Q4 2024 The Sherwin-Williams Co Earnings Call
Good morning, Thank you for joining the Sherwin Williams company's review of fourth quarter and full year 2024 results and our outlook for the first quarter and full year of 2025.
Speaker Change: With us on today's call are Heidi Petz, President and CEO al Mr. Shinn, Chief Financial Officer, Paul Lang, Chief Accounting Officer, and Jim Jaye, Senior Vice President Investor Relations and communications.
Speaker Change: This 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 speaks only as of the date of 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: 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 I will now turn the call over to Jim Jaye.
Jim Jaye: Thank you and good morning to everyone.
Jim Jaye: Sherman Williams delivered strong fourth quarter results that concluded a record year for the company.
Jim Jaye: In what remains a very choppy demand environment full year consolidated sales increased slightly driven by our deliberate and targeted investments to gain share and overcome softness in core accounts.
Jim Jaye: Our gross profit dollars and margin expanded EBITDA dollars and margin expanded and adjusted earnings per share grew by a near double digit percentage of $11 33 a share.
Jim Jaye: Consolidated sales in the fourth quarter increased by a low single digit percentage and gross margin improved slightly over a very strong level a year ago.
Jim Jaye: As we expected and previously described.
Jim Jaye: Year over year growth in SG&A moderated to a low single digit level.
Jim Jaye: Adjusted earnings per share in the quarter increased by 15, 5%.
Jim Jaye: In terms of our segments in the fourth quarter.
Jim Jaye: Paint stores group sales increased in the range, we expected led by high single digit growth in residential repaint and protective and marine.
Jim Jaye: Consumer brands group sales decrease in the range, we expected all related to unfavorable FX as volume and price mix were slightly positive.
Jim Jaye: Within performance coatings group sales were slightly below expectations as.
Jim Jaye: As strength in packaging and coil was offset by softness in other divisions.
Jim Jaye: Adjusted margin expanded year over year in all three operating segments.
Jim Jaye: The slide deck accompanying our press release. This morning provides more detail on fourth quarter segment performance.
Jim Jaye: Let me now turn it over to Heidi, who will provide a few full year 2024 highlights before we move on to our 2025 outlook and your questions.
Jim Jaye: Thank you again and happy new year to all of those that are listening I hope you had a wonderful holiday season and are geared up for the year ahead.
Speaker Change: I know you're eager to get to our 2025 outlook, but first I wanted to take a moment to reflect on what our 64000 dedicated global employees have achieved over the last year.
Jim Jaye: I am proud of what our team has delivered in 2024.
Jim Jaye: We entered the year amidst an extremely choppy demand environment that quite frankly never improved meaningfully.
Jim Jaye: We knew this was a possible scenario and we doubled down on controlling what we can control at.
Jim Jaye: We stay true to our strategy, we made targeted investments.
Jim Jaye: Focus on share gain and executed on our enterprise priorities.
Jim Jaye: We continue to deliver innovative solutions for our customers.
Jim Jaye: And in a disruptive competitive environment Sherman lane stood out by being a consistent reliable and dependable partner.
Jim Jaye: In addition to the strong margin expansion and earnings growth that Jim described a moment ago.
Jim Jaye: It was another very good year of cash generation, which was $3 $2 billion or 13, 7% of sales.
Jim Jaye: We continued to execute our disciplined approach to capital allocation during the year, including $2 $5 billion, which we returned to shareholders.
Jim Jaye: Share repurchases and dividends.
Jim Jaye: In terms of Capex, we invested $1 1 billion, including approximately $532 million for our new headquarters and R&D Center, which we expect to begin occupying this year.
Jim Jaye: We ended 2024 with a net debt to adjusted EBITDA ratio at two two times.
Jim Jaye: Looking at our reportable segments on a full year basis.
Jim Jaye: In stores grew by a low single digit percentage residential repaint drove this segment growth and increase by a mid single digit percentage.
Jim Jaye: This was a strong performance given anemic existing home sales.
Jim Jaye: And is the clearest example of a return on our prior investments.
Jim Jaye: New residential and commercial both increased by low single digit percentages in a challenging rate environment.
Jim Jaye: Flattish year over year segment margin reflects our continued growth investment.
Jim Jaye: Which we are confident we will continue to drive above market sales over the long term.
Jim Jaye: Consumer brands had a challenging year on the top line with lower sales, resulting from soft DIY demand and unfavorable FX.
Jim Jaye: Adjusted segment margin expanded back to our target level due to higher fixed cost absorption in the manufacturing and distribution operations within the segment.
Jim Jaye: At the same time, we maintained our investments to support our customers despite weaker than expected volume in North America.
Jim Jaye: Performance coatings sales varied by division angiography acquisitions.
Jim Jaye: Acquisitions added a low single digit percentage in the year, but was offset by unfavorable price mix and FX.
Jim Jaye: Coil was the strongest performer driven by new account wins.
Jim Jaye: We're also pleased with packaging, which returned to growth as we won new accounts and recapture the majority of previously lost share just as we indicated we would.
Jim Jaye: Industrial was up mid single digits, driven by an acquisition accelerated share gains in auto refinish were not enough to overcome softness in core accounts driven by lower insurance claims.
Jim Jaye: General Industrial our largest division remained under the most pressure during the year with softness and heavy equipment demand.
Jim Jaye: Adjusted segment margin expanded to 18% the highest level since the Valspar acquisition in 2017.
Jim Jaye: Throughout 2024, we continued to operate from a position of strength.
Jim Jaye: In fact, our confidence in our strategy along with our team's ability to execute it led us to increased several of our midterm financial targets at our Investor Day. This past August.
Jim Jaye: I am confident we will achieve those targets over time, given a more consistent demand environment.
Jim Jaye: As we begin 2025 I'm also highly confident that nobody is better positioned than Sherwin Williams.
Jim Jaye: During our October earnings call, we were among the first to describe the demand environment as software for longer.
Jim Jaye: With an expectation that the first half of 2025 would likely remain choppy.
Jim Jaye: Three months later, we have seen little evidence to change that view and given the indicators that we do see several end markets may not improve until 2020.
Jim Jaye: On the architectural side of the business residential repaint demand has become slightly more encouraging as existing home sales have begun to show modest signs of recovery and Harvard Lira Index shows a return to very slight growth.
Jim Jaye: Residential repaint remains our single largest share gain opportunity and we significantly outperformed the market in 2024, given our targeted investments in sales Rep training and digital tools just to name a few.
Jim Jaye: We would expect similar outperformance in 2025.
Jim Jaye: Looking at new residential year over year growth in single family starts has been choppy over the last several months rate cuts have had little impact and mortgage rates remain well above 6%.
Jim Jaye: We would expect to continue strengthening our homebuilder customer relationship to outperform the market.
Jim Jaye: In commercial we have been clear that we expect completions to be soft in 2025 as year over year multifamily starts have been mostly down by double digit percentages since the middle of 2023.
Jim Jaye: Even if commercial start do pick up in 2025, which seems unlikely given our consistently solid architectural billing index.
Jim Jaye: It won't turn into painting and completions until well into 2026.
Jim Jaye: Property maintenance spending still appears to be idling in neutral.
Jim Jaye: On the DIY side, we do not currently see a macro economic catalysts driving meaningful improvement in consumer demand.
