Sherwin Williams Co Q4 FY2024 Earnings Call

Thank you, and good morning to everyone. Sherwin-Williams delivered strong fourth quarter results that concluded a record year for the company. In what remained a very choppy demand environment, full-year consolidated sales increased slightly, driven by our deliberate and targeted investment to gain share and overcome softness in core accounts. Our gross profit dollars and margin expanded, EBITDA dollars and margin expanded, and adjusted earnings per share grew by a near double-digit percentage, to $11.33 a share. Consolidated sales in the fourth quarter increased by a low single-digit percentage, and gross margin improved slightly over a very strong level a year ago. As we expected and previously described, year-over-year growth in SG&A moderated to a low single-digit level. Adjusted earnings per share in the quarter increased by 15.5%. In terms of our segments in the fourth quarter, paint stores group sales increased in the range we expected, led by high single-digit growth in residential repaint and protective and marine. Consumer brands group sales decreased in the range we expected, all related to unfavorable FX, as volume and price mix were slightly positive. Within performance coatings group, sales were slightly below expectations, as strength in packaging and coil was offset by softness in other divisions. Adjusted margin expanded year-over-year in all three operating segments. The slide deck accompanying our press release this morning provides more detail on fourth quarter segment performance. Let me now turn it over to Heidi, who will provide a few full-year 2024 highlights before we move on to our 2025 outlook and your questions.

Thank you, Jim, and Happy New Year to all those that are listening. I hope you had a wonderful holiday season and are geared up for the year ahead. I know you're eager to get to our 2025 outlook, but first I want to take a moment to reflect on what our 64,000 dedicated global employees have achieved over the last year. I'm proud of what our team has delivered in 2024. We entered the year amidst an extremely choppy demand environment that, quite frankly, never improved meaningfully. We knew this was a possible scenario, and we doubled down on controlling what we could control. We stayed true to our strategy. We made targeted investments, focused on share gains, and executed on our enterprise priorities. We continued to deliver innovative solutions for our customers, and in a disruptive competitive environment, Sherwin-Williams stood out by being a consistent, reliable, and dependable partner. In addition to the strong margin expansion and earnings growth that Jim described a moment ago, it was another very good year of cash generation, which was $3.2 billion, or 13.7% of sales. We continued to execute our disciplined approach to capital allocation during the year, including $2.5 billion, which we returned to shareholders for share repurchases and dividends. In terms of CapEx, we invested $1.1 billion, including approximately $532 million for our new headquarters and R&D center, which we expect to begin occupying this year. We ended 2024 with a net debt-to-adjusted EBITDA ratio of 2.2x. Looking at our reportable segments on a full-year basis, paint stores grew by a low single-digit percentage. Residential repaint drove the segment growth and increased by a mid-single-digit percentage. This was strong performance, given anemic existing home sales, and is the clearest example of a return on our prior investment. New residential and commercial both increased by low single-digit percentages in a challenging rate environment. Flattish year-over-year segment margin reflects our continued growth investment, which we are confident will continue to drive above-market sales over the long term. Consumer brands had a challenging year on the top line, with lower sales resulting from soft DIY demand and unfavorable FX. Adjusted segment margin expanded back to our target level due to higher fixed cost absorption in the manufacturing and distribution operations within the segment. At the same time, we maintained our investments to support our customers, despite weaker-than-expected volume in North America. Performance coating sales varied by division and geography. Acquisitions added a low single-digit percentage in the year, but were offset by unfavorable price mix and FX. Coil was the strongest performer, driven by new account wins. We're also pleased with packaging, which returned to growth as we won new accounts and recaptured the majority of previously lost share, just as we indicated we would. Industrial wood was up mid-single-digit, driven by an acquisition. Accelerated share gains and auto refinish were not enough to overcome softness in core accounts, driven by lower insurance claims. General Industrial, our largest division, remained under the most pressure during the year, with softness in heavy equipment demand. Adjusted segment margin expanded to 18%, the highest level since the Valspar acquisition in 2017. Throughout 2024, we continued to operate from a position of strength. In fact, our confidence in our strategy, along with our team's ability to execute, led us to increase several of our midterm financial targets at our Investor Day this past August. I am confident we will achieve those targets over time, given a more consistent demand environment. As we begin 2025, I am also highly confident that nobody is better positioned than Sherwin-Williams. During our October earnings call, we were among the first to describe the demand environment as softer for longer, with an expectation that the first half of 2025 would likely remain choppy. Three months later, we have seen little evidence to change that view, and given the indicators that we do see, several end markets may not improve until 2026.

