Q3 2024 The Sherwin-Williams Co Earnings Call and Business Update
Good morning, Thank you for joining the Sherwin Williams Company review of the third quarter 2024 results and our outlook for the fourth quarter and full year of 2024.
Speaker Change: With us on today's call are Heidi Petz, President and CEO Mr.
Speaker Change: Mr Sen, Chief Financial Officer, Jane Cronin, Senior Vice President Enterprise Finance, and Jim Jaye, Senior Vice President Investor Relations and communications.
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 the U S. Federal Securities laws with respect to sales earnings and other matters.
Speaker Change: Any forward looking statements speak only as of the date on which such statement is made and the company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Speaker Change: 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 the session to questions.
Speaker Change: I will now turn the call over to Jim Jaye.
Jim Jaye: Thank you and good morning.
Jim Jaye: And a third quarter characterized by ongoing choppy demand.
Speaker Change: Irwin Williams grew consolidated sales expanded gross margin and grew diluted earnings per share and EBITDA.
Speaker Change: Sales in all three segments were within our guidance range.
Speaker Change: We also returned $631 million to our shareholders in the quarter through dividends and share repurchases.
Speaker Change: We remain highly confident in our strategy and importantly, our team's ability to execute consistently we continued to invest in the quarter to capitalize on what we see is unprecedented long term share gain opportunity.
Speaker Change: We expect these continued near term investments in stores.
And technical reps.
Speaker Change: Incremental services and digital capabilities to drive sustained and profitable above market growth.
Speaker Change: We also expect the pace of investment to moderate in the fourth quarter, resulting in second half SG&A growth in the more normalized low to mid single digit level. We have previously described.
Speaker Change: As far as our outlook, we are maintaining our full year EPS guidance.
Speaker Change: We recognize the current range is wider than typical entering the fourth quarter.
Speaker Change: This range accounts for several variables that are hard to forecast precisely over the next two months <unk>.
Speaker Change: Including timing of demand related to recovery from Hurricanes Helene and Milton.
Speaker Change: And the potential for extended holiday shutdowns, among our industrial customers.
Speaker Change: Our team continues to navigate these and other near term challenges, while executing on multiple initiatives to drive our long term success.
Speaker Change: Let me now turn it over to Heidi, who will comment on our third quarter results by segment.
Moving onto our outlook and your questions.
Unknown Executive: Thank you, Jim, and thank you all for joining us this morning. Before I begin my comments on the quarter and our outlook, please know that our thoughts and sympathies go out to all those that have been impacted by the recent hurricanes in the Southeast US. Our priority has been the safety of our employees, our customers, and their families. We've been working hard to provide our people with appropriate support, and I'm amazed at how our teams and the ground have come together to help each other. Approximately 200 of our stores were closed for some period in the third quarter, following Hurricane Halene, and nearly all were back online by the end of the quarter.
Speaker Change: Thank you Jen and thank you all for joining us this morning.
Heidi Petz: Before I begin my comments on the quarter and our outlook. Please know that our thoughts and sympathies go out to all those that have been impacted by the recent hurricanes in the southeast U S.
Heidi Petz: Our priority has been the safety of our employees our customers and their families.
Heidi Petz: We've been working hard to provide our people with appropriate support.
Heidi Petz: And I'm amazed at how our teams on the ground have come together to help each other.
Heidi Petz: Approximately 200 of our stores were closed for some period in the third quarter of following Hurricane Helene and nearly all were back online by the end of the quarter.
Unknown Executive: Similarly, approximately 225 stores were closed for some period following Hurricane Milton. The perseverance and resiliency of our people are inspiring. I could not be prouder of the personal and professional support they are providing our customers as recovery and rebuild efforts begin.
Heidi Petz: Similarly, approximately 225 stores were closed for some period following hurricane Milton at the start of the fourth quarter and most of those stores are also now back online.
Heidi Petz: The perseverance and resiliency of our people are inspiring.
Heidi Petz: Could not be prouder of the personal and professional support they are providing our customers as recovery and rebuild efforts again.
Unknown Executive: At our recent financial community presentation, I described our success by design approach. We deliberately make the right choices and the right investments at the right time to drive sustained above-market growth and returns over the long term. It's an approach that has worked for us for decades and is exactly what we are doing right now. The current opportunity to gain market share is nearly unprecedented, and we will continue to take full advantage of it. While competitors are distracted or inconsistent in their execution, we offer consistency, stability, and reliability. We are a predictable partner. We're doubling down on our strategy because we know it works.
Heidi Petz: At our recent financial community presentation I described our success by design approach we.
Heidi Petz: We deliberately make the right choices and the right investments at the right time to drive sustained above market growth and returns over the long term.
Heidi Petz: It's an approach that has worked for us for decades, and it's exactly what we are doing right now.
Heidi Petz: The current opportunity to gain market share is nearly unprecedented and we will continue to take full advantage of it.
Heidi Petz: While competitors are distracted or inconsistent in their execution.
Heidi Petz: We offer consistency stability and reliability.
Heidi Petz: Our our predictable partner.
Heidi Petz: We're doubling down on our strategy because we know it works our team is focused determined and aggressive.
Unknown Executive: Our team is focused, determined, and aggressive. We continue to provide our customers with solutions to make them more productive and profitable. We have great confidence in what we are doing, and we believe our results will continue to demonstrate out performance over time.
Heidi Petz: We continue to provide our customers with solutions to make them more productive and profitable way.
Heidi Petz: I have great confidence in what we're doing and we believe our results will continue to demonstrate outperformance over time.
Unknown Executive: As far as specifics on the third quarter, we'll begin with the paint stores group, where sales increased by low single digits. Volume and price were both up low single digits. From architectural pricing realization, within the range we anticipated, it was partially offset by unfavorable mix. Segment margin decreased to 24.5% due primarily to higher investments in long-term growth opportunities and mix in the quarter. Protecting the marine was up high single digits against a low double digit comparison and has a solid pipeline of projects extending in the next year. And residential repaint are prior investments continued to pay off as we deliver the fifth consecutive quarter of mid single digit growth in a flat to down market.
Heidi Petz: As far as specifics on the third quarter, we'll begin with the paint stores group, where sales increased by low single digits.
Heidi Petz: And price were both up low single digits.
Heidi Petz: Pro architectural pricing realization within the range, we anticipated, but was partially offset by unfavorable mix.
Heidi Petz: Segment margin decreased to 24, 5% due primarily to higher investments in long term growth opportunities and mix in the quarter.
Heidi Petz: Protective and marine was up high single digits against a low double digit comparison and has a solid pipeline of projects extending into next year.
Heidi Petz: And residential repaint, our prior investments continued to pay off as we delivered the fifth consecutive quarter of mid single digit growth in a flat to down market.
Unknown Executive: New residential also grew at a mid single-digit rate in a choppy but improving market. From our local group by low single digits against a high single digit comparison, property management was flat with continued delays and capex projects. EIY remains soft. from a product perspective, interior paint sales grew faster than exterior paint sales, where outdoor conditions caused delays in some of our largest regions. We have opened 45 net new stores year to date and expect to open 80 to 100 for the full year.
Heidi Petz: New residential also grew at a mid single digit rate and a choppy, but improving market.