Jim Jaye: On the industrial side, the PMI numbers for manufacturing in the U S. In Europe have been negative for multiple months with Brazil, and China being slightly positive.
Jim Jaye: We expect coil to grow again, driven by significant new account wins over the past year and a continued focus on new accounts this year.
Jim Jaye: We're also confident in packaging growth as we gain share and support customers conversion to our industry, leading non BPA coatings by 2026 to comply with European Commission mandated.
Jim Jaye: And protective and marine.
Jim Jaye: <unk> pipeline remains solid, though the timing of starts remains variable.
Jim Jaye: We expect auto refinish demand to remain choppy driven by continued softness of insurance claims so our share gains should become more evident.
Jim Jaye: Industrial wood will likely track with new residential given the furniture flooring and cabinetry end markets. It serves.
Jim Jaye: We expect general industrial demand remained soft throughout the year.
Jim Jaye: In summary, the market is not going to give us a lot of help this year.
Jim Jaye: We will continue to remain very aggressive with a focus on helping our existing customers grow as well as focusing on targeted share gains.
Jim Jaye: Against this backdrop, we are providing guidance that we believe is very realistic to the market would be better than we are currently assuming we would expect to outperform the guidance, we are providing to start the year.
Jim Jaye: Moving on to our specific outlook the slide deck issued with this mornings press release includes our expectations for consolidated and segment sales for the first quarter of 2025.
Jim Jaye: The deck also includes our expectations for the full year were consolidated sales are expected to be up low single digit percentage and diluted net income per share is expected to be in the range of $10 70.
Jim Jaye: To $11 10 per share.
Jim Jaye: Excluding acquisition related amortization expense of approximately <unk> 80 per share and restructuring expense of approximately <unk> 15 per share adjusted diluted net income per share is expected in the range of $11 65 to.
Jim Jaye: The $12 five.
Jim Jaye: This is a mid single digit percent increase at the midpoint compared to 2024 and adjusted diluted net income per share of $11 33.
Jim Jaye: We have provided a GAAP reconciliation in the Reg G table within our press release.
Jim Jaye: Our slide deck contains several additional data points that provide important context, but I'd like to touch on here.
Jim Jaye: Any comparisons described our year over year.
From a sales perspective, I'll remind you that the paint stores group implemented a 5% price increase effective January six.
Jim Jaye: We would expect this to ramp up the typical 50% to 60% effectiveness over the next quarter.
Jim Jaye: We also are implementing very targeted price increases in specific areas within our other two reportable segments.
Jim Jaye: We expect the market basket of raw materials to be up a low single digit percentage in 2025.
Jim Jaye: We expect to overcome these raw material headwinds and deliver full year gross margin expansion.
Jim Jaye: Driven by incremental 2025 pricing.
Jim Jaye: <unk> efforts across our supply chain as well as our paint stores group, which is our largest and highest gross margin segment growing sales faster than the other two segments.
Jim Jaye: We expect SG&A dollars to grow by a low single digit percentage in 2025.
Jim Jaye: This is a more typical level for us and less than last year's 5% increase.
Jim Jaye: This year's increase includes $80 million of operating expenses for our new building.
Jim Jaye: Each will be weighted to our second half.
Jim Jaye: We will also continue to have some operating expense for our current building until we have fully completed our move.
Jim Jaye: As always we plan to control costs tightly and non customer facing functions.
Jim Jaye: And we have a variety of levers that we can pull depending on a material change to our outlook up or down.
Jim Jaye: As we've previously described interest expense will be up this year. This increase includes $40 million related to refinancing of debt at higher rates, including $850 million in 2024, and approximately $1 billion is expected to be refinanced in 2025.
Jim Jaye: It also includes $20 million of interest related to financing activities of our new buildings.
Jim Jaye: We expect to end the year within our current long term target debt to EBITDA leverage ratio of two to two five times.
Jim Jaye: Other general expense items are expected to return to more historic levels in 2025, and increase approximately $75 million due to a gain on sale or disposition of assets of approximately $50 million in 2024 that we do not expect to repeat in 2025.
Jim Jaye: And an increase in our environmental provision of $25 million.
Jim Jaye: We expect to open 80 to 100, new stores in the U S and Canada in 2025.
Jim Jaye: We will also be focused on sales rep, paucity and productivity improvements.
Jim Jaye: <unk> and product innovation.
Jim Jaye: Next month at our board of Directors meeting, we will recommend an annual dividend increase of 10, 5% to $3 16 per share up from $2 86 last year.
Jim Jaye: If approved this will mark the 47th consecutive year that we've increased our dividend.
Jim Jaye: We expect to continue making opportunistic share repurchases will also continue to evaluate acquisitions that fit into our strategy.
Jim Jaye: In addition, our slide deck provide guidance on our expectations for currency exchange effective tax rate capex depreciation and amortization.
Jim Jaye: Finally, I'll remind you that our first quarter is a seasonally smaller ones for that reason, we will not be making any update to full year guidance up or down until our second quarter is completed and we have a better view of how the paint and coating season is unfolding.
Our team is operating with great confidence and accountability as we begin 2025.
Jim Jaye: As we've consistently said it is only a matter of when the demand environment returns to greater strength not if.
Jim Jaye: And when that shift occurs we expect to significantly outperform the market.
Jim Jaye: In the meantime, we are not waiting.
Jim Jaye: We often talk about how we operate success by design.
Jim Jaye: We have a clear and winning strategy.
Jim Jaye: Best team in the industry and we've made the right investments.
Jim Jaye: <unk> specific markets and sub segments.
Jim Jaye: We know how to deliver solutions for our customers that will make them more productive and more profitable.
Jim Jaye: We continue to have significant new accounts and share of wallet opportunities in every business and region.
Jim Jaye: We expect to continue winning more than our fair share of these opportunities.
Jim Jaye: I also I'm highly confident that our enterprise wide efforts related to talent simplification digitization supply chain responsiveness and sustainability will continue to deliver above market growth.
Jim Jaye: We get rewarded by overcoming obstacles finding solutions for our customers and delivering results.
Jim Jaye: We are extremely well positioned to continue delivering shareholder value and that's exactly what we intend to do in 2025.
Jim Jaye: This concludes our prepared remarks.
Jim Jaye: With that I'd like to thank you all for joining US this morning, and we'll be happy to take your questions.
Speaker Change: Certainly everyone. At this time, we 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.
Jim Jaye: 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 request that each participant ask only one question.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Gregory: Our first question is coming from Gregory <unk> from Evercore. Your line is live.
Speaker Change: Hi, Thanks, good morning.
Speaker Change: I wanted to follow up on the raw material expense.
As part of the guidance expecting that to rise this year, both commodities or areas are driving that our tariffs in any way a factor.
Speaker Change: Yes, good morning, Greg It's Jim talking.
Speaker Change: Couple of different things to think about there.
Speaker Change: Yes, there are some tariffs that are embedded in that those are tariffs that are already in place mainly related to Asian imports.
Speaker Change: Foxy, which came into effect September.
Speaker Change: In November of last year.
Speaker Change: We're seeing inflation of low single digits in the raw basket I would tell you that that is related to industrial resins Tio two is up a bit solve and supplement packaging up a bit.
