Q2 2024 The Sherwin-Williams Co Earnings Call

Good morning, Thank you for joining the Sherwin Williams Company's review of second quarter, 2024 results and our outlook for the third quarter and full year of 2024.

Operator: Good morning. Thank you for joining us for the Sherwin-Williams Company's review of second quarter 2024 results and our outlook for the third quarter and full year of 2024. With us on today's call are Heidi Petz, President and CEO; Allen Mistysyn, Chief Financial Officer; Jane Cronin, Senior Vice President, Enterprise Finance; and Jim Jay, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by issue or directly via the Internet at www.sherwin.com.

Speaker Change: With us on today's call are Heidi Petz, President and CEO al Mr. Shinn, Chief Financial Officer, Jane Cronin Senior Vice President Enterprise Finance, and Jim Jaye, Senior Vice President Investor Relations and communications.

Operator: The archived replay of this webcast, which will be available at www.sherwin.com beginning approximately two hours after this conference call concludes, will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings, and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Speaker Change: This conference call is being webcast simultaneously in listen only mode by issuer direct via the Internet at Www Dot Sherwin Dot com.

Speaker Change: An archived replay of this webcast will be available at www Dot Sherwin Dot com beginning approximately two hours. After this conference call concludes.

Speaker Change: This conference call will include certain forward looking statements as defined under U S. Federal Securities laws with respect to sales earnings and other matters.

Speaker Change: Any forward looking statement speaks only as of the date on which such statement is made and the company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.

A full declaration regarding forward looking statements is provided in the company's earnings release transmitted earlier this morning.

Speaker Change: After the company's prepared remarks, we will open up this session to questions I will now turn the call over to Jim Jaye.

Operator: A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this year. After the company's prepared remarks, we will open up this session to questions. I will now turn the call over to Jim. Thank you. Good morning.

James R. Jaye: Thank you and good morning, Charlie.

James R. Jaye: Sherwin-Williams delivered a strong quarter driven by continued execution of our strategy and with little help from what continues to be an uneven global macroeconomic environment. Led by Paystore's group, consolidated sales were within our guided range, gross margin expanded, and diluted earnings per share and EBITDA grew by double digit percentages. Margin improved sequentially and year over year in all three reportable segments. We continue to make progress on our enterprise priorities, and we are clearly seeing returns from the heightened investments made in the back half of last year, which have now annualized. We also maintained our disciplined capital allocation approach during the quarter, returning $613 million to our shareholders through dividends and share repurchase, an increase of 57% year over year.

James R. Jaye: Williams delivered a strong quarter driven by continued execution of our strategy and with little help from work continues to be uneven global macroeconomic environment.

James R. Jaye: Led by paint stores group consolidated sales were within our guided range gross margin expanded and diluted earnings per share and EBITDA grew by double digit percentages.

James R. Jaye: Margin improved sequentially and year over year in all three reportable segments.

James R. Jaye: We continue to make progress on our enterprise priorities and we are clearly seeing returns from our heightened investments made in the back half of last year, and which have now annualized.

James R. Jaye: We also maintained our disciplined capital allocation approach during the quarter, returning $613 million to our shareholders through.

James R. Jaye: Through dividends and share repurchases, an increase of 57% year over year.

James R. Jaye: Our second quarter performance ends our first half on a strong note, and coupled with our current visibility into the back half of the year, we are increasing our full year earnings outlook. We remain highly focused on executing our strategy, demonstrating our value proposition to win new accounts and increase share of wallets, and taking advantage of disruptions in the market. We are well positioned to deliver in the current environment and highly confident that our actions and investments will result in even stronger performance when end market demand eventually becomes more robust. Let me now turn it over to Heidi, who will comment on our second quarter results by segment before moving on to our outlook and your questions. Thank you, Jim.

James R. Jaye: Our second quarter performance and our first half on a strong note.

James R. Jaye: And coupled with our current visibility into the back half of the year, we are increasing our full year earnings outlook.

James R. Jaye: We remain highly focused on executing our strategy demonstrating our value proposition to win new accounts and increase share of wallet.

James R. Jaye: And taking advantage of disruptions in the market.

James R. Jaye: We are well positioned to deliver in the current environment and highly confident that our actions and investments will result in even stronger performance.

James R. Jaye: End market demand eventually becomes more robust.

Heidi G. Petz: Let me now turn it over to Heidi, who will comment on our second quarter results by segment before moving onto our outlook and your questions.

Heidi G. Petz: Thank you Jim.

Heidi G. Petz: First, I want to thank all 65,000 of our employees around the world for their efforts in the quarter and for their ongoing passion for our company and for our customers. I continue to be humbled and inspired by all that you do. I believe our second quarter results demonstrate three things. One, we have the right strategy. Two, our team continues to execute and adapt.

First I want to thank all 65000 of our employees around the world for their efforts in the quarter and for their ongoing passion for our company and for our customers.

Speaker Change: Continue to be humbled and inspired by all that you deal.

Heidi G. Petz: And three, we continue to see returns from our ongoing investments in the business. But at the same time, we're not content with where we are by any means, and our team understands that we must continue to operate with determination and urgency. We're delivering strong results in a choppy demand environment while executing on initiatives that will put our customers and our company in position for even greater sustained success. As far as specifics on the second quarter, I'll begin with the paint stores group, where sales increased by mid single digits against a double digit comparison. Volume and price were both up low single digits.

Heidi G. Petz: I believe our second quarter results demonstrate three things one we have the right strategy to our team continues to execute and adapt.

Heidi G. Petz: And three we continue to see returns from our ongoing investments in the business at.

Heidi G. Petz: At the same time, we're not content with where we are by any means and our team understands that we must continue to operate with determination and urgency.

Heidi G. Petz: We're delivering strong results in a choppy demand environment, while executing on initiatives that will put our customers and our company and positioned for even greater sustained success.

Heidi G. Petz: As far as specifics on the second quarter I'll begin with the paint stores group, where sales increased by mid single digits against a double digit comparison volte.

Heidi G. Petz: Volume and price were both up low single digits as.

Heidi G. Petz: As we expected, price realization improved as the quarter progressed, and segment margin increased to 25.1% driven by higher sales in moderating raw material costs. Pro sales were led by residential repaint, which was up by a mid single-digit percentage, strong evidence that we are continuing to take share in a down market. We're clearly seeing a return here from the investments in dedicated sales reps we made in the back half of last year.

Heidi G. Petz: As we expected price realization improved as the quarter progressed.

Heidi G. Petz: <unk> margin increased to 25, 1% driven by higher sales and moderating raw material costs.

Heidi G. Petz: Pro sales were led by residential repaint, which was up by a mid single digit percentage.

Speaker Change: Wrong, evidenced that we are continuing to take share in a down market.

Speaker Change: We're clearly seeing a return here from the investments in dedicated sales reps, we made in the back half of last year.

Heidi G. Petz: New residential returned to growth in the quarter as we are seeing improving single-family starts turn to completion. Commercial grew by a low single digit against a double-digit comparison. Property Management was down less than a percent with continued delays in CapEx projects.

Speaker Change: New residential returned to growth in the quarter as we are seeing improving single family start turn to completion.

Speaker Change: Commercial grew by a low single digits against a double digit comparison.

Property management was down less than 1% with continued delays in capex projects.

Heidi G. Petz: Protective and Marine was up mid-single digits against a low 20s comparison. And while we acknowledge that there have been project delays, we feel very good about the pipeline. DIY increased low single digits compared to a high teens comp.

Speaker Change: Protective and marine was up mid single digits against a low twenty's comparison.

Speaker Change: And while we acknowledge that there have been project delays.

Speaker Change: We feel very good about the pipeline.

Speaker Change: DIY increased low single digits compared to a high teens comp.

Heidi G. Petz: From a product perspective, interior paint sales grew faster than exterior paint sales. We have opened 26 net new stores year to date and expect to open 80 to 100 for the full year. Moving on to our Consumer Brands Group, sales underperformed our expectations in a market that was softer than we anticipated. Lower volume, the impact of the China architectural divestiture, and unfavorable currency translation were partially offset by selling price increases, primarily in Latin America. Sales in North America decreased by a high single-digit percentage, where weakness in existing home sales remains a headwind.

Speaker Change: From a product perspective interior paint sales grew faster than exterior paint sales.

Speaker Change: We have opened 26 net new stores year to date and expect to open 80 to 100 for the full year.

Speaker Change: Moving on to our consumer brands group sales underperformed, our expectations and a market that was softer than we anticipated.

Speaker Change: Lower volume the impact of the China architectural divestiture and unfavorable currency translation were partially offset by selling price increases primarily in Latin America.

Speaker Change: Sales in North America decreased by a high single digit percentage, where weakness in existing home sales remains a headwind.

Heidi G. Petz: Inflation, depleted savings, and household debt also continue to pressure consumers who currently appear to be spending their modest available discretionary dollars elsewhere. However, we understand where we are in this cycle and eventually expect to see an upturn in DIY demand. We're confident that we are well positioned with our growing partnerships over the long term. Outside of North America, sales decreased by a high single-digit percentage in Latin America and a double-digit percentage in Europe.

Speaker Change: Inflation depleted savings and household debt also continue to pressure consumers, who currently appear to be spending their modest available discretionary dollars elsewhere.

Speaker Change: We understand where we are in this cycle and eventually expect to see an upturn in DIY demand.

Speaker Change: We're confident that we are well positioned with our growing partnerships over the long term.

Speaker Change: Outside of North America sales decreased by a high single digit percentage in Latin America, and a double digit percentage in Europe.

Unknown Executive: Adjusted segment margin expanded to 26.1%. This was primarily driven by improvements in manufacturing and distribution fixed cost absorption within the segment and moderating raw material costs, partially offset by net sales that were below expectation and higher employee-related costs. In the performance coding group, modest sales growth was driven by an acquisition, which was partially offset by unfavorable currency translation. Adjusted segment margin improved to 19.4%. This continued strong margin performance reflects our ability to drive our customer success in end markets that value differentiation. It also reflects the ongoing hard work of our team to optimize the business.

Heidi G. Petz: Adjusted segment margin expanded to 26.1%. This was primarily driven by improvements in manufacturing and distribution fixed cost absorption within the segment and moderating raw material costs, partially offset by net sales that were below expectations and higher employee-related costs. In the Performance Codings Group, modest sales growth was driven by an acquisition which was partially offset by unfavorable currency translation. Adjusted segment margin improved to 19.4%.

Adjusted segment margin expanded to 26, 1%.

Speaker Change: This was primarily driven by improvements in manufacturing and distribution fixed cost absorption within the segment and moderating raw material costs, partially offset by net sales that were below expectation and higher employee related costs.

Speaker Change: In the performance coatings group modest sales growth was driven by an acquisition, which was partially offset by unfavorable currency translation.

Speaker Change: Adjusted segment margin improved to 19, 4%.

Heidi G. Petz: This continued strong margin performance reflects our ability to drive customer success in end markets that value differentiation. It also reflects the ongoing hard work of our team to optimize this business. We continued to see choppy demand by division and region. However, industrial wood led the growth, including the impact of an acquisition. Coil also delivered solid growth driven by share gains. However, Autorefinish was up low single digits in North America and down less than a percent overall.

Speaker Change: This continued strong margin performance reflects our ability to drive our customer success and end markets that value differentiation.

Speaker Change: It also reflects the ongoing hard work of our teams to optimize this business we.

