Q2 2025 The Sherwin-Williams Co Earnings Call
good morning and thank you for joining the Sherwin Williams companies review of second quarter 2025 results, and our outlook for the third quarter and full year of 2025
with us on today's call, our Heidi Petz chair, president and chief executive officer
Paul Lang: Allistic Chief Financial Officer. Paul Lang Chief accounting officer and Jim G, senior vice president, investor relations, and Communications.
The internet at www.sherwin.com.
Paul Lang: An archived replay of this webcast will be available at www.sherwin.com beginning. Approximately 2 hours after this conference call. Concludes
Paul Lang: This conference call will include certain forward-looking statements as defined under US Federal Securities laws, with respect to sales earnings and other matters.
Paul Lang: Any forward-looking statements speaks only as of the date of which this 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.
Paul Lang: A full declaration regarding forward-looking statements is provided in the company's earnings release. Chances are submitted earlier this morning.
Paul Lang: After the company's rep, prepared remarks, we will open this session to questions.
Speaker Change: I will now turn the call over to Jim j. Sir, the floor is yours.
Jim j.: Thank you and good morning to everyone.
Jim j.: Sherwin Williams continued to execute our strategy in a demand environment that remained choppy as we expected.
Jim j.: We also continue to take aggressive and deliberate operational and Commercial actions in response to number 1. A softer for longer demand environment.
Jim j.: And number 2, a rapidly changing and opportune competitive environment, which we are taking advantage of by accelerating. Our strategic intensity in the short term, the favor Sherwin Williams over the long term.
On a year-over-year basis, Consolidated sales were within our guided range with growth in paint stores. Group offset by softness in our other 2 segments,
Jim j.: Gross margin and gross profit dollars, expanded.
Jim j.: It was the 12th quarter in a row of year-over-year. Gross margin expansion.
Jim j.: Sgna in the quarter, increased for the reasons, described in our press release.
Despite the higher level in the quarter, we remain on track. For our original guidance of a low single digit percentage increase in sgna for the full year.
Jim j.: The decrease in adjusted earnings per share in the quarter reflects the anticipated higher non-operating costs year-over-year.
Jim j.: That expected new building expenses.
Jim j.: and targeted growth Investments, we continue to make
Jim j.: from a capital allocation perspective, we continue to execute our discipline strategy, returning 716 million, the shareholders through, share repurchases and dividends
Jim j.: looking ahead, the macroeconomic indicators, we track along with real time customer sentiment
Jim j.: Point to continue turbulence and a Slowdown in demand, across various segments, businesses and regions over the remainder of 2025.
Jim j.: As a result, we are reducing our adjusted earnings guidance for the full year.
This is based on software architectural sales volumes and anticipated coming into 2025.
Jim j.: And supply chain inefficiencies do primarily to a reduction in production gal within our Global Supply Chain.
Partially offset by a reduction in sg&a spending.
Jim j.: Despite these softening market conditions, we remain committed to delivering above market growth.
Let me now turn it over to Heidi, who will provide some additional color on the second quarter before, moving on to our Outlook and your questions.
Heidi Petz: Thank you. Jim and good morning to everyone.
Speaker Change: And want to begin by acknowledging that this was not a perfect quarter. I also want to remind you that we don't run the company to achieve perfect quarters. We run the company with a disciplined strategy to deliver significant long-term outperformance of the market.
Speaker Change: And that is exactly what we're doing. Especially in this opportune competitive environment.
More specifically, I want to address head-on some of the larger Dynamics and actions that played out in the quarter and give you reassurance and importantly, confidence, in what we are doing. And why
Speaker Change: First, we began the Year by telling you that we were operating in a very choppy demand environment.
As a result, we also told you we would be responding proactively and aggressively on the cost side, including guiding to approximately 50 million or 15 cents per share and restructuring initiatives for the year.
Speaker Change: As the quarter progressed demand momentum remained stalled and in some areas, deteriorated further notably in new residential DIY and coil, Coatings and markets.
Speaker Change: Specifically we're going broader and deeper in our restructuring initiatives. And more than doubling our full year Target to approximately 105 million or 32 cents per share. We expect these actions to result in savings of approximately 8 million dollars on an annual basis.
Speaker Change: Second.
Speaker Change: Building a new Global headquarters. And our R&D Center is not an exact science. It is not always possible to predict timing with Precision on a multi-year project of this scale.
Speaker Change: Frankly our construction partners and teams made more progress on the project in the quarter than we expected. That's a good thing. We want to begin operating in our new facilities sooner rather than later.
Speaker Change: As a result, we incurred costs in the quarter that we didn't expect to see until the second half of the year.
Speaker Change: Third 1 of the, many advantages of our direct distribution model is that we have several thousand team members in our stores. And in the fields that are a partnering with our contractors every single day, providing us with real time Market intelligence.
Speaker Change: Specifically, we've learned of recent and significant reductions in customer-facing positions and assets among our largest architectural competitors.
We've also learned of a competitor implementing a high single-digit, minimum price increase in the heart of the paint selling season which can be highly disruptive to customers.
Speaker Change: We believe these competitive actions are signals that our strategy is working.
Speaker Change: We continue to believe we are at a major inflection point in the North American architectural. Codings industry and we refuse to miss this. Once in a career opportunity that's unfolding before us.
Speaker Change: This is why we will continue investing aggressively in paint stores group with customer facing growth initiatives in the quarter and throughout the second half of 2025.
Speaker Change: While maintaining discipline around GNA costs.
Speaker Change: We are highly confident that these actions will drive significant above market growth when the demand environment improves.
Speaker Change: Professional painting, contractors are looking for predictability and reliability. They need partners that are committed to providing solutions that drive their success. That is what Sherwin Williams provides especially in the heart of the painting season.
Speaker Change: Let me now provide some color on our second quarter segment performance in the interest of time. I will keep my comments brief in order to focus on our full year outlook and provide time for your questions.
Sales and paint stores group increased by a low single digit percentage with price mix up by mid single digits and volume down low single digits.
Speaker Change: As expected the price mix component was slightly below the level of our first quarter which included the residual impact of our February 2024. Increase
Speaker Change: Protective and Marine increase by high single digits for the fourth straight quarter.
