Good morning. Thank you for joining Sherwin-Williams Company's review of Fourth Quarter 2023 Results and our outlook for the first quarter and full-year of 2024. With us on today's call are Heidi Petz, President and CEO; Al Mistysyn, Chief Financial Officer; Jane Cronin, Senior Vice President, Enterprise Finance; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This 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 two hours after this conference call concludes. This conference call will include certain forward-looking statements as defined under 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 up the session to questions. I will now turn the call over to Jim Jaye.

Thank you and good morning to everyone. Sherwin-Williams delivered solid fourth quarter results that concluded a record year for the company, where sales grew 4.1% to $23.1 billion and adjusted earnings per share grew 18.6% to $10.35 a share. Sales in the fourth quarter increased by a low-single digit percentage against a tough comparison, and we generated significant year-over-year gross margin improvement. As we previously described, we also continue our deliberate and accelerated investments in the business as reflected by the low-double-digit year-over-year increase in SG&A in the quarter. These investments are being made to take advantage of current market uncertainty and are aimed at driving the success of our customers and above-market growth across all businesses. Adjusted earnings per share in the quarter decreased by a mid-single-digit percentage related to higher non-operating costs. We maintained our disciplined capital allocation approach and returned $641 million to our shareholders through dividends and share repurchases during the quarter. Sales in all three of our reportable segments were within or better than our guidance. In our architectural business, commercial and residential repaint were the strongest performers, while DIY remained challenging. In our industrial business, growth was variable by division. Sales grew in Europe and Latin America with softness in North America and Asia. Let me now turn it over to Heidi, who will provide some commentary on our fourth quarter results by segment and a few full-year highlights before moving on to our 2024 outlook and your questions.

