Good morning. Thank you for joining the Sherwin-Williams Company's review of third quarter 2023 Results and our Outlook for the Fourth Quarter and Full Year of 2023. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes. This conference call will include certain forward-looking statements as defined under the U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Jim Jaye, Senior Vice President, Investor Relations and Communications.

Thank you, and good morning to everyone. Joining me on the call today are John Morikis, Chairman and CEO; Heidi Petz, President and Chief Operating Officer; Allen Mistysyn, Chief Financial Officer; and Jane Cronin, Senior Vice President of Enterprise Finance. Sherwin-Williams delivered excellent third quarter results compared to the same period a year ago. These results follow our strong first half, and we are again increasing our full year guidance, which John will talk about in just a few minutes. But first, let me touch on a few third quarter highlights. Consolidated net sales were within our guidance range. Consolidated gross margin expanded significantly sequentially and year-over-year driven by pricing discipline and moderating raw material costs. To reiterate our commentary from last quarter, we are committed to investing in and profitably growing the business at the same time. The high single-digit increase in SG&A over the prior year third quarter reflects those investments, which are deliberately being made at a higher level to take advantage of current market uncertainty and are aimed at driving the success of our customers and growth across all businesses. Operating margin expanded year-over-year and adjusted diluted net income per share grew by a double-digit percentage. EBITDA also grew by a double-digit percentage with adjusted EBITDA margin of 20.7% near the high end of our current 19% to 21% target range. In addition, we returned $566 million to our shareholders through dividends and share repurchases during the quarter. Let me now turn it over to Heidi, who will provide some commentary on our third quarter results by segment. John will follow Heidi with comments on our outlook before we move on to your questions.

Thank you, Jim. I'll begin with the Paint Stores Group. Third quarter Paint Stores Group sales increased 3.6% against the challenging 21.5% comp. The increase was driven by continued effective pricing and higher Pro architectural volume, excluding New Residential. Segment margin improved sequentially and year-over-year to 25.9%, driven by pricing discipline and moderating raw material costs. Protective & Marine was the fastest growing in the quarter, driven by strong volume as sales increased by a double-digit percentage against the mid-teens comparison. Industrial flooring, infrastructure and oil and gas applications remain key drivers. In our Pro architectural end markets commercial sales were strongest, increasing by a high single-digit percentage versus a high teens comparison. Residential repaint sales increased by a mid-single-digit percentage amid continued softness in existing home sales and against a 20% comparison. While this is a solid performance in the current environment, we are not satisfied, and res repaint continues to be our largest opportunity for growth. Property maintenance sales grew by a low single-digit percentage against a mid-20s comparison. New Residential sales were down mid-single digits with volume down high single digits against the mid-20s comparison. As we've previously noted, we anticipated New Residential would be challenging near term, given prior softness in single-family starts. We expect our continued share gains and new account wins to become more and more apparent as starts improve. Our DIY business was down low single digits against a very difficult low 30s comparison. From a product perspective, interior paint sales were up low single digits and exterior paint sales were flat, both against double-digit comparisons in last year's third quarter. Sales in our Consumer Brands Group decreased by 4% in the quarter, primarily due to the divestiture of the China architectural business and softer DIY demand in North America, which was partially offset by selling price increases. Sales in North America, our largest region, decreased by a mid-single-digit percentage against a double-digit comparison. The Pros Who Paint category continued to grow, while DIY demand remained muted by inflationary pressures on consumers. We continue to invest here with our strategic retail partners for growth. In other regions, sales were up high single digits in Latin America and low double digits in Europe. Sales in China were down high double digits as we completed divestiture of the business on August 1. Adjusted segment margin was 13.8%, which was lower than a year ago, primarily due to lower sales volume and lower fixed cost absorption due to lower production volumes. Sales in the Performance Coatings Group decreased 1% against a low teens comparison. Volume decreased by a high single-digit percentage, but was partially offset by positive low single-digit contribution from pricing, FX and acquisitions. Adjusted segment margin increased to 19.1% of sales, primarily due to pricing discipline and moderating raw material costs. Sales in PCG varied significantly by region. Sales were strongest in Europe and increased by a mid-teens percentage. Latin America sales increased by low single digits against a mid-teens comp. North America sales decreased mid-single digits against a 20% comp. Demand in Asia remained weak, with sales down double digits against high single-digit growth a year ago. From a division perspective, growth was strongest in our Industrial Wood business, which was up by a low double-digit percentage against a mid-single-digit comparison. This growth reflects our ICA acquisition, share gains and a potential bottoming of New Residential construction. We expect to gain further momentum in this business. As we closed October 1st on the previously announced acquisition of Germany-based specialized industrial coatings holding comprised of the Oskar Nolte and Klumpp Coatings businesses. We are gaining share and seeing steady demand in Auto Refinish, where sales increased by a mid-single-digit percentage against a high single-digit comparison. Sales in Coil and General Industrial both decreased by low single-digit percentages against challenging comparisons and vary widely by region. Packaging sales were down by a mid-teens percentage against the high single-digit comparison. We anticipated this decline given the near-term destocking by brand owners that we described earlier this year. Packaging sales in the quarter were also slightly impacted by the fire at our Garland, Texas plant. Our business continuity team is executing our contingency plans to minimize customer impacts from this event near term. Longer term, we continue to feel very good about our position and growth prospects in this end market, and we expect to bring additional capacity online at our France plant by early 2024. With that, let me turn it to John for his comments on our outlook for the fourth quarter and the year.

