amidst Q3 Earnings Miss

  • Goldman Sachs reaffirms its "Buy" rating for Sherwin-Williams (NYSE:SHW), despite the stock's decline following its Q3 earnings report.
  • The company's Q3 earnings fell short of expectations, with total sales of $6.16 billion and profits of $806.2 million.
  • Sherwin-Williams' stock price experienced a decrease of 5.34%, trading between a low of $361.01 and a high of $389 on the day of the report.

On October 23, 2024, Goldman Sachs reiterated its "Buy" rating for Sherwin-Williams (NYSE:SHW), with the stock trading at $361.38. Sherwin-Williams is a leading paint and coatings manufacturer, known for its wide range of products catering to both professional and DIY markets. The company competes with other industry giants like PPG Industries and AkzoNobel.

Sherwin-Williams recently held its Q3 2024 earnings conference call, featuring key executives like CEO Heidi Petz and CFO Al Mistysyn. The call, attended by analysts from major financial institutions, provided insights into the company's performance and future outlook. Despite the "Buy" rating from Goldman Sachs, the stock experienced a decline following the earnings release.

The company's Q3 2024 earnings fell short of expectations, with total sales of $6.16 billion, missing the anticipated $6.22 billion. Profits rose by just over 5% to $806.2 million, but this was below the $873.54 million consensus estimate. CEO Heidi Petz cited "continued choppiness" and "softness" in demand, particularly in the DIY market, as reasons for the underperformance.

Sherwin-Williams reported earnings of $3.37 per share, which was below the Zacks Consensus Estimate of $3.56 per share. This represents a negative surprise of 5.34%. In contrast, the previous quarter saw a positive surprise, with earnings of $3.70 per share against an anticipated $3.51. Over the past four quarters, the company has exceeded consensus EPS estimates twice.

The stock, currently priced at $361.38, has seen a decrease of 5.34%, with a change of -$20.37. It has traded between a low of $361.01 and a high of $389 today. Over the past year, SHW has reached a high of $392.57 and a low of $232.06. The market capitalization stands at approximately $91.16 billion, with a trading volume of 4,282,861 shares.

Sherwin-Williams (NYSE:SHW) Receives "Buy" Rating from Goldman Sachs Amidst Q3 Earnings Miss

  • Goldman Sachs reaffirms its "Buy" rating for Sherwin-Williams (NYSE:SHW), despite the stock's decline following its Q3 earnings report.
  • The company's Q3 earnings fell short of expectations, with total sales of $6.16 billion and profits of $806.2 million.
  • Sherwin-Williams' stock price experienced a decrease of 5.34%, trading between a low of $361.01 and a high of $389 on the day of the report.

On October 23, 2024, Goldman Sachs reiterated its "Buy" rating for Sherwin-Williams (NYSE:SHW), with the stock trading at $361.38. Sherwin-Williams is a leading paint and coatings manufacturer, known for its wide range of products catering to both professional and DIY markets. The company competes with other industry giants like PPG Industries and AkzoNobel.

Sherwin-Williams recently held its Q3 2024 earnings conference call, featuring key executives like CEO Heidi Petz and CFO Al Mistysyn. The call, attended by analysts from major financial institutions, provided insights into the company's performance and future outlook. Despite the "Buy" rating from Goldman Sachs, the stock experienced a decline following the earnings release.

The company's Q3 2024 earnings fell short of expectations, with total sales of $6.16 billion, missing the anticipated $6.22 billion. Profits rose by just over 5% to $806.2 million, but this was below the $873.54 million consensus estimate. CEO Heidi Petz cited "continued choppiness" and "softness" in demand, particularly in the DIY market, as reasons for the underperformance.

Sherwin-Williams reported earnings of $3.37 per share, which was below the Zacks Consensus Estimate of $3.56 per share. This represents a negative surprise of 5.34%. In contrast, the previous quarter saw a positive surprise, with earnings of $3.70 per share against an anticipated $3.51. Over the past four quarters, the company has exceeded consensus EPS estimates twice.

The stock, currently priced at $361.38, has seen a decrease of 5.34%, with a change of -$20.37. It has traded between a low of $361.01 and a high of $389 today. Over the past year, SHW has reached a high of $392.57 and a low of $232.06. The market capitalization stands at approximately $91.16 billion, with a trading volume of 4,282,861 shares.