Unknown Executive: We continued to see choppy demand by division and region. Industrial wood led the growth, including the impact of an acquisition. Coil also delivered solid growth driven by shareings. Auto-refinished was up low single digits in North America and down less than a percent overall. Shareings are offsetting softness in our core business, where consumer reluctance to pay deductibles is resulting in lower insurance claims. Packaging was down less than expected, and we have a good line of sight to improvement in the back half of the year. General industrial demand was lower in all regions. Heavy equipment and transportation were down most significantly, while energy infrastructure was a bright spot.

Speaker Change: We continued to see choppy demand by division and region.

Speaker Change: Industrial wood led the growth, including the impact of an acquisition.

Speaker Change: Coil also delivered solid growth driven by share gains.

Speaker Change: Auto Refinish was up low single digits in North America, and down less than a percent overall.

Heidi G. Petz: Chair Gains are offsetting softness in our core business, where consumer reluctance to pay deductibles is resulting in lower insurance claims. Packaging was down less than expected, and we have a good line of sight to improvement in the back half of the year. However, general industrial demand was lower in all regions.

Speaker Change: Share gains are offsetting softness in our core business, where consumer reluctance to pay deductibles is resulting in lower insurance claims.

Speaker Change: Packaging was down less than expected and we have a good line of sight to improvement in the back half of the year.

Heidi G. Petz: Heavy equipment and transportation were down most significantly, while energy infrastructure was a bright spot. Regionally, sales in the group were down low single digits in North America but positive in other regions. Moving on to our guidance for the third quarter and full year, it's clear that the macroeconomic environment has been softer for longer than many economists anticipated at the start of the year. We don't expect to get material help from the market in our back half. However, we are unwilling to simply accept these conditions.

Speaker Change: General industrial demand was lower in all regions heavy equipment and transportation were down most significantly while energy infrastructure was a bright spot.

Speaker Change: Regionally sales in the group were down low single digits in North America, but positive in other regions.

Unknown Executive: Regionally, sales in the group were down most single digits in North America, but positive in other regions.

Speaker Change: Moving onto our guidance for the third quarter and full year.

Unknown Executive: Moving on to our guidance for the third quarter in full year. It's clear that the macroeconomic environment has been softer for longer than many economists anticipated at the start of the year. We don't expect to get material help from the market in our back half. We're unwilling to simply accept these conditions, and you can count on us to continue being very aggressive in our pursuit of new business and share of wall gains. Sherwin Williams is incredibly well positioned in each of our targeted markets. Comparisons even are second half, competitive dynamics are a tailwind, and we're confident share gains will become more apparent over time as market conditions improve.

Speaker Change: It's clear that the macroeconomic environment has been softer for longer than many economists anticipated at the start of the year.

Speaker Change: We don't expect to get material help from the market in our back half.

We are unwilling to simply accept these conditions.

Heidi G. Petz: And you can count on us to continue being very aggressive in our pursuit of new business and share of wallet gains. Sherwin-Williams is incredibly well positioned in each of our targeted end markets, although comparisons ease in our second half.

And you can count on us to continue being very aggressive in our pursuit of new business and share of wallet gains.

Sherwin Williams: Sherwin Williams is incredibly well positioned in each of our targeted end markets.

Heidi G. Petz: Competitive dynamics are a tailwind, and we're confident share gains will become more apparent over time as market conditions improve. As for our specific outlook, the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the third quarter of 2024. For the full year 2024, consolidated sales are expected to be up a low single-digit percentage compared to our previous guide of up a low to mid single-digit. Full year sales guidance for the Paint Stores Group and the Performance Codings Group remains unchanged.

Speaker Change: Comparisons ease in our second half competitive dynamics are a tailwind.

Speaker Change: And we're confident share gains will become more apparent over time as market conditions improve.

Speaker Change: As for our specific outlook the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the third quarter of 2024.

Unknown Executive: As for our specific outlook, the slide deck issue with this morning's press release includes our expectations for consolidated and segment sales for the third quarter of 2024. For the full year 2024, consolidated sales are expected to be up a low single-digit percentage compared to our previous guide of up low to mid single digits. Full year sales guidance for the Paint Stores Group in the Performance Coding Group remain unchanged.

Speaker Change: For the full year 2024 consolidated sales are expected to be up a low single digit percentage compared to our previous guide of up low to mid single digits.

Speaker Change: Full year sales guidance for the paint stores group in the performance coatings group remained unchanged.

Heidi G. Petz: We have reduced our Consumer Brands Group guidance meaningfully, following the softer-than-expected first half and continued weak demand in the North American DIY market. However, we are increasing our full-year earnings guidance given our better-than-expected results in the second quarter. The midpoint of our previous guidance now becomes the low end of our revised guidance. On an adjusted basis, we are now guiding diluted EPS in the range of $11.10 to $11.40 a share, an increase of 8.7% at the midpoint over the prior year.

Unknown Executive: We have reduced our consumer brand group guidance meaningfully following the software's unexpected first half and continued weak demand in the North American DIY market.

Speaker Change: We have reduced our consumer brands group guidance meaningfully following the softer than expected first half and continued weak demand in the North American DIY market.

Speaker Change: We are increasing our full year earnings guidance, given our better than expected results in the second quarter.

Speaker Change: The midpoint of our previous guidance now becomes the low end of our revised guidance.

Speaker Change: On an adjusted basis, we are now guiding diluted EPS in the range of $11 10 to $11 40, a share an increase of eight 7% at the midpoint over the prior year.

Heidi G. Petz: As we have often said, should our sales prove to be better than we are currently anticipating, we would expect EPS to be better. Our slide deck also provides guidance on our expectations for raw material costs and other items helpful for modeling purposes. As we enter our second half, we know that we are not immune from choppy market conditions. This leads us to focus even more intensely on our strategy.

Speaker Change: As we've often said should our sales proved to be better than we are currently anticipating we would expect EPS to be better.

Speaker Change: Our slide deck also provides guidance on our expectations for raw material costs and other items helpful for modeling purposes.

Speaker Change: As we enter our second half we know that we are not immune from choppy market conditions. This leaves us to focus even more intensely on our strategy.

Heidi G. Petz: In periods of uncertainty and competitive disarray, customers are looking to Sherwin-Williams for consistency, reliability, dependability, and differentiated solutions that will drive their productivity and their profitability. We have a deep and experienced team that knows how to do just that. We believe in success by design, and we do expect to win.

Speaker Change: In periods of uncertainty and competitive disarray customers are looking to Sherwin Williams for consistency reliability, dependability, and differentiated solutions that will drive their productivity and their profitability.

We have a deep and experienced team that knows how to do just that we.

Speaker Change: We believe in success by design and we do expect to win.

Heidi G. Petz: This concludes our prepared remarks. With that, I'd like to thank you for joining us this morning, and we'd be happy to take your questions. Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. We also ask you to please limit yourself to one question.

Speaker Change: This concludes our prepared remarks with that I would like to thank you for joining us this morning, and we'd be happy to take your questions.

Operator: If you have any additional questions, you may re-enter the queue by pressing star one. One moment, please, while we poll for questions. Your first question for today is from Vincent Andrews at Morgan. Thank you. Good morning, everyone.

Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: We also ask to please limit yourself to one question. If you have any additional questions you may re enter the queue by pressing star one.

One moment, please while we poll for questions.

Speaker Change: Your first question for today is from Vincent Andrews at Morgan Stanley.

Vincent Stephen Andrews: Heidi, could you talk to us a little bit about the quarter in pain stores? It seems like 2Q, not unlike 1Q, had at least a month where there were some challenging weather conditions that probably pushed some volume out. So could you talk a little bit about whether the quarter progressed, you started to make up a little bit of 1Q, and then maybe May hit and got a little challenging? And what are your customers saying in terms of where their backlogs are as a result of this? And what are you baking in terms of being able to make up some of this push out in the back half of the year?

Vincent Stephen Andrews: Thank you and good morning, everyone.

Vincent Stephen Andrews: Could you talk to us a little bit about the quarter in paint stores. It seems like <unk> not unlike <unk> had at least a month, where there were some challenging weather conditions that probably pushed some volume out.

Speaker Change: So could you talk a little bit about whether the quarter progressed, we started to make up a little bit of <unk> and then maybe may hit.

Speaker Change: Got a little challenging and what are your customers, saying in terms of where their backlogs are as a result of this and what are you baking in in terms of being able to make up some of this push out in the back half of the year, yes.

Heidi G. Petz: Yeah, good morning, Vincent. I'm gonna I'll start here and then hand it over to Al to give a little bit of commentary as well. But I think you characterized it well.

Vincent Stephen Andrews: Yes, good morning Vincent.

I'll start here, and then hand, it over to al to give a little bit of commentary as well, but I think you characterized it well I think if you look of course segments here certainly there was some challenge.

Speaker Change: Don't hide behind weather and were also obviously not immune to having to make sure that we've got the right pane and application conditions for our contractors, which ultimately benefits our customers and our shareholders in the long run, but let me be really clear about the controllable and where we are laser focused here.

Heidi G. Petz: I think if you look across segments here, certainly there were some challenges. We don't hide behind weather. We're also obviously not immune to having to make sure that we've got the right paint and application conditions for our contractors, which ultimately benefits our customers and our shareholders in the long run. But let me be really clear about the controllables and where we are laser focused here. If you look by segment, starting with residential repaint, we mentioned this in the prepared remarks, but I'm very confident that we're going to continue to take market share as you've seen over the last few quarters, especially to your point in Q2, where we're posting up mid-signal digits in a down market. I would expect to continue to see us doing that.

Speaker Change: You look by segment.

Speaker Change: Starting with residential repaint and you mentioned this in the prepared remarks, but very confident that we're going to continue.

Speaker Change: To take market share as you've seen over the last few quarters, especially.

Speaker Change: To your point in Q2, where we're posting up mid single digits in a down market I would expect to continue to see us doing that I think that's also a clear signal that we're getting a return on the investments that Youll remember we late in last year.

Heidi G. Petz: I think it's also a clear signal that we're getting a return on the investments that you'll remember we made last year. So, by design, we often talk about success by design, is a great example of how that's playing out in stores. And it's worth repeating that in this segment, there's incredible upside as it relates to market share opportunity. My time out in the field with our team and our customers gives me a lot of confidence that what we're doing is working, and we're getting a lot of positive feedback from even our new customers, ultimately helping them make more money.

Speaker Change: So by design, we often talk success by designed is a great example of how that's playing out in stores.

Speaker Change: And it's worth repeating this segment, there's incredible upside as it relates to market share opportunity my time out in the field with our with our team and our customers gives me a lot of confidence that what we're doing is working and we're getting a lot of positive feedback from even our new customers.

al: Ultimately, helping them make more money that is the reason we're in this if I then take you over to new residential again Q1 to Q2, I'm going to let al kind of come in and give a little bit of color commentary, but we are encouraged by the growth that we're seeing here is single family starts are turned into completions.

Heidi G. Petz: That is the reason we're here. If I then take you over to new residential, again, Q1 to Q2, I'm going to let Al come in and give a little bit of color commentary, but we are encouraged by the growth that we're seeing here. Single family starts are turning into completions.

Speaker Change: I've been personally spending a lot of time with our builders and the team here and they're ultimately after optimizing cycle time and profitability. So our opportunity not only do we see momentum here in the back half we look at that as in some solid tailwind, but I'm very confident that we are I would.

