Preliminary Q4 2021 Sherwin-Williams Co Earnings Call
Good morning, Thank you for joining the Sherwin Williams company's preliminary review of fourth quarter and full year 2021 results with US on today's call are John Marquez, Chairman, President and CEO al Mr. Shin CFO Jane Cronin senior.
This president corporate controller, and Jim Jaye, Senior Vice President Investor Relations and communications.
This conference call is being webcast simultaneously in listen only mode by issuer direct via the Internet at Www Dot Sherwin Dot com, an archived replay of this webcast will be available at www Dot Sherwin Dot com beginning approximately two hours. After this conference call concludes this conference call.
<unk> 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 statements 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.
Full declaration regarding forward looking statements is provided in the Companys press 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 John Marcus.
Thank you and good morning, everyone.
Earlier. This morning, we released preliminary sales and earnings per share results for the fourth quarter and full year 2021.
That differ materially from our sales and EPS guidance, we provided back on October 26 2021.
Fourth quarter consolidated sales increased approximately 6%.
Within our guidance, but at the lower end of the range.
Segment sales mix was different than anticipated, which I'll detail in a moment.
Full year sales increased approximately eight 6% to $19 9 billion.
Our preliminary full year 2021, adjusted diluted EPS of $8 15 missed the midpoint of our previous guidance range by approximately 30.
And compares to 2000 Twenty's adjusted diluted EPS of $8 19.
The majority of the Miss was driven by the Americas Group, where sales came in below our guidance in the fourth quarter.
In the interest of time I'll keep my prepared remarks brief and then we'll open the call to questions.
I'll start with sales.
While we were within our guidance on a consolidated basis segment mix was different than anticipated which impacted profitability.
Fourth quarter sales in the Americas group were up a low single digit percentage a level below our mid to high single digit guidance.
We experienced unfavorable mix in the quarter with paint sales missing our targets, but partially offset by a better than expected performance in non paint sales.
This was against a 9% comparison a year ago.
Price realization in the quarter was in the high single digit range.
Sales were impacted by continued choppiness in raw material availability, including selected resins and additives, which are key ingredients in many of our professional contractor products.
Logistics and transportation issues also impacted the supply chain.
TEG sales in October met our expectations highlighting strong demand in the market.
Given the slower than anticipated recovery in raw material availability industry.
Industry wide logistics challenges and the resurgence of Covid safe.
Sales progressively softened starting in late November and into December and finished well below our expectations.
The virus meaningfully impacted our tag workforce, including store managers field sales reps and drivers.
Resulting in reduced staff availability.
Four hours and deliveries in some districts, particularly.
Particularly in the last two weeks of the year.
Multiple suppliers and customers also reported increasing rates of labor absenteeism in the quarter due to the virus.
January is off to a slower start as availability and COVID-19 headwinds are persisting.
The underlying good news in all of this is that demand remains solid in all tag customer segments.
Fourth quarter consumer brand sales were down by high single digit percentage, which was better than our guidance of down mid teens.
Price realization was significant but less than 10.
Sales improved sequentially each month and were positive in December .
The majority of the sales beat was driven by <unk> and other non <unk> products.
Paint gallon production was below anticipated levels, though raw material availability was slightly better here than <unk>, given the different product formulations and more uniform offering appropriate for customers in this channel.
Performance coatings group sales also exceeded expectations and were up by a high teens percentage in the quarter.
This was against a high single digit comparison in the fourth quarter of 2020.
Price realization was in the low double digit range.
<unk> were up double digits, each month, and we generated double digit growth in all regions and most businesses.
Turning to our preliminary earnings results as I mentioned, the Miss in the quarter was mainly related to lower than anticipated volume in tag. Additionally.
Additionally, raw materials and other cost inflation exceeded our estimates.
We also experienced supply chain inefficiencies as we made the strategic decision to maintain people in our plants and distribution centers, despite the choppiness and raw material availability.
Given the current labor environment. We believe this is the right decision. So that we are able.
Better positioned to produce paint quickly as raw material availability improves more meaningfully.
As we enter 2022 demand remains strong across the majority of our end markets, though we expect raw material availability and COVID-19 issues to persist through the first quarter.
Raw material and other costs remained elevated and we continue to respond with aggressive pricing and every group, including a 12% price increase in the Americas group effective February one.
We've continued to make additional investments in our business, including the additional 50 million gallons of incremental architectural capacity, which we discussed last quarter.
This capacity is now online and making paint.
Additionally, we opened 79 paint stores in the U S and Canada during 2021, including 32% in the fourth quarter.
We also continued to return cash to our shareholders during the year paying $443 million in dividends and buying back 10 1 million shares of company stock for a total of $2 75 billion.
And finally, we closed on the acquisition of specialty polymers incorporated in the quarter, which will strengthen our in house resident capabilities.
The purpose of our press release and call. This morning is to update you on our preliminary results for the fourth quarter and full year 2021.
I realize this information likely raises many questions about 2022, and we intend to address those questions on our fourth quarter year end earnings call scheduled for January 27.
We appreciate you holding your 2022 questions for that call.
As I've, often said, we're not running our business for the perfect quarter.
While we're not pleased with our fourth quarter performance, we remain highly confident in our strategy and our ability to emerge an even stronger company.
Following the current near term disruptions.
We have an experienced leadership team and an unparalleled workforce, which will continue to drive our success in the marketplace.
