Q1 2025 The Sherwin-Williams Co Earnings Call
Good morning, Thank you for joining the Sherwin Williams Company's review of first quarter 2025 results and our outlook for the second quarter and full year of 2025.
With us on today's call are Heidi Petz chair, President and CEO outlet edition.
Speaker Change: Jill Officer, Paul Lang, Chief Accounting Officer, 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 Sherman 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 statement speaks only as of the date of which that 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.
Speaker Change: I'll now turn the call over to Jim Jaye.
Speaker Change: Thank you and good morning to everyone Sherwin Williams continued to execute our strategy and delivered solid first quarter results with the demand environment remaining challenging as we expected.
Speaker Change: The year over year basis consolidated sales were within our guided range with growth in paint stores group offset by softness in our other two segments.
Speaker Change: Gross margin and gross profit dollars expanded.
Speaker Change: SG&A decreased due to continued good spending control.
Speaker Change: EBITDA margin of $1 expanded and adjusted earnings per share grew by three 7% to $2 25 a share.
Speaker Change: We also continue to execute our disciplined capital allocation strategy.
Speaker Change: Investing $352 million in share repurchases, increasing our dividend by 10%.
Speaker Change: Let me now I'll turn it over to Heidi, who will provide some additional color on the first quarter before moving on to our outlook and your questions.
Heidi Petz: Thank you, Jim and good morning to everyone.
Heidi Petz: I want to begin by thanking our 64000 global employees for their sheer determination and willingness to solve challenges as we navigate a wide variety of near term pressure.
Heidi Petz: We're staying true to our strategy, which is continuing to deliver innovative solutions for our customers, which makes them more productive and profitable.
We expect that and prepared for a bumpy 2025, and we are executing our playbook as planned.
Heidi Petz: Looking at our specific results in the quarter I'll begin with the paint stores group.
Heidi Petz: Sales grew by a low single digit percentage with price mix up mid single digits and volume download single digit.
Heidi Petz: The price mix component includes our January 2025 price increase which is ramping up as expected along with the residual impact of our February 2024 increase.
Heidi Petz: We would expect the contribution of price to be lower going forward as we have now annualized the February 2020 or increase.
Heidi Petz: Protective and marine grew fastest in the quarter and increased by a high single digit percentage driven by oil and gas water and wastewater high performance flooring and high value infrastructure project.
Heidi Petz: And residential repaint sales increase by a mid single digit percentage despite continued softness in existing home sales.
Heidi Petz: As our prior growth investments continue to deliver a return.
Heidi Petz: New residential increased by a low single digit percentage as we continued to secure incremental relationships with new customers.
Heidi Petz: Commercial and property maintenance sales remained under pressure as expected given weak commercial construction completion and delayed capex spending.
Heidi Petz: We expanded segment margin by 120 basis point 18, 4%, while continuing to invest in growth by opening 18, new stores in the quarter.
Heidi Petz: Consumer brands group sales were within our expected range.
Heidi Petz: More than half of the decrease was due to unfavorable FX with the remainder driven mainly by soft DIY demand in North America.
Heidi Petz: Despite the lower sales adjusted segment margin expanded to 21, 3%.
Heidi Petz: The improvement in adjusted segment margin was due to supply chain efficiencies and continued discipline in controlling general and administrative expenses, while maintaining investments to support our customers' growth.
Heidi Petz: I also want to reiterate how excited we are about the <unk> acquisition, we announced during the quarter.
Heidi Petz: We expect this transaction to close in the second half of this year.
Speaker Change: As Aneel is a market leader with multiple profitable growth opportunities and is run by an outstanding management team.
Speaker Change: I am confident it will be a great addition to the consumer brands group and an excellent complement to our existing Latin America business.
Speaker Change: Performance coatings group sales were below our expectations.
Speaker Change: Price mix and volume all decreased by low single digit percentages, but were partially offset by a low single digit contribution from acquisition.
Speaker Change: Regionally Europe, and North America decreased by mid single digit percentages.
Speaker Change: <unk> in Latin America decreased by low single digit percentages.
Speaker Change: From a division perspective packaging was a bright spot in the quarter with high single digit growth driven by new account and the recapture of temporarily lost share.
Speaker Change: <unk> sales were down but recovered meaningfully in March after a slow start and we still project full year growth for this business.
Speaker Change: Industrial wood sales were down against a strong prior year comparison that included an acquisition.
Speaker Change: General Industrial our largest division remained under pressure as expected with softness and heavy equipment demand.
Speaker Change: Auto Refinish also remained under pressure, although negative FX accounted for almost half of the decline we saw in the quarter.
Speaker Change: We are encouraged by meaningful new account wins in this business, which are currently being more than offset by softness in core accounts driven by lower insurance claim.
Speaker Change: SG&A expense in this segment decreased by a low single digit percentage due to good cost control.
Speaker Change: Adjusted segment margin decreased 60 basis points 16, 5% due to lower sales.
Speaker Change: And before moving onto our outlook I would also like to note. The good work being done in our administrative functions to control cost or.
Speaker Change: Our SG&A was down mid teens percentage in the quarter, partially offset by higher non operating costs.
Speaker Change: Our continued focus on simplification and Digitization should continue to drive further efficiencies over time.
Speaker Change: During our last two conference calls, we communicated that we expected demand in most of our end markets to remain choppy at least through the first half of 2025 with some not likely to gain momentum until 2020.
Speaker Change: We are seeing this play out with some additional uncertainty in the market related to tariffs.
Speaker Change: We also communicated that we are well positioned to outperform the market and we are highly confident in the clarity of our strategy and importantly, our team's deep experience and ability to out execute in this environment.
Speaker Change: With regard to tariff I'll remind you that approximately 80% of our consolidated revenue is in the United States with less than 2% in China.
Speaker Change: In addition, the vast majority of our raw materials are sourced in the region, where we are manufacturing.
