Q4 2024 Earnings Summary
- Sherwin-Williams expects to outperform the market in the Residential Repaint segment due to targeted investments and strong pent-up housing demand. They anticipate continued mid single-digit growth or better in Residential Repaint in 2025, driven by their focus on partnering with contractors and providing innovative solutions that improve productivity.
- The company is well-positioned to gain market share from competitors' dislocations and through new account wins. They are capitalizing on opportunities arising from PPG's sale and focusing aggressively on new accounts, particularly in the coil and packaging segments, where they have significant new business wins and expect continued growth, including converting customers to non-BPA coatings by 2026 to comply with European mandates.
- Sherwin-Williams is effectively managing costs and expects gross margin expansion in 2025, driven by pricing actions, cost efficiencies, and supply chain improvements. Despite raw material inflation in low single digits, they are implementing price increases and continuing simplification and efficiency initiatives. The company expects gross margin expansion to be stronger in the second half of the year, with the Paint Stores Group contributing significantly as their largest and highest gross margin segment.
- The prolonged 'softer for longer' demand environment, with several end markets not expected to improve until 2026, could negatively impact Sherwin-Williams' sales growth, especially in commercial, new residential, and DIY segments, leading to potential underperformance versus expectations.
- Increased interest expenses due to refinancing debt at higher rates (including $850 million in 2024 and approximately $1 billion expected in 2025), along with higher SG&A expenses from new building operations ($80 million), and non-operating costs returning to historic levels may pressure Sherwin-Williams' net income and EPS growth, hindering profitability improvements.
- Expected rise in raw material costs due to tariffs on Asian epoxy imports and increases in key commodities like industrial resins, TiO2, solvents, and packaging, coupled with potential additional tariffs not included in the company's guidance, may compress gross margins more than anticipated if the company cannot fully pass these costs to customers through price increases.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue (Q4 2024) | 0.9% increase (from $5,252.2M to $5,297.2M) | Modest revenue growth was achieved as the company continued to leverage pricing initiatives and incremental acquisitions, mirroring trends seen in earlier quarters where similar drivers (selling price increases, favorable currency impacts) supported net sales growth. |
Operating Income (EBIT, Q4 2024) | 145% increase (from $379.4M to $932.8M) | A dramatic improvement in EBIT was driven by enhanced gross profit margins from operational efficiencies and cost reductions (including lower cost of goods sold and reduced environmental provisions), building upon pricing discipline and volume trends observed in previous periods. |
Net Income (Q4 2024) | 35% increase (from $356.2M to $480.1M) | Net income improvements reflect the higher operating income along with a more favorable tax environment, reducing the effective tax rate relative to prior periods, as previously higher tax burdens and increased expenses had moderated earnings growth. |
Basic EPS (Q4 2024) | 36% increase (from $1.41 to $1.92) | EPS growth is a direct consequence of the significant surge in net income and improved operating performance, consistent with earlier trends where margin expansion and cost control boosted profitability despite incremental SG&A investments. |
Paint Stores Group Revenue | 3.4% increase (from $2,944.6M to $3,044.9M) | Increased PSG revenue was driven by low-single digit sales volume growth, higher selling prices, and same‑store sales gains—a continuation of performance improvements seen in previous quarters. |
Consumer Brands Group Revenue | 4.3% decline | Revenue in the Consumer Brands Group declined due to ongoing softness in the DIY market, unfavorable foreign currency translation, and factors such as divestitures that had also impacted prior periods, reinforcing a trend of underperformance relative to the other segments. |
Performance Coatings Group Revenue | 1.6% decline | The slight decrease in the Performance Coatings Group reflects the continuing challenge where any volume gains have been offset by unfavorable foreign currency impacts, a pattern consistent with earlier observations in the group’s performance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Full-year EPS guidance | FY 2024 | Maintained full-year EPS guidance, 8.7% YoY at midpoint | no current guidance | no current guidance |
CapEx | FY 2024 | $520 million (2% of sales) | no current guidance | no current guidance |