At this time, we'd be happy to answer any questions you have about this morning's release.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
To withdraw from the queue. Please press star two.
We ask that while posing your question you. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please.
Please hold for a moment, while we poll for questions.
And our first question today is coming from John Mcnulty with BMO capital markets. Your line is live you may begin yes. Thanks for taking my question.
I guess the first one would just be on tag because it sounds like it was it was kind of steaming along as expected in October which is such a big month relative to the other two I guess can you help us to understand how much things fell off as you kind of went into in November and December to kind of come in with this being kind of the big driver behind behind some of the week.
Ms.
Yes, John I think your observation is a good one demand is strong in October came in as we had planned and there are a lot of reasons for that so I'll take a minute to get on to that and then I'll turn it over to al to talk a little bit about the specifics of your question as far as the diminishing results, but as it relates to October driven Bay.
On the demand that we see strong libre Abi Dodge all pointing to strong demand in many contractors.
Obviously, we're spending a lot of time with our sales organizations.
<unk> into our backlog through Q2 with bids increasingly.
Coming in at a pretty steady rate.
So as we came through the beginning of the quarter feeling pretty.
Pretty good and feeling as though.
There was some good momentum outside the comments I just made reference primarily residential repaint we.
We talk about property maintenance.
A lot of demand in this area as well.
Specifically, if you look at the higher turns that we're experiencing.
In our property management.
Companies. These all bode well for repayments as well as capex in common areas as well as exteriors and new construction. So.
There as well as in commercial where we've seen consistent indication of a strong backlog gives us confidence in the demand equation, but we did face.
A growing issue.
Covid in a repeating issue with the raw materials that you referenced that did have an impact and I'll turn it over to Alan to talk a little bit about what that looks like this quarter, where yes, John so.
Like we talked about.
Availability issues that we thought we'd get passed in October and improve in November and December didn't happen exactly the way, we we expected.
Think about.
Just versus our expectations.
The real Miss was in November and December and in the third quarter.
Our forecast for the fourth quarter, we assumed a seasonally adjusted sales trend.
Maybe less so than what we experienced in prior fourth quarters. So we were expecting to see less of a decrease because as I talked about in the third quarter call. We are expecting to be and are making ship mode.
And.
Not build any inventory in our fourth quarter and then we build inventory in our first quarter well I'll just.
Talk about inventory briefly we did build inventory in our fourth quarter that I think actually puts us in a better position coming out of the fourth quarter then.
What had been previously.
All driven because of the missing if you look at our inventory build it was intact.
Consumer every gallon we made.
Shift.
And.
The part of the inventory build just to be clear we made.
<unk>, where we have raw materials. They may not have been the right gallons in this timeframe, but we made them.
We're going to sell them in the coming quarter.
Quarters, but we had to make as much as we can make and even then we didn't have all the raw materials, we needed to make the gallons, we had projected to make coming into the quarter and clarity to Al's point about may not have been the right gallons. That's based on the raw materials that were available so as some of those raw materials became available.
They might have been for example, some exterior gallons that we will need as spring rolls in.
Rather than pass on those raw materials, we grabbed made the exterior product knowing that we would need them in spring, which gives us the capacity come spring to be able to be more responsive to our customers on that side.
Got it makes sense and then maybe just as a follow up it seems kind of nuance, but but.
It seems like you have got it sounded like you have the raw materials or at least a better supply of the raw materials for the consumer side than you did for the tag side I guess can you help us to understand maybe the few raws that are just really out of whack at this point that would cause a dynamic like that.
Well, let me I'll turn it over to Jim to talk about some of the more specifics, but the point there that you referenced I think is an important one we made whatever products, we could based on the raw materials that were available to us.
As you look at the consumer business much of that is legacy Valspar businesses that came with a different formulation, often resins and different thickness that might be a little different than what our tag business was based on so we're out buying everything that we can and making it converting it as quickly as possible.
Getting it to our customers with that in mind is as those products that fit the consumer customers product lines were available.
We were quick to produce those and get them out to our customers.
Yes, John .
I agree with what John just said I mean to reiterate that we're not necessarily net not necessarily going to get into the specifics.
Of what raws were in short supply beyond our comment specific resins and additives that are key for the pro contractor formulas as you know the the offering and tag is highly tailored to specific end markets and applications lots of CPG offering is a little bit more.
To meet the needs of customers in that channel, Yes, I think that's really well said.
Look at our segments, we take great pride in our controlled distribution model. So we we.
We know firsthand, what our res repaint customers expectations are and a gallon of paint versus a property maintenance versus new residential.
And we formulate our products uniquely for those we think thats part of the secret sauce, some of those additives, particularly might be what they refer to a small molecule small batch.
Products are.
Sometimes difficult to get our hands on right now, but very important.
And the consistency of the product that we're providing our customers. So we're moving aggressively and the other thing I want to.
Pointed out.
Have a great credit to our procurement team, our new leader over there Colin Davis and his team for doing a wonderful job of.
We're working very closely with our suppliers in a very collaborative way and we think going forward. There is additional opportunities for this collaborative effort to help us to be a better customer of our.
Of our suppliers by working to consolidate some of these products minimizing risks in the future.
And becoming more efficient ourselves at the same time, so there's a lot of work going both short term and long term to better position our company as we exit this.
Thanks, very much for the color I appreciate it guys.
Thanks, John .
Thank you. Our next question today is coming from Ghansham Panjabi at Baird. Your line is live you may begin.