Thank you, Matthew. As we outlined today, we expect the macroeconomic environment to remain choppy in 2025. No surprise there. But at the same time, and I think Heidi said it very well at the beginning, we're not waiting, we're relentlessly pursuing those opportunities that we do see. It's all about success by design. And we have a very proven track record here. Got a clear and winning strategy, the best team, we've made the right investments, and we know how to deliver the solutions for our customers that are going to make them more productive, more profitable, which is really important in this environment. Nobody's better positioned than Sherwin-Williams to win in the marketplace and deliver that consistent shareholder value. And that's exactly what we plan to do here in 2025.

I wanted to follow up on the raw material expense as part of the guidance, expecting that to rise this year. What commodities or areas are driving that? Are tariffs in any way a factor?

Yes, good morning, Greg. It's Jim talking. A couple of different things to think about there. Yes, there are some tariffs that are embedded in that. Those are tariffs that are already in place, mainly related to Asian imports of epoxy, which came into effect September and November of last year. We're seeing inflation of low single digits in the raw basket. I would tell you that that is related to industrial resins, TiO2 is up a bit, solvents up a bit, packaging up a bit. In addition to that tariff that I described, we have potential for others. Those aren't in the guide right now on the raws. We'll see how that unfolds. I think you have to also think about some other factors. You have suppliers with capacity rationalization and decommissioning of their plants, which puts pressure on price as well. So we'll see natural gas is up as well and trending upwards, which is another pressure point. So I think up low single digits to start the year and fairly spread out across the year evenly and fairly spread out across the different commodities.

And Greg, this is Al Mistysyn. The one thing I would add is the additional tariffs that we're tracking very closely that are not in our guidance. If those were to occur and they're significant, we would need to go and we're prepared to go out with additional price in specific markets and segments as required.

Can I ask about a couple of the special items that are in the guidance, particularly the $80 million associated with the new headquarters? I know we've talked a lot in the past about the CapEx and the sale leaseback associated with the HQ, but I think this is the first we've talked about there being such a substantial incremental cost to using this new facility. So I'm just curious if you can help us understand what those are. I don't know, in my head, I would think the new facility would be more efficient from an energy and a water and all that type of thing. So what's driving the $80 million and how much of it is one-time in nature versus non-recurring? And then you also have a step up in the environmental spending. And I know that can fluctuate year-to-year. So is there something special about the spend this year that may not recur next year or is this a new baseline? Thank you.

Yes, Vincent. I'll start with the new building. I see this as a transition year for us since we will begin occupying the building as the year progresses. As we've discussed, most of this will be loaded in the second half of the year. I thought it was important to include some estimates in our cost base; as we gain more clarity on the timing of moving into the building, we can refine that estimate during our July call. I would estimate that about 20%, or a quarter of that $80 million, consists of transition costs, which include moving and decommissioning costs related to our old facilities. While the new buildings are more efficient, I still have a headquarters building that has been in use for 90 years and is fully depreciated. We’ve made some measured repairs to the existing building, knowing we would vacate it. However, once we are fully operational in the new buildings, we will have a clearer understanding of the ongoing service costs, depreciation, and other factors, which will need refinement. Regarding non-operating costs, our assumption is that we will return to more normal environmental expenses. This will likely impact the first half of the year, especially since we had credits last year that we do not anticipate repeating. I don’t see this as a permanent increase in environmental provision; we have made good progress on remediation, and as we advance, the environmental provisions will be clearer. So, I view this more as a return to normal expenses in environmental matters compared to the credits we had in 2024 that I don’t expect to see again.

Heidi, on the share gain opportunity, can you help frame how that looks to you in terms of relative to the PPG business? And looking back to the last year, how much of the Kelly Moore business did you end up picking up? Thank you.