Heidi Petz: Commercial grew by low single digits against a high single digit comparison.
Heidi Petz: Bertie management was flat with continued delays in capex projects DIY remains soft.
Heidi Petz: From a product perspective interior paint sales grew faster than exterior paint sales were outdoor conditions caused delays in some of our largest region.
Heidi Petz: We have opened 45 net new stores year to date and expect to open 80 to 100 for the full year.
Unknown Executive: Moving on to our consumer brand's group, failed decreased by high single digits, inclusive of an approximate 4% impact from un-favorable effects. Sales in North America decreased by a high single digit percentage, where weakness and existing home sales and inflation continued to pressure the DIY market, and Europe sales increased by a mid single digit percentage, and Latin America, volume and price were positive, but were more than offset by unfavorable effects. Adjusted segment margin expanded to 22.9%. This was primarily driven by higher fixed cost absorption in the manufacturing and distribution operations within the segment and effective cost control, partially offset by lower net sales.
Heidi Petz: Moving onto our consumer brands group.
Heidi Petz: <unk> decreased by high single digits inclusive of an approximate 4% impact from unfavorable FX.
Heidi Petz: Sales in North America decreased by a high single digit percentage, where weakness in existing home sales and inflation continue to pressure the DIY market.
In Europe sales increased by a mid single digit percentage.
Heidi Petz: Latin America volume and price were positive, but were more than offset by unfavorable FX.
Heidi Petz: Adjusted segment margin expanded to 22, 9%.
Heidi Petz: This was primarily driven by higher fixed cost absorption in the manufacturing and distribution operations within the segment and effective cost control, partially offset by lower net sales.
Unknown Executive: And the performance coding group, net sales were effectively flat, as volume was offset by unfavorable effects. Adjusted segment margin decreased to 18%, primarily due to lower sales in North America and unfavorable effects. This high-teens margin level demonstrates a continued strong performance that reflects our differentiated customer solutions and business optimization efforts. We continue to see choppy demand by division and region. Packaging delivered high single-digit growth, with sales up in every region. Coil also delivered solid growth driven by share gains. Industrial wood grew low single digits driven by an acquisition. New account wins and auto refinished have been masked by softness in our core business, where consumer reluctance to pay deductibles is resulting in lower insurance claims. General industrial continued to face headwinds and heavy equipment and transportation markets.
Heidi Petz: And the performance coatings group net sales were effectively flat as volume was offset by unfavorable FX.
Heidi Petz: Adjusted segment margin decreased to 18%, primarily due to lower sales in North America and unfavorable FX.
Heidi Petz: This high teens margin level demonstrates the continued strong performance that reflects our differentiated customer solutions and business optimization effort.
We continued to see choppy demand by division and region.
Heidi Petz: Packaging delivered high single digit growth with sales up in every region.
Heidi Petz: Coil also delivered solid growth driven by share gains.
Heidi Petz: Industrial Wood grew low single digits, driven by an acquisition.
Heidi Petz: New account wins in auto refinish have been masked by softness in our core business, where consumer reluctance to pay deductibles is resulting in lower insurance claims.
Heidi Petz: General industrial continued to face headwinds in heavy equipment and transportation markets.
Unknown Executive: Regionally, sales in the group will be positive in all regions except North America, which decreased by a low single-digit percentage.
Heidi Petz: Regionally sales in the group were positive in all regions, except North America, which decreased by a low single digit percentage.
Unknown Executive: Moving on to our guidance, the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the fourth quarter of 2024. The deck also includes our updated guidance for consolidated and segment sales for the full year 2024. Our full year deluded net income for share guidance is unchanged. Our adjusted deluded net income for share growth remains at 8.7% over the prior year at the midpoint of our guidance. We are absolutely focused on executing our plan in the fourth quarter and delivering full year EPS results in the range we provided in July.
Heidi Petz: Moving on to our guidance the slide deck issued with this morning's press release includes our expectations for our consolidated and segment sales for the fourth quarter of 2024.
Heidi Petz: The deck also includes our updated guidance for consolidated and segment sales for the full year 2024.
Heidi Petz: Our full year diluted net income per share guidance is unchanged.
Heidi Petz: Our adjusted diluted net income per share growth remains at eight 7% over the prior year at the midpoint of our guidance.
Heidi Petz: We are absolutely focused on executing our plan in the fourth quarter and delivering full year EPS results in the range we provided in July.
Unknown Executive: I also recognize that many of you are beginning to formulate your views for 2025. Or not providing any specific guidance until January.
Heidi Petz: I also recognize that many of you are beginning to formulate your views for 2025.
Heidi Petz: We're not providing any specific guidance until January I can share some high level commentary that may be useful as a preliminary framework.
Unknown Executive: I can share some high level commentary that may be useful as a preliminary framework.
Heidi Petz: The single largest variable heading into next year is the timing and pacing of a true inflection in the demand environment.
Heidi Petz: We stand by our FCP commentary, but it's only a question of when not if.
Heidi Petz: However, trying to peg this to a specific quarter, let alone a specific month or week.
Heidi Petz: Not something we can do with precision.
Heidi Petz: Our forecasting models incorporate a wide variety of indicators, including lira existing home sales housing starts housing affordability interest rates consumer spending and industrial production among many others.
Heidi Petz: Direct input from our customers is a critical data point that also informs our outlook.
Heidi Petz: Well several signals are beginning to move from red to yellow and some from yellow to green. Our initial view is that demand is likely to remain choppy in the first half of the year.
Heidi Petz: What is certain is our strategy.
Heidi Petz: We deliver differentiated solutions that make our customers more productive and more profitable.
Heidi Petz: The good news is it in a macro and a competitive environment like the current one.
Heidi Petz: Approach becomes even more valuable to our current customers, while also attracting many new ones.
We will continue being very aggressive in pursuit of new business and share of wallet gains.
Heidi Petz: Sherwin Williams is incredibly well positioned in each of our targeted end markets. We are confident we will outperform the market in all environments and significantly so when demand becomes more robust.
Heidi Petz: We are committed to driving success by design for our customers our employees and our shareholders.
Heidi Petz: This concludes our prepared remarks with that I'd like to thank you for joining us. This morning, and we will be happy to take your questions.
Speaker Change: Certainly everyone. At this time will be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time we.
Speaker Change: We do ask that we're posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: We do ask that participants please limit to one question.
Speaker Change: Your first question is coming from Vincent Andrews from Morgan Stanley. Your line is live.
Vincent Andrews: Thank you and good morning, everyone.
Vincent Andrews: I could just ask on the on the SG&A spend it seems like there was a tactical decision made in the third quarter just based on the cadence of the spend that you anticipate for the back half.
Vincent Andrews: It seems like if all of a sudden got pulled more in <unk> than in <unk> could you talk about what precipitated that and exactly what you did just to give us a sense of what's going on there.
Speaker Change: Yeah, Let me start good morning, Vincent I appreciate the question, but I'm going to hand, this to al here to talk a bit about cadence and timing.
Speaker Change: But a few things I think that are really important playing out and as you heard in my prepared remarks, I would tell you that we see this is the ideal time to invest in our long term strategy and in candidly an opportunity to widen the competitive mode. We're going to continue to capitalize on this making sure that we are best positioned in areas where.