Yes. Thank you good morning, everybody and a belated happy new year.
Gotcha.
Morning, I guess going back to the labor impacts specific to omicron within tag can you give us some more color on how that is playing out for you in real time as absenteeism peak for you based on what you can tell at this point or is it too early and then related to that I assume your backlogs are very high but the labor challenges are going to be a big issue throughout the supply chain.
So just based on that how long do you think it will sort of realistically take to the supply chain to catch up to the backlogs.
Chart within we're going to be working hard all year.
Our teams are preparing for that and our suppliers know that and so youre right. There was some choppiness here that we're going to expect.
Just add to that capacity that we've referenced both last quarter and early this morning earlier in my prepared comments and we're going to be utilizing those assets as hard as we can going forward as.
As you mentioned the impact on our stores this might give some color to your question Ghansham.
35% of our districts.
At a greater than 5% case rate in the fourth quarter.
9% of those districts had greater than a 10% <unk>.
Right.
So it is impacting our entire organization.
And so you look at our stores, our reps, our plants or distribution centers and our field leadership.
Drivers certainly even here in our corporate offices, but.
Our employees are not the only ones in the community getting sick to your point so it is impacting.
Our suppliers, but it's also important to understand that it's impacting our customers as well. So if you apply that same math just as a guide many of our customers are referencing 510, 15% of their workforce.
That were home sick and if you extend that out many of their customers. So take a <unk> customer.
Who is painting in someone's home, many homeowners where home sick and naturally many of those people were not inviting people into their home while they were home.
<unk> four.
For Covid. So there was almost I might describe it this way.
A lot of discussions about this is the.
Quarter was rolling through and even as we come out in the new year.
I wouldn't call it universal, but there certainly was a common theme that we were experiencing which were painting contractors experiencing this phenomenon of their workforce.
Sick their customer's sic and as the holidays rolled in it was really spiking. There was a sense of okay. Let's just shut this down and get through the holidays and we'll restart on the other side.
That said.
I want to be very clear in this the reason, we're so confident and remain very bullish and you can see it in our investments and what is that were doing demand is strong and our customers are feeling very good about it.
So but to your point labor is going to be an issue for the contractors.
Covid, we're not sure.
Run that it's going to take or some speculation that it's come in fast it'll lead fasteners.
Others say it will be here for a little while we're not experts in that we're experts and are taking care of our customers and that's what we're working really hard to do is understand what it is that their needs are and how to deliver those so.
We're working with our suppliers, we're going to convert these raw materials as quickly as possible and we're going to serve this really strong demand as best as we can yet ghansham. The only thing I would add to that is.
If you look at the cadence of the case rates.
Say it as a company.
October was pretty light and then it ramped up in November and it really spiked in December if you look at December the case rates were double more than double what they were in October or November . So just from a line of sight standpoint. It was it was tough to see on October 26, what the impacts we would we would experience as the quarter went on.
On but.
It definitely spiked in December .
Okay. That's very helpful. And then just on the 12% price increase effective February one for the Tech segment.
Just give us more color does that catch you up on previous inflation.
Adjusting for search pricing that youre seeing for some of the cost baskets labor cost inflation.
Just more insight into that 12% number yes.
Yes.
Encompassing each of the raw material increases that we've experienced that.
We will annualize in 2022 it doesn't include labor cost impacts.
As you know the labor wages and.
Various.
Both in plants distribution centers are our drivers.
Our employees at the field locations have gone up dramatically. So we can keep the quality employees that we had hired throughout the year.
Wage inflation is.
Real event.
Serious.
We're building that into our our price increase to make sure that our customers are not seeing the turnover at the counter.
That they become used to quite honestly, our turnover rates have been so low in our field organizations, and we're making adjustments where we need to to make sure that continues.
So I would just add you asked about the 12% in TEG, we are with aggressive pricing in every group in response to raw materials and tag specifically.
We.
I will just mentioned there is a level of.
Expectation, if you will with our low turnover in the stores those are the customer facing relationships that are so important.
But even there our customers are telling us that this is a market where theyre getting price. So while we're pushing this through they are as well.
Mind, you and I know you know this we've talked about this a number of times that 85% to 90% of the contractor is cost of goods. If you will is labor and so our ability to continue to help them with products and services that help their productivity are well received no. One is happy with price increases right now, but this is a marker.
Where our customers are pushing the pricing through.
Perfect. Thanks, so much.
Thank you Ghansham.
Thank you. Our next question today is coming from Vincent Andrews at Morgan Stanley . Your line is live you may begin.
Thanks, and good morning, everyone. Maybe in consumer brands, you mentioned that sales were ahead of forecast, but not because of pain to be sustained and other things.
Could you just talk about is the driver of that just paint wasn't on the shelf to sell and if it was then you would've had paint sales in excess of your expectations and I guess I'm really just asking for an update of where you think DIY trends are and consumer brands.
Well I think we absolutely could have sold more through CPG. If we could have made more theres no question about that and we've got a lot of wonderful customers. There. We're trying to work through we know they have strong demands and we're working hard to get on top of those.
The difference between some of those teams and paint related products.
Had to do with our ability to get the raw materials.
I believe the.
The ability to get back on top of this.
We have.
<unk> been forced to in <unk>.
Some cases lower down the breadth of the product line to be able to make sure that we're servicing our customers.
So the opportunity ahead is to continue to.