Residential repaint sales again grew by mid single digits significantly outpacing the market.
Speaker Change: We also outperformed in new residential, where sales increased by low single digits in a quarter when single family completions were down by double digits.
Speaker Change: Similarly, commercial sales, grew low single digits in a quarter with multi-family completions down, mid- teams.
Speaker Change: Property Maintenance and DIY sales decreased.
even with the heightened growth Investments, I mentioned segment, profit increased and segment margin decreased only slightly
Speaker Change: We opened 20 net, new stores in the quarter and 38 year-to-date which is ahead of last year's pace.
Speaker Change: Consumer Brands group sales were below expectations with volume price. Mix and FX all down by similar low, single digit percentages.
Speaker Change: Sales, reflect continued softness in North America DIY and unfavorable FX in Latin America. Partially offset by growth in Europe.
Speaker Change: Segment sgna decreased by low single digits with continued discipline in controlling General and administrative expenses while maintaining Investments to support our customers sales.
Speaker Change: Adjusted segment margin decreased primarily due to the lower sales and impact of lower production volumes in our supply chain,
Performance coding group sales were in line with expectations.
Speaker Change: Volume Acquisitions and FX for all up by low single-digit percentages but slightly offset by unfavorable price mix.
Regionally segment growth in Europe. Asia, and Latin America was offset by a decrease in North America.
Speaker Change: From a division perspective, packaging continued to be a bright spot with double digit growth inclusive of an acquisition.
Speaker Change: Here with uncertainty related to Steel tariff.
Industrial wood and general Industrial Sales were down as expected Auto refinish also remained under pressure and was down slightly although the industry is beginning to annualize lower insurance claims.
Speaker Change: We are encouraged by meaningful new account wins in this business, which are currently being more than offset by softness and core accounts driven by lower insurance claims.
Speaker Change: dcg segment, profit and margin decreased, primarily due to increase costs support sales higher foreign currency transaction, losses, and a prior year, gain on a sale of assets, which did not repeat in the quarter,
Severance and other restructuring expenses. Also reduced segment margin by 50 basis points.
Speaker Change: And before moving on to our Outlook I would also like to note the continued good work and our administrative function to control costs.
Speaker Change: Excluding the corporate portion of restructuring costs than the new building costs.
Speaker Change: Administrative sgna was down by a high single-digit percentage in the quarter.
Speaker Change: As we enter the second half of the year, it is clear. We continue to be in a softer for longer demand environments with further, deterioration possible.
Speaker Change: Our slide deck described several of the demand indicators. We track.
None of these are particularly encouraging at the time. Customer sentiment reflects continued uncertainty, and hesitancy to invest.
Speaker Change: And consumer, confidence remains mixed.
Speaker Change: To be clear, we expect no help from the market over the remainder of the year.
However, we continue to focus, our efforts on market, share gains across each of our businesses and segments.
As a result, we were revising our full year sales expectations, downward in our consumer brand segment while maintaining our performance coding segment sales guidance.
We are only minimally adjusting downward paint stores segment sales guidance as the January price. Increase realization is not enough to offset the adjustment downward and full year volumes,
Speaker Change: The lower architectural sales volumes are required a reduction in our full year, production gallons in our supply chain, which is also pressuring bottom line results.
Speaker Change: Specific third quarter and full year ranges are provided in our slide deck.
Speaker Change: Accordingly. We are also revising, our diluted earnings per share guidance downwards.
Speaker Change: On a slightly more positive note, the software demand is resulting in a more favorable commodity backdrop.
Speaker Change: We now expect flight, deflation of our raw material Basket in the back half of the Year resulting in flattish. Full year costs.
Speaker Change: While welcome, these benefits are not enough to fully offset the impact of the software demand environment.
Speaker Change: Sheriff's also remain a variable in this Outlook.
Speaker Change: While we cannot control the demand environment, what we can control Is our commitment to a winning strategy.
Speaker Change: A team that knows how to Pivot in uncertain times and our ability to execute to help our customers be successful.
You have seen evidence of that by the actions we've taken year to date. We will continue to act with discipline and urgency during the remainder of the year.
Speaker Change: Here is what you can expect to see.
We will continue to focus on differentiated solutions that help our customers become more productive and more profitable.
We will continue to invest in growth initiatives. In a time of unprecedented competitive opportunity in our industry.
Speaker Change: We will fund these growth Investments by continuing to focus relentlessly on controlling General and administrative spending. And we expect sgna to be in our low single digit target range for the year.
Speaker Change: We are going deeper and broader in our restructuring initiative. As I mentioned earlier, we are doubling our initial targets.
We are reducing our capex spending for the Year by 170 million or approximately 20%.
Speaker Change: Total capex moves downward from 900 million to 730 million inclusive of 300 million for our building projects.
Speaker Change: We are accelerating completion and transition to our new buildings as quickly as possible.
Speaker Change: As we speak to begin, getting a return on this project. More activity, in the current year will result in a pull forward of certain transition in operating expenses.
We now estimate total investment in the year to be 115 million. Inclusive of 95 million of sgna and 20 million dollars of interest expense with approximately 50% of sgna expenses.
Speaker Change: We will continue to opportunistically repurchase, our shares and pursue targeted Acquisitions that accelerate our strategy.
Speaker Change: And we will continue to focus on our Enterprise priorities, Talent continues to drive us.
simplification and digitization will make us more productive in our supply chain, more responsive,
Speaker Change: Profitable above market growth over the long term. Remains our Northstar
Speaker Change: Let me conclude by reminding you that because of our success by Design mindset and deeply experienced team. We are highly confident that our current course is the right 1.
Speaker Change: While others in this space are abandoning their strategies and are unclear of their Direction.
We see this as a time for certainty and stability and an opportunity to demonstrate what makes Sherwin Williams. So unique.
Speaker Change: we will continue to navigate near-term pressures appropriately and with the discipline that you've come to expect from us,
Speaker Change: And we will be aggressive and targeted as we expand our competitive mode in the short and long term.
Speaker Change: You should fully expect that we will extend our strong track record of delivering for our customers and ultimately, for our shareholders.