Heidi G. Petz: I've been personally spending a lot of time with our builders and the team here, and they're ultimately after optimizing cycle time and profitability. So our opportunity, not only do we see momentum here in the back half, we look at that as some solid tailwind, but I'm very confident that we are, I would say, best positioned in our industry, specifically within this segment, as the market recovers. If I move on to property management, I think we all have seen that interest rates certainly have put this segment on pause, both in new construction and renovation. But we're not waiting here.

Speaker Change: Say best positioned in our industry, specifically within this segment as the market recovers.

Speaker Change: If I move on to our property management.

Allen J. Mistysyn: And I think this is an area where, much like new residential, the teams are hard at work, demonstrating our value and securing additional exclusive agreements with plenty of opportunity ahead for us. So we're going to be continuing to focus on helping our customers manage through this pause. You have a lot of discipline in these management companies as they're really taking a look at understanding how to prioritize their investments and helping them try to upgrade older properties competing with new properties and the like.

Speaker Change: We all have seen this interest rates certainly have put this segment on pause both in new construction and renovation.

Speaker Change: But we're not waiting here and Vincent I think this is an area where much like new residential the teams are hard at work demonstrating our value and securing additional exclusive.

Vincent Stephen Andrews: <unk> with plenty of opportunity ahead for us.

Speaker Change: So we're going to be continuing to focus on helping our customers manage through this pause you got a lot of discipline in these management companies as they are really taking a look at understanding how to prioritize their investments and helping them try to upgrade older properties competing with new properties and the like.

Allen J. Mistysyn: Vincent, the only thing I would add is just to take a, Quick look at the second quarter, you know, up three and a half percent compared to a strong, low, double-digit comparison last year, volume was up low single digits price was up low single digits and i would say it was probably slightly below where our expectations were as we were coming into the second quarter but we exited the second quarter at our targeted run rate which leads to the second half third quarter second half guidance would be similar up low to mid single digits and that'd be really just broken out between, Price up low single digits and volume up low single digits with, as a reminder, we talked about res repaint, being up at the high end of that range in our second quarter that happened and we expect the same in our, Thank you. Your next question is from Chris Parkinson with Wolf. Great, thank you so much for taking my question.

Speaker Change: And so the only thing I would add is just to take a.

Speaker Change: Quick look at the second quarter.

Speaker Change: Three 5% compared to a strong low double digit comparison last year.

Speaker Change: Volume was up low single digits price was up low single digits and I would say it was probably slightly below where our expectations were as we were coming into the second quarter, but we exited the second quarter at our targeted run rate.

Speaker Change: Which leads to the second half third quarter second half guidance be similar up low to mid single digits and that would be really just broken out between.

Speaker Change: Price up low single digits in volume up low single digits with as a reminder, we talked about res repaint being.

Speaker Change: Being up at the high end of that range and our second quarter that have happened and we expect the same in our second half.

Vincent Stephen Andrews: Thank you Vincent.

Vincent Stephen Andrews: Your next question is from Chris Parkinson with Wolfe Research.

Christopher S. Parkinson: When we take a step back and think about your longer-term gross margin opportunity, there's still a lot of moving parts and perhaps some things in the housing market that are out of your control. But when we break down, you know, volume, price, ROS versus labor, and just kind of all the other things that affect that outlook, you know, how should the investment community be thinking about that, not even for the second half of 24, but, you know, 2526, onwards, based on all the initiatives, including investments, you've already been doing? Thank you. Yeah, Chris, this is Al again.

Great. Thank you so much for taking my question when we take a step back and think about your longer term gross margin opportunity.

Speaker Change: There's still a lot of moving parts and perhaps some things in the housing market, which are out of your control, but when we break down.

Speaker Change: Volume price raws versus labor.

Speaker Change: And just kind of all the other things that could affect that outlook, how should the investment community be thinking about that not even for the second half of 'twenty four 'twenty five 'twenty six onwards based on all the initiatives, including investments you've already been doing thank you.

Allen J. Mistysyn: I appreciate the question. But you know, we're not we're not going to talk about that specifically, that long-term target today. I think FCP gives us within the next 30 days a really good opportunity to talk about each of the financial metrics and the targets longer term. And today, I think we want to focus on the strong second quarter that we delivered in a tough market environment. And also, with our second half, our full year beat and raise for the EPF adjusted EPF. Thank you, Chris.

Speaker Change: Yes, Chris this is al again.

Christopher S. Parkinson: I appreciate the question.

Speaker Change: Not going to talk to that specifically that long term target today, and I guess GP gives us within the next 30 days gives us.

Speaker Change: Really good opportunity.

Speaker Change: Talk about each of the financial metrics and the targets longer term.

Speaker Change: Today, I think we want to focus on our strong second quarter that we delivered in a tough market environment and also with.

Speaker Change: With our second half.

Our full year beat and raise the EPS as adjusted EPS.

Speaker Change: Thank you Chris.

Speaker Change: Your next question for today is from Everone Viswanathan with RBC capital markets.

Arun Shankar Viswanathan: Your next question for today is from Arun Viswanathan with RBC Capital. Great, thanks for taking my question. Congratulations on the strong results. Maybe if I could just get your thoughts on how to frame the share gain opportunity as you look into 25 and 26. Obviously, there are a couple competitors who are going through some of their own changes, and maybe that could benefit you guys. I think there's a perception that that's on the several hundred million dollars of potential gains for PSG. Is that correct?

Arun Shankar Viswanathan: Great. Thanks for taking my question congrats on the strong results.

Heidi G. Petz: And when you do onboard those customers, you talked about new customers earlier, what's the margin profile look like? I know that there's traditionally been, you know, kind of get them up and get them going and get them, you know, further up the mix line mentality. Does that still prevail?

Arun Shankar Viswanathan: Maybe if I could just get your thoughts on how to frame.

Speaker Change: The share gain opportunity as you look into 'twenty five 'twenty six obviously there is a couple of competitors.

Speaker Change: Who are going through some of their own changes and maybe that could benefit you guys.

Speaker Change: There is a perception that that.

Speaker Change: On the several hundred million dollars of.

Speaker Change: Potential gains for PSG.

Speaker Change: Is that correct and when you do onboard those customers you talked about new customers earlier, what's the margin profile look like I know that theres been traditionally.

Speaker Change: I kind of get them up and get them going and get them.

Speaker Change: Further up the mix line mentality does that still prevail, maybe you can just kind of frame some of those thoughts for us. Thanks.

Heidi G. Petz: Maybe you could just kind of frame some of those thoughts for us. Yeah, Arun, good morning. Let me start with your last question. In terms of new customers coming in. Yeah, this is certainly a positive mix for us. So new customers, existing customers in this segment tend to value more the premium product and premium experience that we provide. So I would say that that's a fair characterization across the segment. Obviously, we won't get into any 25, certainly not any 26.

Speaker Change: Arun Good morning, Let me, let me start with your last question in terms of new customers coming in yes. This is certainly positive mix for us so new customers existing customers in this segment.

Speaker Change: Tend to value the more of the premium product premium experience that we provide so I would say that that's a fair characterization across the segment.

Obviously, we won't get into any 25, certainly not any 26 outlook, but what I would tell you is the confidence in the momentum that we have here relative to the run up we're already experiencing in a few segments and again I'll go back to this idea of success by design.

Heidi G. Petz: But what I would tell you is the confidence and the momentum that we have here relative to the run-up we're already experiencing in a few segments. And again, I'll go back to this idea of success by design, you know, having the luxury of a very tenured management team that is very astute when it comes to reading market indicators and signals. So the timing in which we're making these investments at the right point in the cycle so that we are best positioned for the run-up.

Speaker Change: Mick.

Mick: Luxury of a very tenured management team.

Mick: That is very astute when it comes to reading market indicators and signals. So the timing in which we're laying these investments in the right point in the cycle. So that we are best positioned for their run a <unk> is a great example, I would point to automotive refinish is another really good example, where you can see and hear you ask Pacific.

Mick: Really about stores, but that same discipline.

Mick: Holds across the portfolio, so where we're seeing some positive signals from a market share standpoint.

Mick: Very proud of that team and that organization is as you will know that automotive refinished model very similar to our stores model and our ability to have direct relationships with these customers and end users puts us in a really unique position so.

Heidi G. Petz: Relationships with these customers and end users puts us in a really unique position. So, you know, while we're still putting in the investments here, we've got record high installs. And I can't believe I would say that not everyone's getting the penetration and the acceleration that we're seeing. But that's another example outside of stores, but I'll let you pick up anywhere else you want to jump in here.

Mick: While we're still putting in the investments here, we've got record high installs and candidly I would say that not everyone is getting the penetration and the acceleration.

<unk> that we're seeing but that's another example outside of stores, but I'll, let you pick up anywhere else you want to jump in here.

Allen J. Mistysyn: Yeah, I think some of the things you're seeing in the market, and I think we've talked directly about this, Kelly Moore is a more immediate opportunity, more typically, basically, because of the type of customer that they were supporting in res repaint, and they're out of business, and We've talked about taking more than our fair share, and we see that in our districts out on the West Coast and in California, that we' And I point to res repaint being up mid single digits each of the last three quarters in a down market. And then, you know, Chris alluded to this in the previous question about mixed shifts.

Speaker Change: Some of the.

Speaker Change: Youre seeing in the market.

Kelly: Hum directly about those Kelly more as a more immediate opportunities.

Super.

Speaker Change: So basically because of the type of customers.

Speaker Change: They were supporting and rotary paint and they're out of business and I think we've talked about taking more than our fair share and we see that in our districts out on the west coast in California.

Speaker Change: We'll see what happens but longer maybe.

Speaker Change: Maybe more midterm longer term opportunities in it.

Speaker Change: And it all goes back to this consistent investment thesis that we've talked about we're very confident in our strategy. We know that the investments that we're making are paying off and I'd point to raise repaint being up mid single digits. Each of the last three quarters in a down market and then Chris alluded to this on the previous question.

Christopher S. Parkinson: <unk> mix shifts.

Jeffrey John Zekauskas: It really is about getting customers in, understanding the services and products we offer that allow them to make more money. The products and services that get them to be more efficient, to get on and off the job faster, grow their top line and their bottom line; it really drives that customer loyalty. Thank you, Arun. Your next question is from Jeff Zekauskas with JPMorgan. Thank you very much.

Speaker Change: It really is about getting customers in understanding those services and products, we offer that allow them to make more money your products and services that get them to be more efficient to get on and off jobs faster growth or top line and your bottom line it really drives that customer loyalty.

Rune: Thank you rune.

Heidi G. Petz: Could you talk about your regional performance in paint stores? And once you're done with your R&D, capital expenditures, and some plant expansions, should your normal capital expenditures be under $500? Yeah, Jeff. I'll take the second one on CapEx.

Speaker Change: Your next question is from Jeff Zekauskas with Jpmorgan.

Rune: Thanks very much.

Could you talk about your regional.

Performance in paint stores.

Speaker Change: Once you're done with your R&D.

Speaker Change: Capital expenditures and some plant expansions should your normal capital expenditures to be between.

Under $500 million.

Allen J. Mistysyn: And as you know, we are very consistent in our capital allocation philosophy. After you get past building our future projects, which, as a reminder, will help us attract and retain world class financial talent to allow us to continue to drive above market growth. R.O.S.

Speaker Change: Yes, Jeff I'll take the second one on Capex and as you know we are very consistent in our capital allocation philosophy. After you get past the building our future projects, which as a reminder, we will help us attract and retain world class.

