The Operator introduces the Sherwin-Williams Company's conference call to discuss their Q2 2024 results and outlook for Q3 and full-year. The call will include forward-looking statements and a replay will be available online. After the company's prepared remarks, there will be a Q&A session. The company had a strong quarter, with sales, gross margin, and earnings per share growing. All three reportable segments showed improvement in margin compared to the previous year.

The company has made progress on their enterprise priorities and has seen returns from their investments. They have maintained a disciplined capital allocation approach and have increased their full year earnings outlook. The company's CEO and CFO are confident in their strategy and the ability to deliver strong results despite a choppy demand environment. They are also continuing to make investments for sustained success.

In the second quarter, the Paint Stores Group saw sales increase by mid-single digits, driven by higher sales and moderating raw material costs. Pro sales were led by residential repaint and new residential also returned to growth. Commercial and property management saw modest growth, while protective and marine sales were up mid-single digits. DIY sales also increased, with interior paint sales outpacing exterior paint sales. The company opened 26 new stores and expects to open 80-100 for the full year. In the Consumer Brands Group, sales underperformed expectations due to lower volume, divestiture of a China architectural business, and unfavorable currency translation. Sales in North America decreased due to weakness in existing home sales and consumer pressures.

The company expects an increase in DIY demand in the future and is confident in their partnerships. Sales decreased in Latin America and Europe, but adjusted segment margin improved due to lower costs and an acquisition. The Performance Coatings Group saw modest sales growth and improved margin performance. Demand varied by division and region, with industrial wood and coil showing growth while general industrial demand was lower. Sales were down in North America but positive in other regions.

The company acknowledges that the economic environment has been weaker than expected, but they are determined to aggressively pursue new business and gain market share. They expect sales to increase in the third quarter and full year, but have reduced their guidance for the Consumer Brands Group due to weak demand in the DIY market. They have increased their earnings guidance for the full year and provide information on raw material costs. They acknowledge that market conditions may continue to be unpredictable.

The speaker discusses the company's strategy in uncertain and competitive times, emphasizing their focus on consistency, reliability, and differentiated solutions. They have a strong team and expect to succeed. They then address a question about the quarter in paint stores, acknowledging that there were some challenges due to weather and paint conditions. They are focused on what they can control and are confident in their ability to make up for any losses in the back half of the year.

The company is confident in its ability to continue to gain market share in the residential repaint segment due to successful investments and positive customer feedback. In the new residential segment, there has been growth and the company is well positioned for future market recovery. However, the property management segment has been affected by interest rates and is currently on pause.

The company is working hard to secure exclusive agreements and demonstrate their value in the new residential market. They are also focusing on helping customers manage through the pause in the market and upgrading older properties. In the second quarter, the company saw a 3.5% increase in volume and price, slightly below expectations but still in line with their targeted run rate. For the second half of the year, they expect similar growth in low to mid-single digits, with Res Repaint at the high end of that range. When looking at longer term gross margin opportunities, there are still many factors that could affect it, but the company's investments and initiatives should lead to steady growth in the future.

The speaker declines to discuss long-term targets and instead focuses on the company's strong second quarter performance and beat and raise for adjusted EPS. When asked about potential share gains in 2025 and 2026, the speaker mentions the positive impact of new customers on the company's mix and expresses confidence in the company's momentum in certain segments.

The company's success is attributed to its experienced management team and their ability to make strategic investments at the right time in the market cycle. This is evident in their recent success in the automotive refinish and Kelly-Moore markets. The company's consistent investment strategy has also led to growth in the Res Repaint market, despite overall market downturn. The team remains confident in their strategy and sees potential for further growth in the PCG market in the future.

The speaker discusses the importance of mix shifts in driving customer loyalty and increasing efficiency and profitability. The next question from Jeff Zekauskas is about regional performance in paint stores and the company's capital expenditures. Allen Mistysyn responds by stating that the company's capital allocation philosophy aims for below 2% CapEx, with potential for increased capacity in certain areas. He also mentions the company's focus on attracting and retaining talent, maintaining dividends, and buying back stock. Jim Jaye adds that the company has confidence in its growth opportunities despite short-term challenges.

The speaker discusses the company's strong gross margin performance in the current quarter, attributing it to a combination of factors such as moderating raw materials, price realization, mix, and global supply chain efficiencies. The Paint Stores Group's growth also contributed to the higher gross margin, and the speaker expects this trend to continue in the second half of the year. However, the gross margin expansion may not be as significant as in the first half due to moderating raw material costs.

The company expects to see better price effectiveness in the second half of the year compared to the first half, but not as high due to a decrease in raw material tailwinds. They also anticipate additional volume and share gains in a choppy market. The company is prepared for any environment and will pace investments according to segment growth. They have continued to take market share in a down market and are monitoring growth indicators to guide their investments.

The company's Paint Stores segment is performing as expected, with Res Repaint outperforming and commercial property maintenance and new residential projects meeting expectations. The Pros Who Paint business is facing some challenges in North America, but the company is investing in the segment and expects improvement in the fourth quarter. The company is also monitoring leading indicators such as LIRA and believes that even if customers are not undertaking large projects, they still need to maintain their homes.