Speaker Change: This concludes our prepared remarks.
Speaker Change: With that, I'd like to thank you for joining us this morning and we'll be happy to take your questions.
Speaker Change: Thank you. At this time, you'll be conducting. Our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad,
Speaker Change: A confirmation tone will indicate your line is in the question key and may press star 2. If you would like to remove your question from the queue,
Speaker Change: for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: 1 moment, please while we pull for questions.
Speaker Change: Thank you.
our first question is coming from David begler with Deutsche Bank, your line is live
Speaker Change: Thank you. Good morning.
I'm Heidi. You mentioned potential deterioration in the back half of the year.
Speaker Change: In demand, what gives you that caution and and but it does occur. Where do where do we expect to see that deterioration?
Speaker Change: Yeah, good morning, David. There's there's really 3 key areas. I don't know that anyone's immune. Um, in total here is there's so much volatility, but I would point to new residential um becomes you know, continues to be choppier if not, if not a bit more challenging we're seeing a bit of evidence in coil as well. Um, and as you see, you know, some good wins there continues to be a challenging environment especially, is it relates to the tariffs and the uncertainty around that. And I would also point to the DIY Market. You know, we would love, um, to get back to some of the historical. Highs this continues to be choppier,
Speaker Change: For longer. So, we're staying very close to this relative to not only our Stores, um, but our strategic Partners, um, I'll point to, you know, Lowe's Menards and others. I would tell you that we've never been in a better position of strength, um, with some of these Partnerships so David. Those are the 3 areas that we're continuing to stay focused on?
Thank you, David.
Speaker Change: Thank you.
Speaker Change: Our next question is coming from Vincent Andrews with Morgan Stanley, your line is nice. Uh, thank you and good morning everyone. Um, Heidi. Thank you in particular for the, uh, proactive comments on the incremental competitive Dynamics. I'm wondering if you can just help us. If we think about, let's just say over the next 12 months in PSG, uh, which of the 6 sub segments? Do you think these incremental, competitive Dynamics will will lead to the most share in? I I I noticed in the quarter looked like there was some improvement and and Commercial versus the first quarter. But just curious what, what this opportunity presents for the the sub segments going forward?
Well, Vincent I would be remiss if I didn't say, there's opportunity in all segments. But um, let me start with the, the segments that are going to obviously just take a bit longer. Um, let me start there because we're still being aggressive in terms of conversion market, share gains on the segments, you mentioned, but relative to the competitors. Um, the competitive environment. Um, I we would Point largely to commercial new residential and Property Maintenance, um, given where they have largely been focused. Now, that, uh, those
Speaker Change: Projects tend to be longer bigger multi-year and so some of that is just going to happen as a function of project timing that's not stopping us from being aggressive and and getting in front of these customers now. And so some of those wins that you are seeing are a result of short-term market share gains. So we're not waiting for for project timing. And then if I take you to the other segments, I think what you're seeing already in our results.
This is alisto like to highlight you know it's not the you know we talked about the accelerated Investments that allow us to grow market share at a faster rate and I could point to going back to 2019 we have over 400 more stores we have over 500 more reps and our 6 year compounded average growth rate that includes our forecast for 2025 is up low single digits in volume.
Speaker Change: That compares to an industry volume. Not our reporting numbers, but ACA and others. That's been down. Consistently year-over-year since 2020. So we have a lot of confidence that the Investments we're making, we're going to get a return on them and it's across each of the pro architectural segments because we have more people on the street.
Speaker Change: Relationship building with our customers and we're very disciplined when things get tough. We do not
Speaker Change: Stray away from our strategy, we stick to our strategy to grow market. Share and Vincent, if you hear excitement in our voice, that would be a reflection of how we're feeling right now, the the confidence in what we're doing to take advantage of some of this. We we frame this as a once in a career opportunity because it it is just that. And so there's confidence and excitement and we're we're committed to to moving forward.
Thank you, Vincent.
Speaker Change: Thank you. Our next question is coming from John McNulty with BMO Capital markets, your line is live.
Speaker Change: Yeah. Thanks for taking my question. Um, maybe just a little more detail on the sgna spend. So it sounds like you've got some big opportunities here. I guess. Can we should we be thinking about that as primarily headcount, as should we be thinking about maybe the store count creeping higher than what you've, what you've targeted? And it also seems like sgna in the back half of the year if you we kind of adjust for the for the corporate headquarter move like it actually seems like it may not be as robust in the back half of the year so it is this. Yeah, I guess how should we be thinking about that?
Paul Lang: Yeah, John let me uh start with the building. You're just to get that off the table. You're right. We had originally estimated 100 million.
John: 80 million of that with sgna all in the second half. Uh, we did have some, uh, cost pulled forward, and we're quicker. And, and we took those now, I expect our new building costs, uh, on sgna to be about, you know, less a little less than 60 million in our second half compared to the 80. I think, when you look at the Investments we're making in, in stores, uh, we still are going to open 80 to 100, uh, stores this year. Likely that'll continue as the next year, so it's really targeted. Uh,
Rep as in very specific markets, where we believe we can get a bigger return and a quicker return, quite honestly, for those Investments. Um, when you look at our second quarter,
John: and I'll use adjusted was that, you know, a little over 1 0 8,
John: um,
John: new bof.
John: Costs of about 40 were in that. So our sgna in the quarter was a 3.8%.
Speaker Change: All of it was incremental increase or an increase in paint storage group. There's some timing and advertising and marketing in there to support some in quarter promotions but it's primarily new stores which is over 91 stores and over 108 reps. Uh, additional reps in the field. That's driving those increases. You look at our other segments consumer was down. Uh, PCG was up slightly part mainly because of Acquisitions. And then admin was down as Heidi mentioned a high single digit percentage um, excluding the new bows. So in the short term, we're pulling levers to manage through this tough environment. You saw the restructuring charges are higher, uh, than we have originally forecasted it. That'll carry into our second half with continued ads and paint stores group, but I would tell you, we're going to have
John: A lot of discipline around GNA.
John: And we're going to realize the benefits of the restructuring charges. We've already put in place so I expect our second half, sgna to be up only at low single digits and you know, 1 to 2% range, which is better than what we had planned coming into the year.