Yes, good morning, David. Let me start with Kelly Moore just because sequentially obviously that's, I would say, largely or significantly behind us. I don't know that we shared a number and I'm certainly not prepared to share a number today, but I would tell you, given how complimentary that business model was to us relative to some of the key segments, I'll point to residential repaint. We were able to, I think, be very well positioned. The team was very aggressive to make sure that we were focused on customer continuity and that we were the house that they wanted to transition to. So we're in a good position there. We expect that to continue into the run rate. As I look at the PPG sale, I would first describe that as an opportunity that we just came out of our national sales meeting and was able to address over 10,000 of our store managers, our reps. And I would tell you, ripe with opportunity is the general sentiment. When you think about breaking that down in terms of how we look at the share gain opportunity, I think you have to start by segment and also a little bit by region, in size of contractor. We're largely focused on the crossover between property management, certainly commercial, new residential. So we're going to continue to be very aggressive to make sure that we are best positioned across those segments. I will also tell you, we are very focused on quality sales and making sure that we're targeting the customers that candidly value what it is that we do and what we bring to bear with our reps, our stores, our delivery, our tools. Everything that we can put in front of them to make these contractors even more profitable than they are today is where we're going to focus. But there's a bit of a time lag. If you think about the speed in which we're able to pick up a res repaint contractor, while that's not easy and the team's working very hard to do so, you kind of see that return more quickly versus someone more in the property maintenance commercial space will be working on projects that just simply have longer lag periods or could be bigger size projects in play that are already committed to. So we're working really hard to really try to sync up as the market does recover. We'll see how the back half of 2025 goes. But as we look into 2026, we want to make sure that we are absolutely best positioned to take that share.

So I guess you sounded like there was at least a little bit of optimism in some of the paint store group and markets, particularly residential repaint. I guess, can you help us to think about what your customers are saying about their backlog? I know it's a seasonally kind of odd time or early time, but where is that optimism coming from? Can you help us to think about that?

Yes, John, I'll start here. I think you're right. I mean, we did indicate that there's moderate optimism, if I could even moderate the word optimism. We're aggressively partnering with these contractors that are in the current environment where while the market is still kind of choppy, you've seen, I'm sure, certainly the LIRA indicators that paint's likely going to hold up overall over everything else. But I would tell you part of this is making sure that our teams are looking to intercept. As you look at our current res repaint contractors, our existing contractors, helping them grow their business, helping them market their business, helping them get more leads, close more leads so that they can become more profitable. And then in terms of pursuing, sharing gains and new customers, there is a lot of disruption out there. And we are going to continue to be consistent laying in stores, reps, tools, making sure that they're prepared. But I'll hand it over to Al. Any additional comments you want to make here relative to some of the indicators?

Yes, John, I think I just reinforced that we do expect that the demand environment will improve as the year goes on. And I'd highlight that as we've talked about on our third-quarter call, as we've talked about on this call, the first half is going to continue to be choppy and a continuation of what we saw in our second half of 2024. Our sales guidance, if you will, for the first half would be up or down, low to single digits. And then up, low- to mid-single digits in the second half with our paint storage group being at or above the high end of those ranges. And we do expect some macro improvement as the year goes on. But we also expect to annualize some of the bigger headwinds on our core business that we saw throughout 2024 that we should, with the aggressive new account activity and share wallet activity that each of the teams have completed, we should start seeing more volume as we go into the second half. And as you would expect, our earnings will flow in a similar fashion. We expect to be up year-over-year in our first half, but not nearly as much as we'd expect to see in our second half.

So in addition to some of the growth spend in terms of stores and sales associates, you've also been spending a decent amount on product breadth and some new products and PSG and kind of getting up on some of the price points. And it sounds like you're pretty enthusiastic on some stuff in PC as well. Could I just ask, what are the two to three largest growth or opportunities that you see in '25 and '26 when you step back as CEO, just regardless of what the macro environment does, where are you the most excited? Thank you.