Speaker Change: Whenever there is disruption there is significant opportunity to demonstrate what makes sherwin Williams so unique.
Speaker Change: We are determined to expand our competitive moat in the current environment.
Speaker Change: Moving on to our specific outlook the slide deck issued with this morning's press release includes our expectations for our consolidated and segment sales for the second quarter of 2025.
Speaker Change: Additionally, we are reaffirming the full year sales and earnings per share guidance, we provided in January the.
Speaker Change: The other data points, we provided at that time also remain unchanged.
Speaker Change: As is typical we will be able to provide an updated full year outlook in July when we have a better view of how the paint and coatings season is unfolding along with potentially greater clarity on the trajectory of the global economy overall.
Speaker Change: We know Theres a lot of uncertainty in the market right now.
Speaker Change: What is certain is our strategy, our resolve and our ability to assess adapt and pivot regardless of the obstacles in front of us.
Speaker Change: Due to the pandemic and industry wide supply chain crisis and record inflation to name just a few.
Speaker Change: We've demonstrated our ability to deliver an up cycle down cycles, and now a choppy cycle.
Speaker Change: We have a strong track record of delivering for our customers and ultimately for our shareholders.
Speaker Change: We continue to operate with confidence accountability and our success by design mindset.
Speaker Change: We are aligned on aggressively pursuing above market growth, making targeted investments that deliver a clear return.
Speaker Change: Controlling general and administrative spending and executing on our enterprise priorities.
Speaker Change: And above all we are focused on being the source of stability predictability and reliability for our customers providing them with solutions that increase their productivity and profitability.
Speaker Change: This concludes our prepared remarks with that I would like to thank you for joining us This morning, and we'll be happy to take your questions.
Speaker Change: Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
Speaker Change: We do Western World 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 please only ask one question.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Speaker Change: Your first question is coming from John Mcnulty from BMO. Your line is live.
John Mcnulty: Yeah. Good morning, Thanks for taking my question.
Speaker Change: A question on on the pricing environment and tariffs it sounds like youre relatively low exposure from a tariff perspective.
Speaker Change: If you do start to see raw materials inching up at all in small parts of your basket do you feel like you have an ability to put that pricing through when I know normally you don't tend to raise price during the heart of the paint season, but if tariffs warrant that is that something that you would consider as we look through 2025.
Speaker Change: Thanks.
Speaker Change: Hey, John Good morning. This is Jim Let me, let me take a run at that first and maybe talk about raws in general and then turning to al to answer some of the additional parts of your question.
Speaker Change: So if we look at our first quarter of 'twenty five raws were flat year over year with the tariffs starting to come into place our second quarter guide for raws is going to be a little bit higher than we initially thought as those tariffs start to go into effect.
Speaker Change: This past month here for 25, we're still in the range as you saw in our slide deck, where our raws are going to be up low single digit percentage, but I would say more likely at the higher end of that low single digits.
Speaker Change: And you know the tariffs to your point most of our raw materials are in the region that we're manufacturing, but we are seeing some impact mainly on.
Speaker Change: Areas like applicators, a little bit on pigment and extend there is a little bit on industrial resins is where we're seeing it a little bit on packaging as well. So those are the areas, but overall the materiality of it is.
al: Is something that we can manage I'll ask al maybe to add a little color to that as well, yes. John This is al.
al: We're looking at the tariffs like we look at other.
al: Cost basket increases, we try to push back as.
al: As much as we can we look for offsets and then if we believe the tariffs are lasting we will go out and have to have the discipline in the past to go out with additional price increases to your point it would not be ideal to go out in the summer, but if you go back a couple of years when we're seeing hyper inflation in 2000 22000 <unk>.
al: One 2022, we did go out during the summer.
al: But again.
al: We have additional levers we're not sitting idle we have additional levers to pull to help offset tariffs and other increases in cost and.
Speaker Change: The continued choppiness in demand and tighter you mentioned it simplification and Digitization in her opening remarks, we've been open about we've invested heavily in modernizing our systems and expanding our digital capabilities and you're starting to see the returns on that in our first quarter you look at our admin segment.
al: SG&A was down mid.
al: Mid teens thats not an allocation to the other segments that has us.
al: Getting the efficiencies out of the investments in systems.
We also took a you saw we took a.
al: Small charge, a onetime charge in our first quarter.
al: We continue to look for opportunities to rightsize, our footprint, whether that's on the manufacturing side or in our SG&A and Youll see that continue through our second quarter as we continue to look for opportunities.
al: To improve our efficiencies that will help our second half the last thing I would comment on other levers.
al: When you look at our travel and entertainment we have been very tight on that are third party investments or consultants, we have been very tight on that and that's from work done over the last year.
al: Year, and then we'll continue to look at cash.
al: Conservation, we're taking a hard look at our Capex.
To get cash out of that as the year progresses without impacting statesville manufacturing or our warehouse automation and then finally.
al: We're taking a hard look at our working capital inventory AP and driving.
al: Cash out of that so we can reinvest back in our stock.
al: Okay.
Speaker Change: Thank you. Your next question is coming from Mike Sison from Wells Fargo. Your line is live.
Mike Sison: Hey, good morning, great start to the year.
Mike Sison: I had a follow up question on on price mix for the stores.
Speaker Change: Up mid single digits.
Speaker Change: Was that mostly price or or if it's maybe half half with mix or what does that mix component to the.
Speaker Change: To that equation.
Mike Sison: Yes, Mike It was predominantly price and I give.
Mike Sison: The stores team a lot of credit.
Mike Sison: They really did a great job coming into this price increase giving our customers enough lead time before the increase was implemented they did additional training in the field.
Mike Sison: Which provided a strong.
Mike Sison: And better effectiveness this year versus last year, if you recall, we talked last year about.
Mike Sison: We were up half a percent, which was split evenly between price and volume. So we got off to a little bit slower start on price effectiveness last year and it ran.