Thank you, Jim. I'll begin with the Paint Stores Group, where sales increased 2.3% against a mid-teens comparison. Volume drove the increase as our previous price increase annualized in September. Segment margin improved 210 basis points to 19.3%. Protective & Marine, commercial and residential repaint drove the growth. Strength in these markets was partially offset by decreases in New Residential and property management. From a product perspective, exterior and interior paint sales both increased by low-single digit percentages. Exterior sales grew faster but were a smaller part of the mix. We opened 35 new paint stores in Paint Stores Group in the fourth quarter and a total of 76 new stores in 2023. We also announced a 5% price increase to our customers in the quarter effective February 1. Moving on to our Consumer Brands Group. Sales decreased by 7.1% in the quarter, which was better than our guidance. Sales increased mid-teens percentage in Europe and Latin America. Sales decreased in North America by a low-double-digit percentage as customers managed their inventories lower due to soft paint demand, partially offset by an increase in the pro paint sales. Adjusted segment margin, which excludes acquisition-related amortization expense and impairment charges related to trademarks in Europe and the negative impact from the significant devaluation of the Argentine Peso in December, was 10.8%. The decrease from last year's fourth quarter was driven by lower volume and higher non-operating costs. Sales in the Performance Coatings Group increased slightly with continued choppiness across each of our businesses and regions. Acquisitions and favorable FX were offset by lower volume. Adjusted segment margin improved to 17.3%. This is the fourth straight quarter this team has delivered year-over-year segment margin improvement. This performance reflects execution of our strategy, moderating raw material costs and the ongoing value we are providing customers. Industrial wood led the growth, including the impact of recent acquisitions. Coil and Automotive Refinish also delivered solid growth. Packaging was down as expected. General industrial was impacted by lower demand in all regions. PCG sales varied significantly by region with growth in Europe and Latin America and decreases in North America and Asia-Pacific. From a full-year perspective, I'll provide just a few highlights before turning to our 2024 outlook. At this time a year ago, you'll recall an environment of tremendous macro uncertainty with single-family housing starts down an average of more than 20% for seven consecutive months, existing home sales down a similar percentage, soft PMI manufacturing indices in all regions and most economists predicting a hard recession. Against that backdrop, we provided guidance that we believed was appropriate. We also said that if conditions improved, our performance would be better than our initial guidance, and that is exactly what happened. I could not be more proud or thankful for the efforts of our 64,000 employees throughout 2023. On a consolidated basis, our team delivered record full-year sales, adjusted EBITDA, adjusted diluted net income per share and net operating cash. We returned a total of $2.1 billion to our shareholders in the form of dividends and share buybacks in 2023. We delivered these results while reinvesting in the business by design and at an accelerated rate to drive continued above-market growth and enhanced profitability. In terms of CapEx, we invested $590 million, including approximately $205 million for building our future R&D lab projects. We expect to begin occupying these facilities by the end of 2024. We ended the year with a net debt to adjusted EBITDA ratio of 2.3x. Looking at our reportable segment on a full-year basis. Paint Stores grew sales by a high-single digit percentage and expanded its margin. Sales increased in all end markets except New Residential, which was down less than 1%. This New Residential performance was remarkable given the state of the market and reflects our share gains. Performance Coatings also grew its top line while further integrating recent acquisitions and achieving a high teens adjusted segment margin. The full-year adjusted margin performance is the best since the Valspar acquisition in 2017. Consumer Brands had a challenging year on the top line with lower sales resulting from soft DIY demand, but adjusted segment margin expanded. We're confident our aggressive portfolio adjustments completed during the year, including the divestiture of noncore aerosol product lines and the China architectural business, should result in improved future profitability. I am confident that we further separated ourselves from our competitors in 2023, and that's exactly what we intend to do again in 2024. Our success in 2023 stemmed from executing our strategy, which remains unchanged. We provide differentiated solutions that enable our customers to increase their productivity and profitability and for which they are willing to pay and stay. These solutions center on industry and application expertise, innovation, value-added services, and differentiated distribution. We also have momentum in the enterprise strategic priorities that are illustrated in our slide deck and I first described at our Investor Day last August. I am confident the continued execution of our strategy and our enterprise priorities will spur the next era of profitable growth for Sherwin-Williams. So turning to our outlook. We entered 2024 with confidence, energy, and a commitment to seize profitable growth opportunities in our targeted end-market segments. We expect to outperform the market just as we have in the past. And while the macro environment feels better today than it did a year ago, it still contains a number of uncertainties. On the architectural side, U.S. New Residential sentiment has improved. Single-family starts have been up year-over-year for six consecutive months. Mortgage rates are expected to begin moderating but will remain well above historic levels. In residential repaint, existing home sales drove a portion of our sales and have declined year-over-year for 28 straight months. The trajectory of recovery is not clear here, and the LIRA index is forecasting negative remodeling spend in 2024. However, there are numerous other drivers for repaint, and our investments and our model give us confidence that we will continue to grow share. In new commercial, starts slowed considerably in 2023, which we expect will impact completions starting midway through 2024. Commercial lending standards have also tightened, and the Architectural Billing Index has been negative for five consecutive months. On the DIY side, we'll remain in share gain mode as we do not currently see a macroeconomic catalyst driving meaningful improvement in consumer demand, though any improvement in existing home sales could be a tailwind. On the industrial side, the PMI numbers for manufacturing in the U.S., Europe, and Brazil have largely been negative for multiple months with China being slightly better recently. We expect Automotive Refinish to be our most resilient business in this environment, and we expect to see ongoing benefit from recent share gains. Industrial wood is likely to benefit from recovery in New Residential given the furniture, flooring, and cabinetry end markets it serves. We expect Coil will grow driven by significant new account wins over the past year. Protective & Marine should continue to have momentum but will face challenging comps. We expect general industrial demand to remain choppy. In packaging, we expect industry volume for food and beverage cans to be flat to down in 2024. We will also see a negative short-term impact related to temporary volume shifts, which occurred as a result of our Garland production plant incident last August. We fully expect to recover this volume in stages in 2024 and 2025 while also winning new business. Longer term, we remain bullish on our packaging business and our differentiated non-BPA solutions. Our Garland plant is fully back online, and we are bringing on additional capacity in other locations during the first half of the year. We continue to have excellent new account and share-of-wallet opportunities in every business and in every region. The continued growth investments we have made over the past year give us tremendous confidence in pursuing these opportunities and gaining share. Moving to the cost environment. Our outlook assumes our raw material costs will be down by a low-single digit percentage in 2024 compared to 2023. We expect to see the largest benefit occurring in the first half of the year as comparisons become more challenging in the back half, where the entire basket decreased low-double-digits. While raw materials will likely be a benefit for us, other costs, including wages, health care, energy, and transportation are expected to be up in the mid- to high-single digit range in 2024. I will remind you that these categories also inflated in 2023. Working with our customers, we delayed additional Paint Stores price increases last year given the pricing actions that we took in 2021 and 2022. We cannot, however, ignore these escalating costs indefinitely. As I mentioned earlier, Paint Stores Group is implementing a 5% price increase effective February 1st. The Performance Coatings and the Consumer Brands Group are also likely to have some targeted pricing activity in 2024 though at a more modest level than Paint Stores. As for our specific outlook, the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the first quarter of 2024. The deck also includes our expectations for the full-year, where consolidated sales are expected to be up a low to mid-single-digit percentage and diluted net income per share is expected to be in the range of $10.05 to $10.55 per share. Excluding acquisition-related amortization expense of approximately $0.80 per share, adjusted diluted net income per share is expected in the range of $10.85 to $11.35, an increase of over 7% at the midpoint compared to 2023's adjusted diluted net income per share of $10.35. We've provided a GAAP reconciliation in Reg G table within our press release. Let me provide some additional data points and an update to our capital allocation priorities. Given incremental 2024 pricing, raw material deflation and Paint Stores Group, our largest and highest gross margin segment, growing sales faster than the other two segments, we would expect full-year gross margin expansion. We expect SG&A dollars to increase by a more typical level and increase by a mid-single-digit percentage in 2024, a moderation from the low-double-digit percentage increase we reported in 2023. We expect the investments we made last year and those we plan to make this year will enable us to grow at a multiple of the market. We plan to control costs tightly in noncustomer-facing functions. And we have a variety of SG&A levers we can pull, depending on a material change to our outlook up or down. We expect to open 80 to 100 new stores in the U.S. and Canada in 2024. We'll also be focused on sales reps, capacity and productivity, system improvements, and product innovation. Next month, at our Board of Directors meeting, we will recommend an annual dividend increase of 18.2% to $2.86 per share, up from $2.42 last year. If approved, this will mark the 46th consecutive year that we've increased our dividend. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit our strategy. We have a manageable $1.1 billion of long-term debt due in 2024 and expect to refinance the debt at higher rates. We expect to be within our current long-term target debt-to-adjusted EBITDA leverage ratio of 2x to 2.5x. In addition, I will refer you to the slide deck issued with our press release this morning, which provides guidance on our expectations for currency exchange, effective tax rate, CapEx, depreciation and amortization, and interest expense. Our team is operating with great confidence as we begin 2024. We are extremely well positioned to continue delivering shareholder value. And I want to thank John Morikis for the incredibly strong foundation he leaves with us as he moves into his role as Executive Chair. I'm also grateful for the outstanding executive leadership team surrounding me. Given that there is still a considerable amount of uncertainty in the global economy, we believe our initial 2024 outlook is an appropriate one. Should the demand environment prove to be stronger than we are currently assuming, we would expect to do better than the guidance we are laying out today. Our first quarter is a seasonally smaller one. For that reason, we will not be making any updates to full-year guidance until our second quarter is completed and we have a better view of how the painting season is unfolding. Our strategy is clear, our priorities are focused, and our people are ready. We will continue to win by providing innovative solutions that help our customers to be more productive and more profitable. We expect to deliver meaningful earnings growth in 2024. This concludes our prepared remarks. 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 be conducting a question-and-answer session. Your first question for today is coming from Vincent Andrews with Morgan Stanley.