Yes, great question. I think there's a number of items. I would point to where we see continued strength. We would expect to outperform in residential repaint. And again, I'm going to point to that as an example. You mentioned how we're looking at product introduction. It's a really good call out because when you think about not only the mixed benefit that we see from a margin standpoint, but our ability to bring solutions to these contractors that value productivity above all, the cost of labor being a significant part of the total cost of the job, we're able to bring technologies. They are more in the premium space because they are absolutely helping these crews to save time, ultimately money on these job sites. And so there's mixed favorability, certainly which we love because we want to continue to stay kind of cutting edge as leaders and innovating in that space to help these contractors. So that would be the biggest piece. I think if you look on the performance side, similar to what I mentioned in my prepared remarks as well, I would point to coil and packaging as the two, three there. You've got a lot of focus here. Again, the market's not going to help us, but the team's been relentlessly focusing on new accounts, new business wins, fully expect us to continue to do that in both of those segments.

Do you expect non-residential to be down all 2025, or do we have easy comps in the back end of the year where you might actually have some positive comps?

Yes, John, it's possible that we could have positive comps. There's obviously a number of macro things that have to improve to help us, the biggest being as you get into interest rates and we've talked about property maintenance and the CapEx shortfalls that we've seen or the lack of investment, I should say, that we've seen. We're, again, cautiously optimistic as the year goes on. You see some of that improve. I think commercial, we've been very clear. We do expect to see that drop in our second half knowing that we've been really aggressive at pursuing new opportunities to try to mitigate that. As the market goes, we're not immune to that macro slowdown, but we certainly are doing everything we can to mitigate it with these other segments, including P&M and trying to accelerate our residential repaint to help minimize that.

I wanted to ask on the CapEx guidance. So, I mean, a few things there. One, I guess the $200 million of building spend, is that because the cost of the headquarters is higher or are you now doing more or something different there? And then excluding that, even the $700 million guide is a bit higher than probably the $500 that we're modeling longer term. Is there more growth investments that you're doing that is worth calling out now? Or is there some reason why your sustainable CapEx should be higher looking two, three years out? Thanks.

Yes, Josh, the new buildings, $200 million, is just the combination of finishing up our R&D center in our headquarters. As you know, we will get reimbursed for a portion of the headquarters CapEx in financing, but it all sits in CapEx. And I'm happy to say this will be the last year you'll hear us talk about CapEx for our new buildings. On the core CapEx, we targeted 2% of sales. I expect to be in that target long-term. In 2025, we are investing in additional architectural capacity that we've talked about, about our Statesville factory, with our confidence in our long-term growth initiatives within paint stores group, within our consumer brands group. We'll fill that capacity up in a fairly short period of time. And then, we're also investing in warehouse automation. As we've talked about with labor constrained in manufacturing distribution, we continue to look for opportunities to automate in those areas to take more weight off the back of our people. So long-term, we'll see the benefits of that. The last thing I'd say is approximately 60% of our CapEx has a return on it, and we expect to continue to see efficiencies out of our global supply chain related to that.

Question on price. So last year you asked for $5 in February. This year you asked for $5 in January. So can you do the after-action review? How much did you get last year? What was the shape of that kind of throughout the year, would be one. Then two, how much of that old price anniversary this year? And then does the shape of this year's price look different because you asked for it earlier, would you guess?

Yes, Duffy, I think what we talked about price last year, let me start with that. It improved as the year went on, and we had talked about coming into our second half that we'd see a more typical effective rate. So I would say it probably took us longer than we had planned. I would think learning from that, we really let in with a lot of discipline, training in the field, making sure we gave our customers enough lead time to get ahead of it. And I would expect that our effectiveness in price will be better earlier this year than it was last year. It still will take over the next quarter to get to the effectiveness we want, but you'll see a much better effectiveness in our first half this year than you saw last year. And then the annualization, yes, there's some annualization on the increase last year. And obviously, because we went out earlier this year, we'll see more effectiveness in the first quarter.

Heidi, as you kind of think about the six verticals within PSG, has your 2025 outlook changed in any material way versus your view when you reported third-quarter earnings back in October, especially in commercial, maybe?