John: Thank you, John.
John: Thank you.
Our next question is coming from Jeff saccos with JP Morgan. Your line is not
Speaker Change: Uh, thanks very much.
Speaker Change: Um, is that because of the opportunities following the destitute of the PPG architectural business?
or is it because
Speaker Change: Um we're in a higher interest rate environment and so demand should increase in the future. That is what what is it about? The current moment that makes it so important.
and then, secondly, in the consumer Brands group your store's,
Speaker Change: Decreased from 325 to 312 what's that about and why why are prices down in consumer brands?
Speaker Change: Great. Well, good morning, Jeff. Let me let me start with your first question and I think it's it's a great question. It starts and ends with a differentiated strategy that we've been working on for decades. And so, while this is a unique moment in the industry, it's also a result of a strong and very steadfast commitment to to what we believe is important to showing up for our customers every single day. You then layer into that. Certainly what's happening from a macro standpoint, the uncertainty, some of the turbulence, and there's been a lot of, I would call it competitive turbulence, um, but I believe is, is playing to our favor because of our stability because of our predictability. When I'm out with customers, I mentioned this on our last call, I just was out with a another contractor last week and heard the very same sentiment, which is, who would
Speaker Change: The thought that simply doing what you say, you will do in an environment where there's so much volatility and uncertainty you you guys show up, um, and and your focus on our success. So I think in this environment, the backdrop of we've been stable for decades. Um, you combine that with the macro and some of the competitive choppiness and then, yes. There. There is an opportunity there to continue to focus on the fundamentals relative to market share new business wins. Um, making sure that we are securing the best possible Market position. So it is a unique point in time and we're not going to, you never let a crisis go to waste. We're not going to let this environment, go to waste. I mean now pivot um to your question on this CBG side, maybe Jim. I'll start with you. Yeah, good morning. Jeff. This is Jim. Yeah, on CBG, uh, we did have the store closures as you pointed out. Those were really transitions from company-owned stores to Dedicated dealers. So the channel continues to evolve down in Brazil and
Jim: That was the pivot that we made down there. Um, your your question around, uh, the price and consumer brand remind you, it's price mixed. So there's also a mix element in there. You saw that the Europe piece was uh higher this year than than the North America piece and the Latin America piece. There was a little bit of mixed impact there and maybe a little bit of price mixed in Latin America.
And thank you for the questions, Jeff.
Jim: Thank you.
Speaker Change: Our next question is coming from Christopher Parkinson with wolf research, your line is live.
Christopher Parkinson: All right, thank you so much for taking my questions. Um, Heidi. When we took a look at growth spend, um,
Christopher Parkinson: 1 of your main competitors. Has allegedly been kind of, you know, laying off customers and obviously some others have been facing. A lot of challenges has that changed your Calculus at all on how you're thinking about allocating growth spends, uh between you know, PSG and consumer Brands is there anything there or is that kind of just been the status quo?
Christopher Parkinson: Well, Chris, let me start with. Um, you said laying off customers. I think you meant laying off employees, but, uh, we would not yeah, Excuse me. Yes.
Christopher Parkinson: so, so in that
Christopher Parkinson: I'm going to ask out to jump in and
Christopher Parkinson: on a few of these items, I think there are a few things. They're they're unique Dynamics here. Let me just take you to the view of a contractor in the middle of the paint selling season. Um you know the way that we approach things like pricing um the way that we approach uh conversations relative to tools to help our contractors, be more productive. You know, we're starting those conversations well ahead of the paint season. Um but we want to make sure that we're handling that in the middle of the of that cycle. So I think you are seeing some short-term pressures where customers and contractors are confused. We are seeing um some layoffs.
Christopher Parkinson: We are looking at opportunities there within our performance coding group, I think 1 of the key things that they've been doing all along and they've done, a really nice job is with demand environment being softer for longer on what we're talking around the fifth year. Um, they've done a really nice job controlling their costs, in their field expenses, without taking away from the customer differentiating, things that we do, uh, tech service reps. And, and how we approach new account activities. They've been laser focused on accelerating new account activities, so that as demand doesn't prove and it will improve GI industrial wood, Auto Refinishing, they they all will improve. Um we'll get our a more than our fair share of that market growth.
Chris: Thanks Chris.
Speaker Change: Thank you. Our next question is coming from Arun, bis, manithan, with RBC Capital markets, your line is live.
Arun: Great. Yeah, thanks for taking my question. Um,
Arun: Congrats on the progress here, I guess? Um, I just wanted to, maybe if you could frame us on, uh, how how to how to think about your future growth algorithm. So it sounds like you are leaning into a lot of Investments that will help you drive continue to above market growth. Um, should we also kind of take away that, you know, you've made some comments about, uh, software for longer so, you know, the housing market
Arun: It may be well, should should it settle into maybe a 1 to 3% growth rate? And you could be maybe 2 times that, or how should we think about your long-term volume opportunity and, um, do these Investments kind of increase it from what it was in the past. Maybe it was 1 and a half to 2 times in the past. And now we're squarely in the 2 to 2 and a half times range um is that, is that kind of the strategy and objective behind lead really leaning into these Investments during this opportune time? Thanks.
Speaker Change: Yeah, Ron. I, you know, I would say we we we've been uh, here before and go back to 2007, 89, and we continue to invest when the industry lost 30% of its pay paint the volume. And although we're in a different environment, what I would say is because demand and has been pent up for longer with existing home sales down. Now, we're seeing a little bit of softness in a new residential, so, but the operate Market opportunity is very similar in coming out of that, um, environment and look at 2010 to 2020, we grew, uh, paint stores, group sales, uh, low double digit percentage. And as we talked about, um, what our expectations are for growth and that algorithm coming out of, you know, we get, um,
Speaker Change: Interest rates to start moderating, we get affordability of homes to start moderating and the position we have relative to our our our competitors. Yeah. Our expectation is higher that instead of 1 and a half to 2, we'd grow 2 and a half to 3 in some cases with minimal high, high single digit growth. So that our we've set the bar very high for our paint stores group. And when we see demand start turning, the expectations are even going to be stronger than
Arun: Thank you, Arun.