Speaker Change: Our competitors aren't even seeing some of these opportunities. So we're not waiting for the market to recover fully or to tell us. It's time to invest we're going to continue to keep our head down and make sure we're getting rewarded for these efforts.
Speaker Change: I will tell you amount in front of customers, often and you know they're sharing with us that competitors are out promising some of these investments and making all types of you know commitments to try to mirror, what we're doing at Sherwin Williams, but because we are confident we've got the best assets at the absolute best people in the industry and best technology.
Speaker Change: We're going to continue to to lay in these investments now well ahead of the cycle well ahead of what's coming into next year and one more comment before I hand, this over to Hal I would very much to tell you that I would do this 10 out of 10 times I think theres no doubt about it we're confident in our strategy, but we're absolutely going to invest we're going to win and we're going to continue to deliver for our customer.
Speaker Change: Yeah. Vincent this is al <unk>.
Speaker Change: You know as we've typically done we're managing growth and operating margin and.
Speaker Change: We expect a higher gross margin in the second half of the year than we forecasted coming into the quarter. So as we normally do.
Speaker Change: I reaffirm this at our Investor day, we take some of that improvement invested in the long term growth opportunities, particularly in paint stores group that you mentioned.
Speaker Change: Right.
Speaker Change: Just to reaffirm what I said on our second quarter call. We are confident in our strategy. We have a consistent investment thesis and I'm confident we'll get a return for those investments that we're making and we can point to that like in res repaint.
Speaker Change: Mid single digits over the last five quarters, showing the returns that we're getting for the investments we made in the second half I think your comment is right. If you if I looked at our second half forecast. Its in line SG&A is in line with where we were I thought coming into the quarter, So theres a little bit of timing in that so.
Speaker Change: Right right in line with what we were expecting for the second half and then the only other piece on that is the continued investments in our digital initiatives and.
Speaker Change: Our system modernization that we've been undertaking.
Speaker Change: Thank you. Your next question is coming from Chris Parkinson from Wolfe Research. Your line is live.
Speaker Change: Good morning.
Chris Parkinson: Could you hit a little bit more on the pricing dynamics for 2024, and then 2025 on a preliminary basis in terms of you know, how we're thinking about realizations, whether or not just the current sluggish environment, even though youre doing a lot of share is holding back from a perhaps a better realization 'twenty, four and whether or not we could potentially see a bit of.
Constructive or positive pendulum in terms of those realizations as the market further improves in 2025. Thank you.
Speaker Change: Yes, Chris.
Speaker Change: It is.
Speaker Change: Jim talked about we announced the 5%.
Speaker Change: This increase in stores effective.
Speaker Change: January six.
Speaker Change: And the reason behind that is you know where you are feeling pressure in.
Speaker Change: Increased feedstocks, we haven't wage inflation, which is more of a typical.
Speaker Change: Increase that we're expecting in 'twenty five, but we're also expecting health care to be significantly higher year over year.
Speaker Change: And I think Youre right.
Speaker Change: The price increase is about where we expect it to be it's.
Speaker Change: It's offset by mix and we talk about.
Speaker Change: PNM being stronger DIY being weaker which weighs on on that overall average selling price. So I think when you look into 2025.
Speaker Change: I think we're going to get in.
Speaker Change: And to this historical range of 50% to 60% I would say that that's really driven by timing of a number of our national account contracts, we fully expect to get it increases but there is also a new competitive dynamics in the North America architectural market and we'll have to see how that plays out.
Speaker Change: We're committed in this.
Speaker Change: As we have discipline in getting price when we need it and our expectation as we need it.
Speaker Change: Thank you. Your next question is coming from John Roberts from Mizuho.
Speaker Change: Your line is live.
John Roberts: Thank you and consumer there was an interesting divergence between the sales.
John Roberts: Change in the earnings change there to the change in intersegment transfers was that significantly different than the change in the externally reported sales.
Speaker Change: No John.
Speaker Change: We did.
Speaker Change: Did the allocation that I talked about in the first quarter and second quarters. The same global supply chain with a little bit better volume did perform better than the entire increase in our segment profit was due.
Speaker Change: To that dynamic if you look at.
Speaker Change: On the commercial side, our North America.
Speaker Change: It's actually went backwards in PBT because of volume and <unk>.
That's been a consistent theme over the last.
Speaker Change: Three quarters and even into last going back to last year. So no no real change to the allocation is just they performed better the team I give the team a lot of credit theyre managing their cost tightly and operating more efficiently in a more stable demand dynamic with inventory and production and John I would add.
Speaker Change: That is well I give the team a lot of credit for our continued focus on refining that portfolio I'll take you back to.
Speaker Change: Some of the key decisions that were made over the last few.
Speaker Change: Quarters and years relative to the China divestiture kind of some non strategic aerosol business Theres, a handful of categories and businesses that the team you know absolutely was focused on where we can get strong organic core growth and we and we walked away from some of those so a new and improved baseline going forward. This business, we talked about at our analyst day.
Speaker Change: There's really been by design built for speed and profit. So a leaner meaner fighting machine. If you will so excited for the volume to come back. So we can realize that can take advantage of them.
Speaker Change: Thank you. Your next question is coming from John Mcnulty from BMO. Your line is live.
John Mcnulty: Yes. Good morning, Thanks for taking my question.
John Mcnulty: So when you think about the competitive.
John Mcnulty: Landscape and some of the changes that have taken place I think.
John Mcnulty: More on PPG are pretty well understood I think at this point in terms of where the opportunities are.
It does look like there are other changes throughout the industry I mean, you've got BSF kind of unloading some assets in <unk>.
Speaker Change: So potentially doing the same so I guess can you speak to the other competitive parts of your environment in terms of in terms of the stores business or excuse me in terms of the consumer business and the <unk> group and if you see opportunities there and then I guess also maybe tied to that.
John Mcnulty: On the consumer side can you speak to how you got.
John Mcnulty: That customer landscape is looking right now in terms of Destocking and where inventories may be at this point as well.
Speaker Change: Yes, good morning, John I'll start with your first question relative to some of the competitive moves and then I'll hand. This over to al to talk about your question on CTG I mean, I think you nailed it and I think first of all let me be really clear.
Speaker Change: There are always opportunities.
There's certainly been a lot of shift in fact, the way that we look at this and take you back to some of our focus on believing in our long term strategy. Our differentiation investing ahead of the curve. We do see this as a unique moment in our industry.
Speaker Change: Where we are being laser focused on simply doing what we say we will deal it's amazing amount with customers. The feedback I hear as you guys are consistent reliable dependable, it's amazing what a differentiator that is so we're holding very firm there and making sure that.
Speaker Change: In a down market in a in an environment, where there is a moment in our industry.
Speaker Change: Where we're going to invest it's a hallmark of Sherwin Williams, I think youre seeing that playing out in real time.
Speaker Change: But we're always going to continue to look and assess and if there are opportunities for us to strengthen or accelerate our strategy.
Speaker Change: We're always open to those reviews.
John Roberts: Yes, John I think in particular the consumer.