Thank you and good morning everyone. Heidi, I'm wondering if you could sort of break down the Paint Stores Group top line guidance for I see low single to mid-single-digits, and maybe there's 3% of net pricing there. And I guess, what I'm really trying to get at is where do you think that sales guidance would be if you hadn't made the significant growth investments in 2023. What are you anticipating you're going to get from that this year?

Well, I'll begin by discussing our strategy, and then I'll pass it over to Al for additional insights. As you noted, the drivers of our success in our investments are clear. We've made some important decisions regarding specific segments, starting with Residential Repaint. Despite some market fluctuations, we are gaining market share due to these investments. It's noteworthy that many are speaking about market share growth, but few are achieving the mid-single-digit gallon increases we're experiencing compared to our mid-teen performance last year. Not everyone will be able to grow their share, but I am confident that we will. Given these investments, we are in a prime position to assist contractors. In residential repaint, we can clearly demonstrate the effectiveness of our model by engaging with contractors who want to expand beyond painting and become business owners. Our investments enable our teams and representatives to provide real-time support in areas like marketing and customer acquisition, as well as helping them branch out into new materials. For instance, our Gallery Series launched last year is helping contractors extend their work from walls to other surfaces in homes, such as kitchen cabinets. These areas are our strong points. In this environment, while implementing these investments and showing results, it's important to note that residential repaint contractors are more receptive than ever to what we offer, including our consistent store-to-store experience and access to our highly trained representatives who assist them with planning and troubleshooting. The accessibility we provide is crucial. We have several initiatives that are yielding positive outcomes. Now, I will turn it over to Al for more detailed insights on the numbers.

Yes, Vincent. This is Al Mistysyn. When you look at the volume forecast for 2024, we're seeing it increase by low-single digits. Reflecting back to the second quarter of 2023, we noted that our volumes were effectively flat. As John and Heidi often mention, we need to influence these numbers. With improved visibility and the investments we've made in Res Repaint, we anticipate that Res Repaint will perform at the high end or even exceed that range. In the fourth quarter, we reported a low-single digit volume growth, and our Res Repaint volumes grew by mid-single digits. Certainly, in the short term, we are already observing the positive impacts of our investments and we expect to fully realize these benefits in 2024, which will promote our volume growth in Res Repaint.

Your next question is coming from John McNulty with BMO Capital Markets.

Yes, good morning. Thanks for taking my question. So there's a lot of focus on the SG&A jump and administrative jump. And I guess, when you think about the roughly $300 million of the 20% investment that you had there or growth that you had there, I guess, how would you break it out in terms of just general inflation versus investment for growth versus management comp? Because primarily, the team did pretty darn well this year. So I guess, how would you break that out? And can you help us to think about on the growth investment side, the types of investments that are, I guess, grabbing those costs or grabbing those dollars?