Speaker Change: Talent to allow us to continue to drive above market growth.

Allen J. Mistysyn: and RONA improvements and drive strong cash flow. And then we'll take that cash flow, and we'll target CapEx below 2%. So depending on where the growth rates are, we may have years where we have to add capacity.

Ross Enron and improvements and drive strong cash flow and then we will take that cash flow and we will target capex below 2%, so depending on where the growth rates are we may have years, where we have to add capacity.

Specifically to the packaging capacity come online with into our new France.

James R. Jaye: And I'll point specifically to the packaging capacity that we've come online with in our new France. With this idea, we have a lot of confidence in our market share opportunities there. We continue to build out our state-built architectural plant in that capacity, again, with our confidence in our growth opportunities both in the southeast on the architectural paint stores and, I would argue, in the consumer brands group that's facing some short-term headwinds but certainly a lot of confidence in the outlook, and then we'll keep the dividend at approximately 30% of prior EPS and, absent acquisitions, we'll buy our stock.

With the idea we have a lot of confidence in our market share opportunities. There we continue to build out our statesville.

Speaker Change: Architectural plant and add capacity again with our confidence in our growth opportunities both in the southeast.

Speaker Change: On the architectural paint stores and I would argue in consumer brands group, that's facing some short term headwinds, but certainly a lot of confidence in the outlook.

And then we will keep the dividend at approximately 30% of prior EPS and then absent acquisitions will buy our stock back.

James R. Jaye: And Jeff, this is Jim. From a regional perspective on stores, you know, we don't typically give too much commentary, but I would tell you that in this current quarter, our Southwest division was the leader in the clubhouse. And I point out that that was an area where, you know, we've seen one of our competitors close their doors.

Speaker Change: And Jeff This is Jim from a regional perspective on stores, we don't typically give too much commentary, but I would tell you that in this current quarter. Our southwest Division was the leader in the clubhouse and I would point out too that that was an area where.

Jeffrey John Zekauskas: We've seen one of our competitors.

Jeffrey John Zekauskas: Closed their doors and so you can read that a little bit as some of the share gains that we've been talking about.

Jeffrey John Zekauskas: And thanks for the question.

Speaker Change: Your next question is from John Mcnulty with BMO capital markets.

John Patrick McNulty: And so you can read that a little bit as some of the share gains that we've been talking about, and thanks for the question. Your next question is from John McNulty with BMO Capital Market. Yeah, good morning.

John Patrick McNulty: Thanks for taking my question. So on the gross margin front, you know, you put up this 48.8 number, really high, despite some soft volumes. I guess, was the bulk of this price versus ROS in terms of the improvement? And if not, how should we be thinking about some of the efficiency and some of the simplicity measures that you've been making? Because, you know, obviously, volumes really didn't drive this one entirely.

John Patrick McNulty: Hey, good morning, Thanks for taking my question.

John Patrick McNulty: So on the gross margin front, you put up this 48 a number.

John Patrick McNulty: Really high despite some soft volumes I guess was the bulk of this price versus raws in terms of the improvement.

Speaker Change: If not how should we be thinking about some of the efficiency and some of the simplicity measures that you've been making because obviously volumes really didn't drive. This one entirely so I guess, how should we be thinking about the big drivers there.

Allen J. Mistysyn: So I guess what we should be thinking about the big drivers? Yeah, John, you know, we had a couple things driving our better gross margin performance in the quarter. Minimizing raw materials certainly is part of that.

John Patrick McNulty: Yes, John.

John Patrick McNulty: We had a couple things driving our are about our gross margin performance in the quarter.

John Patrick McNulty: Moderating raw materials, certainly as part of that price.

Allen J. Mistysyn: The price, Unknown Speaker Realization that we saw in the second quarter being better than what we saw in the first quarter along with MIPS. We did have some global supply chain efficiencies, outside of the higher fixed cost absorption that we've talked about in the first quarter again was really the entire driver of the Tire, Paint Stores Group Sales Res Repaint being at the high end of that range. We're going to see moderating raw material costs, but we also should see better price effectiveness in our second half versus our first half.

John Patrick McNulty: The realization that we saw in the second quarter being better than what we saw in the first quarter along with mix.

John Patrick McNulty: We did have some global supply chain efficiencies.

Outside of.

John Patrick McNulty: The higher fixed cost absorption.

John Patrick McNulty: We've talked about in the first quarter again was really the entire driver of the of the consumer brand improvement in the second quarter, but you also have our paint stores group growing faster than the other segments.

Speaker Change: Talk about that as that happens at a higher gross margin.

Speaker Change: It will drive our mix better and continue to drive our gross margin.

Speaker Change: Really to carry that momentum into the second half and I do expect to see gross margin expansion in the second half maybe not as much as we saw in the first half driven by higher paint stores group sales res repaint being at the high end of that range.

Speaker Change: We're going to see moderating raw material costs.

Speaker Change: We also should see.

Speaker Change: <unk>.

Allen J. Mistysyn: So, continuation of what we've seen in the first half, just not as heavy because of the raw material tail. And then, John, I would add to that, you lay in additional volume when we're not in such a choppy environment, and that's only going to help continue to stretch. Thank you, John. Your next question for today is from Mike Sison with Wells Fargo. Hey, good morning.

Speaker Change: Better price effectiveness in our second half versus the first half so continuation of what we've seen in the first half just not as heavy because of the raw material tailwind won't be as high.

Speaker Change: And then John I would add to that you lay in additional volume.

John Patrick McNulty: Well, we're not in such a choppy environment and that's only going to help continue to stretch us.

John Patrick McNulty: Thank you John.

John Patrick McNulty: Sure.

Speaker Change: Your next question for today is from Mike Sison with Wells Fargo.

Michael Joseph Sison: Heidi, just curious, I think your outlook for the stores was, you know, market demand not getting better in the second half. What do you think happens if demand gets worse? Or do you see that as a possibility?

Michael Joseph Sison: Hey, good morning Jaime.

Michael Joseph Sison: Having just curious I think your outlook for the stores was market demand not getting better in the second half or what do you think happens if demand gets worse or do you see that as a possibility I mean whats your share gains actually accelerate in that environment and then more importantly, however, the color or the guardian selling these days that would help.

Speaker Change: Well as well.

Heidi G. Petz: I mean, would your share gains actually accelerate in that environment? And then, you know, more importantly, how are the colors for the Guardian selling these days? I would hope really well.

Speaker Change: Well I'll start with the first question good morning, Mike.

Speaker Change: First and foremost we have to be prepared for any environment, which is why we're.

Allen J. Mistysyn: Well, I'll start with the first question. Good morning, Mike. Um, you know, I think first and foremost, we have to be prepared for any environment, which is why, you know, we're taking a very realistic approach within a choppy environment. But I think as you look by segment is where some of those answers lie. So in terms of, you know, res repaint, again, we've continued to talk about this because, by design, this is an area of incredible market share gain opportunity for us.

Speaker Change: Taking a very realistic approach within the choppy environment, but I think as you look by segment is where some of those answers lives. So in terms of reservoir pain again, we've continued to talk about this because by design. This is an area of incredible market share gain opportunity for us.

Speaker Change: And I think we've demonstrated that in a down market. We have continued to take share. So I think that's a really good litmus test of how we will operate in the down market.

Speaker Change: Having said that.

Speaker Change: As we and without repeating what we did cover in the prepared remarks, we're going to be very thoughtful where we see the indicators that are driving growth by segment and make sure that were pacing our investments.

Allen J. Mistysyn: And I think we've demonstrated that in a down market, we've continued to take shares. I think that's a really good litmus test of how we will operate in a down market. Having said that, you know, as we, and without repeating what we did cover in the prepared remarks, we're going to be very thoughtful where we see, you know, the indicators that are driving growth by segment and make sure that we're, you know, pacing our investments to what that growth looks like.

Speaker Change: So with that with that growth looks like so yes, Mike the only thing I'd add to that is if you look at our second half guide for paint stores is in line with what we expected coming into the year with <unk>.

Speaker Change: <unk> repaying outperforming.

Speaker Change: Commercial property maintenance about where we thought new res certainly improving in the second half and then PNM was the delayed projects was maybe a little bit softer, but certainly not.

Allen J. Mistysyn: So yeah, Mike, the only thing I'd add to that is if you look at our second half guide for paint stores, it's in line with what we expected coming into the year with Res repaint outperforming, Commercial Property Maintenance, about where we thought new Res would certainly improve in the second half, and then PNM, with the delayed projects, maybe a little bit softer but certainly not too far outside our guide or our expectations coming into the year I missed the Guardian question other than that they're not hitting the baseball, and they're not going to win.

Speaker Change: Too far outside our guide our expectations coming into the year.

Speaker Change: I missed the Guardian question other than they're not hitting the baseball and they're not going to win.

Speaker Change: Still in first place, though Mike Thanks for the question.

James R. Jaye: Still in first place, though, Mike, thanks for the question. Your next question is from Adam Baumgarten with Zelman. Hey, good morning, everyone. Just curious if you could give some color on how the pros who paint business performs relative to the overall segment in the quarter. Good morning, Adam.

Speaker Change: Your next question is from Adam Baumgarten with Zelman.

Hey, good morning, everyone.

Adam Michael Baumgarten: Just curious if you could give some color on how the pros who paint business performance relative to the overall segment in the quarter.

Speaker Change: Good morning, Adam.

Adam Michael Baumgarten: Yeah, certainly we're continuing to be a bit under pressure here. It's just in North America, Pro Who Paints continues to be a really important segment for us. As you know, this is a segment that we've also continued to talk about making sure that we're investing at the right point to continue to partner with our retail customers, relative to reps, and all the other things that we think are really important in this segment.

Yes.

Speaker Change: Certainly, we're we're continuing to be a bit under pressure here is just in North America propane continues to be a really important segment for US is as you know this is a segment that we have also continued to talk.

Speaker Change: About making sure that we're investing.

Speaker Change: At the right point to continue to partner with our retail customers.

Speaker Change: Relative to reps and all the other things that we think are really important in this segment.

al: Al I know, we had talked about a little bit on the propane and you were going to jump in on some color commentary relative to outlook. I think there is a balance here in terms of making sure that we're working in lockstep with our strategic partners.

Adam Michael Baumgarten: Al, I know we talked a little bit about the Pro Who Paints, and you were going to jump in on some color commentary relative to Outlook. I think there's a balance here in terms of making sure that we're working in lockstep with our strategic partners. Yeah, I just think that when you look at some of the leading indicators that we're following for Lyra, we expect it to bottom out here in the third quarter and improve in the fourth quarter.

Adam Michael Baumgarten: And even in that, it's made up of the higher ticket projects and the lower ticket projects. And I think what we've seen in the past is, you know, if you're not remodeling a kitchen, you still have to feed your family.

Speaker Change: Thank you.

Speaker Change: When you look at some of the leading indicators that we're following lira we.

Speaker Change: We expect to bottom out here in the third quarter and improve in the fourth quarter.

Speaker Change: And even in and Thats made up of the higher ticket projects and a lower ticket projects and I think what we've seen in the past is if youre.

Allen J. Mistysyn: So you revert to maybe some smaller ticket projects to fill in those gaps, and that's what we expect to see going through the second half. Clearly, DIY is where we're seeing the most pressure through the first half and into their second half. And this is why I think the investment we're confident in, the Propane Strategy, the investments being made, and our ability to get a return on that. And we're looking longer term; we're not looking just to run for the second half of this year.