Speaker Change: I think inventory levels have been pretty stable.
Speaker Change: We certainly do not.
Speaker Change: Or don't believe the impact on our sales in the quarter for consumer.
Speaker Change: It was due to Destocking I think it's just been a soft continued soft DIY market and.
Speaker Change: I think you alluded to maybe some of the other opportunities.
Speaker Change: If there's opportunities for M&A, we certainly.
Speaker Change: Take a disciplined approach so that as we always have and we.
Speaker Change: <unk> looked at how.
Speaker Change: Different assets accelerated our strategy and.
Speaker Change: If they are in the right segments in the right regions. Then then yeah, we'll take a look at them.
Speaker Change: Thank you. Your next question is coming from David Begleiter from Deutsche Bank. Your line is live.
David Begleiter: Thank you good morning, Heidi now on the PPG business, it's roughly $2 billion in sales in North America.
So that business do you think is potentially up for grabs or you're targeting going forward.
Speaker Change: Well I'll start with our focus first and foremost on the quality of sales there and.
Speaker Change: And very consistent as we've talked about relative to all of our portfolio. We're not interested in commodities, we wanted to simply and focus on the premium segments that value. What it is that we do and what we deliver every day.
Speaker Change: I will tell you maybe a better way I don't know if its a better way or the way that we're framing that same question David would be.
Speaker Change: Kelly more I would characterize it as more of a short term.
Speaker Change: Share grab opportunity P. P. G I would characterize as more of a long term where.
Speaker Change: It was a lot of respect for that company and we've got to get out in front of these customers and earn every gallon every day and make sure that they understand when we bring them into Sherwin Williams that.
Speaker Change: We want to work hard to service them and build a lifelong customer so in terms of quantifying the exact number I can tell you it's more about making sure. It's the quality sales that we want to earn and keep overtime.
Speaker Change: Thank you. Your next question is coming from Mike Harrison from Seaport Research Partners. Your line is live.
Speaker Change: Hi, good morning.
Speaker Change: Hoping that you could speak to your view on remodel League.
Speaker Change: Demand and how that could trend I'm just curious.
Mike Harrison: With interest rates coming down and maybe more homeowners potentially tapping into that home equity or the big habits. We've seen home prices go up do you see that as something that's going to be an important driver next year. What are your I guess internal indicators, suggesting about.
Speaker Change: Bottling sides of the market. Thank you.
Speaker Change: Okay.
Jim Jaye: Yeah, Good morning, Mike It's Jim.
Jim Jaye: Yeah I think your question is very timely I mean, if you look just this morning in the Wall Street Journal. There was an article about America being prime for a home renovation resurgence. So I think that fits in with our longer term view where that market is going.
Jim Jaye: We've often talked about some of the indicators that we look at you know lira being one of them and that's going to start to tick up.
Jim Jaye: So sometime probably second third quarter next year I do think there is some pent up demand on the existing home sales.
Jim Jaye: Those numbers as you know have been down year over year for a long period of time.
Jim Jaye: But as the economy improves inflation wanes, a little bit people feeling good about the equity in their homes.
Jim Jaye: I think there is a great opportunity for us.
Speaker Change: Al mentioned he mentioned the investments that we've laid in ahead of that right and you're already seeing it in our res repaint numbers being up mid single digits.
In a period, where the market is flat at best So once we start to get some help there we feel very good about where we're headed in.
Speaker Change: No.
Speaker Change: <unk> repaint business to be very solid and that will also help our DIY piece as well Mike I think this is a it's a great question. It's a really good example of this idea of success by design again.
Speaker Change: Justin bands and his organization incredible credit here I mean, you've got a lot of.
Speaker Change: Changing in the landscape and the team has been head down at the right point focused on our differentiation and focus on our the value that we can create here. So we're not waiting for the market to Jim's point.
Speaker Change: No.
Speaker Change: We do see more moderate recovery will absolutely be best positioned to take advantage of that but the team is not waiting and making sure that we're out are solving some of these needs for these contractors and building loyalty with a lot of new contractors coming into this raise repaint space, where we're primed.
Speaker Change: For a nice run up here to follow as the market does come back.
Speaker Change: Thank you. Your next question is coming from Patrick Cunningham from Citi. Your line is live.
Patrick Cunningham: Hi, good morning.
Patrick Cunningham: And a couple of variables on the wider range for the guide implied for <unk> I guess first can you help size the hurricane impact of <unk> in sensitivity for <unk> and then on the holiday shutdowns in industrial or is this something customers are hinting at and is it.
Patrick Cunningham: Broader or is it more concentrated in equipment and transportation.
Speaker Change: Yes, Patrick.
Speaker Change: If you look at.
Speaker Change: I'll start with the third quarter impact because having too.
Speaker Change: It's bad enough, having one major hurricane having two major hurricanes and one in the third quarter one in the fourth quarter.
Speaker Change: It's really you know it adds too.
Speaker Change: The speed of the recovery.
Speaker Change: And that's what makes it a more uncertain outlook on our fourth quarter and why the higher range and it's not necessarily just our stores being able to be open.
Speaker Change: You know it's.
Speaker Change: But the time it takes for customers to get back to work.
Speaker Change: So assess the damage our homeowners are reviewing insurance claims.
Speaker Change: And in the type of damage.
Speaker Change: Dictate the speed of recovery, if it's flooding versus really structural and I'd say historically, we've we've taken about four weeks before you start seeing.
Speaker Change: Primers start to pick up sundries start to pick up and then paint that follows I think in this environment with the small quarter that that we have in our fourth quarter.
Speaker Change: And the dynamics that we're talking about with two major hurricanes, it's hard to hard to predict the timing of it actually coming back online.
Speaker Change: The impact for hauling in our third quarter.
Speaker Change: A little less than a point is primarily in stores.
Speaker Change: If you if you exclude the impact of that stores it would be pretty right in line with guidance and then.
Speaker Change: Probably cost us about a nickel in the quarter, we didn't call. It out I think we we expect to get those sales back in our fourth quarter.
Speaker Change: It's going to ramp up as the quarter progresses.
Speaker Change: And I'll touch briefly on like the customer shutdown piece of it the way that we're looking at this in it.
Speaker Change: There've been a few examples of more of a temporary shutdown over the holidays and not a lot of noise outside of that could that extend potentially but we're obviously staying really close with our customers.
Speaker Change: College, Oregon, Red and his organization are making sure to stay in lockstep relative to the true demand environments that we can be the best partners on the other side.
Thank you. Your next question is coming from Greg Melick from Evercore ISI. Your line is live.
Greg Melick: Hi, Thanks, I wanted to circle back on two things one is the price increase of 5% it sounds like you're getting what you expect which I imagine is probably what 3% in paint stores group and then should we think it's a little less.
Greg Melick: Not the Max is that a fair way to think about it.
Speaker Change: Yeah, Greg I think when you.
Speaker Change: We look at price, we're getting the effectiveness. It's just because you have a lot of different segments.
Speaker Change: And some are performing better than others that dilute that could dilute that price mix, because we look at it as price mix in one bucket.
Speaker Change: So it's not going to be quite 3% in the quarter.
Speaker Change: But as we talked about volume and price are both up low single digits in the third quarter and as.
