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The Sherwin-Williams Company is engaged in the development, manufacture, distribution, and sale of paint, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America, with additional operations in the Caribbean, Europe, Asia, and Australia . The company is structured into three main reportable segments: Paint Stores Group, Consumer Brands Group, and Performance Coatings Group . Sherwin-Williams sells a variety of products, including architectural paints, stains, varnishes, and industrial coatings .
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Paint Stores Group - Operates 4,694 specialty paint stores in the United States, Canada, and the Caribbean, serving architectural and industrial paint contractors and do-it-yourself homeowners. The majority of products sold are manufactured by the Consumer Brands Group .
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Consumer Brands Group - Manufactures and distributes a wide range of branded and private-label architectural paints, stains, varnishes, and other products to retailers, including home centers and hardware stores, across North America, Latin America, and Europe. Also operates 318 specialty paint stores in Latin America .
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Performance Coatings Group - Develops and sells industrial coatings for various applications, including wood finishing, automotive refinish, and protective and marine coatings. Operates 322 company-operated branches and distributes products through various channels .
What went well
- Strong growth in the Packaging segment: Sherwin-Williams reported that Q3 sales in Packaging were up high single digits, driven entirely by volume, with volume up low double digits. The company expects very strong performance in the fourth quarter leading into next year, supported by the expansion of their Tournus France plant and the acquisition of Henkel's metal packaging business. These strategic moves position them well for industry changes like the upcoming EFSA ban on BPA. ,
- Strategic investments leading to market share gains: The company is capitalizing on a unique moment in the industry by investing ahead of the curve while competitors are distracted. Sherwin-Williams focuses on being consistent, reliable, and dependable, which is attracting customers and leading to share gains, particularly in Refinish and Residential Repaint, where they've seen the fifth consecutive quarter of mid-single-digit growth in a flat market. , , ,
- Well-positioned for anticipated demand recovery: Anticipating an improvement in remodeling demand as indicators like LIRA begin to rise, Sherwin-Williams is confident that its proactive investments and customer-focused solutions will allow it to outperform the market when demand becomes more robust. ,
What went wrong
- Challenges in the Refinish business due to lower insurance claims, down double digits in North America, impacting sales and masking share gains. Management is not satisfied with year-to-date numbers.
- Continued softness in the DIY market is negatively affecting the Consumer Brands Group, with sales decreasing by high single digits. The market remains weak due to pressure from inflation and existing home sales.
- Increased SG&A expenses are constraining margins in the Paint Stores Group, with segment margin decreasing to 24.5%, due to higher investments in growth initiatives and unfavorable mix.
Q&A Summary
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Pricing Dynamics & Outlook
Q: What are the pricing dynamics for 2024 and 2025?
A: SHW announced a 5% price increase, effective January 6. This aims to offset higher feedstock costs, wage inflation, and significantly higher healthcare expenses. They expect to achieve 50% to 60% price realization, influenced by timing of national account contracts and competitive dynamics. -
SG&A Investments & Margins
Q: How will SG&A spend impact margins and growth?
A: SHW increased SG&A in Q3 to invest in long-term strategies and widen their competitive moat. They are confident these investments will yield returns and view this as the ideal time to invest ahead of market recovery. SG&A is expected to moderate next year, with an eye on operating margin expansion as volumes grow. -
Competitive Landscape & Market Share
Q: What are the opportunities from competitors' changes?
A: SHW sees opportunities from competitors' shifts, such as PPG and Kelly-Moore. They focus on capturing quality sales in premium segments, not commodities. Kelly-Moore is viewed as a short-term share gain, while PPG represents a long-term opportunity. They're committed to earning and retaining valuable customers over time. -
Raw Materials Cost Trends
Q: How are raw material costs impacting SHW?
A: Raw materials were flattish year-over-year in Q3 and expected to remain so in Q4. Propylene costs increased almost 50% year-over-year due to supply outages. TiO2 supply is readily available with stable pricing. Overall, raw materials are expected to be down low single digits for the year. -
Remodeling Demand Outlook
Q: What is the outlook for remodeling demand?
A: SHW is optimistic about a resurgence in home renovation, aligning with their long-term view. Indicators like LIRA are expected to tick up in the second or third quarter of next year. They anticipate solid performance in their residential repaint business, benefiting from current investments. -
Impact of Hurricanes on Guidance
Q: What is the hurricane impact on Q3 and Q4?