Arun: Thank you.
Arun: Our next question.
Is coming from Greg, melik with evercore your line is live.
Hi, thanks. Um, I'd love to follow up on the Dynamics of uh, volume and gross margins. So clearly the the the weakness continuing and Architectural. I guess what would gross margins had been? Uh, if we had managed to to have volume be flat or up?
Arun: In the quarter. Can we think of, you know, that being 40, 50, 60 B of
Speaker Change: Relative pain.
Speaker Change: Yeah, I think, you know, you're you're probably because of the way it flows out. So, think about paint storage group, uh, was down low single digit, um, consumer. Uh, Bonds were down more than that, so you have a little bit of mix. I I I would be hesitant to go all the way to 60 basis points. Um, but what we did see in the quarter to drive the incremental, gross margin, which is uh we talked about in our opening remarks up, 60 basis points in a tough volume environment, 12 consecutive quarter due to the the price increase Effectiveness within paint stores.
Speaker Change: Paint stores is growing faster than the other segments. Which, um,
Supply chain efficiency is due to the lower production volumes because we need to manage our inventories, tightly. We need to manage our inventories with the, our production volumes with our sales volume, and you'll see us do that through the second half. Um, but that's also a drag
Speaker Change: On gross margin in the quarter.
Thanks Greg.
Speaker Change: Thank you. Our next 1 is coming from.
with Missoula, your line is
Speaker Change: um thank you. Uh where are the capex reductions coming from? And I think the new accelerated depreciation is retroactive back to the start of the year. Is there any meaningful benefit coming here from from cash taxes?
Speaker Change: Um yeah, John the the you know, so we just level set, we took our capex down um, from 900 to 730 uh with the idea that we're going to continue uh completing our Statesville capacity, architecture capacity, um project we're going to continue to work through our warehouse Automation and even coil. We have a coil capacity expansion, um, in process, uh, because of the confidence, we have in our long-term growth, I think what we've had to do is slow down uh spending and some of of our other areas that yeah they need to be done. Um we're going to do them, they just got pushed back so we don't canceling.
Speaker Change: Things were just moving things back as as we uh reset cache with the demand environment.
John: Thank you, John.
Thank you. Our next question is coming from Patrick Cunningham with City. Your line is live.
Patrick Cunningham: Hi good morning, thanks for taking my question. You know as you repaint continues to have strong above market growth, you know, I think there's a lot of debate on the direction of this Market. Can you comment on how underlying backlogs and activity, you know, evolved throughout the balance of the quarter and into July? Thank you.
Speaker Change: Yeah, good morning, Patrick, um, the the sentiment among these contractors and um, obviously there's a, there's some variability relative to size of these risk-free paint contractors, but by and large, they would characterize the backlogs are stable and that there's warp to be done. Um, you know, we are seeing some marginal increase in bid activities. Um, with the caveat here that I've, you know, as you think about, uh, some of these projects, um, project size, um, could be smaller. Um, but we're working hard with these contractors to help them, you know, work, uh, look leads, help them travel and find new opportunities, launching products to help them have more surface area, once they're in a home and have more activity to to bid on. Um, but by and large, um, we we've gotten to a point of a bit of stability, but but we need more volume here. I think we'd be remiss to say that we're happy with where the market is. Um, we are happy that we continue to take share in this in
Speaker Change: Environment. But when the market recovers, we're going to absolutely um be best position. Given the market share gains that we're we're seeing in the down cycle.
Speaker Change: Thank you, Patrick.
Speaker Change: Thank you. Our next question is coming from Gan Shan Punjabi with beard. Your line is live.
Hey guys. Good morning. Um, you know, Heidi just given the current backdrop that you summarized in slide 8. Um, you know, is your base case at this point that the volume weakness you're seeing at an industry. Level is likely to spill over into at least the first part of the 26. And then the on the flip side of that, as you think about your PSG verticals, which do you think would be the quickest to show any signs of improvement? If in fact, uh, you know, long duration, interest rates, correct lower.
Speaker Change: Well, I think it starts with, you know, as you look by segment, uh, obviously the devil's in the details here, um, res. We've talked a bit about, I do want to hit on, you know, if you think about our other segments, here commercials are really good examples, um, where the backlog of projects, um, continues to be be a challenge. I'm out with some of our existing and some new large commercial contractors, and the conversation is changing a bit, is they're looking for a true Partners here that I would say now more than ever that we can help them, you know, look at their growth plans, good activity, becoming even more productive, um, on job sites. Um, that would be another big opportunity, and as we talked about multi family completions have been down, um, double digits year-over-year, we continue
Going to focus on share gains so I hope you want to. Yeah, gotcha. I I think, you know, um, I'd say when you look at first half 26, clearly, uh, we're not going to guide to that, but, you know, we run, uh, our, our forecasting models, and I would, I would just say our line of sight, um, today. And this Dynamic rapidly changing, environment is less transparent than maybe in a stable environment and that that seems obvious. Um, but you know, early indication would say that there is a continuation and that's why, you know, we're we're we're, we're paid to influence results and that's why we're taking action now with additional Investments within paint stores group to influence results. In the first half we don't have to uh be we're not. We don't have to be satisfied and aren't satisfied in the demand environment. So we're we're trying to do things uh about that to to to do better. So you can expect us that to continue doing that.
Thank you, gotcha.
Speaker Change: Thank you. Our next question is coming from Michael Susan with Wells. Fargo, your line is live.
Hey, good morning. Um, I wanted to visualize the market share gains a little bit better in paint stores group. Your volumes were down low single digits in. 2q, what do you think industry volumes were down in 2q? And and what do you think? Um, the Outlook is for the full year and then Heidi maybe, you know, the longer term, what what mortgage rate do you think we need to get to for industry volumes to turn the corner? I mean with 6% Health 5%, maybe there's some historical correlation, you can walk us through.