Yes. John, when considering the adjusted increase in SG&A, nearly 70% of that is linked to our operating segments, mainly in the Paint Stores Group. As Heidi pointed out in her opening remarks, we opened 35 new stores this quarter and 76 new stores this year, in addition to hiring more representatives, which has significantly increased our rep count due to the investments made in the second half. The rest of the increase is shared between Consumer Brands and Pro Paint rep growth, along with the sales and tech service representatives in our Performance Coatings Group. I believe the teams have effectively driven and monitored the metrics to ensure a return on those investments. As you noted, the remainder of the increase relates to the administrative segment, particularly compensation, including stock-based compensation, which tends to be higher in our fourth quarter due to stock price fluctuations. We also had deferred compensation and wage inflation, which are the main contributors to the SG&A increase. I would add that these costs will normalize in the first half of next year, but as Heidi mentioned in her opening remarks, we anticipate returning to more typical SG&A investments in 2024. Therefore, we expect a larger increase in the first half and to remain at or below the target range in the second half to achieve that mid-single-digit growth for 2024.

John, one thing I would add to that, too, I think when you've got significant points of differentiation and you believe in your strategy, you're going to invest in them. So while we're growing faster than the market, then we're confident, as Al pointed out, on the return we're going to get here. Our heads are not in the sand. We absolutely know that it's an expense, and we expect to get a return. There's no doubt about that. But we do see this also as an investment to make sure that we continue to outpace the market.

Thank you, John.

Your next question for today is coming from Jeff Zekauskas with JPMorgan.

Thanks very much. In your remarks, you said that your raw materials, I think in the second half of 2023 were down more than 10%. And that makes sense. Your cost of goods sold in the fourth quarter was down 10%, you have higher people costs. But next year, in the first quarter, you have your easiest raw material comparison. The second quarter is pretty easy, too. So if the first quarter continuing the pattern we've seen is down again low-double-digits and the second quarter is down high-single digits, shouldn't your raw material base case for next year be down mid-single-digits rather than low-single digits?

Yes, Jeff. The way we are seeing the benefits from raw materials unfold in 2024, around 85% of that benefit will occur in the first half of the year. We anticipate that there won't be another significant drop as the year progresses. Essentially, we are using the benefits experienced in the second half of 2023 as a basis for annualization. That said, the market operates on supply and demand dynamics, and raw material costs are influenced by these same factors. As we observe demand trends, there is currently ample supply in the market, which may change. However, our low-single digit outlook is grounded in the current indicators we are observing.

Thank you, Jeff.

Your next question for today is coming from Mike Sison with Wells Fargo.

Good morning. It's been a nice end to the year. Heidi, you mentioned that the residential repaint sector is expected to experience mid-single-digit volume growth in 2024. At this point, I assume that is also what you're anticipating for the first quarter. I wanted to clarify whether this forecast for residential repaint suggests flat growth or a slight increase, with mid-single digits indicating your outperformance. Additionally, what indicators are you monitoring that could indicate whether market growth might exceed or fall short of your 2024 expectations?

So just to clarify, the mid-single-digit reference was relative to '23. So I think, yes, we would expect it to be flat. Now having said that, I'll go back to my earlier comments that the investments that we placed in, we're not waiting for the market and we don't think the market is going to help us this year. So the team was very diligent. We were very clear on putting those investments in long enough ago last year so that we were in a position to take advantage of this. So in this environment, while I would characterize the demand as flat, you can absolutely count on our ability to take share. We've got the right positioning in the market. We've got a model that allows us to absolutely understand largely not just through our stores and our reps, through our data, our ability to follow these customers to partner with these customers and helping them not just to get by with their current projects, helping them travel, helping them grow and really helping partner with them as they're looking to grow their business. So the characterization would be flat, but I would expect us absolutely to outpace the market there.

Yes. Mike, the only thing I would add to that is, you talk about indicators that might help drive the market, existing home turnover would be one of those. As interest rates moderate, and we do expect that to happen as we progress through the year, existing home turnover does have an impact; as well as home price appreciation, which is still up; the aging housing stock in the U.S.; baby boomers staying in place. All of those are driving Res Repaint. But your comment about the market being flat, we believe that could be true. But if existing home turnover would pick up, that would be a tailwind for us and likely second half view of that.

Thank you, Mike.

Your next question is coming from Ghansham Panjabi with Baird.

Hi, everyone. Good morning. I guess, first off, on the Paint Stores Group pricing, maybe you can give us a sense as to how to think about the time line, the price realization specific to the segment. And I'm just asking because historically, it took a couple of quarters to realize increases. And then during the COVID supply chain chaos, it was of course, much faster just given the extent of inflation. And then also related to that, what do you expect productivity to be in 2024 in context of the non-commodity inflation, such as wages and also with all the investments you have been making? Thank you.