Mike Sison: Drop as we got through the second quarter and into our third quarter and again.
Mike Sison: I think they did a really nice job of making sure. The price went in and it was effective the mix side of that is as raws repaint as.
Mike Sison: It's growing at a mid single digit.
Mike Sison: <unk>, which is.
Absolutely taking market share in a down market.
Mike Sison: That has a positive mix shift relative to the other segments like commercial and property maintenance, so that would be the mix side of it but it was predominantly price.
Mike Sison: Thank you Mike.
Speaker Change: Thank you. Your next question is coming from Vincent Andrews from Morgan Stanley. Your line is live.
Vincent Andrews: Thank you could you talk a little bit more about Cogs in gross margin.
Speaker Change: Because you know you had volume down across the three segments, you said raws were flat.
Speaker Change: But the cost performance kind of looks better than that.
Speaker Change: No dis economies from the volume and no benefit from raws and the margins were up so it is there anything else in there that we should be thinking about it and likewise on the on the SG&A. It was down in the first quarter, but you're still projecting it up low single digits for the full year were where you flexing that a little bit in the first quarter, just given just given the volume challenges.
Maybe that has to be made up later in the year, what's the cadence of that going to look like.
Speaker Change: Yeah, Vincent on the gross margin.
Speaker Change: The selling price.
Speaker Change: The increase certainly in paint stores group had.
Speaker Change: The predominant effect on that and as paint stores group grows faster than the other segments. It does lift our gross margin and then we also had supply chain efficiencies in the quarter.
Speaker Change: I think the team through the continuous improvement work.
Speaker Change: Work they are doing the simplification work they are doing it is really.
Speaker Change: Finding their stride if you will that as we get increased volume they are able to drive efficiencies through our operations. So those would be the three main drivers there on SG&A I think we didn't flex I wouldn't say, we flexed our SG&A down specifically in the first quarter I think when we do.
Speaker Change: Back to July of last year and look when we were looking at the first half of 'twenty five and in the full year 'twenty five.
Speaker Change: We understood that we would be under continued pressure from a demand environment. So we proactively tapped SG&A.
Speaker Change: All all fronts across all segments, and including admin and Youre seeing the results of that.
Speaker Change: That being said we're continue we're going to continue to add 80 to 100 stores, we're going to continue to add reps associated with that and strategic investments across the other segments that over the course of the year youre going to see some of that pick up.
Speaker Change: We will give you a better view of the second half in July when we have a better view of the demand environment and.
Speaker Change: As we typically have done if we believe demand is going to be stronger or our gross margin is going to be stronger you can.
Speaker Change: Guarantee that we will flex our.
Speaker Change: Our selling its customer facing investments in the second half accordingly, as we have typically done in the past, but again, we will give you an update on that in July.
Vincent Andrews: Thank you Vincent.
Speaker Change: Thank you. Your next question is coming from Ghansham Panjabi from Baird. Your line is live.
Ghansham Panjabi: Hi, Good morning, how do you expect the new residential end market to play out for you as the year unfolds.
Ghansham Panjabi: Topics that many of the major homebuilders lowering their expectations versus a few months back but I think you also mentioned incremental share gains and so on so I'm just curious how that nets out for you. Thank you.
Speaker Change: Good morning, Ghansham. This is <unk> I think you said it well the long term is absolutely solid and we continue to.
Speaker Change: Not only have a strong position to gain position in these challenging times within this segment and working in different ways to strengthen partnerships with some of these customers that are also not only solving for affordability, but but really looking to simplify their product offering et cetera. So the depth of the partnership I think has never been in a better.
Speaker Change: Place.
Speaker Change: Our focus on incremental partnerships, obviously continues to be where we're looking back at the end of the day. We are all watching the same things you have the 30 year mortgage rate.
Speaker Change: Staying in that six 5% to 7% range and so while builders continue to offer incentives and solve for affordability I think we're in a position here, where we're going to continue to partner in new ways with them. So that when the market does recover there in the best position to grow and grow and a good cost position.
Ghansham Panjabi: Thanks Ghansham.
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: The continued strength in res repaint can you comment on underlying market trends backlogs and any concerns with pressure on the consumer and maybe the thing that people aren't talking about as much immigration policy.
Yes, the <unk> segment continues to be a bright spot for us here as well obviously the market you categorized I think very appropriately, which is flat and certainly choppy and this is a really good example, and al mentioned earlier, where we're disciplined and laying in the SG&A.
Patrick Cunningham: Continued to lay that in ahead of the curve as we like to say that we were in the best position to capture share as we are right now.
Patrick Cunningham: I would say the backlog and overall the sentiment is positive relative to activity with.
Patrick Cunningham: The caveat that these tend to be a bit smaller in project size, but still the activity is strong and growing and overall. This is an area where as we continue to try to work hard to bring these contractors and finding new ways to partner.
Patrick Cunningham: With the contractors that are coming in new to res repaint, making sure that our teams are trained prepared understanding how to leverage the data that we own how they're trained and prepared to put the right products in the hands of these contractors to help them get on and off of job site fasteners to the day.
Patrick Cunningham: Can be as productive.
Speaker Change: As possible and your point on an immigration and labor.
Speaker Change: It's not new for us and we're continuing to focus on our value proposition here, which is simply to help these crews get on an office job sites faster so helping to solve for productivity is at the core of what we're trying to do with this segment and all segments.
Speaker Change: A good example, there is a lot of growth opportunity for US here, that's a growing segment and where we have a lot of market share upside to begin here.
unknown: Thank you Patrick.
Speaker Change: Thank you. Your next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.
Duffy Fischer: Yeah. Good morning, just trying to understand a little bit better the interplay between the pricing cadence. This year in the cost cadence. So normally I think you guys would talk about getting more of an announced price increase in Q2 of the <unk> announced it sounds like you've got more than normal in Q1 does that mean that there is.