Speaker Change: In addition to that tariff that I described we have potential for others. Those art in the guide right now on the raws, we'll see how that unfolds.
I think you have to also think about some other factors you have suppliers with capacity rationalization and decommissioning of their plants, which puts pressure on price as well. So we will see natural gas is up as well and trending upwards, which is another pressure point so.
Speaker Change: I think up low single digits to start the year and fairly spread out across the year evenly and fairly spread out across the different commodities and Greg. This is <unk>. The one thing I would add is the additional tariffs that we're tracking very closely that are not in our guidance if those were to occur.
Speaker Change: Her and there is significant we would need to do and we're prepared to go out with additional price.
Speaker Change: In specific markets and segments as required.
Speaker Change: Got it thanks and good luck.
Greg: Thank you Greg.
Speaker Change: Thank you. Your next question is coming from Vincent Andrews from Morgan Stanley. Your line is live.
Speaker Change: Thank you and good morning could I ask you about a couple of special items that are in the guidance, particularly the $80 million associated with the new headquarters.
Speaker Change: I know we've talked a lot in the past about the capex and the sale leaseback of associated with the HQ, but.
Speaker Change: This is the first we've talked about there being.
Speaker Change: Substantial incremental cost to using this new facilities I'm. Just curious if you can help us understand what those are I don't know in my head I would think a new facility would be more efficient from an energy and water and all that type of thing so what's driving the $80 million and how much of it is onetime in nature.
Speaker Change: Versus nonrecurring.
Then you also have a step up in the environmental spending and I know that can be that can be.
Speaker Change: Fluctuate year to year. So is there something special about the spend this year that may not recur next year or is this a new baseline. Thank you.
Speaker Change: Yes.
Speaker Change: I'll start with a new building in a way I think about it is this is a transition year for us as a company is we're not.
Speaker Change: Moving into that we're gonna start occupying a building as the year goes on.
Speaker Change: And as we've talked about this as predominantly second half loaded I thought I'd be remiss. If I didn't include some estimate.
And our cost base to say that.
Speaker Change: As we get better line of sight on that.
Speaker Change: Timing of the occupied occupying the building.
Speaker Change: We can refine that estimate on our July call about 'twenty, I'd say a quarter of that 80 or.
What I would call transition costs, whether that is moving costs, they're decommissioning costs related to our old buildings and.
Speaker Change: Yes, they are more efficient however.
Speaker Change: At our headquarters building that I have been in for 90 years that is fully depreciated.
Speaker Change: We've made.
Speaker Change: I'd say we made.
Speaker Change: Measured repairs to the existing billing know knowing we were going to get out of this building, but you look at the.
Speaker Change: Ongoing service costs, and depreciation and things like that we'll get a better line of sight of that when the more completely answered the building new buildings, we're operating and we can kind of figure out what's working what's not working so these are estimates that need to be refined.
Speaker Change: The other comment I would make on the non operating items.
Speaker Change: Our assumption is we're going to get back to a more normal environmental costs. These are going to be more first half.
Speaker Change: An impact because we had credits last year and we don't expect.
Speaker Change: To repeat those I don't think I would consider it a step up in environmental provision I think we've made good progress on remediation and the further we get with remediation and the environmental provisions and get much clear. So I think this morning.
Speaker Change: Hey back to normal expenses environmental versus maybe some credits in 2024 that I don't expect to repeat.
Speaker Change: Thank you Vincent.
Speaker Change: Thank you. Your next question is coming from David Begleiter from Deutsche Bank. Your line is live.
Heidi: Thank you and good morning I'm Heidi.
Heidi: On the share gain opportunity can you help frame how that looks to you in terms relative to the PPG business and looking back to last year, how much of that Kelly more business did you end up picking up thank you.
Heidi: Yes, good morning, David Let me, let me start with Kelly more just because sequentially. Obviously, that's I would say largely are significantly behind us.
Heidi: Don't know that we shared a number and I'm certainly not prepared to share number today, but I would tell you given how complimentary that that business model was to us relative to some of the key segments I'll point to <unk>, we were able to I think be very well positioned the team was very aggressive to make sure that we were focused on customer continuity and that we were.
Heidi: The house that they wanted to transition to so we're in a good position there we expect that to continue into the run rate.
Heidi: As I look at the PPG sale.
Heidi: I would first describe that is an opportunity that we.
Heidi: We just came out of our national sales meeting and it was not able to address over 10000 of our store managers our reps.
Heidi: And I would tell you ripe with opportunity as the general sentiment when you think about breaking that down in terms of how we look at the share gain opportunity that you have to start by segment.
Heidi: And also a little bit by region size of contractor.
Heidi: We're largely focus with the crossover between property management, certainly commercial new residential.
Heidi: So we're going to continue to be very aggressive to make sure that we are best positioned across those segments. I will also tell you.
Heidi: We are very focused on quality sales and making sure that we're targeting the customers. They candidly value what it is that we do and what we bring to bear with our reps our stores.
Heidi: Our delivery our tools everything that we can put in front of them to make these contractors even more profitable than they are today is where we're going to focus there is a bit of a time lag. If you think about the speed in which we're able to pick up a res repaint contractor.
Heidi: That's not easy and the team's working very hard to do so you kind of see that return more quickly versus someone.
Heidi: One more on the property maintenance commercial space.
Heidi: Be working we'll be working on projects that just simply have longer lag periods, there could be bigger sized projects in play that are already committed to so we're working really hard to.
Heidi: <unk> really tried to sync up as the market does recover we will see we will see how the back half of 'twenty five goes but as we look into 2006, we want to make sure that we are absolutely best positioned to take that sure.
Heidi: Thank you.
Heidi: Thanks, David.
Speaker Change: Thank you. Your next question is coming from John Mcnulty from BMO capital markets. Your line is live.
John Mcnulty: Hey, good morning, Thanks for taking my question. So I guess you sounded like there was at least a little bit of optimism into some of the paint store group and markets, particularly rosy repaint I guess can you help us to think about what your customers are saying about their backlog I know, it's a seasonally kind of odd time or early time, but.
John Mcnulty: Where is that optimism coming from can you help us to think about that.
John Mcnulty: John I'll start here I think you are right I mean, we did indicators moderate optimism if I could can have you been moderate the word optimism.
We're aggressively partnering with these contractors that are in the current environment. While the market is still kind of choppy you've seen I'm sure certainly the lira indicators that paint line.
John Mcnulty: We're going to hold up overall, all over everything else, but I would tell you part of this is making sure that our teams are looking to intercept as you look at our current rents repaint contractors, our existing contractors, helping them growing their business, helping them market their business.
John Mcnulty: Them get more leads close more leaves so that they can become more profitable and then in terms of pursuing share gains and new customers. There is a lot of disruption out there and we are going to continue to be consistent laying in stores reps tools, making sure that they're that they're prepared but I'll hand, it over to Alan <unk>.
Speaker Change: <unk> comments, you want to make here relative to some of the indicators, yes, John I think I'd just.
Alan: Reinforce that we do expect.
Alan: The demand environment will improve as the year goes on and I would highlight that as we've talked about on our third quarter call as we've talked about this call.
Alan: The first half is going to continue to be choppy and a continuation of what we saw in our second half 2020 for our sales guidance. If you will for the first half would be up or down low single digits.