As we roll out next year as an example is a new raise.
Speaker Change: Starts to improve like we saw in our third quarter.
Speaker Change: That mix change versus a rosary.
Speaker Change: Whereas repaint and DIY is going to dilute some of that price impact.
Speaker Change: Thank you. Your next question is coming from Alexia <unk> from Keybanc capital markets. Your line is live.
Speaker Change: Thank you.
Speaker Change: Morning would you comment on the backlog trends for rural contractors. Please.
Speaker Change: Yes, sure Alexia I think if you look at the backlogs.
Speaker Change: Beginning maybe with res repaint.
Speaker Change: A little bit choppy here because of what we've seen with the hurricanes coming in but overall I'd say fairly fairly normalized I mean, they're seeing fabs out there I think the bigger thing for US is the share gain opportunities that were aggressively pursuing.
Speaker Change: Look at some of the other verticals that we're in no new Rez, we're cautiously optimistic seeing some pick up there.
Speaker Change: Marshall would be the one where I would say.
Speaker Change: We've hung in there pretty well this year despite there being.
Speaker Change: Extended period of slower starts but are completions that backlog is being worked through and we're still up in our commercial business, but our expectation is that commercial.
Speaker Change: Backlog will start to.
Speaker Change: To diminish as we get into into next year.
Thanks, a lot.
Thank you. Your next question is coming from Michael Sison from Wells Fargo. Your line is live.
Michael Sison: Hey, good morning.
Speaker Change: So for the fourth quarter, Yeah can you hear me.
Speaker Change: Yes, yes, yes, sorry about that.
Michael Sison: Yeah, so for the fourth quarter.
Speaker Change: With the growth Youre going to see in stores, you've done a nice job there this year.
Speaker Change: Well segment profit.
Speaker Change: <unk> turned the corner and grow and then for 2025, I know you don't want to get into specifics, but.
Speaker Change: If you generate what type of I guess store growth do you need to sort of get back to.
Speaker Change: Positive segment profit growth in <unk>.
Speaker Change: Any thoughts on SG&A next year do you think you're done in terms of increases.
Speaker Change: Yes, Mike.
Speaker Change: Concerning the fourth quarter than we typically.
Speaker Change: Don't give detailed guidance, but I would say this we expect to all our operating segments to show margin improvement year over year.
Speaker Change: Obviously, we still expect to see a seasonal slowdown in architectural sales in the fourth quarter that we have historically seen so I don't expect to see.
Operating margin expansion and our two architectural businesses.
Speaker Change: I think as you get into 2025, I think the plan will be very similar.
Speaker Change: The other years I realize there's the share because our first half had an outsized growth because of the investments we made in the second half of last year I think will moderate.
Speaker Change: G&A.
Speaker Change: Without giving full guidance today will give.
Speaker Change: About our guidance in our first in January but the expectations are going to be the same if we believe volume in the second half of the year <unk> gross margin is going to be stronger in the second half of the year. We take advantage of those situations just like we did in the quarter and we will put more investments into.
To accelerate our growth win.
Speaker Change: Some of these headwinds that.
Speaker Change: Jim and how do you have talked about.
Speaker Change: Ease up and we will take more of a market share that then.
Speaker Change: A higher percent of market share as the market turns and I just want to add one piece to that al said this really well as we think about a more of a moderated.
Speaker Change: SG&A profile next year also and articulate and be very clear that no one's had is in the sand here, while we have you know.
Speaker Change: Had a heightened level by design, we absolutely want to get that return, we owe that to our shareholders and we expect outsized volume growth.
Speaker Change: We're going to be relentless until we deliver that.
Speaker Change: Thank you. Your next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.
Duffy Fischer: Yes, good morning, guys.
Just a question on raw materials I think al you mentioned that you see increased costs for feedstocks. So I was wondering if you've kind of break into different buckets. So one just being inorganic and pigments and the other kind of the oil derivatives oil is down 20% from the first half into the third quarter.
Speaker Change: Why aren't you seeing some relief actually on that front and what is it that's driving the increased feedstock costs that you're seeing going forward.
Speaker Change: Yeah, Duffy I'll take that one so let me just start maybe with what we saw in the third quarter, where our raws were flattish year over year.
Speaker Change: We're also looking for them to be flattish year over year in the fourth quarter and come in right around that down low singles that we talked about in our forecast.
Speaker Change: I think if you look at Tio, two kind of going forward.
Supply is readily available in the market and I'd say pricing right now is stable not seeing a whole lot of impact from tariffs right now, but you also have producers who are evaluating their production levels et cetera, ultimately whats going to drive <unk> as <unk>.
Speaker Change: <unk> and we'll see how that plays out on the on.
Speaker Change: On the oil derivatives, yes, we have seen oil kind of come down here recently, but if you look at propylene, which I know hi.
Speaker Change: Duffy that you you know thats the key feedstock for US if you look in the third quarter propylene was up.
Speaker Change: Year over year, almost 50% in the third quarter and that was really driven I think by.
Speaker Change: Planned and unplanned outages apocope resins were also up in the quarter and Theres. Some additional tariffs that might come in that might impact that so we're we're looking at it we haven't seen that propylene or a proxy necessarily impact our basket meaningfully yet, but we're watching it very closer.
Speaker Change: And we'll see where it goes as we get into the next year. You know, we have maybe a quarter or two of visibility. So we're watching those things that propylene move is meaningful.
Ultimately, it's going to be demand, though which is the big driver. We will give you our official view in January.
Speaker Change: We will continue to watch it and we look at the entire basket as you know not just our raw as we look at our other costs are.
Speaker Change: Healthcare continues to be a major headwind for us etcetera. So that's kind of our view right now with more to come in January.
Speaker Change: Thank you. Your next question is coming from Michael <unk> from Barclays. Your line is live.
Michael Sison: Hey, yeah.
Michael Sison: Good morning, guys.
Michael Sison: I just wanted to follow up or circle back on sort of the paint stores price increase.
Michael Sison: It seems like you said raws are again.
Michael Sison: Uncertain, but readily available demand is fairly choppy right now so I'm curious how you are positioning this price increase to your customers and Relatedly I know a lot of the paint stores tailored towards the larger contractor national accounts, but just given some of the ongoing DIY weakness retail promo.
Michael Sison: Activity are you seeing any customer swing activity over to the big box or not really an impact that you've seen thus far.
Speaker Change: Not an impact we've seen thus far.
Speaker Change: It's.
Speaker Change: We continue as we've talked about we continue to invest in products and services that help our customers be more effective grow their top line and grow their bottom line because of the efficiencies they gain by.
Speaker Change: Hi.
Speaker Change: Moving up in quality and when I talk price.
Speaker Change: Typically.
Speaker Change: Include mix in that and we're consistently working with our customers.
Speaker Change: To provide better service to provide.
Speaker Change: Supply chain resilience.
Speaker Change: So that we can be their supplier of choice second supplier of choice on down so.
Speaker Change: There are other input costs that we're taking into account as Jim just mentioned.
Speaker Change: Why do we need the price increase and the discipline, we have to go out with price when we need it.
Speaker Change: Thank you. Your next question is coming from Ghansham Panjabi from Baird. Your line is live.