Duffy Fischer: Still pricing going higher sequentially and is that pricing high enough to incur to offset or even do better than the cost it's going to increase sequentially.
Duffy Fischer: Yes, Duffy I would say that.
Duffy Fischer: There is still more room to run on the price increase effectiveness that being said I think we got out ahead of it a little bit more in this go around than we did a year ago.
Duffy Fischer:
Duffy Fischer: Just enough it depends on I guess, how well we can offset the different impacts on the on the tariffs and how long we expect those to continue and that will.
Duffy Fischer: As we typically do and look at our total cost basket.
Duffy Fischer: We will look at as much as we can offset it and if we don't think we can offset 100% of it then we will have to look out for another price increase.
Duffy Fischer: But I think to be determined is the answer to that because it's still volatile the tariff today may not be the tariff a week from today and we don't want to get too far ahead of ourselves either that being said I mean outside of paint stores, there's other price increases going in the different segments.
Duffy Fischer: To help offset that total cost basket that we talked about in January.
Duffy Fischer: Thank you Duffy.
Speaker Change: Thank you. Your next question is coming from John Roberts from Mizuho. Your line is live.
Speaker Change: Yes. Thank you could you talk about the high single digit growth in protective and marine PPG kept that part of their north American architectural business. So is there some disruption going on that's allowing you to take some share there.
Speaker Change: Absolutely there are a few things that we mentioned this earlier in our prepared remarks in that high single digit and I'm very pleased with the team's execution here in a choppy environment. So in oil and gas water wastewater. We obviously talk about our high performance work hovering, where we've had an industry leading portfolio as a result of some some.
Speaker Change: <unk> there so yes, I do think that we are gaining strength and gaining momentum in this business and plan to continue to be very aggressive here.
John: John I would also say that there's a good pipeline of projects here the timing is often hard to predict.
John: From local projects with a simple solution that we're looking more for speed of service all the way up to larger Mega projects, where we can really put forward.
John: Simpler faster and safer solution that no one else can do at scale I think puts us in a really unique position to continue to leverage the momentum that's behind us.
John: Again, great great work by the team head down and focus on taking share.
John: Thank you John.
Speaker Change: Thank you. Your next question is coming from Christopher Parkinson from Wolfe Research. Your line is live.
Christopher Parkinson: Great. Thank you so much we.
Speaker Change: We take a step back and just look at TCG, just given everything that's going on in the world.
Speaker Change: And just perhaps just a quick comment or two on wood refinish PNM.
Where do you think the opportunities are intermediate to long term and what perhaps your Washington, just given the macro volatility. Thank you so much.
Speaker Change: Yes, Chris I mentioned, PNM briefly a moment ago, but on refinish.
Speaker Change: Remind you half of that is FX related so the team has been laser focused on new accounts installation.
Speaker Change: Share of wallet, obviously not enough today to cover up for some of the core business, but.
Speaker Change: No one no one is immune from whats happening relative to some of the claims but the determination of the team I think is on display here in an hour and I would expect and you should expect to continue to see that play out.
Speaker Change: I go around general industrial we've mentioned that certainly a business that's been under pressure, we expect that to continue to be under pressure heavy equipment transportation demand continued to be soft the team without everyday demonstrating the value proposition that we bring to these customers.
Speaker Change: Coil al mentioned earlier and packaging certainly a lot of momentum relative to the continued focus on for coil new business.
Speaker Change: Wins have been very positive and offsetting a flat core flat market.
Speaker Change: And we will continue to see after we've gone through the quarter with some momentum in March we expect full year growth that had their packaging, we hit on and I think the fact that we're not only.
Speaker Change: Gaining and winning here, but making sure that some of the temporary share that we that we lost for a bet on it coming back into Sherwin Williams has been fantastic pickup and then industrial wood, we often talk about as you know with this correlates pretty closely to.
Speaker Change: Our U S new residential.
Speaker Change: Kind of segment, so while that data continues to be choppy. The team really focus again on new accounts getting in front of more customers and share of wallet. We can continue to focus on offsetting some of the softness in that quarter, but by and large I think if you look in aggregate. There are some really good things happening in the portfolio and again I give the team.
Speaker Change: <unk> or <unk>.
Speaker Change: Lot of credit.
Speaker Change: We knew what we were coming into this year and while the core health is not the core markets aren't where we want them to be the team's done a really nice job.
Speaker Change: Focusing on new wins to offset that that stream.
Chris: Thank you Chris.
Speaker Change: Thank you. Your next question is coming from Alexia <unk> from Keybanc. Your line is live.
Speaker Change: Thanks, Good morning, I wanted to come back to the consumer caution was in PSG.
Speaker Change: <unk> performance has been very solid and steady.
Speaker Change: Are you hearing our consumers reacting to current uncertainty with what's happening earns a needs.
Speaker Change: Was the market itself, so any comments there.
Speaker Change: Well I'll start and hand, it over to al here. There is certainly still a pretty flat market I think generally by and large.
Speaker Change: There's obviously a lot to existing home sales people are still interested and willing to spruce up their homes with our project that.
Speaker Change: More affordable more attainable. So the paint itself tends to be still a very strong position I think the underlying market continues to be choppy, but some of the work that we've done not only to secure our position in the.
Speaker Change: Outpacing the market to your point in.
Speaker Change: In addition to all the things I mentioned before relative to our controlled model. The data that we owned we can be very smart in surgical in terms of how we're engaging these customers meeting them, where they are at helping them.
Speaker Change: Think about how they're going to continue to grow their business whether it's.
Speaker Change: Leveraging innovations that we're bringing to them while they are in the home painting, while we've launched our gallery theories.
Speaker Change: I'll remind you which was a factory finish on cabinets trim and millwork, we've since because that has taken off so while we've since gone back and brought more of our.