Alan: And then up low to mid single digits in the second half with our paint stores group being at or above the high end of those of those ranges.
Alan: Youre going to that we do expect some macro improvement as the year goes on but we also expect to annualize some of the bigger headwinds on our core business that we saw throughout 2024 that we should with the aggressive new account activity and share of wallet activity that each of the teams are completed we should.
Alan: Start seeing a more volume as we go into the second half and as you would expect our earnings will flow in a similar fashion, we expect to.
Alan: Be up year over year on our first half, but not nearly as much as we do expect to see in our second half.
Alan: Thank you very much for the color.
Speaker Change: Thank you. Your next question is coming from Chris Parkinson from Wolfe Research. Your line is live.
Speaker Change: Great. Thank you. So in addition to some of the gross but in terms of stores and sales associates. You've also been spending a decent amount on product breadth and some new products in PSG and kind of getting up on some of the price points and it sounds like you're pretty enthusiastic on some stuff in.
Speaker Change: <unk> as well can I just ask what are the two to three largest growth or opportunities that you see in 'twenty five 'twenty six but when you step back as CEO just.
Speaker Change: Regardless of what the macro environment does where are you. The most excited thank you.
Speaker Change: Yes, Great question I think there is a number of items I would point to where we see continued strength, we would expect to outperform <unk> again I'm going to point to that as an example, you mentioned how we're looking at product introduction.
Speaker Change: It's a really good call out because when you think about not only the mix benefit that we see from a margin standpoint, but our ability to bring solutions to these contractors that value productivity above all into the cost of labor being a significant part of the total cost of the job we're able to bring technologies.
Speaker Change: They are more in the premium space because they are absolutely helping these crews to see time ultimately money on these job sites and so there is mixed favorability, certainly, which we love because we want to continue to stay.
Speaker Change: Kind of cutting edge as leaders and innovating in that space to help these contractors. So that will be the biggest piece I think if you look on the performance side.
Speaker Change: Similar to what I mentioned in my prepared remarks as well.
Speaker Change: Point to coil and packaging is as the two or three there.
Speaker Change: Got a lot of focus here again, the market is not going to help us but the team has been relentlessly looking at focusing on new accounts new business wins.
Speaker Change: Fully expect us to continue to do that in both of those segments.
Speaker Change: Thank you.
Chris: Thanks, Chris.
Speaker Change: Thank you. Your next question is coming from John Roberts from Mizuho. Your line is live.
John Roberts: Thank you do you expect non <unk> to be down all 2025 or do we have easy comps in the back end of the year, where you might actually have some positive comps.
Speaker Change: Yeah.
Speaker Change: John.
Speaker Change: It's possible that we could have positive comps.
Speaker Change: There's obviously a number of macro things that have to improve to help us the biggest being.
Speaker Change:
Speaker Change: As you get into the interest rates and we've talked about property maintenance capex shortfalls that we've seen or the lack of investment I should say that we've seen.
Speaker Change: We're again cautiously optimistic as the year goes on you'll see some of that improve.
Speaker Change: I think commercial we've been very clear, we do expect to see that drop in.
Speaker Change: Our second half knowing that we have been really aggressive.
Speaker Change: Pursuing new opportunities to try to mitigate that is.
Speaker Change: As the market goes we're not immune to that macro slowdown, but we certainly are doing everything we can to mitigate it with these other segments, including PNM.
Speaker Change: And trying to accelerate our retro repaint to help minimize that.
Speaker Change: Thank you.
Speaker Change: Thanks, Josh Thank you.
Your next question is coming from Josh sector from UBS. Your line is live.
Speaker Change: Yes, hi, good morning, I wanted to ask on the Capex guidance. So I mean, two things there one I guess the $200 million of building spend is that because the cost of the headquarters is higher or are you now doing more or something different there and then ex that even the $700 million guide is.
Speaker Change: Higher than probably the 500 that we're modeling longer term is there more growth investments that you're doing that is worth calling out now or is there. Some reason why your sustainable capex should be higher looking two to three years out.
Josh: Yes, Josh.
Speaker Change: Nathan.
Speaker Change: New buildings to $100 million.
Speaker Change: Is just the combination of finishing up our R&D center in our headquarters as you know we will get reimbursed for a portion of the headquarters Capex and financing, but it all sits in Capex and I'm happy to say this will be the last year Youll hear us talk about.
Speaker Change: Capex for our new buildings on the core Capex.
Speaker Change: We've targeted 2% of sales I expect to be in that target long term in 2025, we are investing in additional <unk>.
Speaker Change: Architectural capacity that we've talked about about our statesville factory.
Speaker Change: With our confidence in our long term growth.
Speaker Change: Initiatives within paint stores group within our consumer brands group.
Speaker Change: We'll fill that capacity up in a fairly short period of time and then we're also investing in warehouse automation as we've talked about with labor constrained in manufacturing distribution. We continue to look for opportunities to automate in those areas to take more weighed off the back of our people so long term.
Speaker Change: <unk>.
Speaker Change: We will see the benefits of that both the last thing I'd say is.
Speaker Change: Approximately 60% of our Capex is has a return on it and we expect to continue to see efficiencies out of our global supply chain related to that.
George: Thank you George Thank you.
Speaker Change: Thank you. Your next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.
Duffy Fischer: Hey, good morning, guys.
Duffy Fischer: Question on price. So last year, you asked for five in February.
Duffy Fischer: This year, yes for five in January so can you do the after action review how much did you get last year, what was the shape of that kind of throughout the year would be one and then two how much of that old price still gets anniversaried. This year and then does the shape of this year as price look different because you ask for it earlier would you guys.
Yes, Duffy I think what we've talked about on the <unk>.
Speaker Change: This last year, let me start with that it improved.
Speaker Change: As the year went on and we had talked about coming into our second half that we'd see a more.
Speaker Change: Typical effective rate so I would say it probably took us longer than we had planned I would think.
Speaker Change: Learning from that.
Speaker Change: We really lead in with a lot of disciplined training in the field, making sure we gave our customers enough lead time to.
Speaker Change: To get ahead of it and I would expect that our effectiveness in price will be better.
Speaker Change: Earlier this year than it was last year it still will take over the next quarter to get to the effectiveness we want.
Speaker Change: But youll see a much better effectiveness on our first half of this year than you saw last year and then the annualized nation, yes, theres some in utilization on the.
Speaker Change: Increased last year, and obviously, because we went out earlier this year, we will see more effectiveness in the first quarter.
Speaker Change: Great. Thank you guys.
Duffy Fischer: Thanks Duffy.
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: As you kind of think about the six verticals within PSG as your 2025 outlook changed in any material way versus your view when you reported <unk> earnings back in October, especially in commercial maybe.
Speaker Change: No it Hasnt and I think Alan characterize that really well just a few minutes ago relative to how we're looking at commercial in general.
Speaker Change: If the market does fare better than we're expecting we expect to outperform the market, but I think this becomes a softer for longer.
Speaker Change: With eyes towards 2026 at this point gunshot Ghansham I would just add I think.
Speaker Change: No.
Speaker Change: Maybe.
Speaker Change: Rate cuts.