Yes, Ghansham. I believe the 5% effective February 1 will have a similar impact as past price increases, and I expect to achieve similar effectiveness. On a consolidated basis, we're seeing prices increase in the low-single digits. There is a slight challenge for customers with contracts tied to index pricing. Additionally, as Heidi mentioned, the raw basket is down in the low-single digits, though still significantly elevated over the last three years. We did not implement a price increase in 2023. Looking at wage inflation, along with health care, energy, and transportation costs over the past two years, we see mid- to high-single digit increases. To continue offering our services, convenience, and unique solutions, we need to recover some of these costs.

Thanks, Ghansham.

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

Thank you. Good morning, everyone. I just wanted to ask you about the Property Maintenance subsegment. You're showing negative low-single digit number there, down from double-digit growth earlier in first half '23. Can you just address what's going on in this segment?

Yes, I would compare our current property management situation to our approach with New Residential. This segment is going to be very exciting to follow. We're increasing our market share through new agreements with customers of all sizes. Recently, there has been some new capacity entering the marketplace, which we are benefiting from during construction. These transitions then become a recurring revenue stream for us, which is a key aspect of our business. We're analyzing this from multiple angles. Additionally, with the dynamics surrounding new commercial property management, we are also gaining from the upgrades of existing properties that aim to compete with new units by investing in their upkeep. Our teams are actively involved in both capital expenditure projects and maintenance, as well as providing support in color and design to help our customers succeed. We are positioned to support them in any scenario. People will always need places to live, so we are committed to meeting our customers' needs, regardless of economic fluctuations. You can expect us to gain market share in the current environment.

Yes. Aleksey, you mentioned the fourth quarter. So property maintenance was down low-single digits in the quarter, but that was against a really strong fourth quarter a year ago, where we were north of 20%. If you look at property management for the year, I mean, it was up mid-to-high single digits. So we continue to feel good there. And the investments that Al and Heidi are talking about, many of those are aimed at growing our position there and continuing to add to what we're doing in that property maintenance segment. Thanks, Aleksey.

Your next question is coming from Mike Leithead with Barclays.

Great. Thanks. Good morning team.

Hey, Mike.

Good morning. I wanted to ask on the 2024 EPS outlook. It looks like you're guiding for low-to-mid single digit top line growth. You mentioned you expect some degree of gross margin expansion, and you should also have a good amount of cash flow to deploy. So even with SG&A up a bit, I would think that leverage itself through the P&L, maybe greater than 7% EPS year-over-year. So can you maybe just walk through some of the key offsets or other items there that maybe I'm missing?

Yes, Mike. The main factor influencing our results is volume. We've observed fluctuations in demand across various segments, businesses, and regions. For instance, looking at the Paint Stores Group, our volume expectations in our guidance indicate that we foresee the repaint market remaining stable, with our investments projected at the higher end of low single-digit growth, around low to mid-single digits. Regarding new residential construction, we've noted positive trends in single-family starts over the past six months, which will take time to reflect in the market. We anticipate that our performance will be softer in the first half compared to a strong first quarter last year, with improvement expected in the second half, largely due to timing factors. In contrast, we expect the commercial sector to perform better in the first half but to experience a downturn in the second half, influenced by current dynamics and indicators. We've noted that property maintenance and capital expenditures are currently softer than expected. However, as interest rates improve and lending conditions become more favorable, we anticipate continued improvement. We expect growth in property maintenance as well. In the industrial sector, we are optimistic about segments like Auto Refinish and Industrial Wood, but we do see some volatility in these areas and in packaging as well. Overall, volume remains the most significant factor impacting our operating margin and leverage. If we achieve higher volumes than currently projected in our guidance, we would anticipate better earnings per share results.

Thanks, Mike.

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

Thank you. Good morning. Heidi and Al, in terms of your plans, I believe you ran your plans below your volumes in 2023. If so, what was your earnings hit from that under-absorption? And should they all reverse in '24? Thank you.

Yes, David. We observed a more significant impact during the first three quarters of 2023. We anticipate facing challenges in the fourth quarter. Although our volume decreased slightly, the team effectively managed costs, and we experienced a slight boost in our fourth quarter, leading to stronger gross margins. For 2024, I expect a return to a more typical inventory pattern as we approach the spring selling season, decreasing inventory in the second and third quarters and then increasing it again in the fourth quarter. This situation will enable us to schedule our architectural plants more effectively and plan staffing appropriately. I also anticipate improved performance from our global supply chain in 2024. While I won't provide specific dollar figures, we certainly expect better results as we move into 2024.

Thank you, David.

Your next question for today is coming from Mike Harrison with Seaport Research Partners.

Hi, good morning. Within the Consumer Brands Group, curious if you can talk a little bit about your expectations around customer order patterns into the spring paint season. It sounds like as of Q4, they were maybe still managing their inventory levels lower. But I'm just curious if right now you're expecting kind of a more normal seasonal improvement or if there's still going to be some caution on inventory management.