A: Hurricanes reduced Q3 sales by less than one point and impacted earnings by about $0.05 per share. Recovery in Q4 is uncertain due to the time it takes customers to resume activities. This adds variability to their Q4 outlook. -
Refinish and Packaging Businesses
Q: What is the outlook for Refinish and Packaging businesses?
A: Refinish sales are down low single digits year-to-date, affected by double-digit declines in claims. SHW expects improving claims and share gains to be tailwinds next year. Packaging sales were up high single digits in Q3, with volume up low double digits. Strong performance is expected in Q4 and over the next 12 months. -
CapEx Guidance Explanation
Q: What's happening with CapEx versus guidance?
A: Year-to-date CapEx includes $415 million for new headquarters, with reimbursements reducing net CapEx to about $200 million. Core CapEx stands at $355 million, aligning with their guidance of $520 million, around 2% of sales. -
First Half 2025 Outlook
Q: Is first half 2025 outlook a continuation of current trends?
A: SHW expects the first half of next year to remain choppy, continuing the trends seen in the back half of 2024. -
SG&A Leverage Strategy
Q: How is SHW thinking about SG&A leverage?
A: SHW is managing SG&A tightly, focusing on selling investments that drive productivity and growth. They aim to achieve SG&A leverage as macro demand improves and volumes increase. -
Balancing Growth and Margins
Q: How is SHW balancing investments and operating margin expansion?
A: SHW focuses on driving operating margin by balancing gross margin expansion and prudent SG&A management. They invest strategically now to accelerate growth when demand returns, expecting higher operating margins in the future.
Guidance Changes
Quarterly guidance for Q4 2024:
- Margin improvement: Expect improvement in all operating segments, with a seasonal slowdown in architectural sales (no prior guidance)
Annual guidance for FY 2024:
- Full Year Diluted Net Income Per Share (EPS): Adjusted growth of 8.7% over the prior year at the midpoint , maintaining EPS guidance with a wider range (no change from prior $11.10–$11.40 )
- Capital expenditures: Approximately $520 million (around 2% of sales) (no prior guidance)
- Price increase: 5% increase effective January 6, 2025 (no prior guidance)
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Given the elevated SG&A investments impacting your operating margins, can you clarify when you expect these investments to translate into significant market share gains and margin expansion, particularly in the Paint Stores Group?
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With ongoing choppy demand and the DIY market remaining soft, what specific strategies are you implementing to drive growth in the Consumer Brands Group and mitigate the impact of weak existing home sales and inflation?
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Considering the recent competitive shifts in the industry, such as moves by Kelly Moore and PPG, how is Sherwin-Williams positioning itself to capitalize on these changes, and are there specific market share opportunities you are targeting?
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In light of potential headwinds from increased feedstock costs, especially in propylene and epoxy resins, how do you anticipate these raw material price fluctuations will affect your gross margins, and what strategies do you have to manage these cost pressures?
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Given the challenges in your Refinish business due to lower insurance claims and consumers' reluctance to pay deductibles, do you view this issue as structural or temporary, and what measures are you taking to offset these pressures and drive growth in this segment?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024 and FY 2024
- Guidance:
- Full Year Diluted Net Income Per Share: Adjusted growth of 8.7% over the prior year at the midpoint .
- Fourth Quarter 2024: Expect margin improvement in all operating segments, with a seasonal slowdown in architectural sales .
- Full Year 2024: Maintaining EPS guidance with a wider range due to demand recovery variables .
- Capital Expenditures: Approximately $520 million, around 2% of sales .
- Price Increase: 5% increase effective January 6, 2025 .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: Q3 2024 and FY 2024
- Guidance:
- Consolidated Sales: Up a low single-digit percentage for FY 2024 .
- Segment Sales: Unchanged for Paint Stores and Performance Coatings; reduced for Consumer Brands .
- Earnings Per Share (EPS): Adjusted range of $11.10 to $11.40 per share .
- Raw Material Costs: Down low single digits for the year .
- Volume and Price: Up low single digits for Paint Stores; flat pricing and down high single digits in volume for Consumer Brands .
- Foreign Exchange (FX): Headwind of about 1.5% .