Speaker Change: <unk> has been doing have not had the effect on the longer term rates that we were expecting mortgage rates are still up in that.
Speaker Change: High 6% range.
Speaker Change: <unk>.
Speaker Change: All things that Youre tuck in.
Speaker Change: <unk> losses related to where we were in October and today, but I think were in line. If you will across each of the different segments to say plus or minus a little bit.
Speaker Change: We're right in line.
Speaker Change: Thank you.
Speaker Change: Discussion.
Speaker Change: Thank you. Your next question is coming from Mike Sison from Wells Fargo. Your line is live.
Mike Sison: Hey, good morning.
Mike Sison: I wanted to get a better feel for maybe some of the headwinds and <unk> 25 in the sense that.
Mike Sison: It doesn't sound like demand is going to be much better than 25 versus 24.
Mike Sison: 24, you generated pretty good EPS growth, 10%. So if you think about 25 SG&A increase is going to be a little bit last year over year.
Mike Sison: Demand doesn't get much worse. So just curious what else is sort of impeding better EPS growth.
Mike Sison: This is maybe helping your momentum this year would be kind of mirror our guardian so.
Mike Sison: Yes, I don't know, where it's going to be that good is the growth.
Mike Sison: Yes.
Speaker Change: We do have some headwinds additional to what we maybe you would've saw in 'twenty four we try to call those out one with higher interest expense with the higher rates.
Speaker Change: We refinanced $850 million in third quarter of 24 at a higher rate our expectation is the $1 billion, we refinance and.
Speaker Change: Third quarter of 25 will be at a higher rate plus the financing for.
Speaker Change: Of our new building or is it a headwind or nonoperating costs getting back to a more normal level.
Mike Sison: Headwind and we're not hiding behind those Mike we fully we saw coming.
Speaker Change: We expect that the.
Speaker Change: Our performance with.
Speaker Change: Price volume managing our SG&A to your point getting on top of it.
Speaker Change: Low raw material.
Speaker Change: Other cost basket increases, which year over year is going to be a little bit of a headwind, but I think.
Speaker Change: The incremental new building costs on our second half so I'm carrying that plus I'm carrying my existing buildings granted the existing buildings at a lower level that 30, <unk> gets you to $12 15 at the midpoint up about 7% so.
Speaker Change: I think thats kind of where we were coming into 2024, and then we saw a little bit better improvement in gross margin.
Speaker Change: We did manage our SG&A tighter in 'twenty four than what we had planned so we got a little bit more of a lift in 'twenty four and.
Speaker Change: <unk> coming into 25 were in a similar place if you could take out.
Speaker Change: The incremental new building costs and Mike I would add just from an operating perspective I need two of the macro headwinds that certainly we're not immune to single family housing starts have been down year over year for three consecutive months and five of the last eight months, where we're managing through that and then the multifamily housing completes our <unk>.
Speaker Change: <unk> given some extended periods a soft start. So there is there are dynamics that we're going to continue to fight through and compete within them that I think there's certainly no lack of headwinds as we enter the year.
Speaker Change: Got it thank you thanks.
Yes, Mike.
Speaker Change: Thank you. Your next question is coming from Jeff Zekauskas from Jpmorgan. Your line is live.
Jeff Zekauskas: Thanks very much.
Speaker Change: Some building products companies have talked about adverse weather.
Jeff Zekauskas: And certainly it's been cold.
Jeff Zekauskas: When you look at your first quarter or you look at January.
Speaker Change: Is that something that's affected you relative to last year.
Jeff Zekauskas: And then for al.
Speaker Change: In the consumer brands group.
Speaker Change: Margins for the first three quarters year over year relative to last year, we're up about.
Speaker Change: 10 percentage points in the <unk>.
Speaker Change: Final quarter, they were up maybe two more there LIFO true ups or some LIFO dynamic that.
Speaker Change: Ed.
Speaker Change: Sort of change in margin differential in the fourth quarter.
Jeff Zekauskas: Yes, Jeff let me start with.
Speaker Change: The cold weather.
Speaker Change: We expect that in January is our smallest quarter of the first quarter, I think where we kind of focus our view is more in our southeast and southwest and yes, we have more calls there, but I think there is time as we ramp through the quarter to get that back.
Speaker Change: To be we believe were within guidance if you will.
Speaker Change: Right now I think when you look at consumer and Thats.
Speaker Change: A very good point that.
Speaker Change: We saw in the first three quarters.
Speaker Change: <unk> talked about the fixed cost absorption adjustments that we made between.
Speaker Change: Our global supply chain, which is embedded in our consumer to stores and our paint performance coatings group to true up those costs no impact on gross margin but.
Speaker Change: Yes that impact of the first three quarters, we annualized those adjustments in our fourth quarter.
Speaker Change: And if you look at our fourth quarter. The increase was primarily due to good cost control I think that team has done a nice job managing their costs as the year has gone on to the tighter.
Speaker Change: Volumes, however, without really sacrificing service.
Speaker Change: An offer.
Speaker Change: <unk> to our customers and partly offset by.
Speaker Change: Lower gross profit dollars related to the lower sales, we did still see some benefit in supply chain efficiencies, but going into 2025, our expectation would be those will be incremental improvements because yes. Those onetime adjustments. If you will are no longer happening.
Speaker Change: Thank you.
Jeff Zekauskas: Thanks, Jeff.
Jeff Zekauskas: Thank you. Your next question is coming from Chuck Cerankosky from Northcoast Research. Your line is live.
Chuck Cerankosky: Good morning, everyone.
Speaker Change: We've got some very favorable.
Speaker Change: Demographic indications for future housing demand.
Speaker Change: And how might you expect it to.
Speaker Change: Bob on the existing home sales and new housing starts without substantial changes in mortgage rates because they just don't seem to suddenly move and as you indicated they havent been responding to fed cuts as expected.
Speaker Change: Mike.
Mike Sison: What might be the scenarios you see.
Speaker Change: Yes.
Speaker Change: The housing markets could improve on the supply side.
Chuck Cerankosky: Yes, Chuck I think.
Chuck Cerankosky: Youre absolutely right in the sense that.
Chuck Cerankosky: As existing home turnover.
Chuck Cerankosky: Over has been backwards over 36 months in a row, there is pent up demand.
Chuck Cerankosky: That it.
Chuck Cerankosky: Household formations continue to be strong there's still over a $1 million million one.
Chuck Cerankosky: We have started life goes on and people get married people have children and that just creates more pent up demand, which which may mean, Chuck which may mean that.
Chuck Cerankosky: Interest rates don't need to get back to you.
Chuck Cerankosky: We were thinking you would have to get back to 5% before you start seeing some some movement. We saw interest rates drop into the 30 year mortgage drop into that 6% six 5% range and we saw a nice uptick in <unk>.
Chuck Cerankosky: Existing home turnover so.
Chuck Cerankosky: I think we.
Chuck Cerankosky: <unk> see a different view of the world of slightly higher interest and mortgage rate gets people to move start moving and churn at homes more which would then.
Chuck Cerankosky: Really impact res repaint industrial wood, our coil business on the appliances side and things of that nature I just think it as we see it as we've put it out in our guidance more second half kind of impacts. We just it just takes even went on existing homes starts to turn or sale or new residential.