Not remodeling our kitchen, you still have to feed your family. So you referred to maybe some smaller ticket projects to fill in those gas and Thats, what we expect to see going through the second half clearly DIY is where we're seeing the most pressure through the first half and into the second half.

Speaker Change: This is why I think the investment we're confident in this.

Speaker Change: Paint strategy the investments, we made and our ability to get a return on that and we're looking longer term, we're not looking just to run.

Speaker Change: For the second half of this year were looking out 25, and 26 and be in best positioned to gain share is.

Allen J. Mistysyn: We're looking at 25 and 26 and being in the best position to gain share as that channel and piece of the segment of the channel. Adam, one piece I want to add here, and Al said this really well, but the ProBootPaint strategy is a critical part of our strategy. We are very confident this is going to create not just a nice financial but a strategic win for our shareholders. This is a segment that we are just not set up to serve in our stores organization.

Adam Michael Baumgarten: That channel on pieces of the segment of the channel comes back Adam one piece I want to add in here and now said this I think really well, but the pro paint strategy.

Heidi G. Petz: It is a segment that has high growth, high margin opportunity, and it's strategically very important that, in our strategic partnerships, we also have access to this important growing sector. Thank you, Adam. Your next question is from Mike Leithead.

Speaker Change: It's a critical part of our strategy. We are very confident that this is going to create not just a nice financial but a strategic win for our shareholders. This is a segment that we are just not set up to serve in our stores organization. It is a segment that is high growth high margin opportunity and it.

Speaker Change: Strategically very important that our strategic partnerships that we also have access to this important and growing segment.

Speaker Change: Yeah.

Adam Michael Baumgarten: Thank you Adam.

Adam Michael Baumgarten: Yeah.

Adam Michael Baumgarten: Your next question is from Mike Light head with Barclays.

Michael James Leithead: Good morning, guys. On your income statement, you recorded $32 million in other income net in the quarter, which is a bit large versus the prior year or last quarter. What is that?

Michael James Leithead: Great. Thanks, Good morning, guys.

Speaker Change: Just one quick on your income statement you recorded a $32 million other income net in the quarter, which is a bit large versus prior year last quarter what is that.

Speaker Change: Our kids the administrative segment or one of the businesses.

Allen J. Mistysyn: And is that allocated to the administrative segment or one of the business units? Yes, when you look at that line specifically, and It's really the move, and fx goes through there. You know what? Mike, what I'll just address is all the other general other income we did see credit in the quarter. That size of credit going through our second half, even though, as expected coming into the year, of BEAT and our non-operating costs. [inaudible] Thank you, Mike.

Speaker Change: Yes.

Speaker Change: You look at that line specifically.

Speaker Change: It's really the move in.

Speaker Change: FX goes through there.

Mike just addresses all the other general other income we did see credits in the quarter.

Speaker Change: And environmental FX, and then gain on sales if you look at it net year over year versus.

Speaker Change: It was about 12% tailwind.

Speaker Change: Did have a higher effective tax rate, which was a headwind of about <unk> <unk>. So if you net those out we're still up a low double digit percentage not expecting.

Speaker Change: That size of credits going through our second half, even though as expected coming into the year.

Speaker Change: Of beef on nonoperating costs year over year, and our second half was expected I still expect that because we had some higher environmental and some other charges on our second half of last year that I'd expect environmental and other income lines to get back in line.

Speaker Change: Is it typically has been in the past.

Mike: Thank you Mike.

Patrick David Cunningham: Your next question for today is from Patrick Cunningham with, "Hi, good morning. I'm curious about your outlook for the key performance code coatings, verticals, you know, where do you see underlying markets trending in the back half? And where do you see the most upside from share gain opportunities? Yeah, Patrick, I'll start with that.

Speaker Change: Your next question for today is from Patrick Cunningham with Citi.

Patrick David Cunningham: Hi, Good morning, I'm curious on your outlook for the key performance coatings verticals, where do you see underlying market is trending in the back half and where do you see the most upside from share gain opportunities.

Heidi G. Petz: You know, when we first start at the portfolio level, I think if you look across PCG, in total, our margin performance is demonstrating the value that we're delivering. And those that are, you know, value what we do, which is helping them make more money, are certainly rewarding us for some of these share gains. So if I look kind of by division here, packaging, I'll start here, we're gaining share outside of the US. And per our second half guide, we do expect the progress to continue relative to the United States. If you look inside the packaging, we know that the technology that we bring to the market is unique.

Speaker Change: Yes, Patrick I'll start with that let me first start at the portfolio level I think if you look across <unk> in total our margin performance is demonstrating the value that we're delivering and those that are value. What we do which is helping them make more money or certainly rewarding us for some of these share gains. So if I look at the kind of by division here.

Speaker Change: <unk> packaging I'll start here, we're gaining share outside of the U S and per our second half guide, we do expect the progress to continue relative to.

Speaker Change: Dave.

Heidi G. Petz: We know it's solving a lot of issues for our customers and our brand owners. We're putting some investment, as you know, into new capacity, preparing for this growth, and we're confident that we're going to continue to see a run-up here. COIL is a really good example of our strategy at work.

Speaker Change: If you look within packaging. There is we know that the technology that we bring to the market is unique we know it's solving a lot of issues for our customers and our brand owners, we're putting some investment as you know the new capacity preparing for this growth and we're confident.

Speaker Change: But we're going to continue to see a run up here coil is a really good example.

Speaker Change: Our strategy at work, we're winning we're taking share.

Speaker Change: And I would attribute that to the team and their excellent execution at the fastest response time, delivering customizable solutions very consistent quality and we've got our tech service team there to support production I've hit on auto refinish, So I won't repeat that.

Heidi G. Petz: We're winning, we're taking share, and I would attribute that to the team and their excellent execution, at the fastest response time, delivering customizable solutions, very consistent quality. And we've got our tech service team there to support production. I've hit on auto refinish before, so I won't repeat that.

Speaker Change: And we did mentioned industrial wood as you look certainly.

Speaker Change: With new residential improvements, we would expect that to be a potential tailwind for us in the back half is still choppy.

Speaker Change: But we're building on a good foundation as we have been up last quarter and in all regions.

Heidi G. Petz: And we did mention industrial wood, you know, as you look, certainly, with new residential improvements, we would expect that to be a potential tailwind for us in the back half. Still choppy, but we're building on a good foundation as we were up last quarter in all regions. Your next question is from Kevin McCarthy with Vertical Research. Yes, good morning. I have a two-part question for you on DIY demand.

Patrick David Cunningham: Thank you Patrick.

Speaker Change: Your next question is from Kevin Mccarthy with vertical research partners.

Kevin William McCarthy: First, could you just speak in general terms about how you would expect your professional contractor sales versus DIY sales, and then the second part would be, you know, if I look at your DIY flowing through company-owned stores, it's comfortably positive year to date. And in the consumer segment, of course, DIY has been, you know, quite challenged, well into the red. Can you talk about that disparity? And what are the, I don't know, two or three most important reasons behind it?

Kevin William McCarthy: Yes. Good morning, two part question for you on DIY demand first could you just speak in general terms about how you would expect your professional contractor sales versus DIY sales to trend in the stores moving forward and then the second part.

Speaker Change: If I look at your DIY flowing through company owned stores.

Speaker Change: <unk> positive year to date and in the consumer segment of course, DIY has been quite challenged well into the Red can you talk about that disparity and what are the I don't know two or three most important reasons behind that.

Heidi G. Petz: Yeah, so good observation, Kevin, and I think you've characterized that well. You know, we often talk about this segment as having slightly two different segments. If you think about the DIY consumer in our stores, you know, they're looking for that specialty paint store experience and candidly expect the service that goes along with that. A little bit less sensitive to the current macro, the DIYer that prefers a home center environment tends to be more value conscious, And it's certainly feeling the pressure, as we talked about in our prepared remarks early relative to inflation, depleted savings, and household debt. So those pressures are very real for that consumer.

Speaker Change: Yes, so good observation, Kevin and I think you've characterized it well.

Speaker Change: We often talk about this segment.

Speaker Change: It's having slightly two different segments. If you think about the DIY consumer in our stores.

Speaker Change: They're looking for that specialty paint store experience.

Speaker Change: And candidly expect the service that goes along with that little bit less sensitive in the current macro the DIY that prefers a home center environment tends to be more value conscious.

Heidi G. Petz: Having said that, I do want to kind of run right at this question, because this is an area where I would tell you we absolutely do not have our heads in the sand relative to our performance in DIY and certainly relative to our expectations in this segment. This is a very important segment for us over the long term. I'll reference that earlier as part of our overall architectural strategy. And when you look at the importance of making sure that we are well positioned here, we understand that there are cycles, certainly in the DIY consumer space.

And is certainly feeling the pressure as we talked about in our prepared remarks early relative to inflation.

Depleted savings and household debt. So those pressures are very real for for that for that consumer having said that I do want to kind of run rate. At this question. Because this is an area that I would tell you we absolutely do not have our heads in the sand relative to our performance in DIY and certainly relative to our expectations.

Speaker Change: In this segment. This is a very important segment for us over the long term al referenced that earlier as part of our overall architectural strategy.

Speaker Change: And when you look at the.

The importance of making sure that we are well positioned here, we understand that there are cycles, certainly in our DIY consumer space.

Heidi G. Petz: Fundamental belief that we're in a logjam in housing that it is going to free up And so our focus on ensuring we are best positioned with the best strategic partners Including our exclusive and growing partnership with Lowe's among others So as the market begins to recover, we're very confident in our ability that we will continue to deliver above market growth But again, our heads are not in the sand right now And we're going to be laser focused on making sure that we're in lockstep with our partners Kevin the the Comment on DIY through our paint stores group a part of that is the price increase, for a price increase that we took in our stores that is certainly impacting the DIY customer as well as, Thank you, Kevin. Your next question is from Greg Melich with Evercore ISD. Hi, thanks. I'd love to follow up on two things.

Speaker Change: Fundamental belief that we are in a log jam in housing that is going to free up.

Speaker Change: So our focus on ensuring we are best positioned with the best strategic partners.

Speaker Change: Including our exclusive and growing partnership with Lowe's among others. So as the market begins to recover we're very confident in our ability that we will continue to deliver above market growth, but again, our heads are not in our sand right now and we're going to be laser focused on making sure that we are in lockstep with our partners Kevin.

Kevin William McCarthy: The comment.

Kevin William McCarthy: Comment on DIY through our paint stores group a part of that is the price increases or price increase that we took in our stores.

Kevin William McCarthy: Certainly impacting the DIY customer as well as the probe.

Kevin William McCarthy: Thank you Kevin.

Kevin William McCarthy: Your next.

Kevin William McCarthy: Question is from Greg Melick with Evercore ISI.

Gregory Scott Melich: First, just understanding volume, price, Mix, and FX both in the second quarter and what's implied from your back half guide. Yeah, Greg, if you look at our second quarter, you know, with our sales up half a percent, volume, and price were up slightly. Acquisitions at less than a percent and We also had the headwind of the divestitures and FFAC. But really, the driver in the quarter was our paint stores group, up three and a half.

Gregory Scott Melich: Hi, Thanks, I'd love to follow up on two things first is understanding volume price.

Gregory Scott Melich: Mix and FX, both on the second quarter and what's implied from your back half guide.

Speaker Change: Yes, Greg.

Speaker Change: Look at our.

Speaker Change: Second quarter.

Speaker Change: With our sales up.