No, it hasn't. And I think Al characterized that really well just a few minutes ago relative to how we're looking at commercial in general. If the market does fare better than we're expecting, we expect to outperform the market, but I think this becomes a softer for longer with eyes toward 2026 at this point, Ghansham.

Yes, Ghansham, I would just add, I think maybe the rate cuts that the Fed have been doing have not had the effect on the longer-term rates that we were expecting. Mortgage rates are still up in that high 6% range. All things that, you're talking nuances related to where we were in October and today, but I think we're in line, if you will, across each of the different segments to say, plus or minus a little bit, but we're right in line.

I wanted to get a better feel for maybe some of the headwinds in '25 in the sense that it doesn't sound like demand is going to be much better in '25 versus '24, yet in '24, you generated pretty good adjusted EPS growth of 10%. So if you think about '25, the SG&A increase is going to be a little bit less year-over-year. Demand doesn't get much worse. So just curious what else is sort of impeding better adjusted EPS growth and maybe hoping your momentum this year would be kind of mirror our guardians, so.

Yes, I don't know we're going to be that good as the guardians. But yes, Mike, I think we do have some headwinds additional to what we maybe would have saw in '24. We try to call those out, one with higher interest expense with the higher rates. We refinance $850 million in the third quarter of '24 at a higher rate. Our expectation is the billion dollars we refinance in third quarter of '25 will be at a higher rate plus the financing of our new building is a headwind. The non-operating costs getting back to a more normal level is a headwind and we're not hiding behind those, Mike. We fully, we saw it coming. We expect that our performance with, you know, price, volume, managing our SG&A to your point, getting on top of the low raw material and other cost basket increases, which year-over-year is going to be a little bit of a headwind. But I think, the incremental new building costs on our second half, so I'm carrying that, plus I'm carrying my existing building, granted the existing buildings at a lower level, that $0.30 gets you to $12.15 at the midpoint up about 7%. So I think that's kind of where we were coming into 2024 and then we saw a little bit better improvement in gross margin. We did manage our SG&A tighter in '24 than what we had planned. So we got a little bit more of a lift in '24 and I think coming into '25, we're in a similar place if you could take out the incremental new building costs.

And Mike, I would add, just from an operating perspective, I think two of the macro headwinds that certainly we're not immune to, single-family housing starts have been down year-over-year, you know, for three consecutive months and five of the last eight months that we're managing through that. And then the multi-family housing completes are slowing given some extended periods of soft start. So there are dynamics that we're going to continue to fight through and compete within them, but I think there's certainly no lack of headwinds as we enter the year.

Some building products companies have talked about adverse weather, and certainly it's been cold. When you look at your first quarter or you look at January, is that something that's affected you relative to last year? And then for Al, in the consumer brands group, the margins for the first three quarters year-over-year relative to last year were up about, 10 percentage points. And in the final quarter, they were up maybe two. Were there LIFO true-ups or some LIFO dynamic that led to the sort of change in margin differential in the fourth quarter?

Yes, Jeff, let me start. You know, the cold weather we expect that in January. It's our smallest quarter of the first quarter, I think, where we kind of focus our views is more in our Southeast and Southwest. And yes, we had more cold there, but I think there's time as we ramp through the quarter to get that back to be, we believe we're within guidance, if you will. Right now, I think when you look at consumer, and that's a very good point that, we saw in the first three quarters and talked about the fixed cost absorption adjustments that we made between GS, our global supply chain, which is embedded in our consumer to stores and our paint performance coatings group to true up those costs. No impact on gross margin, but yes, that impacted the first three quarters. We annualized those adjustments in our fourth quarter. And if you look at our fourth quarter, the increase was primarily due to good cost control. I think that team has done a nice job managing their costs as the year has gone on to the tighter volumes. However, without really sacrificing service and offer, options to our customers, and it partly offset by lower gross profit dollars related to the lower sales. We did still see some benefit in supply chain efficiency, but going into 2025, our expectation would be those will be incremental improvement because those one-time adjustments, if you will, are no longer happening.