SG&A growth | Q4 2024 | low to mid-single-digit growth | no current guidance | no current guidance |
Store openings | FY 2024 | 80 to 100 net new stores | no current guidance | no current guidance |
Sales guidance | Q4 2024 | provided consolidated and segment sales guidance | no current guidance | no current guidance |
Adjusted diluted net income per share | FY 2025 | no prior guidance | $11.65 to $12.05 | no prior guidance |
Gross margin | FY 2025 | no prior guidance | expected to expand | no prior guidance |
Raw material costs | FY 2025 | no prior guidance | increase by a low single-digit percentage | no prior guidance |
SG&A expenses | FY 2025 | no prior guidance | grow by a low single-digit percentage | no prior guidance |
Interest expense | FY 2025 | no prior guidance | expected to increase ($40M refi, $20M HQ) | no prior guidance |
Debt-to-EBITDA leverage ratio | FY 2025 | no prior guidance | end year at 2–2.5x | no prior guidance |
Environmental costs | FY 2025 | no prior guidance | increase by $25M | no prior guidance |
CapEx | FY 2025 | no prior guidance | $900M (includes $200M for new HQ & R&D) | no prior guidance |
Paint Stores Group sales | FY 2025 | no prior guidance | grow low to mid-single digits | no prior guidance |
Dividend | FY 2025 | no prior guidance | +10.5% to $3.16 per share | no prior guidance |
Store openings | FY 2025 | no prior guidance | 8,100 new stores in U.S. and Canada | no prior guidance |
Earnings seasonality | FY 2025 | no prior guidance | Q1 expected to be seasonally smaller | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Market share gains across segments | Consistent focus on share gains across residential repaint, coil, automotive refinish, and packaging. | Targeted investments in multiple segments, confident in outperformance when demand improves. | Remains a core strategy, consistently bullish |
Residential repaint market | Repeated emphasis on steady gains, often mid-single-digit, backed by strategic investments. | Continues as the primary growth driver, offsetting weak existing home sales with mid-single-digit gains. | Sentiment remains very positive |
Pricing actions and margin expansion strategies | Recurring theme: disciplined pricing to offset inflation, driving margin improvements across segments. | 5% price increase in January 2025, expecting 50–60% effectiveness, plus gross margin boosts from supply chain simplification. | Continues as a key profit lever |
Raw material cost volatility and tariff implications | Stable to slightly higher in Q3; flattish or moderating expenses in Q2 and Q1, limited tariff impact noted. | Low single-digit raw material inflation expected in 2025, potential new tariffs monitored. | Ongoing watchfulness, mild headwinds |
Kelly-Moore store closures | Q3: No further references; Q2: Closure helped Southwest division gains; Q1: Expected share pickup. | No mention in Q4. | No longer discussed after Q2 |
Automotive refinish gains | Offset by lower insurance claims in Q3, seeing share gains but masked softness in Q2; Q1 noted steady gains. | Mentioned optimism for 2025, claims down double digits but improving. | Still positive, though less highlighted |
Non-BPA coatings compliance in coil and packaging by 2026 | Q3 referenced EFSA ban preparations; no Q2 mention; Q1 noted new France plant for non-BPA. | Emphasized industry-leading non-BPA solutions to meet 2026 mandates. | Newer focus area, gaining traction |
Increased interest expenses from refinancing debt | No specific mention in Q3 or Q2; Q1 expected higher rates on $1.1B maturing debt. | Refinanced $850M in Q3 at higher rates, $1B more expected in 2025, adding cost headwinds. | Introduced in Q4, raises financing costs |
Shift in sentiment around packaging | Recovery momentum in Q3 (high single-digit growth) after Q1 weakness. | Returned to growth (Q4), regained previously lost share, new account wins. | From weakness to renewed optimism |
Consumer DIY weakness | Persistently weak in prior quarters, with emphasis on shifting resources to professional channels. | Still soft, overshadowed by Pro segment focus (residential repaint). | Remains a headwind vs. Pro market |
Significant potential impact from non-BPA coatings mandates in Europe | No mention in Q3/Q2; Q1 highlighted Europe mandate and new French plant. | Seen as a major tailwind for the packaging segment by 2026, driving share gains. | High future impact |
SG&A cost pressures related to new building operations | Q3 only noted disciplined SG&A approach; Q1 mentioned cost pressures from growth investments. | $80M in operating expenses for new HQ and R&D center, affecting SG&A in 2025. | New facilities driving higher SG&A |
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CapEx Guidance and Investments
Q: Is the $200 million building spend due to higher HQ costs? Why is CapEx higher?