Yes, Mike. Normal is exactly how I would characterize that. And I think as we've all come through the last few years, I would also say that the alignment and the partnership has never been at a better place.

Mike, can I just add one thing about that that we're talking specifically DIY. On the Pros Who Paint side of that, I know it's not a huge portion of that business. But I think the team has invested in that, working closely with our partners. And we have been taking share and growing faster than the market, and we expect that to continue going into 2024.

Thanks, Mike.

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

Hi, hopefully, this is working now.

Welcome back, Greg.

Okay. Great. No, it's good to be back. So I just wanted to frame a little bit differently how important mean the gross margins back up to the middle upper part of your range. And if I take your guidance, it seems like there's another 100 bps of gross margin expansion assumed this year. How important is volume versus price raws and mix for that 100 improvement this year? And I guess that, how long do you wait before you end up raising that long-term goal?

Well, first and foremost, it's about volume. I'll refer back to Al's earlier comments. We are certainly focusing on margin expansion and ultimately operating margin, but volume is definitely the key focus. Al and I are eager to answer this question together.

Yes, in 2024, prices will increase more than raw materials. As discussed, raw material costs are expected to decrease slightly, significantly lower than in 2023. Volume, specifically our professional architectural volume in the Paint Stores Group, will be the main driver of gross margin. This segment has the highest margins, is growing rapidly, and offers the most opportunity. While all our segments have strong potential within their markets, Res Repaint remains the largest, fastest-growing segment with the most promise. Historically, we challenge our teams to meet tough goals, and when they consistently achieve or exceed these targets, we raise them. We have done this before, and I need to feel confident in their consistency. But when appropriate, we will increase the target.

Thanks, Greg.

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

Yes, thank you. I'd like to ask you a couple of questions about price mix. When you look at your Paint Stores and you look at your end markets, which of them do you think you have the greatest ability to drive a mix shift? If you stroll through any of your stores, one of the characteristics that just jumps out is the huge range of price points. And I'm curious, do you see the ability for your investments to not just drive share gains in volume? But can you drive a mix shift up in price? And just conversely to that, is there any risk that you've seen in the past when you raise pricing, does it cause any of your pros to shift down to a lower price point?

Well, I'll begin by saying there is certainly an opportunity to drive improvement in our product mix. This is largely influenced by different segments. Referring back to my earlier comments on Residential Repaint, we have the potential to gain market share across all our targeted segments, especially in Residential Repaint. Our focus is on assisting contractors to enhance their productivity and profitability. It is indeed in our best interest to partner with them for maximum efficiency. The role of premium products is essential, as we need to highlight the time and labor cost savings that come with these options. This creates a mutually beneficial situation for both parties, especially in the current market context. We do anticipate mix to play a significant role in our strategy. Additionally, as we observe the New Residential sector's recovery, our teams are dedicating efforts towards simplifying our product offerings to ensure the right products reach the right contractors for their projects. Overall, emphasizing premium products will be a crucial aspect of our strategy.

Yes. Steve, the other part of your question, we typically do not see contractors go down in quality in an inflationary environment. Typically, in an inflationary environment, and we've talked about this in the past. We tend to do better on converting contractors to a higher quality product with the idea they're going to pay more for the product anyway. So try this better quality product. And to Heidi's point, it's going to make you more efficient and effective, and you'll get on and off jobs faster.

Thank you, Steve.

Your next question is coming from Josh Spector with UBS.

Yes, hi. Good morning. So I wanted to ask on Resi Repaint, kind of revisit that a little bit and maybe just kind of test the downside scenario there. So if you look over the last couple of years and say, existing home sales are down 30% plus, typically, that has some impact on Resi Repaint. Your volumes look like, generally, they haven't declined at all over the last couple of years. So I know initially that was higher contractor backlogs, and then it was remodel people put in place are stuck in their homes. In a scenario where you don't see a decline in interest rates, how do you think that that will play out for Resi Repaint? Is this a new higher base where you don't see the downside risk? Or would you see some catch-up there? Just curious on your thinking there? Thanks.

We don't see any downside here. We have access to valuable leading indicators that help us understand our contractors. For example, we can see what they're purchasing, what projects they have, and their future plans for growth in different areas. With this data, we can work with our sales representatives and managers to ensure they can effectively support these contractors in ways that competitors without specialty paint stores cannot. Therefore, I don't anticipate any challenges in this environment.

Thank you, Josh.

Your next question is coming from John Roberts with Mizuho.

Thank you. Heidi, I think when on John's first earnings call as CEO, he used the phrase, "meet the new boss, same as the old boss." Is that still on the playlist at Sherwin-Williams? Or do you think you came up through a different career path than John? So do you bring a different perspective to the role?