Speaker Change: Yeah, Mike it's Jim. I think I'll start maybe turn it to Allure. Heidi for other comments but is Heidi mentioned in her opening. I think if you look in the second quarter and you see that you know our new res business was up slightly. We've seen completions down in the quarter. Very meaninglessly for us to be up. I think tells you we've got to be, you know, outperforming our competitors. Same thing on commercial where you saw a commercial up slightly in the quarter but you saw multi-family completions. We're, we're down in the teens during the quarter. So I think that bodes uh, very well for, for the share gains and we expect that trajectory to continue.
In like on your other question here relative to what would be the trigger. Um, I think it's a mix of a few variables. Rates is obviously a huge piece of that is, I'm spending time with a lot of these Builders, um, while they're anticipating a rate reduction, anything south of 6 is going to be seen as a positive. I would tell you that the general sentiment is well that's important. Um of equal importance as consumer confidence and affordability. So I think it's somewhere in the mix of those 3 things coming together. That, that we are absolutely staying laser focused on
Speaker Change: Thanks. Bye.
Speaker Change: Thank you. Our next question is coming from Alexey efremov with KeyBank. Your line is live.
Alexey Efremov: Good morning. Uh, I want to ask you about new construction markets within PSG, I mean, you just mentioned outperformance and, uh, new commercial. And I need to keep off performing in, in new residential as well. Do you expect to stay at roughly these levels of sales within the segments, and the second half or could there be, uh, more pronounced deterioration sort of, in line with the completions?
Speaker Change: No, I I think Alexi, you know, we've talked about, you know, with uh, you know, coming out of our first quarter call the commercial property maintenance and Property Maintenance was already Under Pressure because of capex projects and the higher interest rates. You know, we really don't expect to see an inflection good or bad in Property Maintenance. It's just, it's bouncing along. We talked about new res in our first quarter call. Um,
The same way just kind of bouncing around oh, long up or down a little bit uh, clearly with foot traffic and and some of the reports you've seen, it's gotten softer and that's what's driving our our second half. Um, low single digit volume decline in in paint stores. Group offset by higher price. So, it see, it just feels like, we're kind of, in a, in a
Speaker Change: not, we're not getting better. We're not getting a worse. And a number of these segments
Alexi: Thank you, Alexi.
Speaker Change: Thank you. Our next question is coming from Josh Spectre with UBS. Your line is live.
Speaker Change: Talk about. So, 2 Q is 3.8% X. The items is that the right basis to compare against.
Speaker Change: Second when you talk about the 1 time, impacts in sgna, you know, how much do we get back in next year? Maybe net of another quarter of the new building and then third the higher cost to bring the inventory down or the production overhang are, are you able to size the second half even impact from that? Thanks?
Speaker Change: Um, yeah, Josh the 3.8% is adjusted sgna less the impact of the new building.
Speaker Change: Um, on the second half Outlook.
Uh, we talked about um, low single digit, um, sgna that that has the building into it. I think of the building as you know, um, you're right, what we're going to have, you know, essentially um,
Speaker Change: 2 quarters of of of the new building primarily, they're pretty evenly spread on sgna between the third and fourth quarter. But you know that adds about uh,
Speaker Change: About 1 and a half percent uh, to our sgna in the second half, which tells you that we're going to control sgna type on other. Our other segments in particular of our admin segment. And then, you know, when you look at our full year, EPS guide, uh, part of the reduction, part of that 50 Cent reduction,
Speaker Change: Due to lowering our production volumes in the, in really, for the year lowering our production volumes for the year, a low single digit percentage to match up with.
Speaker Change: That, that reduced architectural, sales volume. And when I look at our gross, uh,
Speaker Change: Profit reduction.
Speaker Change: Uh, for the year, uh, think of it, 80 80/20, 80% of it's going to be sales, volumes lower, partially offset by The Better Price. Uh, Effectiveness in paint stores group and the rest of it is the unfavorable impact on our Global Supply Chain.
Thank you, Josh.
Speaker Change: Thank you. Our next question, is coming from Chuck. Servi with North Coast research, your line is live.
Good morning, everyone. Uh, could you talk about what role? Uh, product pricing plays is Sherwin goes after market, share and volume growth across the various event markets, please.
Yeah, Chuck. I I, you know I think uh,
Speaker Change: We have a confidence and a value proposition that we provide our customers. Uh so we do not um
Speaker Change: Uh, approach new account activity on a price alone. I think if you looked at the survey, third-party surveys, not our surveys. Uh, painting contractors price is probably fourth or fifth on the list of importance. When you talk about consistent Quality Service knowledge, you know, our sales reps and our store employees, we are very knowledgeable and can help them, not only on getting through projects, but also how helping them, uh, utilize the tools. And we have, we have in our Pro Plus app to, to better run their business. So that they can be more efficient at that and spend more time painting, which is where they make all their money. And really the differentiated solutions that Heidi talks about is really all about how do we help them make more money? And that's the driving Factor behind um our our new account activity. And I could say that across all our PCG businesses, all our segments within paint storage group and within our, our consumer Brands group,
Speaker Change: Thank you, Chuck.
Speaker Change: Thank you. Our next question is coming from Kevin McCarthy, with vertical, research Partners your line is live.
Kevin Mccarthy: Yes. Good morning and and thank you very much. Um, Heidi. I I think you commented that you doubled the size of your previously announced restructuring program. I was wondering if you could elaborate on the magnitude and and flow through and sources of the savings there. For, for example, you know how much was achieved in the second quarter, and would you expect those savings to accelerate as we progress through the back half of the year,
Heidi Petz: yeah, Kevin the the
Heidi Petz: The rationale.
Environment coming into 25. Um, what we didn't expect was deterioration in some end markets and so the absolute right thing to do, is a function of, our discipline was to go deeper on some of those costs, all all that, I'll give you a little bit more color into some of the areas. Yeah. Kevin I I think when you um,
Heidi Petz: 5.