Chuck Cerankosky: Picks up it just takes time to filter through to the painting side of that and in the meantime, I think what's really important in terms of kind of what we can control in this environment and I'll take you back to where we started last year with this.
Chuck Cerankosky: It's when not if.
Chuck Cerankosky: In the meantime, as we focus on partnering from an existing home sales rents repaint contractors and they will take you to our national builders or a regional builders and the new rent side, making sure that we are partnering with them in new and innovative and creative ways.
Chuck Cerankosky: To really help them solve their biggest pain point, obviously, which is affordability as we all know so I do think that there is it's math now because the market hasnt moved but when the market does move Chuck I'm very confident that we're going to be able to demonstrate a different level of partnership with these builders as a result of the team's effort.
Chuck Cerankosky: Thank you.
Chuck Cerankosky: Thanks Chuck.
Speaker Change: Thank you. Your next question is coming from Mike Harrison from Seaport Research Partners. Your line is live.
Mike Harrison: Hi, good morning.
Speaker Change: We haven't really talked at all about labor costs.
Speaker Change: Today I was wondering if you can comment on how changes in immigration policy.
Speaker Change: The impact to your business.
Speaker Change: Well as that of your paying contractor customers to the extent that change.
Speaker Change: Changes in policies could lead to.
Speaker Change: Some impacts on labor availability.
Speaker Change: Yes, good morning, Mike I would tell you that it's not a new topic for us I think.
Speaker Change: 150 year old company, we've certainly.
Speaker Change: <unk> seen a lot of administrations and I do think with what we're seeing here we've been we've been looking at solving for helping our contractors.
Speaker Change: Work through some of these challenges that might be it's too early to tell how disciplined impact the country, let alone our industry and our company, but I would tell you. What's most important for us regardless of where that does go is we're going to continue to stay laser focused on helping our customers be productive and so if I take you to a job site.
Speaker Change: And you think about a constrained labor we've got the crew on site. Our number one job is to get these these contractors and applicators on and off the job site as quickly as possible so that impacts everything from application to touch up avoiding having to come back on the job site and so the controllable again.
Speaker Change: We are already doing and will continue to do our focusing on the right technologies.
Speaker Change: Help these contractors be efficient.
Speaker Change: We are investing of course in our delivery and our service. So that we can be accurate and precise in terms of delivery timing. So we're not putting contractors in a position where their crews are idle and waiting.
Speaker Change: Certainly our field reps that we've laid in is really critical in terms of problem solving real time contractors, having access against that they're not waiting idly and have crews waiting so theres a whole host of investments that we've been putting behind this now if and when and how this impacts us again too early to tell but we're going.
Speaker Change: Make sure that we're best positioned to help our contractors to be prepared and for them to win in this environment.
Mike: Thank you Mike.
Speaker Change: Thank you. Your next question is coming from Mike <unk> from Barclays. Your line is live.
Speaker Change: Great. Thanks, good morning, everybody.
Speaker Change: I just wanted to drill into the paint stores 2025 guidance of up low to mid singles.
Speaker Change: Is it fair to think of price and sort of the higher end of that low single digits, and then maybe volume probably at the lower end, but low single digits and then within that volume is there a meaningful dispersion in your expectations between say.
Speaker Change: The five or six different verticals within the segment.
Speaker Change: Yeah like I think you are.
Correct, I think price will be stronger than volume.
Speaker Change: Especially as you ramp up going through the year I would say resurrect paint, we would expect to be at or above.
Speaker Change: The high end of that range, continuing the market share gains and momentum we experienced in the second half of 2024, which is actually up.
Speaker Change: High single digit number.
Speaker Change: I think Heidi talking about the other verticals, we do think new raise.
Speaker Change: Maintains.
Speaker Change: Our positive momentum.
Speaker Change: Throughout the year, and then I think commercial property maintenance she touched on both of those two I would also touch on PNM within our.
Speaker Change: Our paint stores group I do think up low low to mid <unk> and the DIY.
Speaker Change: There's going to be flattish in the first half and then possibly improve as existing home turnover improves.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Mike.
Speaker Change: Yes.
Speaker Change: Thank you. Your next question is coming from a ruined viswanathan from RBC capital markets. Your line is live.
Ruined Viswanathan: Great. Thanks for taking my question.
Speaker Change: Good morning.
Speaker Change: I'm curious.
Speaker Change: If you think about Q1.
Speaker Change: Obviously impacted by weather.
Speaker Change: May.
Speaker Change: Do you expect kind of the Q2 to Q4 kind of.
Speaker Change: Sales growth to be above Q1 levels.
Speaker Change: And if so.
Speaker Change: Would that be the same for all of the segments or.
Speaker Change: Mostly for PSG.
Speaker Change: Yes right.
Speaker Change: I would say.
Speaker Change: It's not I wouldn't point to the weather in our first quarter, our first quarter is a small quarter.
I think it's a continuation of the Choppiness, we saw in our fourth quarter and then as the year unfolds.
Speaker Change: Youre going to see varying degrees across the segments, let's be clear <unk>. We are very confident youre going to see consistent mid single digit growth if not improving.
Speaker Change: Between the other paint stores group's segments I think we just touched on those new raws I think is pretty consistent and the others will improve suffer commercial as the year goes on I think within our industrial businesses. We're very excited about our packaging group.
Speaker Change: In the us.
The improvements we saw in our fourth quarter and the continuation of that not to mention the European standards and regulations that goes in the first half of 2006, So we honestly youre going to see customers converting to our non BPA a proxy, which we believe is first in class.
Speaker Change: We've talked about auto refinish and our optimism.
Speaker Change: <unk>.
Speaker Change: We talk about claims being down double digits I think when you look at North America in our fourth quarter Youre seeing the.
Speaker Change: New account wins that got us into a low single digit improvement and we expect that to improve as the year goes on a 25 as you annualize some of these claims data.
Speaker Change: You will see improvement in that area.
Speaker Change: We're also we've talked about coil, the new wind gains there and that consistency of that team and that's going to continue in 2025, and then industrial wood, we've talked as new residential improves existing home turnover improves it really impacted cabinets flooring.
Speaker Change: Furniture, and the expectation is that improves as the year goes on I think general industrial.
Speaker Change: <unk> seen the biggest headwinds.
Speaker Change: They take longer to come out of that and I'm not expecting that we'll see improvement.
Speaker Change: Throughout 2025.
Speaker Change: Thank you Arun.
Speaker Change: Thank you. Your next question is coming from Aleksey <unk> from Keybanc capital markets. Your line is live.
Speaker Change: Thank you good morning.
Speaker Change: Well, hopefully sales and demand improve in 2026 or perhaps later.
Speaker Change: Can you tell us what kind of demand improvement can you current.
Speaker Change: So sprint stores and associates accommodate before you need to ramp up SG&A investments so would it be 5%, 10% and then you need to ramp as G&A or perhaps a higher number.
Speaker Change: I'll start and I'll ask out Okay, and then I would tell you we have the capacity I think the fact that.
Again, the markets that can help us we're out aggressively focused on taking share we've got the capacity relative to stores, having said that we're going to continue.
Speaker Change: Our capital allocation that al laid out laying in 80 to 100 new stores.