Ghansham Panjabi: Thank you Heidi.
Ghansham Panjabi: Of your engagement with major customers specific to PSG, how would you characterize sentiment at their level.
Just more optimism for 2025 as it relates to aggregate activity I'm, just asking because theres been so much noise and volatility with interest rates, including the most recent increase in mortgage rates post the fed cut so just curious as to where sentiment stands for 2025.
Speaker Change: Yeah, Ghansham I wouldn't say it definitely.
Personnel by segment and Jim covered some of that just a few moments ago.
Speaker Change: If you look broadly across an aggregate there is everyone's reading the same macros everyone's helping that.
Speaker Change: These rate cuts youre going to have a faster more material impact.
Speaker Change: But I think as you know everyone's pragmatic here and trying to plan for what the reality is into next year.
Speaker Change: Rodley speaking it is more of a modest back half.
Speaker Change: Potential it would I would say is its the broad sentiment you do cut that by segment and then Jim alluded to this a bit earlier, where some of these other signals relative to their existing home sales and the like we're obviously getting a lot more bullish as we have been on res repaint.
Speaker Change: I would say the commercial is probably the commercial segment is probably the area.
Speaker Change: Where are we now that we've got the biggest challenge even through throughout the year as some of some of these projects based on all the reasons I said before Capex you know labor constraints.
Speaker Change: Kind of live on I think that that's a reality that we're all navigating and I would say is reflective in our customer sentiment.
Thank you. Your next question is coming from Kevin Mccarthy from vertical Research partners. Your line is live.
Kevin Mccarthy: Yes. Thank you and good morning, I was wondering if you could comment on the outlook for two businesses within the performance coatings group, namely refinish and packaging on the refinished side.
Kevin Mccarthy: It looks like you've gained some share, but if I understood your commentary correctly. It sounds like that's being masked by lower insurance claims and diminish reluctance to pay deductibles. So my question would be do you view that as more structural or transitory in.
Kevin Mccarthy: Would you expect it to reverse at some point in 2025 and the.
Kevin Mccarthy: Packaging side, but it looks like you had nice acceleration there.
Do you expect that to continue in coming quarters.
Yeah, Kevin I'll start with the refinish piece and I think one of the reasons one of the big reasons that I wanted to highlight this at our recent financial community presentation is exactly what you said I think some.
Kevin Mccarthy: Some of that is math I'd love, how we're positioned here in this business.
Kevin Mccarthy: If you look at Q3, our sales were impacted by negative low mid single digit FX and.
Kevin Mccarthy: Latin America, we have more exposure there just given our mix relative to some of our peers that you would expect that wait to play out but.
Kevin Mccarthy: But if we just take the big approach to your point is it structural or more kind of transitional we look at this business over time, youre going to see swings quarter to quarter.
Kevin Mccarthy: Our sales year to date, they are down low single digit against the high single digit comp.
Kevin Mccarthy: So if you exclude FX from that.
Kevin Mccarthy: Our sales are flat, which is in line with what our where our competitors are at and they're on their recent call. So I want to be really clear that we are not satisfied with this year to date number.
But it is an environment, where claims are down double digits in North America.
Kevin Mccarthy: Again, which is our largest region and.
Kevin Mccarthy: Having said that as you look at what is working and we do expect you know improving claims share gains to be a tailwind in next year. The team has done some fantastic work on our collision core program we're gaining.
Kevin Mccarthy: Both momentum and adoption here and I think it's really important that we continue to look at strengthening what we're doing here. We're out early November of this year with a high single digit price increase for our direct customers and we'll be out with others, that's necessary, but continue to get paid for what we're doing the confidence that the team is.
Kevin Mccarthy: Laser focused on new accounts and share share gains, which I think is absolutely sustainable and systemic <unk>.
Kevin Mccarthy: To your second question on packaging you mentioned the word acceleration I think that is a perfect word I again. This is a business I love, how we're positioned in our sales and our third quarter were up high single digits, all of which was volume.
Kevin Mccarthy: So were positive in all regions and our volume was actually up low double digits, which was a bit offset by some of our index pricing agreements.
Kevin Mccarthy: Great momentum.
The team has done a fantastic job so while we're flat year to date.
Kevin Mccarthy: Look at the balance of the year I would expect to see very strong performance in the fourth quarter leading into next year.
Kevin Mccarthy: Recaptured some of the temporary share loss that we saw from our Garland, Texas plant event.
Kevin Mccarthy: It works not done the team is heads are down there you know our earning this business every single day that strong.
Kevin Mccarthy: When I say strong very strong line of sight to additional recovery over the next <unk>.
And many of these customers and get them out spending time with or they are eager to return back to Sherwin Williams and.
Kevin Mccarthy: You know I would characterize that as just a better appreciation not only of our technology, but the service that we're providing to these these customers. Its world class. We continue to invest we believe in our model here.
Kevin Mccarthy: Some recent new wins across other regions, including North America, Latin America, and APAC and was just over in our tour, new France plant a few weeks ago for a ribbon cutting ceremony and just couldn't be more pleased with the expansion here.
Kevin Mccarthy: This is going to be the backbone.
Kevin Mccarthy: Serving our customers as ASUR.
Speaker Change: Is there a ban on DPA rolls over into Q2 of 26 and is.
Speaker Change: There's already some customers that are that are looking at pacing to that beginning in 2025. So I think we're very well positioned where.
Speaker Change: We're at the category and the market's going here and last but not least really excited that we've just added to our capacity. We just closed on our henkel metal packaging business October 1st.
Speaker Change: So of course, we're very excited to walk them in about 130 employees at our production sites across both Germany, and Mexico, and the Sherwin family, but big expectations of where this business goes.
Speaker Change: Thank you. Your next question is coming from Arun Viswanathan from RBC capital markets. Your line is live.
Speaker Change: Great. Thanks, Thanks for taking my question so it sounds like.
Speaker Change: Q4.
Speaker Change: The hurricane impact is not going to be that large.
Speaker Change: Since it was about a nickel for for Q3, so I'm glad to hear that.
Speaker Change: I guess my main question is just around 25, when I think about the opportunity for paint stores group. It does sound pretty encouraging when you think about.
Speaker Change: The share gains that you already achieved from Kelly more maybe I think you've sized that in the past is when they exited about $300 million in sales to assume assuming.
Speaker Change: A good portion of that potentially that you were able to achieve.
Speaker Change: Maybe you can get a similar amount from PPG and then if you factor in.
Speaker Change: Yeah, maybe a 3% price increase as well it looks like the stores group has a line of sight to high.
Speaker Change: High single digit growth next year is that.
Speaker Change: How youre thinking about it maybe there could be some further gains from lower interest rates may be benefitting the second half of next year as well.
Is that does that kind of how we should think about framing up PSG in 'twenty five.
Yeah, Brian.
Speaker Change: Temper that we've been talking about it.
Speaker Change: Taking a longer period of time for things.
Speaker Change: Filter.
Speaker Change: Like interest rate reductions and things of that nature, I mean, we're not I'm not guiding for 2025, and I know you're not asking that.
Speaker Change: But I.
Speaker Change: Tempur.