Served in these other areas, obviously expand and our availability to our.
Customers in the workhorse lines, but also in some of those ancillary or adjacent product lines as well and we're determined to do that we believe the relationships that we have with our suppliers and the additional capacity that we have.
We will allow us to ramp up.
To do that now that said first quarter is an important quarter for us to build that inventory and get on top of that so we're working hard right now to acquire and convert as much as possible. So that we can get into the paint season, where demand is much higher with as much inventory as possible yet Vincent I would just add to that.
If you look at the quarter.
For consumer on sales.
If you back out the impact of the Waddle divestiture earlier this year, our sales would be up.
Flattish to last year, but up almost.
Mid teens versus the fourth quarter of 2019 so.
You do start seeing.
The <unk> of the tough comps that we saw in 2020 and improvements on top of those and there is a lot of really good things taking place with this consumer brands business and we've got a lot of.
We've talked openly about our pros who paint initiative.
A lot of effort going in not just in the DIY side to these important customers, but also on the professional side as well committed.
Committed to this we're going to make this happen.
Okay. Thanks, very much guys.
Thanks Vincent.
Thank you. Our next question today is coming from David Begleiter at Deutsche Bank. Your line is live you may begin.
Thank you and good morning.
John just on raw material availability is it improving and how do you expect it to improve throughout Q1 and Q2.
It is improving I expect it to continue to improve but I do expect it to be choppy.
Mind, you that let's say on an average gallon of paint just directionally, let's say there are 16 raw materials that go into a gallon of paint we need all 16 of those to be able to make paint that batch and so when one small item is missing it could be.
A challenge for that plant that batch.
So we're.
As Al mentioned this is real time, we're not we're not building are working off of a lot of inventory.
It's making shift from us to our customers and oftentimes most nearly every time right now with our suppliers to us.
So each of those elements are items are very important in the manufacturing I expect the first quarter to be choppy I expect it to be better as the year goes on.
Very good and then just maybe longer term there was a recent announcement by home depot and PPG about expanded relationship.
The pro sector.
Any concern on your end or how strong competitor do you think there'll be in that products have been going forward.
Every competitor I have.
I have a lot of confidence in my customers and our determination. So we're going to be working really hard to make sure that.
Every change that a competitor makes us an advantage to us and we've got a terrific set of customers on the CPG side to be able to compete. This is again if you go back in time, just a moment and just say.
When we made a very.
I think bold and important strategic decision to pull some brands and move them into other customers.
That alignment between <unk>.
<unk>.
Lowe's and <unk> and <unk>.
They were.
Our determination on disposals, our determination on display.
These contractors.
The reason, we call them pros, who paints are they typically are remodelers and they do other work other than just painting many of them prefer that channel of distribution. So that they can go in and get a broader assortment of products and just paint. This alignment gives us a terrific opportunity to better penetrate a segment that is a P.
<unk> store, we don't offer all of those other products. So.
We absolutely believe that was the right thing to do <unk>.
Terrific confidence and our ability to deliver for our customers and a greater amount of determination to do just that.
It's moving in the right direction.
Wanted to move faster.
Thank you very much.
Thank you David.
Thank you. Our next question today is coming from Kevin Mccarthy at DRP. Your line is live you may begin.
Thanks, Good morning.
John relative to the 12% pricing you have.
The flow through and tag effective February one how would you characterize the pricing uplift in consumer and performance coatings I appreciate you have.
A variety of.
Customers and end markets, there, but perhaps you could give us a sense of the relative magnitude and timing of price contributions there.
Yes, Kevin.
Consumer price increases very similar.
The tag.
If not a little higher just because of the catch up that needs to happen in the channel as you know our TEG.
A little more uniformed.
A little more consistent across each of the customer base. The consumer is a little more choppy, but ultimately we need a similar amount of price in our consumer performance coatings, depending on the.
Business may be out with more maybe out with a little less it really as you know the increases we saw in 2021 on raw material costs hit our industrial business is harder I talked about 60% of the increase in raw materials and industrial so they've been chasing that all year and.
And theyre going to be out strong in the first quarter across all our businesses all our regions some much higher than 12% just because of the need yes, we've learned a lot.
If you go back to 2016 to today in particular.
Need to be out there getting the price.
It's moving and we've got a lot of conviction to be able to do that and we work hard every day for our customers trying to improve their efficiency and drive their profitability help them reach their goals and to be able to do that we need to be able to take care of our shareholders. So we're not looking to get fat here, we're trying to protect our company, while helping our customers.
So there is a.
You should expect a great deal of determination in getting this pricing in.
Understood and then as a follow up on consumer.
Is there a way to characterize how depressed your customers' inventory levels are in general just trying to get a sense of.
Looking through the other end, if we're able to alleviate all of the various constraints how much of a volumetric uplift might we expect at some point in 'twenty. Two is the downstream inventories begin to normalize.
There's a fine line here I hope you'll respect I will tell you that our inventories are lower than they would like lower than we would like we're going to be working hard to build them, but I don't feel it's appropriate for me to comment on on their inventory levels out of respect for my customers I will tell you that we have our work ahead of us and a lot of conviction and determination.
And confidence that we'll be able to do it.
Fair enough. Thank you.
Thanks, Kevin.
Thank you. Our next question today is coming from Mike Harrison at Seaport Research Partners. Your line is live you may begin.
Hi, good morning.