Speaker Change: Half a percent volume.

Speaker Change: And price were up slightly.

Speaker Change: Acquisitions added less than a percent.

Speaker Change: <unk>.

Speaker Change: We also have the headwind of the divestitures and <unk>.

Speaker Change: But really the driver in the quarter was our paint stores group up three and a half.

Speaker Change: Both.

Allen J. Mistysyn: That segment, that segment of the PCG segment was where we expected it. We talked about the myth of If I look at the second half, kind of a little bit up-low single-digit guide, compared to a low single-digit comparison last year, I think price is expected to be up, a low single-digit percentage. When you look at it, that would tell you that volume is expected to be up or down low single digits, and then all the other impacts are, I'd say, immaterial, less than 1%. FX is unfavorable, a little bit of a tailwind for acquisitions, and again, a little bit of a headwind on divestitures, but not material.

Speaker Change: That segment.

Speaker Change: That segment of GCG segment was where we expected and we talked about the Miss on.

Speaker Change: Consumer if I look at the second half.

Speaker Change: Kind of a little bit.

Speaker Change: Up low single digits guide.

Speaker Change: Compared to low single digit comparison last year I think prices are expected to be up.

Speaker Change: Low single digit percentage.

Speaker Change: And when you look at that would tell you that volume is expected to be up or down low single digits and then all the other impacts are I would say immaterial less than 1% FX is unfavorable.

Speaker Change: Little bit of a tailwind on acquisitions and again, a little bit of a.

Speaker Change: Of a headwind on the divestitures, but not not material I'd callout paint stores group just to be clear and I said this before our second half, we expect volume and price to be up low single digits.

Allen J. Mistysyn: I'd call out paint stores group, just to be clear, and I said this before, second half, we expect volume and price to be up low single digits. Consumer Down, High Singles, Low Double Digits, really the continued softness in DIY. We do expect the price to be flat, and that's primarily due to increases we see in Latin America. FX would be a headwind, about 1.5, and then the remainder is volume down, high single digits.

Speaker Change: Consumer down high single to low double digits.

Speaker Change: The continued softness in DIY.

Speaker Change: Do expect price to be flat and Thats, primarily increases we see in Latin America, FX would be a headwind of about one and a half and then the remainder is volume down high single digits and then within <unk> for the second half I expect up low single digits.

Ghansham Panjabi: And then within PCG for the second half, I expect it to be below single digits. Acquisitions will be a tailwind of those single digits, and then FX, about a 1% headwind. Then price, because of the smaller number of accounts we have on index, will actually be a small headwind. Thanks, Greg. Your next question is from Ghansham Panjabi with Baird. Thank you. Good morning

Speaker Change: Acquisitions will be.

Speaker Change: A tailwind in the low single digits and then FX.

Not a 1% headwind.

Speaker Change: Headwinds in price because of the smaller number of accounts, we have an index will actually be.

Speaker Change: Small headwind.

Gregory Scott Melich: Thanks, Greg.

Gregory Scott Melich: Your next question is from Ghansham Panjabi with Baird.

Heidi G. Petz: Heidi, you know, in the slide deck and also in your prepared comments, you alluded to consumable affordability, impact, and parts of your business, such as consumer brands and also parts of performance coding that they decided auto refinish has raised to deductible. Switching to the paint store segment, are your customers citing incremental issues as it relates to the same consumer affordability dynamic relative to the baseline of what you've already seen over the last 18 months or so Ghansham, I would, I would characterize it maybe a little bit differently, saying that they're always going to be value conscious, conscious, I would say more so than focus on maybe that true price affordability piece.

Ghansham Panjabi: Thank you good morning.

Speaker Change: The slide deck and also in your prepared comments you alluded to consumer affordability impacting portions of your business such as consumer brands and also parts of performance coatings. I think you said your auto refinish as it relates to deductibles.

Speaker Change: Switching to the paint stores segment or your customers signing incremental issues as it relates to the same.

Speaker Change: Affordability dynamic relative to the baseline of what you've already seen over the last 18 months or so.

Heidi G. Petz: And so it's incumbent upon us that every day we are doing what we say we will do, delivering a consistent, reliable service to these more discerning and very habitual contractors that candidly just expect that from us. And so making sure that we're delivering that value every day is, I think, clearly on display for us. And it changes their understanding; we're not having price conversations with them; we're talking about helping them grow their business and helping them make more money. Thank you, guys. Your next question is from Steve Byrne with Bank of America. Thank you. Can you can you help me understand what led to the higher fixed cost absorption by consumers?

Speaker Change: Ghansham I would I would characterize it maybe a little bit differently that theyre always going to be value conscience conscious I would say more southern focused on maybe that true price affordability piece and so it's incumbent upon us that everyday we are doing what we say we will do is delivering a consistent reliable service to these <unk>.

Speaker Change: More discerning in very habitual contractors that candidly just expect that from us and so making sure that we're delivering that value every day.

Speaker Change: I think is clearly on display for us and the changes they are understanding where not having price.

Speaker Change: Conversations with them, we're talking about helping them grow their business and helping them make more money.

Ghansham Panjabi: Thank you Ghansham.

Stephen V. Byrne: Your volumes were down year over year and Al you mentioned, you know, improved efficiencies. What was there an operating rate improvement that in spite of lower volumes that that led to that lower cost structure? Can you quantify that for us? Yeah, Steve, as I talked about on our first quarter call, this is, , R M R M R M R M M M M M M M M M M M M M M M M M 18.3 is an all-time high and then certainly, We see the improvement in our paint stores group. So you're gonna see that phenomenon continue through the second half.

Ghansham Panjabi: Your next question is from Steve Byrne with Bank of America.

Allen J. Mistysyn: I did call out that the entire improvement in Consumer Brands Operating profit is due to those higher fixed cost absorption, really partially offset by a decline in profits when you look at it related to the volume, sales volume, North America DIY sales volume shortfall that we experienced in the second quarter. So like I said, we're going to continue down this path. My expectation is we'll get more consistent. Think of it as the base to build on into the future for consumer operations. Thank you, Steve. Your next question for today is from Josh Spector with UBS. Yeah, good morning.

Stephen V. Byrne: Thank you.

Speaker Change: Can you can.

Stephen V. Byrne: Can you help me understand what led to the higher fixed cost absorption increase tumor.

Speaker Change: Volumes were down year over year in value mentioned.

Speaker Change #100: Improved deficiencies.

Speaker Change #101: Was there an operating rate improvement.

Speaker Change #102: In spite of lower volumes.

Speaker Change #103: Led to the lower cost structure can you quantify that for us.

Speaker Change #102: Steve.

Speaker Change #104: Talking about.

Speaker Change #105: On our first quarter call. This is consistent with our first quarter, we had talked about the choppiness and production volumes that we experienced over the last four or five years and updating our our costs in our standards to match those.

Speaker Change #105: Higher costs on the conversion side I talked about this at FCP last year. The that's really been a drag on our on our consumer brands group and we thought we could get efficiencies.

Speaker Change #105: Efficiencies out to offset those costs. So we wouldn't have to do.

Speaker Change #105: <unk> to our standard costs like we did coming into this year, it's really not an impact on our overall gross margin because it is offset between paint stores group.

Speaker Change #105: Performance coatings group, both of which I said on our first quarter call, we're not going to detail that out we don't think it's material.

Speaker Change #105: Can certainly see that with our performance coatings group.

Speaker Change #105: Performance in up to 19, 4%.

Speaker Change #105: It is an all time high first half.

Speaker Change #105: 18, <unk>, an all time high and then certainly.

We see the improvement in our paint stores group, so youre going to see that.

Speaker Change #105: So now I'm Gonna continued through the second half.

I did call out that the entire improvement in consumer brands group operating profit is due to those higher fixed cost absorption really partially offset by a day.

Speaker Change #105: Decline in profits when you look at it related to the volume sales volume North America DIY sales volume shortfall that we experienced in the second quarter. So.

Speaker Change #105: Like I said, we're going to continue down this path my expectation is we will get.

Speaker Change #105:

Speaker Change #105: More consistent and think of it as a base to build off into the future.

Speaker Change #105: Consumer operating margin.

Stephen V. Byrne: Thank you Steve.

Stephen V. Byrne: Your next question for today is from Josh Spector with UBS.

Joshua David Spector: So I wanted to ask you on Resi Repaint, it's obviously been a source of strength for you this year. In the event that you don't really get any improvement in housing turnover next year, or maybe it ticks down, I'd be curious if you could characterize how you want to think about either your backlog or your opportunity to win in that scenario, basically meaning have we been perhaps still over-earning from a slew of projects coming to completion with lower turnover? Or is that a zero or low risk, in your view relative to the market? I think it's zero. I mean, I think Josh, it's a good question.

Joshua David Spector: Yes, hi, good morning.

Joshua David Spector: Wanted to ask on resi repaint, it's obviously been a source of strength for you. This year I mean in the event that you don't really get any improvement in housing turnover next year, maybe it kicks down I'd be curious if you characterize if you want to think about either your backlog or your opportunity to win in that scenario basically meaning have we been perhaps still over earn.

Speaker Change #107: From a slew of projects coming completion with lower turnover or is that a zero or low risk in your view relative to the market.

Heidi G. Petz: I think the health of the backlog is real. And certainly, you know, we're making the right investments at the right time to ensure that we're well positioned. When you talk about kind of the source of strength here, there's certainly opportunity to take share across the market. This has been an area of strength for us because we understand how to do something I truly believe that no one can do with a segment, and I take it back to the controlled distribution model that we have.

Speaker Change #108: I think it's zero.

Speaker Change #108: I think Josh its a good question I think the health of the backlog.

Speaker Change #109: Is real and certainly we're making the right investments at the right time to ensure that we're well positioned when you talk about kind of the source of strength here. There is certainly opportunity to take share across the market.

Speaker Change #109: This has been an area of strength for us because we understand how to do something I truly believe that no one can.

Speaker Change #109: You can do with this segment and I take it back to the controlled distribution model that we have so not only are we investing in laying in reps at the right pace in the right geographies, but we're arming these reps with the world's largest database of painting contractors, we're laser focused on from day.

Heidi G. Petz: So not only are we investing and laying in reps at the right pace and in the right geographies, but we're arming these reps with the world's largest database of painting contractors, which we laser focused on from day one, ensuring they have the tools, the understanding of what they need to go in and help our contractors to grow their business and travel to be more successful. So when I think about success in this space and the upside, I don't think that there's a finish line here. We've got, we're in the early innings, in my opinion here, and we've got a lot of upside.

Speaker Change #109: One ensuring they have the tools the understanding what they need to go in and help our contractors.

Speaker Change #109: To grow their business to travel to be more successful so and when I think about success in this space and the upside I don't think that Theres a finish line here we've got.

Speaker Change #109: Early innings in my opinion here and we've got a lot of upside.

Michael Joseph Harrison: Thanks, Josh. Your next question is from Mike Harrison with Seaport Research Partners. Hi, good morning.

Joshua David Spector: Thanks, Josh.

Joshua David Spector: Okay.

Joshua David Spector: Your next question is from Mike Harrison with Seaport Research partners.

Heidi G. Petz: Another question on the performance coding group. You said that in the general industrial portion of that business, demand was lower across all regions. Can you kind of walk us through those regions and comment on how things are trending according to your expectations for the second half? I guess are there some signs of improvement in any regions or at least lapping some prior year weakness in general industrial? Yeah, Mike, I would say, I'd say on the positive side, starting with that, you do see less of a slowdown in North America, and let me take a step back. It all starts with share gains in this type of environment, share gains, share of wallet, and differentiation. I think North America will be less of a headwind.