We've got some very favorable demographic indications for future housing demand. And Heidi and Al, how might you expect it to evolve on the existing home sales and new housing starts without substantial changes in mortgage rates because they just don't seem to suddenly move. And as you indicated, they haven't been responding to Fed cuts as expected. So what might be the scenarios you see that the housing markets could improve on the supply side? Thank you.

Yes, Chuck. I think you're absolutely right in the sense that as existing home turnover has been backwards over 36 months in a row, there's pent-up demand that, because household formations continue to be strong, they're still over a million, million one, we've started this, life goes on. People get married, people have children, and that just creates more pent-up demand, which may mean, Chuck, which may mean that interest rates don't need to get back to, we were thinking if we'd have to get back to 5% before you start seeing some movement, we saw interest rates drop into that, or 30-year mortgage drop into that 6%, 6.5% range, and we saw a nice uptick in existing home turnover. So I think we might see a different view of the world, a slightly higher interest and mortgage rate gets people to start moving and turning homes more, which would then really impact residential repaint, industrial wood or coil business on the appliances side and things of that nature. I just think it's, as we see it, as we put it out in our guidance, more second half kind of impacts. It just takes, even when an existing home starts to turn or sale or new residential picks up, it just takes time to filter through to the painting side of that.

And in the meantime, I think what's really important in terms of kind of what we can control in this environment, and I'll take you back to where we started last year with this, it's when, not if. In the meantime, as we focus on partnering from an existing home sales, residential repaint contractors, and I'll take you to our national builders or regional builders on the new residential side, making sure that we are partnering with them in new and innovative and creative ways to really help them solve for their biggest pain points, obviously, which is affordability, as we all know. So I do think that there's, it's masked now because the market hasn't moved, but when the market does move, Chuck, I'm very confident that we're going to be able to demonstrate a different level of partnership with these builders as a result of the team's effort.

We haven't really talked at all about labor costs here today. I was wondering if you can comment on how changes in immigration policy should impact your business, as well as that of your painting contractor customers to the extent that changes in policies could lead to some impacts on labor availability.

Yes, good morning, Mike. Well, I tell you that this is a great question. It's not a new topic for us. I think, you know, a 150-year-old company, we've certainly seen a lot of administrations. And I do think with what we're seeing here, we've been looking at solving for helping our contractors work through some of these challenges that might be, it's too early to tell how this is going to impact, you know, the country, let alone our industry and our company. But I would tell you what's most important for us, regardless of where that does go, is we're going to continue to stay laser focused on helping our customers be productive. And so if I take you to a job site and you think about a constrained labor, we've got the crew on site, our number one job is to get these contractors and applicators on and off the job site as quickly as possible. So that impacts everything from application to touch-up, avoiding having to come back on the job site. And so the controllables, again, what we are already doing and will continue to do are focusing on the right technologies that help these contractors be efficient. We are investing, of course, in our delivery and our service so that we can be accurate and precise in terms of delivery timing. So we're not putting contractors in a position where their crews are idle and waiting. Certainly our field reps that we've laid in, this is really critical in terms of problem-solving in real time, contractors having access, again, so that they're not waiting idly and have crews waiting. So there's a whole host of investments that we've been putting behind this. Now, if and when and how this impacts us, again, too early to tell, but we're going to make sure that we're best positioned to help our contractors to be prepared and for them to win in this environment.

I just wanted to drill into the paint store's 2025 sales guidance of low to mid singles. Is it fair to think of price at sort of the higher end of that low single digit and then maybe volume probably at the lower end of that low single digits? And then within that volume, is there a meaningful dispersion in your expectations between say the five or six different verticals within the segment?

Yes, Mike, I think you're correct. I think price will be stronger than volume, especially as you ramp up going through the year. I would say residential repaint, we'd expect to be at or above the high end of that range, continuing the market share gains and momentum we experienced in the second half of 2024, which was actually up a high single-digit number. I think Heidi talked about the other verticals. We do think new residential maintains a positive momentum and throughout the year. And then I think commercial property maintenance, she touched on both of those. The two that I would also touch on, P&M within our paint stores group, I do think up low, low to mid. And then DIY, I mean, I think is going to be flattish in the first half and then possibly improve as existing turnover improves.