Good morning, gentlemen, John I was wondering if you could maybe give us a little bit more color.
How would affect your paint stores when you have staffing issues.
Are you you mentioned operating reduced hours are you having to close some of your stores temporarily are you paying overtime.
I assume that they are in addition to some higher cost maybe some service impacts dragging on volume so maybe just.
Help us understand at the store level, what the impact looks like and what steps are you taking to work around some of these staffing issues again at the store level.
Yes, so it's a really good question because I think that the.
The way that we've experienced has impacted different areas.
And different density or intensity, maybe that award.
So let me start with US we don't believe that we've lost customers. We do believe that there have been times, we might have lost projects or some specific products.
But we believe these are transactional in fact.
Many customers have returned.
Two our stores with a greater appreciation for Sherwin Williams and our value proposition.
Through this process. We believe we have maintained a transparent and I'd say, a very responsive approach to our customers.
We've utilized our distribution platform, we believe to be a way to be more responsive.
And more deliberate in working with our customers.
Leveraging our core I guess is the way.
That I would describe that now.
So to your question what does that mean and then I'll also add maybe how is that.
The results then.
First I would say as I mentioned earlier, our customers have felt the same impact so part of whats impacted the sales and we're using the.
The statistics that I just gave you about the number of case rate, we had in our districts as kind of an indicator or indicative of what's happening in the market.
But what has happened in some cases is.
Customers, who have come in and we may not have delivery available because the drivers that.
<unk>.
We're sick and we may have not been able to hit a timeline where someone needed it in.
Times like this and the holidays as an example, where people are trying to get projects done.
It could have an impact it could have.
Actually let me start with <unk>.
Issues with raw material suppliers that work through our plans that work through our distribution center than to our stores. So it's kind of a compounding issue that we faced but as it relates to our stores. Specifically you have reps that may not have been calling and working with their customers could've been specification efforts that that may not have been taking place.
And staffing levels in the store and what separates us from our competitors is in our specialty store format, we are exceedingly responsive to our customers' needs.
We faced some of these challenges you're right there were times, where we had to close stores.
Earlier than we would've liked in some cases.
We had to close stores and because we didn't have staff to be able to do that so.
The responsiveness at our field level with our leadership teams are ensuring that that we're doing what's right.
What we believe will allow us to get back on top of that when I say, what what's right that includes the steps we're taking to ensure our people are safe in our stores that.
That they have the resources that they need and certainly that they have the product that they need now.
Now all that said what I think is important to understand also is that our teams are executing.
And what's amazing is despite the challenges that we faced.
I'll give you another couple of statistics here I think that will capture.
What's happening.
If you just go back in time I'll use 2018 period, and then I'll use today.
As an example of the ability of our stores to execute in 2018, if you use our national accounts as an example, which is a big part of and growing part of our business, 63% of our national accounts that we contracted with would have called us exclusive.
As we exit 2021 with the challenges that we face not only last year, but the year before our account base the numbers have grown and the penetration is drawn so what used to be 63% contracted as exclusive is now 83%.
So we're focused on the success of growing with our customers and growing the number of customers and the people in our stores and our reps allow us to do that during a very short period of time between November and December as this COVID-19 rolled in we werent able to always deliver on what it is that has allowed us to separate.
Sales from our competitors, we have a lot of people that were sick and a lot of customers that were sick as well and so as we come out of this we're resuming that level of service and we expect to regain those customers and build on those relationships.
Alright, I appreciate the detail there and then you mentioned the SDI acquisition I'm not sure exactly when that closed.
You have expected to incorporate that into your internal resin production network can you maybe give us a sense again I know it's.
Not been very long that it's been in the fold, but how is that integration progressing and have you started to see that alleviate some of the resin availability issues.
It only it closed in December one so we've not seen.
Tremendous amount of impact yet, but we do have high expectations and this is.
Our teams have been inside these facilities I think I'm going to be there in the next week or two as well myself.
Our teams have been very impressed with the assets.
Very impressed with the people we've known these people they've told produced resin for us in the past, but we're really excited about this this is going to be.
An area that.
We feel we can invest and not a tremendous amount of money, but get a very good return.
Alright, thanks very much.
Thank you Mike.
Thank you. Our next question today is coming from John Roberts at UBS. Your line is live you may begin.
Thank you Hugh you opened up a fair amount of new stores in the fourth quarter, how did you do that.
Did they mostly opened in October before the staffing issues.
Will they take longer now to turn profitable because of the staffing issues.
No John I think the land was pretty consistent throughout the quarter and we'd like to see that les and spread out more evenly throughout the year, but.
I think it's a question that we have to answer every year. It just seems like we're always fourth quarter heavy is.
Is just the negotiations in construction take place.
Our teams have been hard at work and building up the <unk>.
<unk> of people.
I think.
I know you and I have spoken about this our MTP program.
We recruit about <unk> hundred 500 college graduates a year to feed this important pipeline.
Talent to be able to serve our customers. So.
That's not a pipeline that gets filled.
When the store opens so all of that heavy lifting goes through the year. So that we're training and getting those people up to speed and ready so that when the store opens they're fully prepared our view on this is that a customer is not coming into our new Sean Williams store expecting anything less than the best Theyre not going to accept that there is a new employee who doesn't understand our product line.
And in our system. So those employees have been.
In the pipeline getting trained and prepared and as they open.
We we staff those stores accordingly, John I'd, just add to that.