Thank you, Heidi. Our team delivered another strong quarter in an environment characterized by ongoing uncertainty. My thanks go to our 64,000 employees for continuing to focus on our mission and for executing on our strategy. Their energy in serving our customers and providing them with solutions remains a true differentiator. On our July call, we described the anticipated second half demand backdrop across our businesses. The third quarter played out much as we expected, and we believe the environment remains largely unchanged in the fourth quarter. Paint Stores Group will face another strong year-over-year comparison. Demand in commercial, property maintenance, residential repaint and Protective & Marine remains stable with New Residential remaining soft as we expected. We have now annualized prior price increases. In Consumer Brands, North America DIY demand remained soft. Europe demand has stabilized and Latin America markets remain mixed. Performance Coatings demand remains highly variable by end market and by region. We know we cannot defy gravity in terms of the macro environment. What we can do is aggressively pursue new account and share of wallet opportunities to drive market share gains, we are aggressively focused on doing just that. Moving to the cost side. We're narrowing our full year raw material outlook. We expect cost to be down by a high single-digit percentage in 2023 compared to 2022. We expect other costs, including wages and other input costs to be up in the mid- to high single-digit range. We also continue to see the current market uncertainty as an opportunity to press our advantages through greater investment in solutions for our customers that will drive their success and ours. Our SG&A spend in the fourth quarter will reflect these investments, leading full year SG&A to increase in the high single-digit to low double-digit range compared to last year. This approach has served us well many times in the past. We are highly confident and will again now resulting in continued above-market growth and strong returns. Now moving on to our specific guidance. We anticipate our fourth quarter 2023 consolidated net sales will be up or down a low single-digit percentage compared to a high single-digit increase in the fourth quarter of 2022, with volume flat to down slightly. As a reminder, we've largely annualized previous price increases across the business. For the full year 2023, we expect consolidated net sales to be up a low single-digit percentage with volume down a low single-digit percentage. Our sales expectations by segment for the fourth quarter and the full year are included in the slide deck issued with our press release this morning. We are increasing our full year 2023 diluted net income per share to be in the range of $9.21 to $9.41 per share. We believe this increased range accurately reflects our strong third quarter performance, continued pricing discipline and moderating raw material costs while also acknowledging the ongoing uncertainty in our seasonally smaller fourth quarter. This guidance includes acquisition-related amortization expense of approximately $0.80 per share and restructuring related net expense of $0.09 per share. On an adjusted basis, we expect full year 2023 earnings per share in the range of $10.10 to $10.30. This is an increase of 16.8% at the midpoint compared to last year's $8.73 adjusted earnings per share. We provided a GAAP reconciliation in the Reg G table within our press release. Our slide deck includes additional information on our assumptions for the year. As we begin the fourth quarter, we continue to expect choppiness by region and end market. More importantly, we continue to see opportunity amid uncertainty, and we are extremely confident in how well our various businesses are positioned. Our strategy is clear. It's working, and it's not changing. We'll continue to provide our customers with differentiated solutions that drive their productivity and their profitability. Our capabilities, products and services are unique. We remain on offense, growing new accounts and share of wallet in the right markets with the right customers. We also remain focused on developing and retaining talent and improving and simplifying our operations. We expect to finish the year with momentum that will carry us into 2024. I have the utmost confidence in Heidi, Al, our leadership team and our people. Together, we expect to continue outperforming our competitors and the market. This concludes our prepared remarks. And with that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

At this time we will open the call for questions. Please press star one on your telephone if you have a question.

And first, John, congratulations on a great tenure in the CEO slot. And Heidi best of luck to you as you take on that role at the end of the year. So I guess the first thing I wanted to just touch on was the strength of the contractor market. Can you give us a little bit of color as to what you're seeing, especially in the residential repaint area. It looks like it's been maybe a little bit stronger than what we would have expected. So just curious your take on how to think about that continuing going forward.

Yes. I think you make a great point here. I want to take a minute before I jump right into res repaint, which I absolutely will and just put this a bit in perspective. You heard from some of our prepared remarks that when we look at our performance in general, and we're posting some stronger results up against really aggressive comps last year. I think that's an important piece that we anchor in as I get into the res repaints. Repaint certainly New Res being up against over 20% comps here and still in this environment, continuing to post. So we're really proud of the team to be able to overcome some of that. So I think if I just jump right into Res repaint, I'll let you know that yes, we are gaining share in this market. Demand does vary depending on a few variables. I think if you look at this and separate a bit, those contractors that are more established and well-known and are more experienced in marketing their business, they've got the scale and they're confident in their backlog. I would say that's more so true for them than those that have less experience being able to put that type of focus on in marketing their business. So I'd say there's a bit of a variance there. But we look at this importantly. The adversity that these contractors are facing in this choppiness is also an opportunity where I believe that it makes our stores and our reps even more valuable as we're helping them navigate through a lot of this uncertainty and helping to intercept what it is that they're trying to accomplish in their business, whether it's leads or making sure that we're helping them find ways to be more efficient in their process. So I think if we've seen this movie before, we're ready for what's ahead. We're putting investments in. John referenced earlier in the SG&A that you see, and I'll take you back. We saw this coming in 2008 and 2009. And making sure that what came out of that was our desire to be well positioned and New Residential does recover, that we've got all the investments in place here to continue to drive res repaint. So this is an opportunity where, and I would say when, our model stands out and when we're able to gain a lot of share.

Got it. Fair enough. And I guess the second question is just around cost versus price. It looks like raws are coming down, but you've highlighted in the remarks that other costs are definitely still pushing higher and you're also still investing in the business. So can you help us to think about the need for further pricing? I know you've taken a little bit of a pause recently as you normally do in the paint season. But I guess, how should we be thinking about the need for further pricing as you're pushing into 2024?

Yes, John, this is Allen Mistysyn. We're in that part of the year where we're finalizing our operating plans and reviewing demand outlook with suppliers. We've had a lot of questions about oil ticking up; it needs to stay elevated for a period of time before it filters through our raw material costs. You'll also see other cost inputs increasing. Merit increases will return to a more normal level, but healthcare, freight, and challenges with LTL carriers are pushing our overall costs higher. As we typically do, we push back and look for offsets wherever we can. When we don't have an offset and need to implement price increases, we'll tell our customers first and then inform the Street. We're working through that process, need a little more time to finalize it, and we'll let our customers know before we update the Street.

Your next question is coming from Vincent Andrews from Morgan Stanley.

I was wondering if I could dig into SG&A a bit more. I completely understand and appreciate what you're doing this year, but how should we think about SG&A into 2024, both in terms of what level of increase is realistic for next year? Presumably SG&A is not going to go down, but should it grow much less than normal given the big step up this year? And how should we think about, from the outside over the next couple of years, measuring the return on that spend? Will it simply come through the volume line in Paint Stores Group, or will it be about margin, or both? When we're here two years from now and do a look back, what do you want us to see specifically in the P&L?