Hi, good morning.

Speaker Change #110: Another question on the performance coatings group.

Joshua David Spector: Yeah.

Speaker Change #111: In general.

Michael Joseph Harrison: General industrial portion of that business demand was lower across all regions can you kind of walk us through those regions.

Comment on how things are trending.

Michael Joseph Harrison: Your expectations for the second half.

Speaker Change #113: I guess are there some signs of improvement in every region.

Speaker Change #114: <unk> from the prior year weakness in general industrial Thank you.

Speaker Change #115: Yes, Mike I would say.

Speaker Change #116: On the I would say on the positive side starting with that.

Speaker Change #116: You do see less of a slowdown in North America.

Speaker Change #117: Let me take a step back it all starts with share gains in this type of environment share gain share of wallet and differentiation I think North America.

Speaker Change #117: We will be less of a headwind I think Europe again is.

Heidi G. Petz: I think Europe, again, we don't expect a lot coming out of Europe in the second half. We do expect Latin America and Asia to be positive in the Asia Pacific region, more so in Asia, against a really soft comp, but Latin America holding up.

Speaker Change #117: We don't expect a lot coming out of Europe in the second half, we do expect Latin America.

Speaker Change #117: In Asia Asia, I'm, Sorry, Asia Pacific.

Heidi G. Petz: So I think across the region, North America, as you know, is our largest region, across all of PCG, and do expect it to moderate as, and Mike, I think to the team's credit, I would say our focus here, given the fundamentals of the core, has been laser focused on new account growth. And I would tell you that that's holding up better than the market. So the team is focused on the right activities here to offset some of the some of the pressure.

Speaker Change #117: To be positive more so in Asia against a really soft comp.

Speaker Change #120: Latin America, holding up so I think across the regions North America. As you know is our largest region and across all of <unk> and do expect it to moderate as we get through the second half and Mike I think to the team's credit.

Mike: Would say our focus here given the fundamentals of the core has been laser focused on new account growth and I would tell you that that's holding up better than the market. So the team is focused on the right activities here to offset some of the some of the pressure.

Michael Joseph Harrison: Thank you, Mike. Your next question is from Duffy Fisher with Goldman. Yeah, good morning.

Mike: Thank you Mike.

Yeah.

Speaker Change #118: Your next question is from Duffy Fischer with Goldman Sachs.

Patrick Duffy Fischer: If I could just clarify, Al, I thought you said that pricing didn't do as well in the second quarter as you had hoped. Can you just kind walk us through off the 5% that you announced earlier this year? You usually talk to about 60% being realized within a year. You know, how do we trend from where we're at now to getting to, let's say, 3% of your five?

Yes, good morning.

Patrick Duffy Fischer: If I could just a clarification I thought you said the pricing didn't do as well in the second quarter as you had hoped.

Speaker Change #122: Can you just kind of walk us through up to 5% that you announced earlier. This year, you kind of usually talked about 60% being realized within a year.

Speaker Change #121: How do we trend from where we're at now to getting to that let's say 3% of your five.

Allen J. Mistysyn: Yeah, we mentioned that the price increase effectiveness improved as the quarter went on, and we exited the quarter at our targeted effectiveness rate. So I would expect to see that kind of realization, we have built in our forecast, that kind of realization, low single digit. Thank you, Jeffy.

Patrick Duffy Fischer: Yes Duffy.

Patrick Duffy Fischer: We mentioned that the.

Patrick Duffy Fischer: Price increases effective effectiveness improved as the quarter went on and we exited the quarter.

Our targeted effectiveness rates, so I would expect to see.

Patrick Duffy Fischer:

That kind of realization we have built in our forecast that kind of realisation low single digit.

Patrick Duffy Fischer: And then volume low single digit in the second half.

Patrick Duffy Fischer: Thank you Duffy.

David L. Begleiter: Your next question is from David Begleiter with Deutsche. Thank you. Heidi, can you talk to the cadence of earnings in the back half of the year, and specifically on CPG margins? Are we implying that they would be up in Q3 versus Q2?

Speaker Change #123: Your next question is from David Begleiter with Deutsche Bank.

David L. Begleiter: Thank you Heidi can you talk to the cadence of earnings in the back half of the year.

Speaker Change #125: And specifically on CPG margins al were you implying that they would be.

Speaker Change #126: In Q3 versus Q2, thank you.

Speaker Change #127: No David I didn't I didn't mean to imply that if thats the way it was taken.

Heidi G. Petz: Thank you. No, David, I didn't I didn't mean to imply that if that's the way it was taken, really where we're at from an operating margin standpoint within CVG will be dependent on where we're at in the sales range and what volume does through the quarter and really through the second half.

Speaker Change #127: Really where we're at.

Speaker Change #128: From an operating margin standpoint within CPG will be dependent on where we're at in the sales range and what volume does through the quarter and really.

Allen J. Mistysyn: As you know, we still will expect to see a seasonal architectural slowdown in our fourth quarter. But whether we see sequential improvement in our operating margin, it's really going to depend on Sales, North America, and DIY Sales. Thank you, David. Your next question is from Aleksey Yefremov with KeyBank Capital. Al, I wanted to follow up on the CPG comment that you made earlier that this is the margin level you can build on.

Speaker Change #128: Through the second half as you as you know, we still will expect to see a seasonal architectural slowdown in our fourth quarter.

Speaker Change #128: But whether we see sequential improvement in our operating margin, it's really going to depend on.

Speaker Change #128: Sales North America DIY sales volume.

Thank you David.

Speaker Change #128: Your next question is from Alexia <unk> with Keybanc capital markets.

Allen J. Mistysyn: So if we think about 2025 or say 2026, can we think of this low 20s operating margin plus some volume leverage, perhaps in the case of recovery, so this could be, you know, maybe mid to high 20s margins with volume leverage, or are there any offsets, and perhaps some part of this margin story is not sustainable longer? Like Aleksey and I have talked in the past, our expectation for consumer brands is operating margin of high teens to And certainly, we challenge our groups and divisions to continue to raise that bar.

al: Al I'll also follow up on your <unk> comments.

Speaker Change #129: That you made earlier that this is the margin level you can build on so if we think about 2025 for 2026.

Speaker Change #130: Can we think of this low twenties operating margin plus some.

Speaker Change #131: Volume levers perhaps.

Speaker Change #132: Pace of recovery.

Speaker Change #132: These can be.

Speaker Change #133: Mid to high Twenty's margins, whereas with volume leverage or are there any offsets and to have some some part of this margin story is not sustainable longer term.

Speaker Change #133: No.

Speaker Change #133: We have talked in the past our expectation for consumer brands operating margin is high teens low 20.

Certainly we challenge our groups and divisions.

Allen J. Mistysyn: Volume is the number one driver of operating margin performance in all our segments, as you well know, and that, you know, clearly showed itself in 2020, during the pandemic, when we had really strong volumes in consumer Outdoor Sales. That drove the operating margins higher, and I would expect that as we continue, as we see a turn in the market, and we start seeing volume grow, we'll get leverage on that. Thank you, Aleksey.

Speaker Change #133: To continue to raised up our volume is the number one driver.

Speaker Change #133:

Speaker Change #133: Operating margin performance in all our segments as you well know and that clearly showed itself in 2020 during the pandemic when we had really strong volumes in consumer.

Speaker Change #133: Out the door sales that drove the operating margins are higher and I would expect that as we continue as we see a turn in the market and we start seeing a volume to grow we'll get leverage on that volume.

Speaker Change #133: Yeah.

Alexia: Thank you Alexia.

Allen J. Mistysyn: Your next question is from John Roberts with Mizzou. Thank you. DIY is mostly interior, I think. So was it unusual for interiors to outgrow exterior this quarter? Or was that the weather effect, and painters switch to interiors when the weather's unfavorable?

Speaker Change #135: Your next question is from John Roberts with Mizuho.

John Roberts: Thank you.

John Roberts: DIY is mostly interior I think so wasn't unusual for interior to outgrow exterior this quarter or was that the weather effect and painters switch to interior when the weather's unfavorable.

John Roberts: Yeah, John, I think that's the case. They'll work on jobs where they have the opportunity, and they have jobs lined up, you know. I'll use Res Re Painter, eight weeks' backlogs in advance so they can take advantage of www.able.co.nz Copyright Able 2020. Thank you, John. Your next question is from Chuck Cerenkosky with North Coast. Good morning, everyone.

Speaker Change #137: Yes, John I think Thats, the case they'll work on jobs, where.

Speaker Change #137: They have the opportunity and have jobs lined up.

Speaker Change #138: <unk> <unk> six.

John: Eight weeks.

John: Backlogs in advance so they can take.

John: Take advantage of.

John: Really good weather and do exterior projects.

John: Then again, if it's wet rainy week, they can pivot and move to interior products.

John: Projects.

John: Thank you John.

John: Yeah.

Your next question is from Chuck Cerankosky with Northcoast research.

Charles Edward Cerankosky: Nice quarter. Explain the price sensitivity of customers purchasing architecture in the CBG group. Why does that not extend to residential projects in the pain stores group? I know some of those projects are bigger and maybe higher end, but you seem to clearly buck that trend in the pain stores group.

Charles Edward Cerankosky: Good morning, everyone nice quarter.

Speaker Change #141: Can you explain the.

Charles Edward Cerankosky: Price sensitivity of customers purchasing architectural in the CPG group.

Speaker Change #142: Why does that.

Speaker Change #143: To that extent two residential projects in the paint stores group I know some of those projects are bigger than maybe higher end.

Speaker Change #144: But you seem to clearly bucked that trend in the paint stores group.

Allen J. Mistysyn: Yeah, I think, you know, Chuck, within consumers, we've talked about a different kind of DIY customer. And that's where the bulk of the volume is. They are more sensitive to inflation, the amount of debt they have, you look at some of those headwinds that Heidi talked about in her opening remarks. It's less so on the DIY side in our stores. And like we talked about, there is a price impact on DIY in our stores, and I think if you look at our pro, specifically in Resin Refinish, I think the teams have done a really good job of driving new business through our stores to drive that mid-single-digit growth over the last three quarters in a down market. So it's not that the Resin Refinishers are immune, or those end consumers are immune to higher

Speaker Change #144: Yes.

Chuck: You know Chuck.

Speaker Change #146: Within consumer.

Chuck: We've talked about a different kind of DIY customer and Thats, where the bulk of the volume is.

They are more sensitive to inflation.

Chuck: Amount of debt. They have you look at <unk>.

Some of those headwinds that <unk> talked about in her opening remarks.

Chuck: Less so on the DIY side in our stores.

Chuck: And like we talked about there is a price impact on DIY and our stores and I think if you look at our pro and we'll specifically in res repaint and we've.

Chuck: We've mentioned this.

Chuck: I think the teams have done a really good job of driving new business through our stores.

Chuck: To drive that mid single digit growth over the last three quarters in a down market. So it's not that the reservoir <unk> painters are immune or those.

Chuck: And consumers are immune to higher cost. It's just that we continue to take share.

Heidi G. Petz: It's just we continue to take share because of the investments we've continually made and being very consistent about it. I think it also points to the value of a specialty paint store model, which is, you know, certainly on the DIY side, an expectation of a premium product, but it is an equally high expectation of that premium service and the willingness to pay for that service and the homeowner color selection, all of the things that go along with us being, you know, innovating in and out of the can. This is a great example of a consumer that values that type of solution.