Speaker Change: With all the things we've gone through over the last year and a half in that and how long it's taken to get certain things moving.
Speaker Change: Just temper that expectation and again, we talked about we expect choppiness in our first half and then we will see you know in this.
Speaker Change: This environment a line of sight of three quarters out is pretty far so.
Speaker Change: Let us get to January let's we're going through our operating plans here coming up with the teams in and we will get a better line of sight to that and then we'll certainly share that with you.
Speaker Change: Thank you. Your next question is coming from Jeff Zekauskas from Jpmorgan. Your line is live.
Jeff Zekauskas: Thanks, very much a two part question.
Speaker Change: Hi.
Speaker Change: For a discussion of elevated SG&A costs in the quarter, leading to long term.
Speaker Change: Marketshare gains perhaps.
Speaker Change: Hi.
Speaker Change: What you said is that in the fourth quarter, the spending will come down maybe to zero percent year over year in your direction is to lower your SG&A spending.
Speaker Change: What exactly happened in the third quarter, we're spending was elevated by $50 million and then it's going to go down.
Speaker Change: Fourth quarter.
Speaker Change: And then secondly in consumer brands like <unk>.
Speaker Change: <unk> of magnitude your margins are up maybe 900 basis points in the quarter and your margins in the stores business or sort of flattish can you talk about what's keeping the margins constrained or and what is it this year that really.
Speaker Change: Opened up this year.
Speaker Change: Sort of eight or 900 basis point improvement in consumer brands with sales being lower.
Speaker Change: Yeah, Jeff.
Speaker Change: When you look at.
Our second half.
Speaker Change: There's investments going in asthma, as well as where we're controlling G&A tightly and sometimes the timing doesn't align exactly in a quarter. So.
Speaker Change: That's why I point to the second half I would say our expectations of SG&A or in line.
Speaker Change: For the second half.
Speaker Change: It does it is it was coming into the third quarter.
Speaker Change: And you know I would just say, we take a disciplined approach to our SG&A.
Speaker Change: We want to invest in the in the selling side and and driving.
Productivity for our customers by the convenience of our stores expertise on our reps low turnover in our stores. So they have a.
Speaker Change: The same face at the counter.
Speaker Change: Delivery innovation all goes into the investments, we're making on the other side of that on digital modernization.
Speaker Change: We want to allow our employees to be more effective in more consistent data better systems that allow them to me.
Speaker Change: More effective when they get to the field.
So.
Speaker Change: So.
Speaker Change: But there's other G&A that we're trying to control very tightly and manage that down. So we can help pay for those while we're waiting for market dynamics to help with the overall demand environment that being said.
Speaker Change: I go back to raise repayment and a 5% or mid single digit growth that we're getting so the confidence is there and getting the returns.
Speaker Change: On consumer.
Speaker Change: Again, it goes back to <unk>.
Speaker Change: Higher fixed cost absorption that's being you know, we're passing that through because global supply chain sits in consumer brands and has been a headwind.
Speaker Change: For a number of years and we thought we can get our efficiencies back up to offset it.
Speaker Change: We chose to readjust our standards.
Speaker Change: When I look at the GSE allocation.
Speaker Change: It's really no impact on our overall margin, but what you're also seeing.
Speaker Change: Is.
Speaker Change: Global supply chain has improved year over year so.
Speaker Change: Super brands is getting a big increase from the allocation to stores and to <unk>, but on top of that they are also getting a tailwind from better operations within our global supply chain.
Speaker Change: And Jeff if I go back to your first question on the elevated SG&A and leading towards long term share gains which is absolutely the intent.
And just wanted to revisit I think he used the language around keeping margins constrained in stores I would take a different approach there going back to <unk> earlier comment when we when you see these expanded margins.
Speaker Change: We absolutely want to take advantage of that as an opportunity. So it did give us an opportunity in Q3 Q4 to accelerate some of these investments.
Speaker Change: And then I'll and I'll take you back to the six priorities that I laid out at our financial community presentation, all designed to deliver this above market growth.
Speaker Change: Some of the digital priorities that will absolutely pay off those those six priorities simplification that al mentioned.
Speaker Change: Hoping to make sure that our teams have what they need to go faster and add more value to our customers. So it absolutely was by design and I think an important opportunity and it was opportunistic on our part.
Speaker Change: Thank you. Your next question is coming from Chuck Cerankosky from Northcoast Research. Your line is live.
Chuck Cerankosky: Good morning, everyone.
Chuck Cerankosky: And looking at the market share opportunities out there.
Chuck Cerankosky: Maybe talk about what's going on in true value and do it best as well as.
Chuck Cerankosky: How do you mentioned better quality sales.
Chuck Cerankosky: Can you talk about that given what market share opportunities are available.
Chuck Cerankosky: And whether it's.
DIY sales or contract or sales rose versus commercial.
Speaker Change: Thank you.
Speaker Change: Yeah, you bet.
Speaker Change: Start with the true value do it best I, certainly won't comment on our customers' strategies, but I think again as I go back to the point earlier. There. This is this is a bit of a moment in our industry I think that theres been a lot of pressure across.
Speaker Change:
Speaker Change: The category broadly for the last few years. So we'll continue to work in lockstep with our customers as they make shifts in decisions.
Speaker Change: Relative to the brands and the banners and move on to your quality sales question.
Speaker Change: Within that there's kind of a two pronged to that one and I'll go back to my earlier comment where we want to you know.
Speaker Change: It's in our core DNA, we're not interested in being all things to all people. There. So we're not going to play in the commodity spaces.
Speaker Change: We're not getting paid were not returning delivering returned to our shareholders. What is of interest in those quality sales certainly.
Speaker Change: By this the premium sub segments that we serve and making sure that we are focused back to Al's point, how do we help make them more successful so premium products opportunities to upgrade them, so they're getting an awesome job sites faster.
Speaker Change: They're saving time and money on labor with some of these premium products that.
Speaker Change: Or easier to apply less touch up.
Speaker Change: So when we look at the quality sale, that's who we're targeting and how we're trying to service those with.
Speaker Change: With the right mix of products.
Speaker Change: Thank you. Your next question is coming from Josh Spector from UBS. Your line is live.
Josh Spector: Yeah, Hi, good morning, two quick ones. If I may just capex can you just explain what's going on with the year to date kind of already being at your target versus your full year guide and just within performance, where you talked about customer slowdowns or at least that's a watch point for you can you just be specific on which submarkets, you're seeing that as a bigger risk.
Speaker Change: Hum.
Speaker Change: The Capex Josh.
Speaker Change: Year to date Capex was seven.
Speaker Change: Including about $415 million.
Speaker Change: Capex and.
Speaker Change: What happens is we get reimbursed because of our financing arrangement for our new headquarters. So we've.
Speaker Change: Really.
Speaker Change: Net is about $200 million, so core capex was $355 million.
Speaker Change: So we got it to the $700 million less 180.
Speaker Change: It gets you into that 520 around 2%.
Speaker Change: Of sales, which is kind of where we want to be.
Speaker Change: It's just the noise in the big deal that are building new buildings.
Speaker Change: And then Josh on your question relative to P. C D and some of those temporary shutdowns.
Speaker Change: Sat downs.