Total system for these contractors when they are in someone's home that they can do everything the total system from primers all the way to top coat. So that they can be as productive as possible. So it how we're approaching a flat market, making sure that our team in these contractors have the right tools to be as productive as possible.
Speaker Change: This is Jim just to add maybe a little bit on the industrial side as well I think.
Speaker Change: He said it well in the prepared remarks, we're seeing a little bit of that consumer behavior and the auto refinish piece, where people are perhaps delaying a repair on their vehicle. We were absolutely going after new accounts market share to offset that but right now the consumer is a little bit.
Speaker Change: Wait and see a bit there, but overall I think.
Speaker Change: You've got other pressures as well around credit card debt things like that so the consumers still.
Speaker Change: A little bit of a challenging place, but our model and the value prop that we bring is allowing us to.
Speaker Change: Some cases record new account activity in some of our business at one other piece here too. This is an area where the scale that we have and some of our segments really allowed us to offset some of that underlying softness or consumer hesitation. So I think reservoir paints a great example of that as well.
Alexia: Thanks Alexia.
Speaker Change: Thank you. Your next question is coming from Arun Viswanathan from RBC capital markets. Your line is live.
Arun Viswanathan: Great. Thanks for taking my question.
Speaker Change: Congrats on the progress in Q1, good quarter in a challenging environment. So I guess just curious on the on that.
Arun Viswanathan: How did March shape up and how is added April shape up as well.
Arun Viswanathan: I know there was a little bit colder.
Arun Viswanathan: Colder weather in January and February, which maybe led to weaker than expected results.
Arun Viswanathan: It was March actually quite strong and did that carry into April and that kind of gives you the confidence to reiterate the full year in the face of all this volatility maybe.
Speaker Change: Maybe just comment on some kind of near term trends, what you are saying.
Speaker Change: Yeah Arun.
Speaker Change: I'll start with April and work My way back I think April has started where we expected it start and within our guide for <unk>.
Speaker Change: March got better but when.
Speaker Change: March was better than January February, but when I look at the first quarter.
Speaker Change: <unk>.
Speaker Change: We had comments last year about whether I'm in a rate.
Speaker Change: <unk> Southeast Division Southwest Division as our two largest divisions and if there was going to be a weather impact.
Speaker Change: On a small quarter like our first quarter it'd be those two divisions that would be laggards in the quarter and I would say when you look at their performance they were at or above the overall paint stores group performance. So.
Speaker Change: I don't want to I don't want to suggest that weather had any impact on our first quarter, nor do I think it has an impact on our second quarter.
Arun Viswanathan: Thanks Arun.
Speaker Change: Thank you. Your next question is coming from Jeff Zekauskas from Jpmorgan. Your line is live.
Arun Viswanathan: Thanks very much.
Speaker Change: I think the mortgage rates are now something like six a M.
Arun Viswanathan: Yeah.
Arun Viswanathan: Filters.
Arun Viswanathan: Lot of their metal fittings from China.
Arun Viswanathan: Lumber prices are higher.
Speaker Change: Do you have a general assessment.
Speaker Change: The inflation building costs, and whether that will make a difference.
Speaker Change: Our higher mortgage rates, making.
Speaker Change: <unk>.
Speaker Change: To the building market.
Speaker Change: And then maybe to ask <unk> question then.
Speaker Change: Current way.
April up or down low single digits.
Speaker Change: Which one.
Speaker Change: So Jeff why don't I start just from a homebuilder standpoint relative to the sentiment.
Speaker Change: Both tariffs and rates I think obviously the biggest catalyst will be any movement in rates by and large is held to be true for everybody, but relative to terrorism. The largest concern that we're hearing from our customers is are things related to steel and aluminum. So if you think HVAC systems Raj doors window frame. Those are those are the areas.
Speaker Change: And that where they're most concern, but then it goes back to <unk> point in engine when earlier I think by enlarge everyone's looking at input cost in total and where we can all help offset simplification comes in to software affordability. So those would be the biggest areas of concern instead of homebuilders perspective, yes, Jeff.
Speaker Change: You know, we're not going to give you an up or down for April.
Speaker Change: Historically, we've not done that we were pleased with how April start has started within.
Speaker Change: Our expectations and within our guide for the second quarter on a higher mortgage rates, what we had talked about on our first quarter. Our January call also is that.
Speaker Change: Life goes on people are continuing getting married I saw household formations were over one and a 125 million recently people are having children. So theyre looking at other options for.
Better affordability it might be a smaller home it might be a smaller lot it might be in a different.
Speaker Change: School District, and then they want it but.
Speaker Change: I think what.
Speaker Change: As the mortgage rates continued to.
Speaker Change: Stay at a higher level and existing homes inventory doesn't grow the next logical places to go see if we can.
Speaker Change: Build a new home or fit into a home that's already built and just waiting to be sold so I think there's.
Speaker Change: Those types of things going on every day, we keep talking about that ideally we see interest rates get we don't I don't think we need to get them back to five five and a half we saw a lot of movement when they got closer to 6% to six and a half because of the pent up demand is so strong so I don't.
Speaker Change: Think people are going to just wait until mortgage rates dropped 5%.
Speaker Change: Thank you Jeff.
Speaker Change: Thank you. Your next question is coming from Greg Melick from Evercore. Your line is live.
Greg Melick: Hi, Thanks, I wanted to dig a little deeper on the gross margin expansion. So I guess on the first quarter.
Speaker Change: Over 100 basis points.
Speaker Change: But raws were still tame announced theyre going to rise a little bit more and we get less benefit from price going forward.
Speaker Change: Should we expect the first quarter to have been the biggest expansion on gross margin or are there other things that work that can help us through the year.
Speaker Change: Yes, theres other other things Jeff.
Speaker Change: Greg that Ken.
Speaker Change: Will help us through the year as we talk about simplification and some of the other self help levers that were have pulled.