Yes, Vincent, let me start with that last piece because I think it's really important. And again, I want to reiterate the confidence that we have in our strategy and the fact that we've seen this movie before. The investments that we're making, you will see in the P&L, and you will see in market share growth. Our teams are invested in executing on these areas. But I think another important area that's crucial that you won't be able to measure on our P&L is the success that we'll bring with our customers as well. So if you go back to the strategy that we employ, it's focused on driving the success of our customers. And these investments that we're making will clearly help our customers in achieving what it is that their trying to do. And so I think as you look forward, the expectation should be increased market share and outpacing the market in volume and profitability as well.

Yes, Vincent, I would say certainly, as we annualize costs or the investments in our long-term growth initiatives, you're going to see that in the first part of the year. But I'd highlight, if you look at our SG&A sequentially second quarter to third quarter, even though we kept investing in Paint Stores Group and reps, Performance Coatings Group sales and tech service reps and you have investments in the Pros Who Paints. We saw those offset by reductions in our G&A costs or admin SG&A so that we're trying to figure out ways to continue to drive G&A down to offset the incremental cost of those investments. And yes, we will absolutely measure the return. But as we get into 2024, we're going through our budgeting plan. We're going through key initiatives across each of our functional areas, and we'll keep driving both those costs lower to help pay for the incremental investments.

Your next question is coming from Jeff Zekauskas from JPMorgan.

I know that the year-over-year price comparisons are less positive than they've been. But when you look at sequential pricing from the second to the third quarter, were your prices down sequentially in any important product area?

Yes, Jeff. If you look at our pricing, you're seeing the effect of annualizing price increases across each segment. Performance Coatings, for example, is on roughly a 90-day cycle, so price was still up in the third quarter, up low single digits. Compared with the second quarter, price would have contributed a mid-single-digit percentage in Q2, and as you move into the fourth quarter the impact would be a lower single digit. That's simply annualizing the price increases we implemented throughout 2022. We have not given that price back, and you can see it in our gross margin performance: up 440 basis points in the second quarter and 490 basis points in the third quarter, and we expect to be up again in the fourth quarter as raw material costs moderate sequentially.

Jeff, I would add to that as well. I think our effectiveness is at a record high, and I give the team a lot of credit because it's not just about holding it, it's about demonstrating that value every single day with our contractors.

Okay, great. And your raw materials were down high single digits. I would imagine they would be down low double digits in the fourth quarter, if you're going to be down high single digits for the year. And maybe the fourth quarter is sort of the bottoming of raw materials for the industry in general. Is that fair?

Jeff, I don't know that I'd go that far. As I mentioned earlier, I think we have to look at the market; it is still demand- and supply-driven. We're working with our suppliers to determine what industry demand looks like across each region. I think that's going to be a bigger driver of raw material pricing as we get into 2024. As we mentioned on our second quarter call, we expected our third quarter to be our biggest year-over-year change in raw material costs, and they will certainly be down in our fourth quarter as well.

Your next question is coming from Greg Melich from Evercore ISI.

I had a couple of questions. One is, how much did the volume decline year-on-year hurt gross margins in the quarter?

Yes. I think, Greg, when you look at the volume decline being overall down low single digits, that's typically the biggest driver of operating margin leverage. When you look at how that mix changes in the quarter, we talked about Paint Stores Group being flat and the other two segments being down more than that, so it was less of an impact than if Paint Stores had been down similarly, if that makes sense to you, because Paint Stores Group has a higher gross margin profile.

So it may have hurt, but not as much as you think, given the mix of where the volume decline was?

Correct.

Okay. And then I guess my follow-up question is more specifically on architectural. Could you give us some update on what the backlog that you're hearing about or what it sounds like from the PROs, particularly in resi repaint, you mentioned how new residentials weak, but I'd love to hear more on the resi repaint side.

Yes, Greg, I think on the residential repaint side it's similar to what I mentioned earlier. Traditionally you see somewhere between 13 and 15 weeks out; I would say the backlog has come down by two or three weeks, so there is a bit more limitation in visibility. Outside of that, I would look at the size of the contractor, their level of experience, and their ability to market themselves. They have a further sightline into 2024 versus some of the smaller contractors that are still trying to find ways to build their backlogs.

Your next question is coming from Ghansham Panjabi from Baird.

With interest rates reversing since you last reported, and building on the previous question, how do you think this dynamic will play out across your six verticals within PSG compared with the first round of rate increases? It seems some of the impact was dampened by the fact that backlogs were very strong coming into this year.

Well, I think I'd describe it this way, that there's some uncertainty given the challenges and interest rate can have on our market. And I think Heidi and the team are really focused on one very clear mission. We're going to outpace the market. And we've got confidence in the approach that we're taking, the services that we bring to the products that we are introducing. And quite frankly, we're also taking advantage of other opportunities within the market. We've got competitors that are changing models as an example. And our simplified approach of dealing with one Sherwin-Williams store as it relates to the painting contractor, we believe adds value. So the investments that we're making will enhance that on top of the organic growth that we expect from our stores. And so we're taking advantage of market conditions where Heidi just mentioned some res repaint customers that may not have had experience going through a cycle yet. They are now turning to our people for guidance and support on how do you begin advertising. In the past, they just park their truck in front of a house in the neighborhood and all the neighbors would flock in. They need help right now. And so they're turning to our people, and our people are playing an important role. And so when we look at what's happening with interest rates, there's some choppiness, but we also believe it creates opportunity. And we talked openly about adversity creates opportunity at Sherwin, and we're capitalizing on that.

I would add that New Residential, specifically in relation to interest rates, is notable. Single-family completions have been flat or down year-over-year for eight straight months, but starts have been positive year-over-year for three consecutive months. We are watching interest rates very closely; this may signal that we are past the bottom, although the environment is choppy. While others in the market talk about preparing for a slowdown, it's critical that our teams remain laser-focused on taking disproportionate share. We went into COVID with a large majority of exclusive arrangements with national homebuilders, and we've come out building momentum in a number of exclusive contracts with those builders. That reflects the team's ability to demonstrate our value in this environment. To take it a step further, and linking back to working capital, we manage our working capital very closely. Through these partnerships and by demonstrating more of Sherwin's value proposition in the New Residential space, we help builders streamline and standardize the products they bring to market so they can be as aggressive as possible, find ways to reduce cycle time, and drive increased profitability and productivity, while also being more effective with their working capital amid significant interest-rate volatility.