Heidi Petz: About 20% of that is in gross profit. Um, you know, those are previously announced uh, plant consolidations, that will take a little longer to see the savings flow through the p&l. But you can expect, you know, as we get later this year and into the first half of next year, we'll start seeing the benefit of those. Uh, obviously the biggest increase uh, is on sgna and
Heidi Petz: We do expect to to see annually about 80 million in savings, uh, related to the restructuring chart. Um, restructuring activities that we have completed thus far. I I think you'll start seeing, you know, a, a good portion of that in our second half and, and it'll annualize into, uh, 2026 and we'll continue to look for opportunities and levers. Um, as we monitor the demand environment stuffy 1, if the 6 we talk about our 6 Enterprise priorities, um, very consistently with, with our 64,000 Global employees, 1 of them is to remember, is around simplification. And so where we have laid out road maps to, you know, everything from raw material to asset optimization. You what you're seeing here is that um, in effect and and essentially pulled forward. So more lot more work to be done in simplification but um, some good progress Threat by the team.
Kevin: Thank you. Kevin.
Speaker Change: Thank you. Our next question is coming from Duffy Fisher with Goldman Sachs your line is live.
Duffy Fisher: Yeah, good morning guys. Um, just question on the transfer accounting historically, you could get some wonky numbers. Uh, when volumes differed from what you expected, I think you changed the way you accounted for that from csb in the PSG a couple years back. But this is the first time that we're going to stress that with with a meaningful volume change, would you expect the pain from the lower? Operating rates to be evenly distributed between the 2 segments? Or, you know, might we get kind of a disproportionate burden in csb.
Duffy Fisher: yeah, Duffy you're going to get in the short term, meaning over the last 2 quarters of the year is that all that, um,
Duffy Fisher: Deficit of you, if you will because of the lower production, gal, um, we'll, we'll stay in our consumer Brands group and then, we'll true up what the costs are in the when we when we do the standards in in January. And and some of that will flow through uh, paint stores groups. Some of it will find its way in our performance, codings group. Uh, because part of what we're trying to do, uh, Duffy is, you know, maintain the Staffing. We have at our factories and distribution centers, uh, similar to what we have done in the past with lower volumes. Like when we were having trouble getting raw materials through our
Duffy Fisher: Factories and products through our distribution centers, maintaining those headcount because it's hard to once you lose them, it's very hard to to get them back. So we're trying to do everything we can and trying to be creative uh, to do different things to keep as as many people as we can.
Duffy Fisher: Thank you. Duffy
Speaker Change: Thank you. Our next question is coming from Mike Harrison with Seaport research Partners. Your line is like
Speaker Change: Hi, good morning. Uh, a couple questions around raw, materials and pricing. First of all, in, in terms of the deflation, uh, that you're expecting to see in the second half, can you give a little bit more detail on what specific, uh, raw material, baskets, uh, might be improving? And are there any materials that you're kind of keeping an eye on? And then on the pricing front, I'm just curious if raws are coming lower and your competitors are worried about, losing more market share. Are you worried about competitors, cutting price? I know you just said pricing, maybe is lower on the list of considerations but is that something that could um, be a, a pricing Dynamic that we need to keep in mind in the second half? Thank you.
Speaker Change: lower the
Speaker Change: Calf. We come out with a with a flat uh for the year I think on the pricing and I'll see if Heidi or L want to add to this but you know as Heidi mentioned we're seeing competitors. Actually do the opposite. We saw competitors with uh, in the in the quarter, you know, a high single digit price, increase Announcement, Part of the paint selling season which as you know is, can be highly disruptive. So I think we're going to maintain our discipline. Uh we don't you know necessarily um
Speaker Change: The game we play, not the game, but the way that we operate certainly is on the value that we deliver and we price for that appropriately. Heidi, I don't know if you want to but I think he said it really well. This was maybe at the beginning of some of the um earlier business that was for sale competitively and we
focused on Quality Sales. We want we don't want all the sales we want Quality Sales. So when we look at Price volume, you should expect that same discipline in the back half and going forward.
Speaker Change: Thanks Mike.
Thank you. Our next question is coming from Garrick Schmo with loop capital. Your line is live.
Garrick Schmo: All right, thank you. Um, you called out on favorable, mix and performance Coatings is the main impact on pricing, uh, in the quarter, I was wondering if you can expand on that a little bit more detail, and was there any mix uh impacts in uh, consumer Brands as well drive me to a lower price.
Yeah, Gary. Uh when you look at um both of those businesses um
Garrick Schmo: Because of our maturity and scale in North America. It typically it is our higher gross margin type of businesses and the type of customers. So, within PCG in North America, we have a large, uh, businesses small, mid-size accounts through our facility. So think quick turnaround, custom color and higher higher gross margins. So, when our, uh, North America, uh, does not grow as fast as some of the other regions. Both in both segments, you get a negative mix shift. And that's, uh, quite honestly what we saw in the quarter.
Garrick Schmo: Thank you Garrick.
Speaker Change: Thank you. Our next question, is coming from Aaron Checker with Baron Berg, your line is live.
Aaron Checker: Hello good afternoon. Thanks. So thanks for taking my question. Good morning, I should say, um, you
Aaron Checker: Good things group says we're flat, but you, uh, just a segment. Margin was down, 2060 Bates and you mentioned increased cost to support sales. Perhaps, can you expand a little bit on this, is this, um, relating to promotional activity to support sales and on on PCG again, I see that you kept your full year guidance. Uh,
Stable for up or down low, single digit percentages, we saw this morning a, um, competitors action know. So, downgrading guidance on on, on volumes and trying to understand what gives you confidence on the upper end of the guidance today, considering that volume is probably
Aaron Checker: a increase a little bit at least in terms of Outlook while pricing, doesn't seems, uh,
More than 1%. Let's say, thank you.
Speaker Change: So, I'm going to start with your second question first. And then I'll flip it over to Al on your your question relative to the sales and environment. Um, what gives us a lot of confidence in holding for your guide is is simply the team's focus on, um, understanding that the core is not that the the market is not going to help us the core health of where markets are even even globally, or under pressure. The teams focus on 2 things are. It's a Forefront of everything that we're doing, it's obviously market, share gains, but a big focus on new business wins and conversions. And you'll see that, um, across every of the divisions, great leader in Carl Jorgen, Road of that business. Um, a lot of discipline and even in a volume constraint environment that they work with the high teams um that we've committed to. Um when we put more volume through that, we're we're very confident, we're going to continue to expand our our operating margins there.