A: The $200 million is for finishing our R&D center and headquarters; we'll get reimbursed for a portion but it all sits in CapEx. This is the last year for CapEx on new buildings. Excluding that, our core CapEx remains at our target of 2% of sales long term. In 2025, we're investing in additional architectural capacity in our Statesville factory due to confidence in our long-term growth initiatives. We're also investing in warehouse automation to improve efficiencies. -
Raw Material Cost Increases and Tariffs
Q: What's driving the rise in raw material expenses? Are tariffs a factor?
A: We are seeing inflation of low single digits in the raw material basket, related to industrial resins, TiO₂, solvents, and packaging. Tariffs on Asian imports of epoxy, introduced last year, are embedded in costs. Potential additional tariffs are not in our guidance yet. Suppliers' capacity rationalization and plant decommissioning are putting upward pressure on prices. Natural gas prices are also trending upwards. -
$80 Million New Headquarters Expense and Environmental Spending
Q: What is driving the $80 million incremental cost for the new headquarters? Is environmental spending increasing?
A: About 25% of the $80 million are transition costs like moving and decommissioning old buildings. Our old headquarters was fully depreciated, so the new facility brings new costs like depreciation and service expenses. We'll refine these estimates as we occupy the building. Environmental spending is returning to normal levels after one-time credits last year; we don't expect these credits to repeat. -
Share Gain Opportunities from PPG Sale and Kelly-Moore
Q: How do you view the share gain opportunity relative to PPG's business and Kelly-Moore?
A: We can't share specific numbers, but the Kelly-Moore integration has been positive, particularly in residential repaint. Regarding the PPG sale, it's a ripe opportunity; we're focused on quality sales and targeting customers who value our offerings. We're aggressively positioning ourselves across key segments like property management, commercial, and new residential. -
Optimism in Paint Store Group End Markets
Q: What's driving your optimism in residential repaint markets?
A: We're moderately optimistic and aggressively partnering with contractors to help them grow their businesses. This includes marketing support, lead generation, and tools to help them be more profitable. We expect demand to improve as the year progresses, with sales guidance up or down low single digits in the first half, and up low to mid-single digits in the second half. Our Paint Stores Group is expected to be at or above the high end of those ranges. -
Growth Opportunities in 2025 and 2026
Q: What are your top growth opportunities in 2025 and 2026?
A: We expect to outperform in residential repaint by bringing innovative, premium products that enhance contractor productivity and margins. This leads to favorable mix benefits. We're also focusing on new accounts and business wins in our coil and packaging segments, despite market headwinds. -
Non-Residential Outlook
Q: Do you expect non-residential sales to be down all of 2025?
A: It's possible we'll have positive comps later in the year if macro factors like interest rates improve. We expect commercial to drop in the second half but are aggressively pursuing new opportunities to mitigate this. We're not immune to macro slowdown but are working to offset it with growth in other segments like property maintenance and accelerating residential repaint. -
Capital Allocation and Sustainable CapEx
Q: Is there a reason why sustainable CapEx should be higher in the next 2–3 years?
A: No, we expect to maintain our core CapEx at around 2% of sales long term. The higher CapEx in 2025 is due to one-time investments like the new HQ and R&D center. We're investing in growth initiatives like additional architectural capacity and warehouse automation, which have strong returns.
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