Chuck:

Chuck: Because of the investments we've continually made and being very consistent about that I think it also points to the value of a specialty paint store model, which is.

Chuck: Certainly on the DIY side and expectation of premium product, but it is an equally high expectation of that premium service and the willingness to pay for for that service and the homeowner color selection all of the things that go along with us being.

Chuck: Innovating in and out of the can is a great example of a consumer that values that type of solution.

Charles Edward Cerankosky: Thank you, Chuck. Your next question is from Garik Shmois with MOVE Capital. Oh, hi, thank you. I wanted to ask about raw materials. How much were raw materials down in 2Q and flat in the back half of the year? So, good assumption.

Chuck: Thank you Chuck.

Chuck: Okay.

Garik Simha Shmois: I think that was the previous outlook, Yeah, Garik. So Roz, the basket was down mid single digits year over year in the second quarter. And for the full year, we're still picking or saying that the full year will be down low singles.

Chuck: Your next question is from Garik <unk> with loop capital.

Garik Simha Shmois: Oh, hi, Thank you I wanted to ask about raw materials, how much were walls down in <unk> and its flat in the back half of the year. So a good assumption I think that was the outlook previously.

Allen J. Mistysyn: So that tells you the back half is flattish year over year. And thanks for the questions. Your next question is from Eric Bosshard with Cleveland Research. Thanks. A question on revenue in two different areas, if I could.

Eric: Yes, Eric So roz the basket was down mid single digits year over year in the second quarter.

Speaker Change #149: And for the full year, we're still picking are saying that the full year will be down low singles. So that tells you the back half is flattish year over year.

And thanks for the question.

Eric Bosshard: The consumer miss, just curious versus 90 days ago, what is so different that is driving the magnitude of the shortfall there? And then on the store side, I'm curious about res repaint, the market down, and you up mid single digit. I'm just curious to dive into both of those a little bit, if you would, in terms of the momentum of the market into the back half, and then the ability to sustain the magnitude of the share gains of up five in the down market. Yeah, morning, Eric.

Speaker Change #149: Your next question is from Eric Bosshardt with Cleveland Research Company.

Eric Bosshard: Thanks, a question on revenue in two different areas if I could.

Eric Bosshard: The consumer Miss just curious versus 90 days ago, what is so different that is driving the magnitude of the shortfall there.

Eric Bosshard: And then on the store side I'm curious on res repaint.

Speaker Change #151: The market down in Europe mid single digits.

Speaker Change #152: I'm just curious to dive into both of those a little bit if you would in terms of the momentum of the market.

Speaker Change #153: Into the back half and then the ability to sustain the magnitude of the share gains of up 5% in the dental market.

Speaker Change #152: <unk>.

Heidi G. Petz: So let me start with your first question on revenue, the CBG myth about kind of what's changed in 90 days. And I would simply put it as, again, we said this in the prepared remarks, but characterizing this as it's just simply been softer longer, if you look at just the DIY North America market being under pressure. So the fundamentals are not recovering at the pace that we'd like to see as it relates to stores, and rez repaint and sustainability of our performance; they're up mid single digits in a down market. I would point to a few things, again, on the fundamentals. First and foremost, it's the segment where we have the greatest upside.

Speaker Change #154: Yeah. Good morning, Eric So let me start with your first question on the revenue the CPG mess for kind of what's changed in 90 days and I would simply put it as again, we said this in the prepared remarks.

Speaker Change #155: Characterizing this as it's just simply been software longer if you look at just the DIY North America marketing under pressure. So the fundamentals are not have not recovered at the pace that we'd like to see as it relates to stores and Reds repaint and sustainability of our performance there being up mid single.

Speaker Change #155: In a down market I would point to a few things again on the fundamentals first and foremost it's a segment, where we have the greatest upside. So the market share gain runway is material I would also point to again going back to the investments that we have made and as our team is.

Speaker Change #155: Watching the market very closely and we know the indicators to watch we'll get as aggressive as we need to be and.

Speaker Change #155: As realistic as we need to be based on what we see in the market. So our ability to ramp that up I think we've proven that we can we can respond pretty quickly to be best positioned for that upside.

Thank you Eric.

Heidi G. Petz: So the market share gain runway is material. I would also point to, again, going back to the investments that we have made, and as our team is watching the market very closely, and we know the indicators to watch, we'll be, you know, as aggressive as we need to be and as realistic as we need to be based on what we see in the market. So our ability to ramp that up, I think we've proven that we can respond pretty quickly to be best positioned for that upside. Thank you, Eric. Your next question is from Aron Ceccarelli with Berenberg. Hello, good morning. I have a question on Resi Repaint.

Speaker Change #155: Your next question is from Aaron Zuccarelli with Baron Berg.

Aron Ceccarelli: Maybe, can you talk a little bit about the profitability of new accounts as you continue to gain market share? If I understood correctly, before you mentioned that, usually, new accounts come at a premium, so the higher margin, I was a little bit surprised. So I would like to ask if you can maybe dig a little bit more into that and how this should, you know, pan out as your market share gains continue. Thank you. So when you look at the total cost of a project, they're making more money.

Aron Ceccarelli: Hello, Good morning.

Aron Ceccarelli: On res repaint, maybe can you talk a little bit about the profitability of new accounts as you continue to gain market share if I understood correctly before you mentioned that you show in your accounts come at a premium so the higher margin. It was a little bit surprised so we'd like to ask you. If you can maybe dig a little bit more into into that.

Speaker Change #156: How should this should pan out as to your market share gains continue. Thank you yes.

Speaker Change #157: Yes, let me let me start with that just based on my earlier comment. If you. If you kind of picture a bell curve of our new res repaint contractor coming in new versus kind of a more mature reservoir repaint contractor, where we've earned over time more share of wallet. My comment is relative to kind of first and foremost making sure that we're getting there.

In and getting them set up on the right products. So when we talk about making sure our customers are making more money oftentimes there and that is a conversation of getting them in the right premium product, that's helping them get their crews on and off the job site faster less touch up required. So when you look at the total cost of a.

Heidi G. Petz: So making sure that we're helping our teams to help set our customers up for success at the very beginning. And then again, along that bell curve, where there's more maturity of this particular contractor, then you know, they could be bigger in size, they may be traveling, our teams are meeting them exactly where they are, and helping them if they're looking to travel and grow work from store to store, our reps are playing the role to proactively help set them up again, and then we're able to leverage our data and our database to put our reps in position to help these contractors kind of optimize, you know, what it is they're, how they're leaning in on us for products, services, all of our digital tools, etc.

Speaker Change #157: A project, they're making more money and making sure that we're helping our teams to help set our customers up for success at the very beginning and then again along that bell curve.

Speaker Change #157: There's more maturity.

Speaker Change #157: This particular contractor then they could be bigger in size. They may be traveling our teams are meeting them exactly where they are and helping them if they're looking to travel.

Speaker Change #157: And grow work from store to store, our reps are playing the role to proactively help set them up they get and then we're able to leverage our data and our database to put our reps in position.

Speaker Change #157: Help these contractors kind of optimize what it is they're they're how they're leaning in on us for products services all of our digital tools et cetera.

Laurence Alexander: Richard, thank you, Aaron. Your next question is from Laurence Alexander with Jeffries.

Speaker Change #157: Okay.

Heidi G. Petz: Thank you, Aaron. Your next question is from Lawrence Alexander with Jeff. Good morning. Just very quickly, will your raw materials, in your base case, will your raw material costs be up year over year in Q4? Slavish.

Erin: Thank you Erin.

Speaker Change #161: Your next question is from Laurence Alexander with Jefferies.

Laurence Alexander: Good morning, just very quickly your raw materials in your base case, where your raw material cost to be up year over year in Q4.

Unknown Attendee: Good morning, just very quickly. Well, your momentary else in your base case, will your raw material cost be up year over year in Q4?

Unknown Attendee: Flash. Thank you.

Erin: Flattish.

Speaker Change #162: Thank you.

Laurence Alexander: Thank you. You're welcome. Thanks, Lauren. We have reached the end of the question and answer session, and I will now turn the call over to Jim Jaye for closing remarks. Thank you, Holly.

Unknown Attendee: You're welcome. Thanks, Lawrence.

Speaker Change #163: Youre welcome Thanks Laurence.

Speaker Change #163: We have reached the end of the question and answer session and I will now turn the call over to Jim Jaye for closing remarks.

Jim Jaye: We have reached the end of the question and answer session, and I will now turn a call over to Jim J for closing remarks. Thank you, Holly, and thank you everybody for joining us today. I think you heard today that while the macro is certainly very choppy, we're very confident in our strategy. We're very well positioned, and we're expecting to continue outperforming the markets. The global teams aligned, and we're focused on our strategy of driving that profitable growth at providing solutions for our customers. Today you heard we've increased our full year guidance, and as Heidi mentioned, and we've often said, if ourselves do prove to be better than what we've outlined today, we would expect our bottom line performance speed better as well.

James R. Jaye: And thank you everybody for joining us today. I think you heard today that while the macro is certainly very choppy, we're very confident in our strategy. We're very well positioned, and we're expecting to continue outperforming the markets. The global teams are aligned, and we're focused on our strategy of driving that profitable growth by providing solutions for our customers.

James R. Jaye: Thank you Holly and thank you everybody for joining US today I think you heard today that while the macro is certainly very choppy, we're very confident in our strategy, we're very well positioned and we're acting to continue outperforming the <unk>.

Speaker Change #164: Markets. The global team is aligned and we're focused on our strategy of driving that profitable growth by providing solutions for our customers.

James R. Jaye: Today you heard we've increased our full-year guidance, and as Heidi mentioned and often said, if our sales do prove to be better than what we've outlined today, we would expect our bottom-line performance to be better as well. I'll close with I just want to remind everyone we have our financial community presentation scheduled for August 29 in Boston. Starting at 1.30, you'll hear from Heidi, Al, and other members of our management team, along with our typical Q&A session.

Today, you heard we've increased our full year guidance and as Jaime mentioned as we've often said if our sales do prove to be better than what we've outlined today, we would expect our bottom line performance to be better as well.

Unknown Executive: I'll close with, I just want to remind everyone we have our financial community presentation, which is scheduled for August 29 in Boston, starting at 1:30. You'll hear from Heidi and other members of our management team, along with our typical Q&A sessions. So you can register for that on our website, or feel free to email our best relations team. So also be webcast, and that date again is August 29.

James R. Jaye: So you can register for that on our IR website, or feel free to email our investor relations team. They'll also be webcast. And that date again is August 29. So with that, I will thank you again for your interest in Sherwin and have a great rest of your day. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Speaker Change #165: Lowe's with I, just want to remind everyone. We have our financial community presentation, which is scheduled for August 29th in Boston, starting at 130 <unk>.

Speaker Change #166: We'll hear from Heidi Al and other members of our management team along with our typical Q&A session. So you can register for that on our IR website or feel free to email our investor relations team.

Speaker Change #167: I will also be webcast in that date again is August 29th so with that I will thank you again for your interest in Sherwin and have a great rest of your day.

Unknown Executive: So with that, I will thank you again for your interest and sure when and have a great rest of your day.

Unknown Executive: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

This concludes today's conference and you may disconnect your lines at this time. Thank you.

Speaker Change #167: You for your participation.

Speaker Change #167: Okay.