Got it. And then in terms of free cash flow allocation, I guess, going back to the fact that interest rates are much higher. It looks like you have about a little over $2 billion of debt due for refinancing between '24 and '25. How are you thinking about the terminal sort of balance sheet leverage for Sherwin-Williams at this point, given the changed interest rate environment?

Yes, Ghansham. I think you remember that coming into the year I said we would keep our total debt flat with year-end 2022. But as you saw at the end of the third quarter, our net debt-to-EBITDA leverage ratio was 2.2x versus 3.1x, which reflected both strong trailing 12-month EBITDA growth of a little over 28% and a reduction in total debt of nearly $600 million. I would expect that, as we forecast through the end of the year, total debt will be lower year-over-year by about $600 million and that we will be firmly in the 2 to 2.5x range.

Your next question is coming from Arun Viswanathan from RBC.

I guess, I just had to maybe get your thoughts on Protective and the other markets within Industrial. What are you seeing maybe if you can just run through some of those verticals? Apologies if I missed that earlier, but it seemed like wood was unusually strong. We're expecting some weakness there, but that was actually better Protective & Marine, obviously, strong; Refinish, I would imagine there's still strong; Packaging, weak. Could you just reiterate what you're seeing in those markets?

Yes. First and foremost, it's indicative that our strategy is working. When we look at this business and this portfolio, it's really important. We're not trying to be all things to all people, so across these businesses the discipline in how and when we're investing is a key part of this. John, feel free to jump in as well. You mentioned Industrial Wood. We've had a lot of wins against some regional competitors. While U.S. housing is continuing to soften, we see this as an opportunity coming out of completing some key acquisitions we mentioned in our prepared remarks, including Oskar Nolte and Klumpp. It feels like we're in a really good position to continue to drive increased value and return value to our shareholders. Our gallons per day appear to have bottomed out in all regions, so as the new residential market swings back, we expect Industrial Wood to come along for the ride. On Automotive Refinish, we've had some really good share gain. Year-to-date installs in North America have been up strong double digits, and our core users are growing. Momentum and adoption of our Collision Core technology and business are continuing. This suite of digital tools and solutions is truly helping our business. Along with our North America footprint and our Paint Stores Group, we're better able to control a more consistent customer experience end to end with Auto Refinish, which we think is an incredible differentiator for us. In General Industrial, the heavy equipment market is rolling up, especially in agriculture, and we expect that to continue. Building products and general finishing are soft, but the team is laser focused on pivoting and adapting to the market. On the Coil side, North America is holding up better than the other regions; it's still soft, but the team is working hard on new business wins. Nearshoring in Mexico continues to create demand for us, and we're managing that across the regions very carefully. One final note on Coil: most of the China coaters are running at about 50% capacity, so we expect there to be some forward opportunity there as well.

Yes, Arun, I think you mentioned on your question about P&M. I think the team there is doing a terrific job of really staying focused on the value proposition as we bring into high-value projects. So EV battery plants as an example, semiconductor plants, Heidi and I were just recently out at one of the largest plants I've ever been on. And our floor coating teams are all over these businesses. I think the offshore wind and other alternative energy investments as well as water infrastructure. I mean, these are all areas that we're focused on. And I'll remind you, it wasn't long ago, we were talking about our Protective & Marine business at a time when it was under pressure. We reminded our investors that we take this long-term approach. And I believe these are terrific examples of our continuing to invest, even when times were a little tough, knowing that these projects can be delayed, but they can't be canceled. Oftentimes, you'll find highly corrosive areas that needed to be coated. You might get an extra year or a year or two out of those. But they needed to be coated. And it's those types of high-value projects that are almost kind of a repeat business as you maintain those that add to the attractiveness of these coatings. So we're really proud of Karl Jorgenrud, the entire leadership team within our PCG business for what they're delivering. And importantly, I'll remind you of the operating margin goals that we had set for this team at 19%. It's come in at 19%. Our goal of getting up into the high teens, low 20s. So they're doing it, and they're doing it by bringing value to our customers and to us.

Great. And if I could just ask one follow-up on the M&A side. Given what you said in those different verticals, do you see the need to add capacity inorganically in any of those areas and similarly divesting businesses or what would you share on that side?

Well, we've said certainly in our investor call recently and we say this consistently, but we don't need M&A to grow. There's a lot of confidence in every segment that we have for us to continue to take share organically. And so from a capacity standpoint, we've continued to be very strategic about where we are laying that capacity in. And I'll go back to Al's point, all of that is by design. As we look at our 10-year CapEx plans, our 10-year demand plans, certainly, we don't want to put anything that's net new to the system if it's not needed. But where we need that capacity, we're going to do that.

The one point I do want to add, I don't know if Heidi mentioned, Packaging or not, but that's an area that we continue to invest. It's not so much needed through acquisition or M&A, Arun. It's more through our investment of a very unique technology, so the packaging business, particularly our V70 product is a very unique technology. And as quickly as we can bring capacity onboard, it's sold out. So I think that's an area that we will continue to invest in.

Your next question is coming from David Begleiter from Deutsche Bank.

On your gross margins, they were near your long-term target in the quarter. And it sounds like it will be above that target in Q4. So given that, how high can it go this cycle? Can they approach or even exceed 50%?

David, one caveat I'd make. When you look at our quarter gross margin, you typically see a seasonal architectural slowdown in volumes and sales. The fourth quarter margin may or may not be sequentially improving. It's our smallest quarter, and year-end adjustments could have a material impact on gross margin. Also, price increases won't be as much of a tailwind in the fourth quarter as they were in the third quarter. On the other hand, the Paint Stores Group will grow faster in the fourth quarter, which will help drive gross margin. As we said at Investor Day, our current range is 45% to 48%. We set aggressive goals for our teams, and as we consistently achieve that range we'll adjust it. I don't think we're ready to change the range or discuss 2024 today, but we'll be consistent in our approach going forward.

David, I would just add, very simply, there is no ceiling.

Very good. And Heidi and John, just looking at past DIY cycle weaknesses, what does it take or what do you need to see, to think to see a reversal of the current DIY cycle weakness here?