- Acquisitions and Divestitures: Acquisitions as a tailwind, divestitures not material .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: Q2 2024 and FY 2024
- Guidance:
- Consolidated and Segment Sales: Unchanged from January guidance .
- Earnings Per Share (EPS): Unchanged from January guidance .
- Raw Material Costs: No changes from January guidance .
- Volume Guidance: Up or down low single digits for Q2; flat to up low single digits for FY .
- SG&A Expenses: Up mid-single-digit percentage for FY, higher in the first half .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Sales Growth: Up by a low to mid-single-digit percentage .
- Diluted Net Income per Share: Range of $10.05 to $10.55; adjusted range of $10.85 to $11.35 .
- Gross Margin: Expected expansion, more significant in the first half .
- SG&A Expenses: Increase by a mid-single-digit percentage .
- Raw Material Costs: Down by a low single-digit percentage .
- Store Openings: Plan to open 80 to 100 new stores .
- Dividend: Increase of 18.2% to $2.86 per share .
Competitors mentioned in the company's latest 10K filing.
- Akzo Nobel N.V.
- Axalta Coating Systems Ltd.
- BASF SE
- Genuine Parts Company
- H.B. Fuller Company
- The Home Depot, Inc.
- Lowe’s Companies, Inc.
- Masco Corporation
- Newell Brands Inc.
- PPG Industries, Inc.
- RPM International Inc.
- Stanley Black & Decker, Inc.
Recent developments and announcements about SHW.
Legal & Compliance
- The Sherwin-Williams Company: An Ohio corporation involved in the amendment of a credit agreement.
- Citicorp USA, Inc. (CUSA): Acts as the administrative agent and issuing bank.
- Lenders: Various lenders party to the credit agreement.
- The Sherwin-Williams Company entered into Amendment No. 20 to the Credit Agreement on November 18, 2024. This amendment is part of a series of amendments to a credit agreement originally dated May 9, 2016. The primary purpose of this amendment is to extend the maturity of $75,000,000 of the commitments available for borrowing and obtaining the issuance, renewal, extension, and increase of a letter of credit from June 20, 2025, to December 20, 2029 .
- The amendment extends the financial obligations of Sherwin-Williams under the credit agreement, potentially affecting its financial planning and liquidity management. The extension of the maturity date allows Sherwin-Williams to manage its debt obligations over a longer period, which could impact its financial strategy and operational decisions .
- The amendment does not alter or waive any existing terms, conditions, or obligations under the original credit agreement, except as expressly stated .
- The amendment is legally binding and enforceable, having been duly authorized and executed by the involved parties .
Legal Proceedings
Summary of Legal Matter Involving The Sherwin-Williams Company
Key Parties Involved:
Nature of the Proceedings:
Potential Financial or Operational Consequences:
Additional Information:
This summary provides an overview of the legal and financial implications of the recent amendment to Sherwin-Williams' credit agreement, highlighting the key parties, nature of the proceedings, and potential impacts on the company.
Corporate Leadership
CEO Change
Heidi G. Petz, who has been serving as the President and CEO of Sherwin-Williams since January 1, 2024, will also assume the role of Chair of the Board effective January 1, 2025. This change follows the retirement of John G. Morikis from his position as Executive Chairman, effective December 31, 2024. However, Heidi Petz will continue in her role as CEO, so there is no change in the CEO position at this time .
Leadership Change
John G. Morikis is retiring as Executive Chairman of Sherwin-Williams effective December 31, 2024. He will remain on the Board until April 2025. Heidi G. Petz, currently President and CEO, will become Chair of the Board starting January 1, 2025. Jane M. Cronin, Senior Vice President – Enterprise Finance, is also retiring on December 31, 2024. J. Paul Lang will step up as SVP – Enterprise Finance & Chief Accounting Officer on January 1, 2025 .
CEO Change
Sherwin-Williams CEO Heidi Petz will also assume the role of Chair of the Board effective January 1, 2025. This change follows the retirement of John G. Morikis from his position as Executive Chairman on December 31, 2024. Petz has been serving as President and CEO since January 1, 2024 .
Board Change
John G. Morikis will retire as Executive Chairman of Sherwin-Williams effective December 31, 2024, and will not stand for re-election as a director, retiring from the Board at the 2025 Annual Meeting. Heidi G. Petz has been elected to serve as Chair of the Board effective January 1, 2025 .