Speaker Change: Told or are looking to pull on our on our second quarter.
Speaker Change: Part of what.
Speaker Change: You see on a year over year change and I talked about this in January we were expecting to see.
Speaker Change: A similar type of margin improvement in our second half as we saw in our first half I think youre seeing a little bit more of an <unk> <unk> year over year in our first quarter, just because last year. Our first quarter was our smallest gross margin performance in a minute it improved as the year went on so.
Speaker Change: Yes.
Speaker Change: You are probably going to see our first quarter being the largest improvement, but part of that is history part of that as well.
Speaker Change: And we'll talk about our second quarter I know, we didn't give a sales breakout but expecting price to be similar in our second quarter on a consolidated basis as it was in our first quarter because of additional price increases across the other two segments that'll help.
Speaker Change: Paint stores will not have as big of a tailwind in the second quarter as the first quarter, but there is also other price going in across the other segments.
Greg Melick: Thank you Greg.
Steve Byrne: Thank you. Your next question is coming from Steve Byrne from Bank of America. Your line is live.
Steve Byrne: Okay. Thank you.
Steve Byrne: <unk>.
Steve Byrne: If we just looked at the last months in your <unk>.
Steve Byrne: Paint volumes, what would you estimate.
Steve Byrne: The paint contractors, you actually locked in those projects into their backlog how long ago, we got to June.
Steve Byrne: Can you comment on whether your resi repaint volume.
Steve Byrne: Order were up year over year, and what was the spread in your estimate versus the underlying market what kind of delta is that youre gaining share in that revenue we think.
Steve Byrne: Yes, Steve.
Steve Byrne: Typically the backlog the sightline for res repaint would be between the 4% to six week range and so I think that would be pretty consistent in terms of when theyre planning when we're we've got sightline with them in terms of the year over year dynamic al I'll, let you comment on that in terms of Infinity, Yeah, I think based on.
Steve Byrne: Our mid single digit performance on Res repaint, we our volumes were up and you look at it.
Flat to down ish market.
Steve Byrne: We're absolutely taken are taking share in the low single digit.
Steve Byrne: Percentage and it's really.
Steve Byrne: Steve The continued focus on making the right investments within our paint stores group predominantly in res repaint, both on stores and reps and <unk>.
Steve Byrne: No.
Steve Byrne: Diving that volume in a down margin.
Steve Byrne: I continue to expect to see that as we go through the year.
Steve Byrne: Thank you Steve.
Speaker Change: Thank you. Your next question is coming from Chuck Cerankosky from Northcoast Research. Your line is live.
Chuck Cerankosky: Good morning, everyone.
Speaker Change: Looking at the 18 store openings the paint stores group had in the first quarter.
Speaker Change: That seems like a pretty good start to the year. What are you looking at for total openings. This year, where are they being built and if there's any concentration in any staffing challenges as the stores open.
Speaker Change: Yes, Chuck <unk> 18 in the quarter and we will continue to be very focused on 80% to 100 throughout the year.
Speaker Change: The total annual number in terms of kind of location.
Speaker Change: Obviously, we won't get into where we're putting laying those stores in that way.
Speaker Change: Where do we approach that and I know you are well aware of this to the algorithm that we really used to understand not just our density is that where density will be to make sure that we are.
Speaker Change: Intercepting the market at the right time to support our contractors as they are looking to do the exact same so it's very much based on where the volume and the density is and it is.
Speaker Change: Going.
Speaker Change: Certainly across the country in terms of staffing.
Speaker Change: I would tell you our turnover continues to be so our kind of our record low 7%, 9% and stores are really proud of how we hire onboard.
Speaker Change: And retain and engage talent a lot of focus and effort there from the paint stores organization led by Jeff and then to make sure that we're doing just that.
Speaker Change: We don't have an outlying problem candidly relative to making sure we hit the right people to get the right resources focused on making sure we get the right type of talent and and once we have them in.
Speaker Change: Went back to the low turnover as an indicator that not only do we have the right people that we're progressing the right talent throughout throughout the organization.
Chuck Cerankosky: Thank you Chuck.
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.
Kevin Mccarthy: One of the things that changed relative to last quarter as you announced in February and agreement to acquire BSS architectural business in Brazil. So in that context I was wondering if you could talk a little bit about what appealed to you there in your strategic ambitions in Lat am and really.
Kevin Mccarthy: Weighted to that a couple of clarifications.
Kevin Mccarthy: When do you think that deal will close within the second half and are you now including that in your guidance on slide seven or is that excluded.
Kevin Mccarthy: Yes.
Kevin Mccarthy: This souvenir has been an asset that we've been looking at for quite some time, Kevin and.
Kevin Mccarthy: You can imagine.
Kevin Mccarthy: The interest in appeal when that becomes available that was pretty significant for a number of reasons and I would start with we've got a strong business already in Latin America with a fantastic team from Sherwin Williams and so this became an obvious complement.
Kevin Mccarthy: Not only to the talent and the team the brand, having a leading brand in Latin America.
Kevin Mccarthy: Clearly is a signal of high interest when we can be market.
Kevin Mccarthy: Market leaders in a key market that's of high interest to us and so it's a combination of not only the brand and the assets that come along with US a fantastic leadership team.
Kevin Mccarthy: In terms of the timing of close can't can't give you any more than we're targeting second half, which we are feeling very positive about.
Kevin Mccarthy: And it is currently not in the guidance as you see.
Speaker Change: And to add to that Kevin just thinking about the Brazil market for architectural as well, it's a large and growing market. The GDP talked about Brazil, GDP growing maybe around 1% over the last several years architectural coatings have been growing faster than that and souvenirs has been growing even faster.
Speaker Change: And that so we fully expect to to continue accelerate that growth and as <unk> mentioned is a great complement to what we're doing right now very little conflicts in terms of channels or brands or anything like that that's very well together.
Thanks for the question Kevin.