Speaker Change: yeah, random when you when you look at the second quarter year-over-year uh decrease
Speaker Change: Uh, obviously the lower, uh, net sales, uh, partially offset by, by good cross control that I mentioned earlier. We also had
Speaker Change: Other non-operating expenses which were significantly higher year-over-year.
Speaker Change: and uh, so the, the the decrease in, in segment profit and and
Speaker Change: Kind of the drivers that are outside of just the mix that I talked about just a minute ago and the impact that I had on our gross profit.
Thanks Aaron.
Thank you. Our next question, is coming from masto with Bank of America. Your line is live.
Speaker Change: Morning everyone. Um,
masto: Can we just dig in a little bit on the supply chain, if inefficiencies, and why they maybe appear to be a bigger headwind this quarter? I mean, I was looking back.
masto: It seemed like that was maybe more of an area investment in Tailwind. So what specifically a rose in in, in 2 q and and with that in mind, uh, how should we think about the fixed cost? Leverage should, um, some of these businesses kind of deteriorate as you said was possible. And the guys,
masto: But just at our production schedules to down.
masto: To account for the lower sales volume that we saw. And, you know, so when you look at our our sites, we're probably 60% fixed 40% variables. So you lose the absorption on the production. Gal, it does have an impact and it, and it did so in our second quarter, but really, our second quarter in
masto: in consumer, it was more driven by the lower volume sales not um,
masto: The impact on Global Supply Chain. If you look at the second half,
masto: uh, you we believe we have a good production plan. Um, you know, I talked about the reduction in our consumer Brands Outlook um primarily 80% of which is a gross margin, gross profit driven, 80% of that is lower volume sales. 205 you know, 20% of it is due to the uh, Global supply chain inefficiencies. And, you know, we're we're trying to build more flexibility into that organization. I think. Colin and team have done a nice job of of reducing their fixed costs but um we'll see, we'll see if it's uh if if the markets and demand periods uh further we have discipline on getting to the right inventory number by year end, so we don't have an issue going into 2026. So it's hard to judge uh the current time, I think we've been um pretty uh realistic about volumes but we'll we'll have to man. We're going to manage it as we go.
Matt: Thank you, Matt.
Thank you. Our next question is coming from Lawrence Alexander. With Jeffrey's your line is live.
Lawrence Alexander: Good. Good morning, just very quickly, could you um give a bit more detail on what you're seeing.
Lawrence Alexander: In refinish, you mentioned kind of La you know kind of lapping, the comps will help but um any sign of underlying Improvement in consumer behavior on that front.
Lawrence Alexander: And secondly on the, uh, productivity question earlier. Could you just give us a sense for what, the Run rate will be at year end. So what, what the net Tailwind would be in 2026 from the cost, uh, measures this year and as demand accelerates or as you see volumes come back, how quickly should would capex need to come back.
Um, to support a better environment.
Speaker Change: Great Lawrence. I'll start on the refinished question. Um, we mentioned and you said it, you said it. Well, you know, the, the growth in new new accounts, new business, um, you know, continuing to drive record high installs to offset the core. I don't necessarily see any, um, underlying health coming back within the industry itself. Um, is, you know, there's been, uh, some a lot of challenges relative to some of the the claim environment higher insurance premiums Etc, um, that continues to be a headwind. But as I mentioned, you know, this is an area where we are out demonstrating value every day, um, the market.
Speaker Change: Market share, gains our ability to to take and hold price, um, and our Collision core, uh momentum. Um, we continue to to drive adoption there. So we we we're very confident. There's a lot of market share gain opportunity for us on that segment. Uh maybe if you want to touch on the productivity of Lawrence's question. Yeah. Lawrence, you know the the restructuring activities that have been completed to date. Um should um,
Speaker Change: Provide us about 80 million savings, annually, we'll see.
Speaker Change: And the reason uh I have a lot of confidence and be able to to maintain that is we we've gotten ahead of uh some of the growth in packaging and the capacity expansion we completed in our Tour. New France Factory, our D side. Factory our our uh
Speaker Change: Rochester, Pennsylvania, Factory. Uh, we're in the middle of of expanding, our Bowling Green Factory for coil, uh, capacity expansion, because of the confidence, we have in our ability to continue to grow, share in that business and then also, uh, Statesville I mentioned, uh, continuing to build that out.
Um,
Speaker Change: To to, um, handle the the sales growth, we expect to see in stores and in consumer and then finally, Warehouse automation will continue to build that out. So I think from a capacity standpoint, I feel pretty good that we have a little bit of a Runway before we have to be thinking about another, uh, work center within another Factory, and 1 last piece Lawrence to leave you with on this. I also said this earlier and I think it's really worth. Um, underscoring is this notion of discipline, so discipline when things are good but also discipline in a challenging environment. And as we've said earlier you know, this is not an environment for incrementalism. This is, this is truly an opportunity for for step change in our industry. Um, I also want to take a moment, just thank our 64,000 Global employees, who are out there on the front lines every day partnering with our, our customers, our
Speaker Change: Contractors to help them win. We we couldn't do it without them. So appreciate your question.
Speaker Change: Thank you.
Speaker Change: Thank you. As we have reached the end of our question and answer session. I'd like to turn the call back over to Mr. Jim j for closing remarks.
And uh I hardly agree with Heidi's comment about thanking our employees for all their hard work. You know, as we outline today we're operating in a softer for longer environment and we're also operating in this rapidly changing competitive environment. That's giving us the unprecedented opportunity that we've talked about
Speaker Change: As you would expect, we are responding as these things are unfolding in real time and we're responding with urgency and discipline. We've got great confidence in what we're doing, and we know that's going to drive outside market growth over time, as Al talked about, on the call, same time, we're going to be very aggressive, controlling that GNA, we've doubled our uh, Initiative for this year and you can expect us to
Speaker Change: To continue to operate with discipline there. So we see this as a time to really differentiate ourselves uh, with our customers in particular, nobody's better positioned than we are feel very good about what we're doing, and appreciate your confidence in us, and our in your support. For sure when Williams, uh, we'll be available for your follow-ups. And thank you very much.
Thank you ladies and gentlemen, this concludes today's conference and you may disconnect your lines at this time and we thank you for your participation.