I do. And I also think, I really find your question very interesting, because I think there is a commonality of, certainly, first and foremost, the belief that our strategy is working. I think John has contributed, we say his fingerprints are all over this company, and they absolutely are. So I have the fortune of inheriting an incredibly rock-solid foundation on which to build. And when we talk about just getting started, I couldn't agree more that we are just getting started. I think in terms of having a different background and bringing perspective into the business, I think it's important to share that my values and John's values are spot-on in terms of culture, customer focus, desire to grow, determination to win. And so bringing a perspective from outside of only a paint category, I think, only helps to continue to put our foot on the gas on what's working. And I would characterize it more maybe as a healthy challenge on where we might have opportunity to strengthen our model and just continue to grow.

Thanks, John.

Your next question is coming from Arun Viswanathan with RBC Capital Markets.

Great. Thanks for taking my question. Good morning. I guess I had a couple of questions around Paint Stores Group. So first off, is there any way that you could help us understand the magnitude of share gains? It would seem that given the strong growth in Resi Repaint that you've enjoyed share gains for a little while. So is there any mechanism to keep those going? Or maybe you can just help us understand how much share you've gained over the last couple of years. And then furthermore, on the sales guidance, low-to-mid single digits, usually PSG is at the upper end of that. So is that still your expectation for '24? And would you expect that to improve as you go through the year, i.e., maybe second and third quarter at the upper end of that mid-single digit range or even above? Thanks.

Yes. Hi, Arun, I'll address your first question and then hand it over to Al for your second. You mentioned Res Repaint, so I won't discuss that. Regarding your inquiry about the magnitude of share gains, I want to highlight the rest of the segment. New Residential is where we are playing a long game, and we are continuing to gain share by increasing the number of agreements secured. Even during these challenging times, we have managed to secure additional agreements. This is happening while there is pressure on starts. As we look ahead and as the cycle unfolds, our position will become more significant as these agreements begin to yield results with the increase in housing starts. We touched on property management earlier, and I can say that our ability in this environment to showcase our value and secure additional agreements has been quite strong, at the national, regional, and local levels. Our teams have penetrated effectively based on the data we have access to. The Commercial, Protective & Marine segments focus heavily on product technology, specifications, and solid distribution. These businesses remain strong, and we're diligently working to distance ourselves from our competitors. I'm particularly confident about the commercial sector, where we are well positioned across all subsegments. So, when Al mentioned that the first half may appear stronger while the second half might seem softer, we are ready to engage with contractors as they look to adapt and transition within subsegments. I am confident that regardless of market fluctuations, we will be able to meet their needs.

Yes. So Arun, with our consolidated forecast being up low-to-mid, that would tell you on a consolidated basis, we expect volume to be flat to up low-single digits. And to your point, Res Repaint certainly would be above the high, be up low to mid. But where we think the second half will play out and could we be above that range is really what Heidi just said on New Residential, the timing of that recovery and the timing of projects on Commercial through our first half into our second half. And that will dictate how our second half outlook will be determined.

Thanks, Arun.

Your next question for today is coming from Duffy Fischer with Goldman Sachs.

Yes, good morning. A question on SG&A. So historically, you guys have had positive leverage on growth in SG&A growth that changed last year. It still seems like it's going to be negative in the first half of this year, maybe going to neutral in the back half. Structurally, has something changed in the market or with your model? Or will that revert back to positive leverage in '25 and '26, and what this will be is just kind of a short-term bump maybe to kind of push through the high pricing that you've put through on raw materials? But just structurally, SG&A versus sales longer term, do we get back to a positive leverage there?

Yes, Duffy. I think what you've heard us talk about in the past and going forward is our focus at driving operating margin leverage, and that's either going to come through gross margin expansion or SG&A leverage. And you're right, as we see a stronger top line, stronger gross margin expansion than we were planning, we are going to take the opportunity because of our confidence in our strategy to add incremental investments or accelerate investments in our long-term growth strategies, because we know based on our history from our data, from our metrics that we're going to get a return for those investments. And ad nauseam, you've heard me talk about 2008 and '09 a continued investments through that cycle in the high-single, low-double digit 10-year compounded average growth rates. And we believe we're in a very similar environment. So there are years where we are going to get SG&A leverage. And I believe you're right, we're going to annualize the investments, the strong investments we made in the second half and maybe have some deleveraging in our first half. But as we get back to the more normal cadence of investments, we'll see deleveraging. And then as the market normalizes and demand normalizes and we take an outsized share of that demand, we'll see leverage on our SG&A going out.

Thanks, Duffy.

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

Yes, thank you and good morning. About two weeks ago, the trade press reported that one of your competitors Kelly-Moore, is essentially going out of business as I understand it. And so my question would be, does that open the door for Sherwin to gain a little bit more share than you otherwise would perhaps on the West Coast? And if so, are you allocating resources any differently? Or might anything change operationally to take advantage of that void before your competitors act to do so?

Well, Kevin, I would tell you that that void is absolutely our opportunity. And I won't get into details here, but I can share with you that you should expect us to be very competitive with that announcement.