It shows the confidence and the commitment we have to our long term strategy of putting stores in putting reps and commiserate with those stores.
To drive future growth.
And I don't believe the profitability will be impacted.
Due to availability due to.
Sure.
Inventory issues, we have a plan we're working the plan and our densest markets, we fully expect those stores to get to profitability within 18 months and grow from there and our lease dense.
Areas, we keep putting stores in to hit that.
We've talked about this glide path on our lease dense districts.
Districts and there is a step change when we get to the density number that.
You have to be committed to continuing to invest in these stores and we believe long term profitability will pay off for us.
And then last week RPM indicated that they had a problem getting dryers and one of their business as your stores distribute a lot of products that go along with paint sprayers ladders tapes.
Are there any collateral constraints, there as well and I know sprayers and ladders tend to be leading indicators of paint sales, but that connection maybe going to breakdown because of constraints in those other products.
No I don't think its significant I think a majority or many companies are having challenges with supply chain right now, but I don't think that theres anything sticking at the St. Hey, we're going to have a problem.
The paint industry because of this adjacent.
Product or associated product R.
Our teams on that side and procurement are doing a wonderful job as well.
And quite frankly, we worked with our suppliers in a way.
We want to be the ones that.
Our suppliers are betting on we're going to be growing they know what we laid out a number.
Our growth plans and strategies, we just talked about new reps and managers, we didn't talk about new products. We didn't talk about some of the other digital initiatives I mean, theres a lot of things going on.
That gives us great confidence in our market with strong demand and so when we are working with our suppliers, we want to be the ones that they are serving and they see the growth opportunities and I think we'll be ahead of the curve taking care of our customers.
Thank you.
Thanks, John .
Thank you. Our next question today is coming from Steve Byrne of Bank of America. Your line is live you may begin.
Yes, Thank you I recall last spring.
Some of the raw material cost inflation was really starting to take off you seemed very deliberate.
<unk>.
Not pushing price tag as much as is so your competitors.
I just wanted your view on whether this 12% now starting February one as a function of just the magnitude change now in raws or is that youre a little bit.
Cushing here ahead of.
The peak season for your contractors does that give you a little more latitude.
And maybe just to follow on on that.
Do you have any empirical way of assessing whether the impact of that 12% price increase in tag.
We rode demand in any way, whether it will cause your contractors.
Maybe have less loyalty or homeowners too.
Take a break from <unk>.
Remodeling activity.
Thoughts on that.
Yes, Steve I think it's an important question.
We really do a lot of work and the price elasticity model modeling of our business to gain a really good understanding so let me address the points that you made first.
As it relates to the end demand consumers.
The fact that we build a very quality product.
That also comes along with Great service I believe is an important element and again I'll repeat the important statistic of the fact that.
85% to 90% of our customers.
Costs are labor and so we don't take that lightly.
It doesn't give us the <unk>.
Get to go in and charge whatever we'd like to we need to be competitive and we are competitive.
But we're not trying to be the lowest price we're trying to be the best at helping our customers be successful the best at helping them make more money and there are some costs associated with doing that and if those costs are justified and were not helping our customers to make more money then we shouldnt be doing those things and they shouldnt be buying product from us, but the fact is is that.
I think demonstrate every day that value proposition in a way that helps our customers to in fact make more money and that's important gauge an important question that we ask in nearly every survey every market research project, we do which is who helps you make more money. We're proud of our position in that which has been strong and.
<unk> to grow.
As it relates to price I think it's important to understand that.
We're not out there pricing.
With the idea that this gives us some cushion to be able to absorb more in the future.
Our commitment to our customers is the exact opposite.
We try to minimize the price increases that we go out we try to drive more efficiency through our factories. Our plants I just mentioned earlier formulation everything that we can do that allows us to provide a high quality the highest consistent product in the market at the most competitive price with all those other services that we provide and as.
As it relates to the cadence that you mentioned the cadence I would do that would make that exact same decision again.
So the rest of my career.
Please do exactly what we did because I know what it does to our loyalty with our customers.
What we did was we worked with them as the cadence was picking up.
To give them more time to get in front of their customers. What the difference now between this time that we're experiencing now and what we experience then is that we've been able to communicate to them a changing environment. So our pricing at that time was going out and there were times when we talk about the paint season pricing or how.
Along the price has been good now as we experienced a different environment, we've been more deliberate in sharing with our customers some of the challenges in <unk>.
Choppiness in pricing and availability, so that they can incorporate and cover that pricing in their pricing and what we did during that time I think was terrific. We built a lot of loyalty a lot of transparency and we think we differentiate ourselves in the marketplace and as we've come through this and I mentioned earlier, starting to get better as we exit.
This I absolutely believe that we are.
Leaving this this chapter with a higher level of loyalty and a greater partnership with our customers as a result of the way we've handled this.
And any carrier coal.
Assessment of homeowner.
Impacts here.
Or do you see any.
Price inflation, causing any erosion in remodeling activity.
Actually if you look at our mix, which I would use is.
As a gauge for this our mix is a positive mix people are moving up in quality paying more in product price to get a better product both with the consumer level and the painting contractors. So it's the exact opposite of what you are asking.
Okay. That's helpful and just one quick one.
Are there any other raw materials that you are looking at that you might consider back integrating into.
No.
Not at this time.
Okay. Thank you.
You bet Dave.
Okay.
