SHERWIN WILLIAMS CO (SHW) Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 consolidated net sales rose 0.9% to $5.30B; diluted EPS was $1.90 (+36.7% YoY) and adjusted diluted EPS was $2.09 (+15.5% YoY), with gross margin at 48.6% .
• Strength was led by Paint Stores Group (PSG) net sales +3.4% YoY and same‑store sales +2.0%; adjusted segment margin expanded across all three segments, while Consumer Brands Group (CBG) declined on FX headwinds and Performance Coatings Group (PCG) faced mix and currency pressure .
• 2025 guidance: consolidated net sales up low single digits; diluted EPS $10.70–$11.10; adjusted diluted EPS $11.65–$12.05; management expects gross margin expansion, SG&A growth to moderate to low single digits, and incremental non‑operating headwinds from new HQ ($100M) and refinancing (+$40M interest) .
• Stock reaction catalysts: PSG’s Jan 6 price increase (5%) and above‑market growth momentum in residential repaint, plus packaging/coil strength vs industrial softness; watch FX headwinds and tariffs on epoxy inputs and raw baskets trending up low single digits .

What Went Well and What Went Wrong

What Went Well

• PSG growth and share gains: Q4 PSG net sales +3.4% YoY to $3.05B; same‑store sales +2.0%; adjusted margins expanded across segments; residential repaint up high single digits with above‑market growth .
• Packaging and coil momentum: PCG performance led by low double‑digit growth in Packaging and low single digits in Coil; adjusted PCG margin held at ~17.5% despite FX drag .
• Cash generation and returns: 2024 net operating cash $3.15B (13.7% of sales) and $2.46B returned via dividends and buybacks; remaining buyback authorization 34.4M shares .
• Management tone: “We’re not waiting… success by design” with confidence in differentiated strategy and execution even amid choppy demand .

What Went Wrong

• FX headwinds and Latin America: CBG net sales −4.3% YoY, with −5.5% FX impact in Latin America; PCG net sales −1.6% YoY with −1.7% FX impact .
• Industrial softness: General Industrial remained under pressure; macro “softer for longer” outlook with several end markets unlikely to improve until 2026 .
• Non‑operating headwinds for 2025: $100M transition costs for new buildings ($80M SG&A, $20M interest) and +$40M interest expense from refinancing; FX expected to be ~1% consolidated headwind with more pronounced impact in Latin America .

Financial Results

Consolidated Results vs Prior Periods and Estimates

*Wall Street consensus estimates from S&P Global were unavailable at the time of this analysis.

Segment Breakdown (Q4 YoY and QoQ)

Notes: Adjusted segment profit/margin (CBG: $82.0MM, 12.4%; PCG: $277.9MM, 17.5%) improved YoY .

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We expanded adjusted segment margin in all three segments, and adjusted diluted earnings per share and EBITDA grew by double‑digit percentages… residential repaint significantly outgrew the market” (Heidi Petz) .
• “We expect first quarter 2025 consolidated Net sales will be up or down a low‑single digit percentage… full‑year gross margin expansion driven by price‑cost discipline and efficiency gains” .
• “We’re not waiting. We often talk about how we operate, success by design… Nobody is better positioned than Sherwin‑Williams to win” .
• “Raw basket up low single digits… tariffs on Asian epoxy; TiO2, solvents, packaging up a bit” (Jim Jaye) .

Q&A Highlights

• Raw materials/tariffs: Low single‑digit raw inflation expected; epoxy tariffs already in place; willingness to take targeted price as needed .
• New HQ costs: ~$80MM operating expense in 2025 (transition costs ~¼ of total); incremental interest ~$20MM; environmental spend reverting to normal after 2024 credits .
• Share gains: Kelly‑Moore and PPG opportunities; focus on “quality sales” and premium solutions; lag in property maintenance vs repaint .
• Price effectiveness: 2024 price took longer; better training/lead times should improve H1 2025 effectiveness .
• Segment outlook: Packaging tailwinds (non‑BPA conversion ahead of Europe 2026); coil wins; general industrial remains pressured .

Estimates Context

• Wall Street consensus revenue and EPS estimates from S&P Global were unavailable at the time of this analysis.
• Modeling implications: Incorporate PSG 5% price action ramping through H1, gross margin expansion, SG&A moderating to low single digits, FX ~1% consolidated headwind, incremental non‑operating ($100MM HQ; +$40MM interest), and segment mix (Packaging/Coil strength vs General Industrial softness) .

Key Takeaways for Investors

• PSG continues to be the core growth engine with above‑market residential repaint performance and a 5% price increase rolling through H1—supports margin resilience even in choppy demand .
• Industrial mix matters: Positioning in Packaging and Coil offsets General Industrial softness; watch European BPA timing and share recapture tailwinds .
• FX and raws are headwinds but manageable: Low single‑digit raw inflation and ~1% FX drag; targeted pricing and supply chain simplification should protect gross margin .
• 2025 EPS guide embeds non‑operating drags (HQ and interest); upside exists if demand surprises positively or price effectiveness exceeds plan .
• Capital allocation remains disciplined: Strong cash generation, continued buybacks/dividend growth (+10.5% qtrly dividend) .
• Near‑term trading: Expect seasonally small Q1, H2 acceleration if macro improves; catalysts include PSG pricing realization updates and Packaging non‑BPA conversions .
• Medium‑term thesis: Share gains in repaint and selected industrial divisions, gross margin expansion, and moderating SG&A underpin earnings durability through a “softer for longer” macro setup .