Speaker Change: Thank you. Your next question is coming from Josh Spector from UBS. Your line is live.
Speaker Change: Yes, hi, good morning, I wanted to ask about the timeline for share gains on the commercial and the property maintenance side you guys have been clear for a while that you are gaining share but the flow through there would be delayed.
Speaker Change: Is that something you'd see in the second half of this year and resulting in outperformance versus market or is that even longer term than that that we should be thinking about.
Speaker Change: Yes, you'll see some that it is longer term and I'll point back to obviously there is a.
Speaker Change: I would call this.
Speaker Change: Precedented.
Speaker Change: Competitive landscape today, and so the two segments that you spoke to typically tend to be larger multi year in some cases projects into the timing of these.
Speaker Change: Well, we'll certainly reflect that I would suspect that we'll be talking about this for the next 18 to 24 months.
Speaker Change: She only thing I would add is.
Speaker Change:
Speaker Change: We have often talked about.
Speaker Change: Exclusive agreements and we continue to monitor those and make sure we're gaining share there so even if the next commercial job.
Speaker Change: Started today, we're 12 months to 18 months out before we get to painting and then the other on the property maintenance side.
Speaker Change: Any share gains that we've gotten are being masked by the core being backwards, especially with the higher interest rates that we have talked about and the lack of capex projects going.
Speaker Change: Of being completed.
Speaker Change: Thank you Josh.
Mike Harrison: Thank you. Your next question is coming from Mike Harrison from Seaport Research Partners. Your line is live.
Mike Harrison: Hi, Good morning wanted to dig in a little bit further on the <unk> acquisition was wondering hi D. If you can give us any early sense of how you might be thinking about operational synergies.
Mike Harrison: Or a potential cross selling opportunities related to that acquisition, whether those would be in Brazil, or maybe more broadly in other parts of South America. And then also are there any investments that you might anticipate could be required as part of the integration process for souvenir.
Mike Harrison: Yes, great question.
Mike Harrison: The few things here that I think just to step back and point to other areas Sherwin Williams has.
Mike Harrison: Kind of.
Mike Harrison: Done a nice job here I'll point to the Valspar acquisition when I tell you that we're leveraging that playbook.
Mike Harrison: It's probably an understatement. So when you think about what it is and how we define value both on.
Mike Harrison: Topline synergies any operational opportunity, yes, you should expect that we'll be very aggressive on both fronts, obviously won't get into any of the details here, but I have a lot of confidence.
Mike Harrison: And our integration team and the combined leadership.
Mike Harrison: Their ability to make sure that we are laser focused on business continuity first and foremost and through the lens of our customers and through the lens of employees. So we'll be down that path here. The teams are already knee deep in terms of investments.
Mike Harrison: It's premature to comment on that I think if anything it's more opportunity for us to find ways to be more efficient and better together at this point, yes, Mike the only thing I would add to that is you've seen us have an appetite for investments in businesses that can grow above market and we can get a return on that point.
Mike Harrison: Packaging and the continued investments in capacity expansion and I'll point to coil and our continued investments in capacity expansion, where we're confident in the growth.
Mike Harrison: <unk> and we will absolutely get a return for those investments.
Mike: Thank you Mike.
Mike: Thank you. Your next question is coming from <unk> from loop. Your line is live.
Speaker Change: Oh, hi, Thank you I'm wondering if you're seeing anywhere our customers are.
Speaker Change: Taking on inventory.
Mike: Old tariff impacts.
Mike: And any pull forward of demand or Conversely, any destock.
Mike: Destocking point to think about where customers are taking a more conservative view at hallmark shelf inventory you're holding.
Mike: Not not really garik.
Mike: Exceptions here or there by customer by region, but by and large I would tell you it's not material.
Mike: Not an active conversation that we're having across the business units today.
Speaker Change: Thanks Kurt.
Speaker Change: Thank you. Your next question is coming from Eric <unk> Ciccarelli from Baird Burke Your line is live.
Speaker Change: Hello, Good morning, and thanks for thanks for the question good results.
I have a question on <unk>, you mentioned that the contribution from pricing in Q2 will be smaller and the comparable base becomes a bit tougher in Q2. So just trying to understand what do you expect volume growth to to come back do you see an acceleration from protective and marine and residential repaint or are you thinking about.
Speaker Change: Commercial property main financial DIY, starting to improve thank you.
Speaker Change: Yeah, Aaron I think is going to be volume improvement will continue to expect Roes repaint.
Speaker Change: We've got momentum in PNM, and we'd expect that volume to improve I think that the only comment I would have on commercial and property maintenance as we don't expect them to get worse. So as we continue to build on our wins and Rosary pain as we continue to build on PNM they'll help offer.
Speaker Change: Those volume declines more and then also you know we've.
Speaker Change: Talk about this in January new res kind of just.
Speaker Change: Plodding, along not getting worse, not getting tremendously better and then we can see how that progresses through our second quarter and that allow us to give you a better outlook for the full year on volumes.
Speaker Change: Thanks Darren.
Speaker Change: Thank you. Your next question is coming from Mike <unk> from Barclays. Your line is live.
Mike: Great. Thanks, Good morning, Tim.
Mike: On the outlook I. Appreciate you don't give quarterly earnings guidance, but you are guiding sales essentially flat at the midpoint year over year for the second quarter. So do you think you'll be able to grow earnings in that topline environment or the cost inflation items likely to preclude earnings growth in the second quarter.
Mike: Yeah, you know, Mike you're right, we don't give quarterly guidance, but I will give you some.
Mike: I do expect.
Mike: Even with.
Mike: That flattish type of sales that our adjusted operating margin and when I say adjusted operating margin I'm talking about our gross profit profit less SG&A expect that margin to improve year over year at the midpoint.
Mike: Price increases, helping offset the total cost basket increases that we've talked about the simplification efforts.
Mike: Digitization.