Speaker Change: Throughout the year and that will be largely focused on geographies, where we know we have opportunity to grow and win but by and large I don't know that theres, a magic number per se.
Speaker Change: Our ability to help these contractors to grow.
Speaker Change: Is within our capacity our ability to help our contractors travel from store to store is well within our capacity.
Alexia: One thing I would add to that Alexia I think of it as.
Speaker Change: From a rep standpoint.
Speaker Change: Really variable kind of.
Speaker Change: Costs that we can ramp up as we see.
Speaker Change: Volume improving one to two quarters out with our forecasting models I think Heidi said it though we're adding 80 to 100 stores a year that gives us great capacity to handle any raise repaint or others segment increases.
Speaker Change: Thank you alexi.
Speaker Change: Okay.
Speaker Change: 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 have.
Speaker Change: Two questions one for Heidi and one for al.
Speaker Change: Maybe to start off.
Speaker Change: With Heidi on the subject of pricing I think you mentioned in your prepared remarks, you're pursuing increases in consumer and performance coatings. In addition to the paint store hikes that we already talked about.
Speaker Change: Well how would you can you elaborate on that how would you characterize prospects for positive pricing contributions from those two segments in 2025, and then for <unk>.
Speaker Change: Now what is the level of foreign exchange drag that you're baking into your guide in light of the recent dollar strength. Thank you yes.
Speaker Change: Yeah, Thanks, Kevin I'll start the comment that I shared relative.
Speaker Change: Relative to pricing for the segments is that it would be very targeted within this segment.
Speaker Change: And so you look at that through the lens of regions and geography, obviously, we're not going to announce here today, what the specific actions are but where we know we need to get price, we're going to be very aggressive and make sure that we do.
Speaker Change: We do sell.
Speaker Change: Kevin.
Speaker Change: I think on a consolidated basis.
Speaker Change: FX, we expect to be a headwind.
Speaker Change: About 1%.
Speaker Change: You really break that out it's more more.
Speaker Change: Pronounced in our Latin America here.
Speaker Change: Teams in which case you'll see.
Speaker Change: Maybe mid teens impact on Latin America, which translates to about a mid single digit impact on consumer and then roughly a 2% impact on our performance coatings group.
Speaker Change: Kevin I would just add you asked about specific pricing I pointed out in the slide deck.
Speaker Change: Slide it may be very helpful. In there that for the year breaks out volume price FX by segment, so might want to.
Speaker Change: Use that as a guide.
Speaker Change: Thank you very much.
Speaker Change: You bet Thanks, Kevin.
Speaker Change: Thank you. Your next question is coming from Adam Baumgarten from Zelman and Associates. Your line is live.
Speaker Change: Hey, good morning, everyone.
Speaker Change: <unk> talked about gross margin expansion and 25 can you maybe put a finer point on the magnitude you are anticipating and thats embedded in your guidance and also should we think about that is relatively even across the quarters or more second half weighted.
Speaker Change: Yeah.
Speaker Change: Yes, Adam.
Speaker Change: Okay.
Speaker Change: We will not give you an exact number but.
Speaker Change: You would expect R. R.
Speaker Change: Most margin expansion to be let me, let me put it this way it'll be it'll be less than it was than we saw 2024 on a year over year basis.
Speaker Change: As the year progresses, I would expect to see our gross margin gets stronger in our second half versus our first half because of.
Speaker Change: The expectation that volume improves.
Speaker Change: The price increases are.
Speaker Change: Our met to offset raw material cost inflation of the low single digits other cost basket increases of low single digits.
Speaker Change: And.
Speaker Change: That's.
Speaker Change: I view that as probably about 75% of the increase were also continuing as we've talked about self help initiatives with simplification.
Speaker Change: We expect the acquisition synergies to continue to progress.
Speaker Change: Both sales synergies, but also on cost synergies and then.
Speaker Change: We do expect.
Speaker Change: Low single digit production volume increases that with the cost controls that our supply chain teams have put in place that we'd get some efficiencies out of that and get some.
Speaker Change: Small improvements in a tailwind on supply chain efficiencies and 25 of those wrapped together probably about a quarter of the improvement.
Speaker Change: Thank you.
Adam Baumgarten: Thanks, Adam.
Speaker Change: Thank you. Your next question is coming from Garik <unk> from loop capital markets. Your line is live.
Speaker Change: Alright, Thank you and consumer brands, just wondering if you could speak to how DIY propane volumes were in the fourth quarter and any color on how you expect them to trend.
Speaker Change: In 2025 would be great.
Speaker Change: So I'll start with that.
Speaker Change: I think we've covered this earlier certainly weaker than expected I will share.
Speaker Change: Even from the CPG standpoint, the importance of these customers strategic partnerships that we have.
Speaker Change: We continue to invest in making sure that we're taking their success and our success.
Speaker Change: And this is really important that we're laser focused on ensuring that as the market does recover that we and they are best positioned.
Speaker Change: That runoff in terms of pro <unk> I'm going to let.
Speaker Change: That effort out here, yes, I think the approach paints were.
Speaker Change: Under pressure on our on our fourth quarter.
Speaker Change: I think you know.
Speaker Change: That being said, we have maintained our investments in the proteins understanding.
Speaker Change: We don't react to a short term headwind, we stay focused on the longer term.
Speaker Change: And fully expect as.
Speaker Change: Think of that as the paint stores.
Speaker Change: Alright as.
Speaker Change: The existing home turnover approved Odyssey.
Speaker Change: Odyssey Pro paint improvements in that segment and also DIY improvements in that segment as the year goes on and Thats kind of how we laid out the plan.
Speaker Change: From a top line standpoint for consumer brands.
Speaker Change: Really similar to how we were looking at paint stores group first half second half.
Speaker Change: That's helpful. Thank you.
Speaker Change: Thanks Gerrick.
Speaker Change: Okay.
Speaker Change: Thank you. Your next question is coming from Patrick Cunningham from Citi Investment Research. Your line is live.
Patrick Cunningham: Hi, Good morning, I'm curious on the latest thoughts on the M&A pipeline you know should we maybe expect less of a focus on M&A. This year, given some elevated capital spend and market's relatively challenging any update to your thinking on some of the more sizable coatings businesses that are coming to market.
Patrick Cunningham: This is a really consistent approach that we take here, we're always going to be looking I don't know that I would characterize this as more or less within the year I think it would be a very steady hand at understanding where our portfolios are where we want to drive growth within that portfolio by segment.
There is opportunity to accelerate our strategy, whether it's a technology a brand or a region, we're always looking but.
Patrick Cunningham: We will go back to our capital allocation policy in general absent all the items that I'll walk through them, we'll look at that but we we absolutely do not need M&A to grow we're going to continue to focus on putting our foot on the gas where we know we have a right to win today, but should something attractive comes along you could you can assume that we're going to take a look at that.
Speaker Change: Thank you Patrick.
Speaker Change: Thank you. Your next question is coming from Steve Byrne from Bank of America. Your line is live.
Speaker Change: Yes. Thank you had a follow up on the labor pool.
Speaker Change: Just curious whether youre hearing from your paint store customers anywhere in the country in particular, where they are already seeing an impact.
Speaker Change: Most of the deportation an initiative on their labor pool.
Speaker Change: If this is a realistic impact this year do you think that.