Well, clearly, the consumer is feeling some pressure from an inflation perspective. And there'll be some normalization, if it's in wages increases or the spending patterns of consumers that will take effect. But the fact is this, that I'll remind you that paint is a relatively inexpensive, yet highly impactful opportunity for people that are interested in their home, staying in their homes to make a difference. And if people decide they're not going to sell the home, they're going to stay in place, it's a very viable option. I'll remind you the average home age now is over 40 years old. So there's more and more investment in the structures, people aging in place is impacting as well. And additionally, I would say, not only does it help the DIY, but as the population is aging, that generally will turn into more of a res repaint opportunity, which helps our position in that space as well. We don't want 70-year-old people out there scraping their gutters and eaves of their homes. But inside, yes, DIY is going to be an important part. There's a cycle, and we're playing the long game here, whichever way the table tilts we'll be there.

Your next question is coming from Josh Spector from UBS.

I guess two ones, more for macro around the stores group. I guess, first, when I look at U.S. completion data for New Res, it looked like that was kind of flat, you guys reported down mid-single digits. I assume you get some pricing. I don't know if that's a regional divergence or something else you'd call out? Maybe I'll stop with that one first.

Well, I think what you're experiencing right now is the delay between housing starts and the roughly 90 days or so, maybe a little longer after a start, before homes are painted. So our view, and Heidi mentioned this, is that when you look at our share of New Residential, our position here is very strong and getting stronger every day. Heidi mentioned the exclusive arrangements that continue to grow in number. Our relationship with the New Residential builder and our commitment to helping their profitability and success is helping us grow those customers. It's delayed right now because, with more agreements being signed and the pressure on starts, we're not seeing that benefit yet. But I can tell you with great confidence that as new homes continue to rise, and they will, everyone would agree there is higher demand than there is supply right now and family formation continues. There is a hole in housing availability, and when that comes back we are going to be the coil spring that we've been in the past. It's actually exciting to see our teams winning at the rate they're winning, and it will show up on the scoreboard.

Okay. I appreciate that. And on the residential repaint side, not just Sherwin but the industry as a whole, we still have turnover down about one-third from the peak a couple of years ago. Has the industry fully digested that? If contractor backlogs reflect that, have orders reflected that? How are you thinking this plays out into next year? Is there another leg down in the industry to normalize to that if we don't have a step up, or have we already reflected that in the current run rate?

Yes. I think it's been reflected. If you take a few quarters back here, we were talking about res repaint contractors that, in many cases, weren't even returning phone calls. There were many people who were saying that they'd come out and give you a quote in 6 to 9 months. And then it would be about a year before they could get to the project. So there has been a more normalized reality, if you will, as it relates to the residential repaint contractor. Again, I'll reiterate that this adversity creates opportunity for Sherwin-Williams. You should bet, right now, as we are here, in this moment, that our customers are getting visited with Sherwin-William's representatives. You should also bet that our competitors' customers are getting visited as well. So we're not playing nice here. We're going after some pretty aggressive market share gains, and we expect to win aggressively.

I would add, Josh, that there is a lot of confusion in the marketplace right now, which creates opportunity. As John said, adversity is our friend, and I agree. Our strategy is working. We have a control distribution platform: we own the stores, we own the reps, and the store manager owns the P&L, staffing, and the culture of the store. That matters because the consistent experience we can offer residential repaint contractors lets them know exactly what to expect from Sherwin-Williams. As they come in, travel, and try to grow, our teams are prepared, trained, and ready to provide any tools they need to become as productive and profitable as possible. I'm very confident in our ability to differentiate and add value for these contractors.

Your next question is coming from Michael Harrison from Seaport Research Partners.

You have opened 36 new paint store locations so far this year. Is the target still 82/100? And are you seeing any delays in either the permitting process or the construction process?

Mike, yes, we expect to build as we said it. And no, we do not expect any delays. I think this is really important. When we look at our commitment to the team, to the Street, we're opening the new store every 3 days, and there's puts and takes in terms of timing. You can imagine our strategy is reflecting our desire to chase the density and the volume. And some of those markets, there's unique nuances where we're timing getting into a certain market in a certain area. But our commitment to getting to those stores is critical because we still continue to see a return on those stores at a rapid clip, and we think there's a lot of opportunities to chase for future density there.

All right. And then within the consumer business, one of your competitors suggested that sell-in to the big-box retailers have been weaker than sell-out. It suggests that maybe there's been some inventory work down this year. Do you have any thoughts on how point of sale with some of your key customers as compared to your volumes into those customers? And I guess whether big box inventories at this point in the year are below where you would expect them to be.

Well. First of all, we wouldn't comment on anything specific to our customers. So but what I can share with you with our approach that we're taking partners. And again, we do talk openly about making sure that success is our customer success. So when we're looking at making sure that they are at the right inventory levels, helping them thinking through how to manage to optimize our working capital. You can rest assured that those conversations are happening on a daily basis. So we'll let them speak to their specific strategy here.

Yes. And I think that's really important. I'd like the way that Heidi frame that, that we gauge our success by how successful our customers are. And so we're actually working with our customers, encouraging them to manage their working capital so that they can put their cash to work and be more successful. And Al, maybe you want to talk a little bit about what the impact of that might be because we're trying to drive reasonable or acceptable working capital, not only for us but for our customers.

Yes. I'd start with, Mike, that as we typically do, we saw our inventory gallons decrease sequentially as we are getting back to a more typical bell curve. We grow inventory into the summer selling season, see incremental decreases through the second half, and then build inventory in the fourth quarter. That consistency helps our customers manage their inventories better because it returns things to a more normal environment. To that point, we expect our working capital trend toward 11% to 11.5%. We were at 12% coming out of the third quarter, so we're well on track. This is allowing us to drive significant cash flow, which you saw in our third quarter, and is a combination of strong net income and working capital management. We expect that to flow through into the fourth quarter and produce a really strong cash year that gives us flexibility. Ghansham mentioned our ability to pay down debt, but it also allows us to return cash to shareholders through dividends and buybacks, and we've returned over $1.4 billion to shareholders over that time. In this high interest rate environment, returning to our normal operating cadence with inventory will let us manage working capital down, and that consistency in turn helps our customers manage their working capital down.

And one piece I would add to that as well, I go back to Al's point here. We put by design very intentional capacity to work here so that as we're partnering closely to manage and optimize working capital and inventory with our partners that we've got the confidence that we can have the capacity to build the inventory in time for the season ahead.

Your next question is coming from Duffy Fischer from Goldman Sachs.