Thank you. Our next question today is coming from Eric Bosarge at Cleveland Research. Your line is live you may begin.
Good morning.
Follow up and then a question that price realization I think you had a surcharge in in <unk> I'm curious in this environment.
How youre seeing price realization playing out relative to <unk>.
History, and the same thing with the 12% is that the price take similar is it diluted because of that.
Service challenges in the market or should we assume that it's behaving as it always behaves.
Yes, Eric our expectation is.
It's going to behave similar to the past.
So it increases.
The team and our tag organization has spent a lot of time with how to communicate that transitioned from a surcharge surcharge to a permanent price increase and I think they've done a really good job at preparing our customers to understand it and our store employees to understand it.
My expectation is we'll be as effective if not a little bit better than past.
<unk>.
Okay. That's helpful. And then secondly, just a little bit of clarity on the share gains that you've made with big customers and John I thought that data was helpful.
Conviction, you are coming out of this with an even better share position.
Specifically within November December you talked about.
Not able to deliver I'm curious as you look at like.
How that played out does this mean that these projects are deferred or did your customers buy paint somewhere else if they bought paid somewhere else.
Our competitors doing in this environment that you are not doing.
Yes, I would say Eric <unk>.
At times, we needed to adjust paint systems to accommodate so.
Earlier, we mentioned.
Our procurement teams terrific efforts to.
To acquire product.
Times because of.
Yeah.
Some shortages in some areas.
We were able to buy maybe a different basket of raw materials or a couple of different raw materials to be able to make a product to help our large customers through that.
I would say that many of our if not most of our.
Our customers have expressed a much greater sense of appreciation for our supply chain capabilities.
Im not stick in my head in the sand there've been some challenges and we run right at those.
From a senior leadership team to senior leadership team all the way down to the local people servicing the painting contractor is there is a level of openness and transparency that allows us to I believe be responsive, but to your point is.
<unk>.
Emphasize as we exit this we exit with a stronger relationship.
And I believe with Greater Trust now.
Are there customers that on a specific job.
If we didn't have I don't know Eric maybe there was some trim paint in some area that that we didn't have in a market and someone else might have had some of that trend in that market and the project needed to be done they might have gone down the street and bought some in our product might arrive the next day or two days later.
We hate those situations, we hate it because a we put our customers in a difficult situation residential as an example, there is a there is a family waiting to get into that home, we know how serious it is.
And Thats part of why I think we've been able to work so closely and retain the agreements that we have with our important customers because we understand their world and the important role that we play in those rare cases, they needed to get products somewhere else.
While we didn't like it we understood it that didn't stop us from replenishing that store getting back on top of it and working with our customers to avoid that happening in the future, but with this choppiness comes a little bit of a whack a mole.
We're moving product aggressively to be where it is needed when it is needed but there are there are select occasions, where it might arrive a day two or three days later than what was needed.
It's getting better as the raw materials.
Availability improves and we want to get this behind us as quickly as possible.
Okay, and then just one other point of clarity.
You've commented about more finished inventory and tag, which didnt make sense until you clarified it that this is maybe making exterior paint.
I'm trying to connect that with the comments of the Choppiness through <unk> are you, suggesting you are in a better inventory position for when <unk> and exterior season starts back up or is that too.
Too strong of a point.
Yes.
I would say we would be.
All else being equal Eric I think that will sell through some of that in our in our first quarter, we're trying to move.
Exterior product, where it's needed in the southeast southwest.
And we're actively doing that but we're going to need exterior in the Midwest, we're going to need to assure in the eastern.
If we can build interior.
Versus exterior and then you have a little bit of a cushion we'll do that.
Alright.
Some cases, yes, we will see that next year go into the second quarter.
Okay. That's helpful. Thank you.
Thanks, Eric.
Thank you. Our next question today is coming from Gregory Malik at Evercore. Your line is live you may begin.
Hi, Thanks, guys I, just had really a follow up on pricing, thanks, sharper lamp stand it.
On my math I get about 20% now of announced price increases the tag over the last.
13 months I, just want to make sure I got that right. Once we hit February one and then I guess, you said that price realization was high single digit in the fourth quarter could you provide what it was for all of 2021.
Yes, Greg.
The.
The pricing that you are talking about.
That we've announced including the surcharge to your point.
It is.
Going to be a little bit and that it'll be in that 20% range. Assuming this 4% charge surcharge rolls into that February one price increase which we do.
If you look at it for the full year on tag the effectiveness.
I got your question right.
We expect that to be in the.
Hi.
The high single digit or.
Mid single digit range. When you look at all the effectiveness mid to high for the full year.
Okay.
Got it that makes sense.
I guess there is another follow up on your you mentioned that the pricing.
Thinking about what the 12% is really encompassing getting on the right side of raw materials, but I thought you mentioned that it didn't include labor cost increases did I get that.
Right.
Okay. I guess does it included flavor, we're seeing labor accelerate faster than.
We have in previous years.
So you have to bake that into the price increase.
And our expectation as well.
We'll start seeing margins recover, but we will get into that more on the 27%.
<unk>.
Sure.
And do you have a number that you can provide for labor inflation like high single digits or anything like that.
When you look at it across the company. It varies we have some that are.
And the double digit low teens, we have some in the low single digits.
Average number, but it's going to be mid to high when you look at it all in.
Got it thanks, a lot and good luck guys.
Thanks, Greg.
Thank you. Our next question today is coming from Chris Parkinson at Mizuho. Your line is live you may begin.
