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    Sherwin-Williams Co (SHW)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$322.35Last close (Jul 22, 2024)
    Post-Earnings Price$339.00Open (Jul 23, 2024)
    Price Change
    $16.65(+5.17%)

    What went well

    • Sherwin-Williams is gaining market share due to competitor disruptions, especially in the Southwest division where competitors like Kelly-Moore have closed operations, leading to increased sales and share gains on the West Coast. ,
    • Investments in key growth areas such as Residential Repaint and Automotive Refinish are yielding strong returns, with mid-single-digit growth in Residential Repaint over the last three quarters in a down market, and significant upside potential due to a robust backlog and strategic positioning. ,
    • Performance Coatings Group is experiencing share gains across multiple divisions, including Packaging (gaining share outside the U.S.), Coil Coatings (winning and taking share through excellent execution), Automotive Refinish (taking share with record high installations), and Industrial Wood (positioned for potential tailwinds from new residential improvements).

    What went wrong

    • Sherwin-Williams expects volume declines in its Consumer Brands Group, projecting sales to be down high single to low double digits in the second half of 2024. This is due to continued softness in the North American DIY market, with consumers facing headwinds such as inflation and household debt.
    • The company's gross margin improvements may not be sustainable, as raw material tailwinds are expected to diminish in the second half, with raw material costs forecasted to be flat year-over-year. Allen Mistysyn stated that "the raw material tailwind won't be as high" in the second half.
    • Management declined to provide specific guidance on longer-term gross margins, which could indicate uncertainty about future profitability improvements. When asked about longer-term gross margin opportunity, Allen Mistysyn responded, "we're not going to talk to that specifically that long-term target today."

    Q&A Summary

    1. Share Gain Opportunities
      Q: How will competitor changes impact your market share gains?
      A: We are confident in taking more than our fair share of opportunities arising from competitors like Kelly-Moore exiting the market. For instance, in the Southwest, we have seen significant share gains where competitors have closed their doors. This has contributed to our residential repaint segment being up mid-single digits in a down market.

    2. Residential Repaint Performance
      Q: Can you discuss the sustainability of share gains in residential repaint?
      A: Our residential repaint segment continues to post mid-single-digit growth despite a down market. Investments we've made are paying off, and we expect this momentum to continue due to significant market share opportunities.

    3. Capital Expenditure Outlook
      Q: Will normal CapEx be under $500 million after current expansions?
      A: We target capital expenditures below 2% of sales after completing major projects. While we may need to add capacity in high-growth areas, we expect to maintain disciplined capital allocation, supporting growth and returning cash to shareholders through dividends and share repurchases.

    4. Gross Margin Expectations
      Q: What are your gross margin prospects for the second half?
      A: We anticipate continued gross margin expansion in the second half, driven by moderating raw material costs, better price realization, and favorable mix from our Paint Stores Group. While the raw material tailwind may be less pronounced, we remain confident in our margin outlook.

    5. DIY Market Weakness
      Q: Why is the DIY market underperforming, and how does it affect you?
      A: The DIY market faces pressure from inflation, depleted savings, and increased household debt, leading to softer demand. This impacts our Consumer Brands Group, but we're focusing on strategic partnerships and are confident we'll return to above-market growth as conditions improve.

    6. Raw Material Costs
      Q: How are raw material costs trending, and what's the expectation?
      A: In Q2, our raw material basket was down mid-single digits year-over-year. For the full year, we expect raw materials to be down low single digits, with the second half being relatively flat compared to last year.

    7. Regional Performance
      Q: How did different regions perform in your Paint Stores Group?
      A: Our Southwest division led performance this quarter, benefiting from competitor exits in the area. This has contributed to our share gains and overall growth in that region.

    8. Performance Coatings Outlook
      Q: What's the outlook for key Performance Coatings verticals?
      A: We're gaining share in segments like packaging and coil, delivering customized solutions and seeing positive signs. In industrial wood, we're building on a good foundation despite market choppiness.

    9. Impact of Weather on Paint Stores
      Q: Did weather conditions affect your Paint Stores performance?
      A: While we faced some weather-related challenges, we remain focused on controllables and continue to take market share, posting growth in residential repaint despite the down market.

    10. Capital Allocation Priorities
      Q: What are your capital allocation priorities moving forward?
      A: After completing major projects, we'll target CapEx below 2% of sales, maintain dividends at approximately 30% of prior EPS, and use excess cash for share repurchases, absent acquisitions.

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