The company is experiencing pressure in the DIY market and expects to focus on smaller projects in the second half of the year. They are confident in their Pro Who Paint strategy and see it as a long-term investment. The company also recorded a $32 million net in other income, primarily due to changes in FX rates. This was a significant increase compared to the same quarter last year.

The speaker discusses the company's performance in the second half of the year, including a beat on non-operating costs and an expected return to normal environmental and other income lines. They also mention their outlook for key performance coatings verticals and their progress in gaining share in the packaging and coil divisions. They highlight their unique technology and investment in new capacity, as well as their success in the auto refinish market. A question is then asked about the speaker's outlook for these verticals.

The speaker mentions industrial wood and the potential for it to boost sales in the back half of the year. They also mention that DIY demand has been positive in company owned stores but negative in the consumer segment. They explain that this is due to the different types of DIY consumers, with those who prefer specialty paint stores being less sensitive to macroeconomic factors. However, they acknowledge that DIY is an important segment and that they are aware of their performance and expectations in this area.

The speaker talks about the importance of being well positioned in the DIY consumer space and mentions a belief that the housing market will recover. They also mention their exclusive partnership with Lowe's and their confidence in delivering above-market growth. The speaker acknowledges the impact of price increases on DIY customers and mentions the second quarter sales being up 0.5% with the Paint Stores Group being the main driver. They also mention a low-single-digit sales increase in the second half, with price expected to be up and volume expected to be down. FX is also mentioned as having a negative impact.

The company is experiencing a slight tailwind in acquisitions and a headwind in divestitures. They expect volume and price to be up in the Paint Stores Group and down in the Consumer Brands group. The company is facing challenges with consumer affordability in certain segments, but is focused on delivering consistent and reliable service to maintain their value proposition.

The speaker explains that the higher fixed cost absorption in the Consumer Brands Group is due to updated cost standards and improved efficiencies. This has not had a significant impact on overall gross margin because it is offset by the Performance Coatings Group and Paint Stores Group. The speaker also mentions that the decline in profits in the Consumer Brands Group is partially due to a decline in North America DIY sales volume. They plan to continue down this path in the future.

The speaker expects the company to become more consistent and improve its consumer operating margin in the future. They are confident in the strength of their backlog and their ability to take share in the market. The company has a controlled distribution model and a large database of painting contractors, which they believe will lead to continued success in the Res Repaint segment. They see a lot of potential for growth in this area and believe they are still in the early stages.

During a call with investors, Michael Harrison asked about the Performance Coatings Group and how demand was trending in different regions. Allen Mistysyn, a representative from the group, stated that North America is experiencing less of a slowdown and that they are seeing positive growth in Asia and Latin America. However, Europe is not expected to see much improvement in the second half. Mistysyn also mentioned that the team is focused on new account growth to offset market pressures. Duffy Fischer also asked for clarification on pricing, to which Mistysyn responded that pricing did not perform as well as expected in the second quarter and that they are working towards realizing the full 5% increase announced earlier this year.

During a conference call, Allen Mistysyn, a representative from the company, stated that their price increase effectiveness improved throughout the quarter and they met their target. They expect to see low-single-digit realization and volume in the second half of the year. When asked about the earnings in the back half of the year, Mistysyn clarified that the operating margin for the Consumer Brands division will depend on sales volume and there may be a seasonal slowdown in the fourth quarter. When asked about the sustainability of the current margin level, Mistysyn stated that the company's goal is for a high teens to low 20s operating margin and they are constantly working to improve it.

The company's volume is the main factor in driving operating margins, with strong consumer sales during the pandemic leading to higher margins. The DIY segment saw an increase in interior projects due to weather conditions. The Paint Stores Group was able to buck the trend of price sensitivity in the CBG group, likely due to a different type of DIY customer who is less impacted by inflation and debt. The Pro segment also saw a price impact, but it was less significant.

The speaker discusses the success of driving new business through stores and taking market share despite higher costs. They also mention the value of specialty paint stores and the importance of premium products and services. The raw material basket was down mid-single digits in the second quarter and is expected to be flat in the back half of the year. The consumer mix and store revenue are both discussed, with the speaker mentioning a shortfall in consumer mix and a mid-single digit increase in the Res Repaint market despite a down overall market. The sustainability of these gains is also discussed.

Heidi Petz answers a question about the company's revenue and the changes in the DIY North America market. She explains that the market has been under pressure and the company has not seen the recovery they hoped for. However, their performance in stores and Res Repaint has been up mid-single digits in a down market. This is due to the company's investments and their ability to respond quickly to market changes. The next question is about the profitability of new accounts in Res Repaint and Heidi explains that new accounts typically come at a premium, but this can vary depending on the contractor's experience.

The speaker thanks everyone for joining the call and expresses confidence in the company's strategy despite the uncertain market conditions. The team is focused on driving profitable growth by providing solutions for customers and has increased their full year guidance.

The speaker reminds listeners that if sales exceed expectations, the company's bottom line will also improve. They also mention an upcoming financial presentation on August 29 in Boston, which can be registered for on the company's investor relations website. The call concludes and participants may now disconnect.

This summary was generated with AI and may contain some inaccuracies.