John, you've often talked about things like sprayers being a good leading indicator what you're seeing in your stores with like a 1- to 2-quarter lag. What is that equipment sale telling you today about what the next couple of quarters holds for the store sales?

Well, Duffy, I'd say that, what it's telling me now is that we're ending a season. So I'd say, while we talk about that, typically, the greatest correlation between those types of sales and confidence is usually as we go into the season. As we're coming out of the season, we are continuing to see spray parts right now move. And I'd say right now, as we've talked, there's a choppiness in the market, but we have confidence in our position in the market, and we'll see how this unfolds next year as we go into the paint season. Coming out of it, though, it's typically not the best tool to use to gain a level of confidence of contractors.

But what we are seeing there too, despite the sprayers is the backlog of projects for our commercial contractors continues to be solid, well through the midpoint of next year. So getting back to more of that normal cycle. So good indicator of some growth there.

Fair. And then, Heidi, I think you said that your gallons per day had bottomed, in your view. I didn't understand: was that for the company as a whole or for Paint Stores Group, and does that even include the seasonal weakness we generally see in Q4?

That was just in Wood.

Your next question is coming from Kevin McCarthy from Vertical Research.

Yes, I was wondering if you could comment on your administrative costs. It looks like they jumped up a bit in the third quarter. And in reading the commentary you called out 2 items, namely environmental expense and asset disposals. So a few questions would be, what are the nature and magnitude of those items? And would you expect that line item to come back down in the fourth quarter and beyond?

Yes, Kevin. Of the year-over-year increase, environmental expenses are a little less than half, and costs related to our Garland plant fire are a little less than half. We are also lapping a gain on sale of assets that benefited our third quarter last year. I'm glad you asked because I want to give some color around our fourth-quarter guidance. Although we don't provide EPS guidance, it is implied and backwards. A better way to view it is at the operating margin line: we expect fourth-quarter operating margin to be roughly flat at the midpoint year over year compared with a strong fourth quarter last year when operating profit rose over 60% and operating margin increased 450 basis points. We do expect gross margin expansion in the fourth quarter, but not as much as in the third quarter. We see raw material moderation and will not get as large a price tailwind as in the third quarter. I also expect higher SG&A year over year because of our long-term investments. That brings us to nonoperating costs: we expect about a $60 million increase, predominantly in our admin segment, due to credits we realized last year in environmental and other income in the fourth quarter that we don't expect to repeat, and we expect those lines to return to a more normal level.

Okay. And then as a second question, if your raw material costs were to trend flat from here, would it be reasonable to estimate that you could see relief in 2024, perhaps in the negative low single to mid-single-digit percentage range, or how would you frame that outlook for next year as it relates to raw material costs, specifically?

Yes, Kevin, I think with the current environment and the volatility we're seeing both in oil, in the choppy demand environment. I know historically, we've given run rates, a preliminary run rate on raw materials. I think that's probably a little too soon for that in the sense that we also have to take a look at the other cost factors in the total input costs. I talked about the merit increases, getting back to more normal levels. But health care is growing significantly. We have freight costs and there's some things going on in the LTL freight side of the market that are driving our overall cost up. So I think it's a little premature to give that level of guidance. I'd rather wait until we get more line of sight or a better line of sight and give you an update in January.

Your next question is coming from Aleksey Yefremov from KeyBanc Capital Markets.

Al, I wanted to follow up on your comments regarding fourth quarter EPS. I guess historically it's hard to find in Q4 where sequential EPS fell by more than $1. You're looking at somewhere around $1.50, $1.55 based on your guidance. Is there anything else going on sequentially besides the year-over-year things that you just pointed out?

No. I think the bigger sequential driver will be the decrease in sales due to seasonality. What's hard, Aleksey, is if you look at the last four years it's been very choppy quarter-to-quarter, including from the third quarter to the fourth quarter, so you have to go back a long way to find a more normal year. As I said, I expect gross margin to be higher year-over-year but sequentially lower because the pricing tailwind is smaller. SG&A growth is probably higher sequentially in this year's fourth quarter than in past years because of what Heidi mentioned about leaning in on investments in our paint stores and long-term growth initiatives within PCG and CBG, which is likely driving some of it. Also, since it is our smallest quarter, some year-end adjustments have a bigger impact on the fourth quarter than they would on the third quarter.

And then quick follow up on your stores. Of course, you have a large competitor who is shifting strategy. But besides that, are there any players who are either slowing investments or outright closing stores kind of in response to you gaining share?

So I'll take that. It's a great question. I think you're spot on. I would say that, if you go back to my earlier comment, there is a great amount of confusion in the marketplace, and this is an opportunity where our consistent strategy is on full display. I have a lot of confidence in Justin Binns and his organization and in the depth of leadership we have there. This team is well prepared not only to execute our strategy, but also to adapt to market conditions around us, and I think we have a competitive advantage in doing that. And I suppose if we didn't own 5,000 stores, 4,000 reps, and have strong customer relationships and data that can help our customers be more successful, we too might try to stitch together a strategy to get products placed on the shelf. But this is really an opportunity for us to do what we do well and to demonstrate to our customers a very consistent experience with Sherwin-Williams. We're working with them closely to help fight through a lot of the complexity out there and make sure that they're coming out winning. So I do think where we're seeing competitors make different choices on store closings or channels, this uncertainty is our opportunity.

Your next question is coming from Garik Shmois from Loop Capital.

Within Pro architectural, you called out strength in commercial. I'm just wondering what drove that. It sounds a little contrary to some of the commercial data points that emerged over the course of the quarter. So just curious as to the outperformance there.

Well, I think the way to characterize that would be more back to a normal cycle where you're seeing kind of strong backlog front half. And then it would obviously look to soften a bit in the back half. So I would characterize it more as a normal cycle. But I do think that this is an opportunity. We talk about the strength and position in commercial for us is amongst the highest of our segments. We're going to be hard at work focusing on share gains, making the right decisions, making the right investments, and our people and our resources are aligned and ready to help these customers to respond through the duration of these projects. I think, regardless of the demand outlook, we will take share in this environment. And part of our differentiation is, we are with these contractors at every step of these projects. And so as they're navigating uncertainty and/or changes that come up in every single project. Our team is right there side by side to make sure that they're getting those completed on time.