Curious, if you think about Q1, obviously impacted by weather, maybe you expect kind of the Q2 to Q4 kind of sales growth to be above Q1 levels. And if so, would that be the same for all of the segments or mostly for PSG? Thanks.

Yes, Arun, I would say it's not, I wouldn't point to the weather in our first quarter. Our first quarter is a small quarter. I think it's a continuation of the choppiness we saw in our fourth quarter. And then as the year unfolds, you're going to see varying degrees across the segments. Let's be clear, residential repaint, we are very confident you're going to see consistent mid-single digit growth if not improving. I think between the other paint stores group segments, I think we just touched on those, that new residential I think is pretty consistent and the others will improve except for commercial as the year goes on. I think within our industrial businesses, we're very excited about our packaging group and the improvements we saw in our fourth quarter and the continuation of that, not to mention the European standard and regulation that goes in the first half of '26. So we are going to see customers converting to our non-BPA epoxy which we believe is first in class. I think we've talked about auto refinish and our optimism and we talked about claims being down double digits. I think when you look at North America in our fourth quarter, you're seeing the new account wins that got us into a low single digit improvement and we expect that to improve as the year goes on in 2025, as you annualize some of these claims data, you'll see improvement in that area. We're also, we've talked about coil, the new win gains there and that consistency of that team and that's going to continue in 2025. And then industrial wood, we've talked, as new residential improves, existing home turnover improves, it really impacts cabinets, flooring, furniture and the expectations that improves as the year goes on. I think general industrial has seen the biggest headwinds. They take longer to come out of that and I'm not expecting that we'll see improvement throughout 2025.

Hopefully sales and demand improve in 2026 or perhaps later. Can you tell us what kind of demand improvement can your current footprint of stores and associates accommodate before you need to ramp up as G&A investments? So would it be 5%, 10% and then you need to ramp up as G&A or perhaps a higher number?

I'll start and ask Al to come in. I would tell you we have the capacity. I think the fact that, again, the market's not going to help us we're out aggressively focused on taking share. We've got the capacity relative to stores, having said that we're going to continue as part of our capital allocation that Al laid out laying in 80 to 100 new stores throughout the year and that will be largely focused on geographies where we know we have opportunity to grow and win. But by and large, I don't know that there's a magic number per se, I mean, our ability to help these contractors to grow is within our capacity. Our ability to help our contractors travel from store to store is well within our capacity.

Yes, the only thing I would add to that, Aleksey think of it as from a rep standpoint it's a really variable cost that we can ramp up as we see volume improving one to two quarters out with our forecasting model. I think Heidi said that we're adding 80 to 100 stores a year that gives us great capacity to handle any residential repaint or other segment increases.

Yes, thank you and good morning. I have two questions, one for Heidi and one for Al. Maybe to start off with Heidi on the subject of pricing. I think you mentioned in your prepared remarks you're pursuing increases in consumer and performance coatings in addition to the paint store hikes that we already talked about. How would you, can you elaborate on that? How would you characterize prospects for positive pricing contributions from those two segments in 2025? And then for Al, what is the level of foreign exchange drag that you're baking into your guide in light of the recent dollar strength? Thank you.

Yes, thanks, Kevin. I'll start. The comment that I shared relative to pricing for the segments is that it would be very targeted within the segment. And so you look at that through the lens of regions and geography. Obviously, we're not going to announce here today what the specific actions are, but where we know we need to get priced, we're going to be very aggressive and make sure that we do so.

Yes, Kevin. I think in a consolidated basis, FX, we expect to be a headwind of about 1%. But when you really break that out, it's more pronounced in our Latin America teams in which case you'll see maybe mid-teens impact on Latin America, which translates to about a mid-single-digit impact on consumer, and then roughly a 2% impact on our performance coatings group.

Kevin, I would just add, you asked about the specific pricing. I'd point out in the slide deck, there's a slide that may be very helpful in there that for the year breaks out volume price FX by segment. So you might want to use that as a guide.

You talked about gross margin expansion in 2025. Can you maybe put a finer point on the magnitude you're anticipating, and that's embedded in your guidance? And also, should we think about that as relatively even across the quarters or more second-half weighted?