Yes. I think a very aggressive approach, as Heidi says. We've been making the investments. And I would tell you, Kevin, Kelly-Moore, amongst all of our competitors, we're competing with all of them all of the time. And so they've certainly been on our radar, certainly been aggressively going after them for many years. We're going to continue to accelerate here and see that as a great opportunity. Thank you, Kevin.

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

Hi, thanks. Just a clarification question for me. It sounds like you have the Paint Stores price increasing your guidance in advance of the Feb 1st implementation date. Just hoping you could confirm that. And then maybe just speak to the pacing of gross margin expansion as the year unfolds?

Yes, Garik. We definitely have the price increase for Paint Stores along with targeted price increases in each of the other segments included in our full-year guidance. When you consider our gross margin and its expansion, we anticipate a more significant increase in the first half of the year due to the stronger raw material deflation and pricing we expect during that time. Therefore, we will likely see greater expansion in the first half. While we do expect expansion to continue in the second half, it won't be as substantial year-over-year, and we will also be facing a tougher comparison regarding our gross margin in the second half.

Thanks, Garik.

Your next question is coming from Adam Baumgarten with Zelman.

Hi, thanks for taking my question. Just on the new res market, can you maybe remind us what the typical lag between a start and when the paint sale gets made? And I guess, beyond that, have you at least been seeing the declines in that market for you guys to moderate as you move through the back half and into the first half of next year?

Yes, Adam. The lag that we've traditionally described would have traditionally been about four months. And I think that's elongated a bit, probably in another two months, largely due to labor shortages and some other factors that are weighing in there. In terms of the other piece, Al, I'll hand it over to you. You can make some comments on that.

Yes, Adam. Our expectation is that new single-family starts will continue to improve. In the first half, it's important to note that new single-family starts were down significantly in 2023. As Heidi mentioned earlier, we were only down slightly, which indicates that we are gaining market share, and we anticipate continuing this trend. Our national account team and the Paint Stores Group field organization do an excellent job serving customers and providing significant value to large national, regional, and local custom builders. That being said, we will face a tougher comparison in the first quarter, so we expect to perform less strongly in the first half. However, as we see these starts coming to completion, particularly when painting occurs at the end of the project or for the house, we anticipate a stronger second half.

Thank you, Adam.

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

On the price increase, I appreciate the headline. Al, you're pretty clear on the price increases in the guidance for Paint Stores and then the other segments. I'm just curious in terms of implementation of this, Heidi, as you get started and take a price increase to market. The feedback on that, and I'm also curious related to that, I know over the cycle that the mix gets better. But I'm curious if you have any observation of a different mix experience in any of the areas now in the current environment?

Yes. I would say the conversations, as we mentioned in the earlier prepared remarks, we do this with our customers. And so as we took this out towards the end of last year, it was making sure that they understand why we're going out with this, but also making sure that they're prepared to pass this along and make sure that they're not absorbing that. I think the conversation here quickly becomes making sure that there's a greater outcome here for a focus on the premium products. And that's what we're going to continue to focus on.

Yes, Eric, regarding your point about the mix, we can identify opportunities in each of the segments for our painting contractors. As you know, paint represents a small part of the total cost of a painting project, whether it's for a new house or a commercial job. It's just a minor part of the overall expenses. However, when contractors shift to higher-quality products, they experience significant efficiency improvements and can complete jobs more quickly. Over the past three to four years, amidst discussions about labor shortages, this has been a key factor driving the shift in mix. There are opportunities throughout all segments, and our painting contractors realize that by moving to higher-quality products, they can achieve greater growth in both revenue and profit with the same number of workers.

I want to emphasize that we are consistently demonstrating our value to contractors. When we present a price to them, we're not merely discussing costs. Instead, we ensure they grasp the complete picture, referring back to my earlier points about access to the representative, consistent experiences across stores, and our capability to assist them with leads and bidding activities. This creates a distinctly different conversation compared to what many others in our industry are engaging in.

Thank you, Eric.

Your final question for today is coming from Patrick Cunningham with Citi.

Hi, this is Eric Zhang on for Patrick. Can you provide an update on contractor backlogs and repair and remodel activity for the quarter? And where do you see levels for both in 2024 relative to 2023? Thank you.

I would say they're normalizing. I don't have much information. The visibility into backlog isn't as extensive as it is for other segments like commercial. So, like Al mentioned earlier, we will have a clearer picture in the next quarter or two. However, right now, future visibility is quite limited. The main point is that it has normalized at the current state.

Thank you, Patrick. Eric, I'm sorry.

We have reached the end of the question-and-answer session, and I'll now turn the call over to Jim Jaye for closing remarks.

Well, thank you again, everybody, for joining us today. I hope you heard today that we're very confident in our strategy, and we're going to deliver increased sales and earnings this year even as an environment continues to be choppy. So as always, we'll be available to answer your questions over the next few days, and thanks for joining us today. Have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.