Mike: The efficiencies that we're seeing that are allowing us to maintain a tight SG&A number even while investing in stores and reps. So those all help the as I talked about on January though we are going to have a significant headwind on non operating items due to the credits that we saw.
Mike: Last year in both environmental which I don't expect to repeat in the gain on sale.
Mike: <unk> acid or disposition disposition of assets those were roughly 60 million that I, just don't expect to repeat.
Mike: And we will be difficult to get on top of when you look at our our profit margin and or our EPS that being said, depending on where paint stores group is in the range of their sales.
Mike: We could be better from an earnings standpoint, just because of.
Mike: Or higher.
Mike: Operating margin in the other segments and.
Mike: We may get some benefit on the admin the continued cost consciousness that we have there.
Mike: Thank you Mike.
Speaker Change: Thank you. Your next question is coming from Eric Bosshardt from Cleveland Research. Your line is live.
Speaker Change: Thanks.
Speaker Change: A point of clarification you talked about.
Speaker Change: The potential impact of tariffs and the potential for price I'm just curious.
Speaker Change: And also the reality that tariff policy may change, but we likely will change in the weeks ahead.
As we sit here today is the impact of tariffs on raws sufficient to push the overall outlook above the original range.
Speaker Change: No, it's Eric and that's why when we talked earlier about evaluating our price.
Speaker Change: We're still within that raw material range and or the total cost basket range in and I think what I would just make a finer point on the price discussion as some of our businesses you have to get kind of granular on what where and how the tariffs are impacting what specific businesses and regions.
Speaker Change: So I made a broad statement, hey, we likely will not have to or will evaluate to see if we have to go out with additional price well individual businesses may be out and I don't want to get into the specifics of those but we may have some businesses that have to go out sooner than later because they are more impacted by the raw.
Speaker Change: Cereal environment, the tariff environment and those other costs that we talk about that roll into our total cost basket.
Speaker Change: Thank you Eric Thank you.
Speaker Change: Thank you. Your next question is coming from Laurence Alexander from Jefferies. Your line is live.
Laurence Alexander: Good morning would you mind, giving some detail around what youre seeing in terms of labor availability.
Speaker Change: Maybe by channel.
Speaker Change: And what that is.
Speaker Change: Is it getting easier to poach salespeople from competitors and what does that imply for labor inflation. This year.
Speaker Change: Yes, nothing significant Laurence.
Speaker Change: I'll tell you that obviously everyone's looking at the same data.
Speaker Change: I'll go back to my earlier comment when we think about how we source labor, we put a lot of time and effort into our recruiting strategy and our talent acquisition team.
Speaker Change: We work really hard throughout the organization to make sure that we've got.
Speaker Change: People that are placed in the right.
Speaker Change: Roles at the right time, making sure that we're progressing talent through I don't I don't have a strong concern there in any regard one of the biggest areas of focus for the company and this is maybe a bit more of a.
Speaker Change: As signaled to our culture.
Speaker Change: We talk a lot about this idea of we want we want our employees to understand that we want them to feel that this is we are the employer of choice.
Speaker Change: Our program called create your possible, where we really work hard to make sure that across our 64000 global employees, they've got better sightlines to all thats available impossible to them throughout the organization not just within their geography or their business unit. So.
Speaker Change: So that we're really working hard to do.
Speaker Change: Move talent around the organization, so getting them in as a really key focus, but making sure that we're engaging and retaining our talent is.
Speaker Change: Is at the forefront of everything we do in fact of our six enterprise priorities that we've shared.
Speaker Change: <unk> culture is the ultimate enabler for US is making sure we can get accomplished all of the things that as we want it we want to do.
Thank you Lawrence.
Speaker Change: Thank you. Your next question is coming from David Begleiter from Deutsche Bank. Your line is live.
Speaker Change: Hi, This is Emily <unk> on for David Begleiter.
Speaker Change: On the North American DIY weakness getting worse, given the pressure on the consumer how do you see the rest of the year playing out.
Speaker Change: Yes.
Speaker Change: It's getting worse.
Speaker Change: I would go back and point to relative to DIY as a segment. This is a really important part of our long term strategy.
Speaker Change: It represents well over 30%, 35% of the available gallons and so I wouldn't say, it's getting better but I do.
Speaker Change: Would say it is still absolutely under under pressure and bumping around a bit.
Speaker Change: Our partnerships that we have not outside of our stores with some of our strategic partners are working fiercely on making sure that we can continue to stimulate demand and get people painting their Baltimore. So any help you can provide we will take it.
Speaker Change: Yes, Emily I would just add to close it off too I mean existing home sales, we've talked about it as a driver on the DIY side as well. So if we can see some uptick there that would be helpful. On the DIY demand.
Speaker Change: Thank you.
Speaker Change: Thank you that concludes our Q&A session I will now hand, the conference back to Jim Jaye for closing remarks. Please go ahead.
Yes, Thank you Matthew and thanks, everybody for joining our call as we outlined today, we're continuing to operate here in a very choppy macro environment, that's going to last.
Speaker Change: We assume for the rest of the year.
Speaker Change: It's also an opportunity for sure want to demonstrate what makes us so unique and our differentiated solutions are driving productivity and profitability for our customers.
Speaker Change: We are focused on being the source for stability predictability and reliability.
Speaker Change: We're focused on what we can control, which is what you heard today and we're going to continue to assess and adapt and pivot in this environment. So we can do what we need to do to outperform the market and as Al mentioned, we've got a lot of different levers that we can pull as the conditions evolve so.
Speaker Change: We feel very good about where we're positioned.
Speaker Change: We're going to continue to deliver shareholder value will take care of our customers.
Speaker Change: And we'll continue to execute at a high level. So thank you again for joining us Eric Swanson and myself will be available for your follow up calls as always thanks for your interest in Sherwin.
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
Speaker Change: You for your participation.