Speaker Change: It might be more impactful on the pro the pain.
Speaker Change: And maybe shifts more to the paint stores business or to shift more to DIY and any thoughts on the <unk>.
Speaker Change: Regional impacts.
Speaker Change: Your view.
Speaker Change: Steve I think it's too early to tell we're not hearing by and large we're not hearing.
Speaker Change: A lot of commentary about this impacting contractors on the store side or the <unk> side relative to their labor pools.
Speaker Change: It does certainly reinforced I think our position in the market to be able to get ahead of these issues and focus on productivity. I think this just continues to put us in a leadership position. There in fact I can tell you I've been out with over a dozen customers since the start of the year and if there's one theme that's consistent.
Speaker Change: It's an acknowledgment that you guys are you are there when you say youre going to be there who would've thought simply doing what you say you would do would be a differentiator, but the fact that we're staying true to our focus on solving for their profitability and their productivity.
Speaker Change: I think that positions us very nicely to be able to help when if and when and how this does impact them in terms of any kind of toggling, our switch between stores and consumer and pro <unk>.
Speaker Change: I don't see that happening or in any material way I think that that's going to be a dynamic that will impact everybody kind of equally yes. The only thing I would add to that to think that.
Speaker Change: There'll be a shift back to DIY, it's just hard to see that when you look at it over a long period of time the trend from do it yourself to do it for me because of some of the macro economic situation. We have in the U S with an aging demographics, the average age of a home and the.
Speaker Change: U S is 40 years old, which makes for more complex type of renovations or projects.
Speaker Change: There's a lot of equity in homes that allow people to view it as an investment to.
Speaker Change: Improve their homes for future value and there is a.
Speaker Change: As this trend of.
Speaker Change: Baby boomers staying in place longer than doing upgrades to their home because they know theyre going to be there longer and typically there.
Speaker Change: <unk> got more equity that they can hire out of contract or so.
Speaker Change: It's hard to see.
Speaker Change: Flip from.
Speaker Change: Back to do yourself over the longer term.
Speaker Change: Thank you Steve Thank you.
Speaker Change: Thank you. Your next question is coming from Aaron Ceccarelli from Baron Berg. Your line is live.
Speaker Change: Hello, Good morning, Thanks for taking my question.
Aaron Ceccarelli: Could you elaborate a little bit on the level of profitability of your.
Speaker Change: Market share gains would it be fair to assume that.
Aaron Ceccarelli: New accounts come at least at the beginning at the lower level of margins.
Speaker Change: Thank you.
Speaker Change: Yeah Erinn.
Speaker Change: Classify.
Speaker Change: I wouldn't make a broad statement like that I think.
Speaker Change: There's a lot of different activities around new account activation and depending on where that account is in their maturity level and.
Speaker Change: They may come in.
Speaker Change: From a competitor and want a similar price point until they understand all the benefits services quality delivery that ecosystem that we talk about our our pro plus App and and then those are the accounts.
Speaker Change: That we're able to move up because they they begin to sense and value what we have to offer but I would not make a blanket statement say all new accounts are that way.
Speaker Change: In fact, I would go so far as to say, we made a great point on the maturity of the contractor.
Speaker Change: Residential repaint being a great example, where oftentimes coming in new trying to learn and our teams are able to intercept them early in that maturity curve.
Speaker Change: Even all the way through to helping them present themselves.
Speaker Change: <unk> been making sure they've got the yard sign their marketing their business and when they see the value of everything that al talked about our focus in selling them and putting them into better product and technology that theyre going to make them even more efficient.
Speaker Change: Certainly.
Speaker Change: Benefits everybody as well.
Speaker Change: Thank you Aaron.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Eric <unk> from Cleveland Research Company. Your line is live.
Speaker Change: Oh, Thanks to two things first of all I'm curious in terms of.
Speaker Change: Price mix, if youre seeing any sensitivity or across the architectural business.
Speaker Change: On the pro side or on the consumer side trading down or anything you are doing in an environment, where there is greater price sensitivity I know that people pay for value and productivity.
Speaker Change: Given what's sherwin anything different youre observing our planning for that area.
Speaker Change: No Eric I would tell you if anything its the opposite and you said, it really well to that value and productivity.
Speaker Change: As we continue to launch new products as we continue to focus on getting our contract design enough job sites I think it works.
Speaker Change: Candidly the other way and I would say that's true.
Speaker Change: On the pro side.
Speaker Change: <unk> and the consumer side.
And then secondly.
Speaker Change: In terms of the incremental spend on reps and on the selling effort.
Speaker Change: Helpful to see that that spend is moderating a bit in 'twenty five.
Speaker Change: Payback.
Speaker Change: Any sense or guidance you can give us in terms of the payback curve as you've added and invested in them are they up at full impact in 'twenty four.
Speaker Change: Yep.
Speaker Change: Okay.
Speaker Change: That shows up to 25 any thoughts about how you think about the return dynamic from that investment.
Eric: Yes, Eric.
Speaker Change: You kind of broke up but I think what you're asking is the timeliness of getting a return on our on our reps and as you know they are predominantly res repaint reps and I think we get a return on those and.
Eric: One to two quarters as well.
Eric: And I think about as density within a market because what we're able to do in our densest markets is take an existing res repaint territory that gets up to a number of accounts high level of sales.
Eric: Terrific really successful, we're able to split that territory seed some of those accounts that maybe you weren't getting the attention that quite honestly is a deserved we've put a new rep in there and they both grow.
Eric: Quickly back to where they were or a higher at a higher level. So the return on a on a rep, especially reservoir repaint rep.
Eric: Is this really short and we are getting a return and we expect to see those returns continue into 2025.
Speaker Change: Okay. Thank you Eric.
Eric: Yeah.
Eric: Thank you. Your next question is coming from Laurence Alexander from Jefferies. Your line is live.
Eric: Good morning, and thank you for taking my question. This is Carol gel on for Laurence Alexander.
Eric: Maybe just come back to a more general question for the full year 'twenty Fi what has to go right for you to hit the high end of the guidance and what might go wrong, given the soft turf a longer environment. So we look at the lower end of the guidance. Thank you, yes I think.
Eric: Where we're going to be.
Eric: Within the guidance is going to be dependent on where paint stores group volume is within our high and low end of the range and I can say that it's also about the other segments, but really paint stores group is our fastest growing segment of our most profitable segment and you know where they are and that volume range will dictate.
Eric: Where we are from an EPS standpoint.
Eric: Yes.
Eric: Thank you.
Eric: 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: Yes, Thank you Matthew.
Eric: We outlined today.
Eric: Expect the macroeconomic environment to remain choppy in 2025, no surprise there, but at the same time and I think <unk> said, it very well at the beginning we're not waiting we're relentlessly pursuing those opportunities that we do see it's all about success by design and we have a very proven track record here, we've got a clear.
Eric: And winning strategy the best team, we've made the right investments and we know how to deliver the solutions for our customers that are going to make them more productive more profitable, which is really important in this environment.
Eric: Nobody is better positioned than Sherwin Williams to win in the marketplace and deliver that consistent shareholder value and that's exactly what we plan to do here in 2025.
Eric: As always we'll be available for your follow up calls and thank you again for your interest in Sherwin Williams to have a great day.
Eric: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.