Yes. I think if you look at the commercial piece, that's where we have the longest visibility and the longest lead time. So we feel pretty comfortable about what we're seeing in terms of completions into first half of '24, as Heidi said. I think you might be referencing things like the Architectural Billing Index, which are choppier now. That's why we're saying the back half of '24, we might start to see a little softness, but feel very comfortable again about our ability, if that was to occur, our ability to fill those gaps with perhaps, New Res is starting to come back. We'll put our foot on the gas with the res repaint, property maintenance, et cetera.

Great. That's helpful. I wanted to follow up on Consumer Brands, just the sequential weakness in margins third quarter versus second quarter? Was it really just the decline in volumes quarter-over-quarter. Is there something else that drove the change in the margins?

No, Garik, it's primarily, well, two things. The sequential decline in volume. But also, as we've talked about and I mentioned on our working capital, we're targeting a year-end inventory level so that when we come out into 2024 our inventory is in great shape, which means we tweak our production volumes to make sure we stay in line with those targeted inventory levels. So with production gallons being down sequentially by a low single-digit number, that is a headwind for us in this segment.

Your next question is coming from Adam Baumgarten from Zelman.

Just one for me. Just thinking about Europe, it seems like it was a bit better year-over-year across multiple segments. Just curious if that's just comps or maybe you're seeing some kind of bottoming or even improvement in demand on the ground there?

Well, I'll start, and I'm sure Al will jump in here. I'll return to the PCG side: we're not trying to be all things to all people, which I think is an important point. We are laser-focused on driving increased operating margins. I'm proud of the team's work delivering a 19% margin in Q3. We'll get some benefit from recent acquisitions, but four of our six businesses are up against very strong comps from last year. The team is taking a disciplined approach to decision making and investment pacing as we watch the market closely and ensure our investments align with demand.

I think 4 of the 6 to your point, had some strong comps. But 4 of the 6 had double-digit sales gains in Europe in Q3. And I think putting a bow on what Heidi just said, we're doing it the right way. We're focused on the right segments where we can bring value and that our customers appreciate that value and are willing to pay for it. We're not in this for practice. And so we're growing and bringing value to our customers, and we're open about the fact that while we bring value to them, our shareholders need to be rewarded as well. That's why we work as hard as we do. So it's a good performance in Europe, and it's driving both the sales and bottom line as a result.

Your next question is coming from Steve Byrne from Bank of America.

What fraction of your resi repaint volumes would you say the Sherwin-Williams paint was selected by the contractor versus selected by the homeowner. And clearly, you've highlighted a multipronged approach going after that contractor for loyalty. What would you say you can, perhaps do more of to drive loyalty with the homeowner selecting Sherwin that could help you also drive share gains.

Yes, Steve, we focus on the residential repaint contractor as the applicator. And that's a very big influencer in the decision tree. Other decision influencers would include color specification, which we've been working very hard at and the homeowner. But typically, what we see is that the homeowner turns to the professional contractor as the expert. And while in some markets with some homeowners, they don't have a specific brand in mind. But the hard work that our teams do on a daily basis in building relationships with that residential repaint contractor is the largest driver. And it's exactly why we believe we'll continue to grow share at an outpaced rate going forward. I'll finish with this, that we've had terrific success with the residential repaint contractor. We've had 7 years of double-digit growth. We're just getting started here. And there's a long opportunity and a big opportunity, and that's why we believe investing in Sherwin-Williams is the right approach.

And how would you rank the residential repaint end market in Paint Stores as an opportunity to gain share compared with new commercial property management and new home construction? How would you rank those in terms of potential share gains?

We see all of them as opportunities, Steve. The teams focused on residential repainting have the biggest potential, followed by property management, and then commercial. We need to deliver in each of those segments because that is how we support our families. Each one offers terrific opportunities. In terms of share gains, residential repainting presents the largest opportunity and our positions in the other segments are a bit stronger, but there are still great opportunities there. To be clear, if we were boxers in the center of the ring, we would not be waiting until the end of the bout for a decision; we want a decisive knockout in these segments. We are pursuing each of them aggressively, and I am not going to break down which one is best — they all offer strong opportunities and we are determined to go after them.

Your next question is coming from Eric Bosshard from Cleveland Research.

In terms of the investments in '23 to grow share, I'm curious what the current thinking is about '24. And I guess, specifically, I'm trying to figure out do you sustain incremental investments, or does SG&A growth go back to normal trend or perhaps below normal trend? How do you think about that?

Yes, Eric, here's how I would think. Here's how we think about it. And as you know, we manage operating margin, not specific to SG&A. And as this year showed, our volumes held up better than what we had planned coming into the year. Our gross margin performance and gross margin expansion was a little bit better than what we had coming into this year. So it allowed us the opportunity to lean in and put more investments in than we normally would. We are certainly going to have growth in investments next year. I would say, back to a more normal level. And then as we see the year unfold with volumes and gross margin and what we see happening going into 2025, that will dictate how much more investments we put into each of those segments.

Eric, I would add to that. I think going hand in hand, you asked a question about SG&A, and we talk a lot about managing operating margin. I think just talking about how we're thinking about a different approach to working capital is an important element here. That's a very intentional focus on end-to-end supply chain, but also a broad simplification effort that goes across every business unit to make sure we're as tight as possible. And we talk about our value proposition goes far beyond what's in the can, and we're looking at this through the lens of our customers. And our value proposition can't include idle assets or excessive working capital, and our customers are simply aren't willing to pay for that. So I think it's obviously always going to be room for improvement here, but as we're looking to manage that closely. Allen and I, are locked relative to SG&A and working capital to drive those operating margins.

Helpful. And then, Al, if I could follow up. In terms of managing the operating margin, is it fair to say as you solve for '24, you're managing these different levers for some degree of operating margin expansion. Again, I'm not asking you to comment on '24. I'm just curious how that thinking can play out.

Absolutely, Eric. I think just color around 2024. I mean we believe the macro environment is still going to be difficult. We're going to see choppy performance on different parts of our business, different segments, different regions, but we absolutely believe that we're going to drive operating margin growth through that whatever environment that we see unfold in 2024.

Your next question is coming from Michael Sison from Wells Fargo.

This is Abigail on for Mike. I just wanted to press further into the raw material basket. Can you speak to which materials you've seen the most deflation in and where pricing might be holding up more?