Just two very quick questions here.
One just on the demand backdrop, but it doesn't seem like it's really an issue, but can you just give us a sense of.
Where we stand right here right now in terms of resi repaint.
The housing inventory Newbuild commercial multifamily like is there anything that we should be paying particularly.
Close attention to heading into 2022.
I would say Chris.
Should be paying attention to as strong demand across every professional segment that we serve.
Strong demand.
Alright fair enough and then the second question is I just want to circle back to Mike Petters question on the price point, you guys kind of dominate that probably on the shelf people pretty much across the board at outflows and then at the top end with incentives. Nevertheless, bear at <unk>, but just given the degree and the magnitude of the price increases over the last 12 months.
Months, not necessarily worried about demand destruction on the gallon that covers roughly 400 square feet, but yes.
Perhaps the stupid question, but does that begin to change regional competitive dynamics versus guys like that more in the northeast and you haven't necessarily raise prices at much just add much just given the spread per gallon is a little bit more narrow than ads historically or is that just not even coming into play it's.
This is not an issue I would say that.
Again, a couple of different dynamics.
Again, I know you know this again.
Labor issues, only 85% to 90% of the cost number one second.
Our our customers the professional contract or if you take just dialing in because you asked about some specific customers that mainly play in residential repaint.
Labor is an issue for them.
So oftentimes they are hiring.
Less experienced in some cases less qualified.
Labor and Theyre trying to train them and what we're finding is a positive mix shift to these products that I mentioned earlier, our formulated for the residential repaint and what it does is it helps.
Helps to hide some of the <unk> of a less experienced less qualified contractor now that works its way into some of the challenges that we've talked about in raw materials, because while our products are formulated with better what we would call better rheology package that allow the flow and leveling that that helps to hide some of these <unk>.
It does come with a broader basket of raw materials, some of which have been challenged so we're working through that.
We expect to for that to get better, but the the value proposition. In addition to a gallon of paint that will help make a newer labor painting contractor produce as an experienced tradesmen.
<unk> person as well as the.
The durability of that comes along with that has definitely resulted in a positive mix shift that we think is favorable not only for our customers, but also for our shareholders.
Thank you as always.
You bet Thanks, Chris.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone.
Our next question today is coming from Michael <unk> at Wells Fargo. Your line is live you may begin.
Hey, guys. Good morning, just one question it does sound like demand.
Is there to grow sales in 2000 till may.
Just qualitatively what.
What do you think needs to happen to to grow earnings next year Whats in your control and maybe what are areas that.
Are going to continue to be a headwind in your ability to sort of get back on sort of EPS growth.
Yes, Mike.
Let us get into that on our 27th call, where we can have.
Full year results fully complete this year.
Our plan and rollout and we can talk more specifically about.
Out that.
On that call.
Okay, and then just as a quick follow up then what was the.
Total impact of inflation in 'twenty, one and.
What's sort of the total impact of sales.
That you werent able to generate because of the Robin Taylor availability.
Well, Mike as you know, we said raw material inflation was north of 20 for the full year and the full basket.
And I think on the availability that we're coming in somewhere.
Low single digit on tag specifically in the range of mid to high single digit.
Got it thank you.
You bet.
Thank you. Our next question today is coming from P. J <unk> at Citi. Your line is live you may begin.
Yes, hi, good morning.
And I was I was I joined a little late Unfortunately.
Question has been answered, let me know, but the only growing video it seems a bit more contagious.
Is that causing less traffic and big boxes for DIY.
Like the first away when people were sitting at home they're painting bar.
Can you can you just comment on that.
Well I'd say its a bit of a mix as it relates to anything with customers going through a home center at.
Out of respect for our customers, we'd rather them talk to that than us.
Okay, and then secondly on the infrastructure Bill that was signed.
And by the precedent when do you think demand and you would invest in India will kick into high gear from that.
The raw material situation.
Resolved by then thank you.
Yes.
First I would say we're excited.
To have a business that can capitalize on many of the elements that will be <unk>.
Invested in so.
If you look at airports.
We target the high value infrastructure so.
And bridge and highway we would be focused on the higher valued bridge coatings and other elements that.
We believe.
We can bring a very unique solution to <unk>.
<unk> wise on something like that.
You have to think about what it takes and.
Some areas where projects have been on hold holding four.
Funding those might be more readily available and quicker to come out to RFP process those could be within a year, but the largest majority of these things are going to be projects that are going to be designed engineered.
A lot of.
Process work that goes through.
And then finally build in.
Oftentimes well, we could play a piece in structural steel and some of those areas oftentimes, where the very end of the.
Of the project so.
Looking at.
Projects that could be measured well beyond a year period.
Okay.
What I would say is that we've got a.
Pretty dedicated team Thats.
Working every angle on this preemptively to ensure that we get more than our fair share on this.
The spending.
Great. That's helpful. Thank you.
You bet. Thanks P J.
Thank you we have no further questions in the queue at this time I would now like to turn the floor back over to Jim Jaye.
Thank you Kate.
What I'd like to say is and even with today's near term news I Hope you heard in our comments that we're very confident in our strategy our people and we look forward to providing more details on the fourth quarter as al said and our 'twenty two outlook on Thursday January 27th. So we look forward to speaking with you then and as always we.
I'll be available for your follow up calls thanks, very much for joining us today.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day, we thank you for your participation.