Speaker Change: It's a.
Speaker Change: Broad base for sure in the general industrial point more to heavy equipment with some of the AG slowing down again, we see this is very much <unk>.
Speaker Change: Torrey point in time end of season, and there is no signal to get that that would be widespread or any signals that that that would be extended at this point.
Thank you. Your next question is coming from Steve Byrne from Bank of America. Your line is live.
Speaker Change: Okay.
Speaker Change: Yes. Thank you.
Steve Byrne: Can you comment on what drove the 2% decline in Cogs.
Steve Byrne: Jim You mentioned raws were flattish was that a general comment.
Steve Byrne: What were volumes in the top line does that contribute to the lower Cogs and maybe just secondly.
Steve Byrne: And your.
Steve Byrne: Your outlook for your stores business are you seeing any.
Steve Byrne: Any aggressive pricing from from any of your competitors.
Steve Byrne: Youre gaining share.
Steve Byrne: <unk> indicated they actually picked up share in the third quarter. So.
Steve Byrne: Where are you gaining share and do you see risk that they could get aggressive on price.
Speaker Change #100: Yes, so Steve on the on our cost of goods sold decrease the decrease was primarily due to supply chain efficiencies on our consumer brands group with global production volumes up a low single digit with the team's doing a nice job of controlling costs. The other impact was FX lowered cost of goods.
Steve Byrne: During the quarter those are the two main.
Speaker Change #100: Main drivers are.
Speaker Change #100: On the volume side stores was up.
Speaker Change #100: Low single digit.
Speaker Change #100: Performance coatings was flattish and then.
Speaker Change #100: More.
Speaker Change #100: TCG was more than offset with lower volume in our consumer.
Speaker Change #101: And Steve on the on the store side relative to any competitive or aggressive pricing I would I would say that we typically look at our industry is and by and large the very disciplined industry, which was why we have a lot of confidence when we do come out we generally take a leadership position as it relates to price it went to.
Speaker Change #100: B out first.
Speaker Change #100: First we want to be transparent with our customers we want to deliver this in a way to our customer that helps to set them up for success and a key partner in the bidding season, helping to.
Speaker Change #100: Where needed if needed.
Coach them through how best to pass that along so that they understand.
Speaker Change #102: How did that kind of pass that through typically the cost of the actual.
Speaker Change #102: Cost the product itself is somewhere between 10 and 12.
Speaker Change #102: 15% and then the balance would be the cost of labor and so if we were able to do what we continually focus on which is at.
Speaker Change #102: These crews on and off the job sites. It ultimately is a positive to make sure that we're continue to focus on upselling customers, especially in some of these environments.
Speaker Change #102: Okay.
Speaker Change #102: Not seen we've not seen a lot of activity I would tell you because this is a unprecedented.
Speaker Change #102: Moment in our industry, we're certainly paying very close attention we are staying extremely close to our customers.
Speaker Change #102: To be competitive in a mix of environments, but we're confident that we're going to hold on to this recent this price that we just announced and we'll be back in our 50 to 60 kind of historic run rate and we don't plan to come off of that.
Speaker Change #103: Thank you. Your next question is coming from Adam Baumgarten from Zelman Your line is live.
Adam Baumgarten: Hey, good morning, everyone. Just on your kind of initial thoughts on the first half of next year remaining choppy for from a high level is the way to kind of interpret that that it's a continuation of the trends you're seeing here in the back half of 'twenty four at this point.
Speaker Change #105: Yes, that's exactly what we're saying.
Speaker Change #106: And if I could and Adam I'll, just nailed it but I had to jump in here because I go back to this idea of it's not if it's when and so this kind of slower longer is playing out in real time, and we are absolutely prepared to manage that situation.
Speaker Change #105: Yeah.
Speaker Change #107: Thank you. Your next question is coming from Garik <unk> from loop capital markets. Your line is live.
Oh, hi, Thanks, just on the SG&A and the potential increase in the back half of next year sales ramp.
Just maybe bigger picture, just how you're thinking about SG&A leverage.
Speaker Change #107: Yeah.
Speaker Change #107: Investment to fill if you would be managing to over time or is it maybe that.
Derek isolation right now.
Speaker Change #108: I think Derek it's situational with as we've talked about you know our focus is on driving operating margin.
In some years, that's gross margin expansion than in other years like 'twenty, one and 'twenty two it's on SG&A leverage.
Speaker Change #108: Just how do you mentioned I mean, we're really being opportunistic to set ourselves up for when demand returns because our gross margin has been stronger because our global supply chain.
Speaker Change #108: With a more normal production and inventory cycle. This year building inventory leading into the summer selling season, we saw inventory drop.
Speaker Change #108: Through the third quarter, and we expect to build inventory architectural inventory on our fourth quarter that bell curve.
Speaker Change #108: And being more standard helps us with how we.
Speaker Change #108: Schedule, our factories, how we're able to produce the right products at the right time, and we get efficiencies out of that and we're realizing those and taken and taken some of the benefit them and putting it into these long term investments.
Speaker Change #109: Thank you. Your next question is coming from Eric <unk> from Cleveland Research Company. Your line is live.
Speaker Change #110: Thanks, if I could if I could follow up al your comments.
Speaker Change #111: Thank you just talked about the focus on driving operating margin earlier, how you talked about.
Speaker Change #111: Achieving above market growth.
Guess, what I'm trying to figure out is where does the curve on investment moderate the market share growth sustains and operating margin expands or is that not the target that you're aiming for.
Speaker Change #111: No.
Speaker Change #111: Sure.
Speaker Change #112: We absolutely are aiming.
Speaker Change #112: Uh huh.
Speaker Change #113: We'll moderate on the G&A side, I think to help pay for the selling investments because we're confident in our strategy because we've been consistent in our investments and because we know we can get a return on those investments I think.
As S.
SG&A or I'm, sorry, as the macro demand environment improves you will see us get leverage on SG&A.
Speaker Change #113: Going out in the future, it's just not going back to it's not if it's when because as your volume start growing.
Speaker Change #113: And mix improves.
Speaker Change #113: You can invest.
Speaker Change #113: Heavy enough to not get leverage on SG&A. So we absolutely are focused on managing gross margin expansion.
Speaker Change #113: And SG&A leverage at the appropriate time to get our operating margin to grow at a faster pace.
Thank you that concludes our Q&A session I will now hand, the conference back to Jim Jaye for closing remarks. Please go ahead.
Jim Jaye: Thank you Matthew and thanks, everybody for joining us this morning.
We've often said we don't run the business for the perfect quarter, but what we do to it.
Speaker Change #114: <unk> run the business to drive that long term above market growth in the returns and that's exactly what we're doing right now we believe in our strategy we're investing in it.
Speaker Change #114: You mentioned a couple of times, we're in a very unique place in our industry right now.
Speaker Change #114: The current opportunity to gain market share is nearly unprecedented and we're going to take full advantage of that.
Speaker Change #114: We're very confident in our approach and our people the trends favor us long term and our team is very motivated to get after it. So thank you again as always myself, Eric Swanson will be available for your calls over the remaining weak in coming days. Thank you so much.
Speaker Change #115: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
Speaker Change #116: Thank you for your participation.