Yes, Abigail, Happy to do that. So as we said, the third quarter was likely the biggest benefit for us from a year-over-year perspective. I would say, as we've commented, the petrochemical side of the basket is where we've seen some relief. TiO2 have been a little bit stickier. But I think Al said it well earlier, as you think about going forward, oil is moving around. And while it hasn't necessarily made its way into those commodities yet, I think it's to be determined of where that heads into next year. So right now, it's again, petrochemical side has been probably the greatest relief. TiO2 a little bit stickier. We feel very good about our ability to hold on to the pricing that we've put in the marketplace given the solutions we're providing our customers. And we'll have a better update on where it goes as we get into January.

Okay. And then a quick question about your packaging destocking that you were referencing. Is that still persistent? Or has that started to tail off a little bit?

Well, I would say this is similar to what we talked about before. We won't get into very specific details here, but I think it's important that we're in lockstep with the demand environment, making sure that, as John mentioned earlier, as our customers are working through some choppiness right now, we have capacity continuing to come online through our brand site. As soon as we have that capacity, we're confident not just in our ability to satisfy that demand, but also that we have the technology the market is looking for. So we're very confident that we'll have that online here shortly.

I think there is some destocking. Our customers have spoken about some areas of excessive inventory that they're driving down. And to Heidi's point, as our additional capacity comes back online, we get through the repairs down in Garland. We're going to take this wonderful technology and bring solutions to our customers that allow them to run their plants more efficiently.

Your next question is coming from Patrick Cunningham from Citi.

This is Eric on for Patrick. Given the DIY consumers under pressure, have you seen any relative share gains or losses within PSG or CBG?

Well, we're clearly seeing improvement in share gain in our PSG, our stores business. Heidi mentioned the comparisons to last year in the quarter, we're all very strong, nearly 20% comparisons, and we've continued to perform very well even against that backdrop. And the investments that we're making are easy to point to as key drivers for future share, but I drive it back to the core business that we have and the expectations we have for organic growth. Heidi mentioned quickly in one of the M&A questions about that we don't need acquisitions. And in stores, when you look at our business, you could arguably say that this core business in itself is going to be a fantastic show to watch, and it will be. But our expectations are to accelerate growth even faster. So the investments that we're making will allow us to capture that even quicker. As it relates to our consumer business, we've got wonderful partners. We're committed to their growth. Heidi mentioned things like capacity and helping them to drive down their inventory with the reassurance that we have the ability to respond to them. So from the back side, we're clearly trying to help position them financially. But more importantly, we're introducing new products. We're bringing innovation. We're adding people in our team to help train their team members. And we do believe there is a continued opportunity to convert people that might be in our customers' stores as shoppers, we can help turn them into buyers of products in our category. So we're excited. This is a type of market that most don't hope for, I would say, arguably, we don't hope for this type of market. But we know what to do, and we're going to turn it into advantage to our shareholders.

Our next question is coming from Aron Ceccarelli from Berenberg.

I have one on product simplification. You have been doing quite a lot of simplification inside and outside the can, reducing formulation and also rightsizing the number of SKUs. Maybe can you help me understand a little bit better where are we in this process? And if you can quantify what has been done, and where can we go from here?

Yes, Aron, I would say we're early innings. Really confident that there's aggressive road map ahead here. And the way I would characterize this is thinking through this is truly an end-to-end effort across the enterprise. So you mentioned whether it's SKU rationalization, formula rationalization that's really starting with raw materials and understanding the basket all the way through to what it is that we're setting up to our customers. But I think an important point here is it's a mindset that we have adopted going forward. And so it's part of how we, John mentioned innovation as part of our new product development process. I mean, we're going to make sure that we're always looking at opportunities to take complexity out of the business. And I take it a step further, if you look at our Performance Coatings Group, we still have a lot of opportunity as we think about even rationalization of footprint. So the team is hard at work. This isn't going to be something that we land in the next 12 or 24 months, but I think we're going to be constantly looking at going forward.

And I think Heidi's strength here is, and she's a humble person, she won't say this. But I will say this, I am a front row to this show. You've got a leader that is driving the opportunity to the bottom line. She's got a very respectful approach to our traditions and to our norms. Our 157-year-old company, there's a lot of things that we do and have done, and many of them are right. And we've got an opportunity, I think, to take a look at those traditions and norms and ask if there's a better way to do that. And this simplification effort is a great example of that. I think our company is going to come out much stronger, much more efficient, better responsiveness to our customers, and an opportunity to pursue business in new ways. We didn't really get into our digital approach, and the approach that Heidi is leading there to our team to better use the data that we have available in ways that we just haven't in the past. We've scratched around the surface but there are some terrific opportunities that she's leading that I think will further differentiate Sherwin-Williams.

And I have a follow-up on PSG. You touched earlier on the commercial vertical. Maybe can you provide some color on property management because also this vertical has been incredibly strong this year. And again, Q3 very strong against very tough comps. So would like to understand how you think about the momentum in terms of volume growth going into next year, please?

Yes. The underlying demand is solid. I think we've seen some delayed CapEx and a lot of deferred maintenance that is now being addressed, and we'll continue to see that come into next year. Apartment turns are improving, partly influenced by the return to travel to schools driving some of that demand. Much like our momentum in New Residential, we are demonstrating our unique ability to serve the property management segment with a consistent experience that only Sherwin-Williams can deliver. Regardless of the size or location of these contractors, our goal is the same: to make it as convenient as possible to leverage our stores, our representatives, and our segment-specific tools and solutions. We are taking share, increasing our number of sole, preferred, or exclusive contracts, and we're confident we will continue with our foot on the gas going forward.

That concludes our Q&A session. I will now hand the conference back to President and Chief Operating Officer, Heidi Petz, for closing remarks.

Great. Thank you. I expect to close out this year with momentum — I think you've heard that loud and clear. We believe we're gaining market share, and our humility leads us to acknowledge there is no finish line, so we're determined to keep moving forward. Looking ahead to 2024, I can tell you I have a clear sense of reality: there will be some choppiness we've already discussed. But we've seen this before, and I have confidence in this team, in our ability to execute a strategy that is working, and in our key investments that will deliver shareholder value. Together, that gives me confidence we'll outperform the market. If you have any additional questions, please reach out to Jim or Eric. We look forward to speaking with you in January about our outlook and plans. Have a wonderful holiday.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.