Yes, Adam, we'll not give you an exact number, but you would expect our gross margin expansion to be, let me put it this way. It'll be less than it was that we saw in 2024 on a year-over-year basis. As the year progresses, I would expect to see our gross margin get stronger in our second half versus our first half because of the expectation that volume improves. The price increases are meant to offset raw material costs of inflation of the low single digits. Other cost basket increases of low single digits. And I view that as probably about 75% of the increase. We're also continuing as we've talked about self-help initiatives with simplification. We expect acquisition synergies to continue to progress. Both sales synergies, but also on cost synergies. And then we do expect low single-digit production volume increases that with the cost control that our supply chain teams have put in place that we get some efficiencies out of that and get some small improvements and a tailwind on supply chain efficiencies in 2025. Those wrapped together, probably about a quarter of the improvement.

In consumer brands, just wondering if you could speak to how DIY and propane volumes were in the fourth quarter and any color on how you expect them to trend in 2025 would be great.

We'll start with DIY. I think we've covered this earlier. Certainly weaker than expected. I will share, given from a CVG standpoint, the importance of these customers, strategic partnerships that we have. Continuing to invest in making sure that we are taking their success and our success. And this is really important that we're laser focused on ensuring that as the market does recover, that we and they are best positioned on that run-up. In terms of propane, I'm going to jump, let's leave it over to Al here.

Yes, I think the propane, we are under pressure in our fourth quarter. I think that being said, we've maintained our investments in propane, understanding that we don't react to a short-term headwind. We stay focused on the longer term and fully expect as, think about it as the paint stores or, I'm sorry, as the existing home turnover improves, we ought to see propane improvements in that segment and also DIY improvements in that segment as the year goes on. And that's kind of how we laid out the plan from a top line standpoint for consumer brands, really similar to how we were looking at paint stores group, first half, second half.

I'm curious on the latest thoughts on the M&A pipeline. Should we maybe expect less of a focus on M&A this year, given some elevated capital spends end markets relatively challenging? Any update to your thinking on some of the more sizable coatings businesses that are coming to market?

This is a really consistent approach that we take here. We're always going to be looking. I don't know that I would characterize this as more or less within the year. I think it would be a very steady hand at understanding where our portfolios are, where we want to drive growth within the portfolio buy segment. And if there is opportunity, to accelerate our strategy, whether it's a technology, a brand, or a region, we're always looking. But we will go back to our capital allocation policy in general, absent all the items that I'll walk through. We'll look at that, but we absolutely do not need M&A to grow. We're going to continue to focus on putting our foot on the gas where we know we have a right to win today. But should something attractive come along, you can assume that we're going to take a look at that.

Yes, thank you. Had a follow-up on the labor pool. Just curious whether you're hearing from your paint store customers anywhere in the country in particular where they're already seeing an impact of the deportation initiative on their labor pool. And if this is a realistic impact this year, do you think that it might be more impactful on the pro who paints and, maybe shifts more to the paint store's business or might it shift more to DIY? Any thoughts on that and/or regional impacts in your view?

Steve, I think it's too early to tell. We're not hearing, by and large, we're not hearing, frankly, a lot of commentary about this impacting contractors on the store side or the pro who paint side relative to their labor pool. It does certainly reinforce, I think, our position in the market to be able to get ahead of these issues and focus on productivity. I think this just continues to put us in a leadership position there. In fact, I can tell you, I've been out with over a dozen customers since the start of the year. And if there's one theme that's consistent, it's an acknowledgment that, you guys are, you're there when you say you're going to be there. Who would have thought simply doing what you say you would do would be a differentiator? But the fact that we're staying true to our focus on solving for their profitability and their productivity, I think that positions us very nicely to be able to help when, if and when, and how this does impact them. In terms of any kind of toggling or switch between stores and consumer and propane, I don't see that happening in any material way. I think that that's going to be a dynamic that will impact everybody kind of equally.

I just wanted to drill into the paint store's 2025 sales guidance of low to mid singles. Is it fair to think of price at sort of the higher end of that low single digits and then maybe volume probably at the lower end of that low single digits? And then within that volume, is there a meaningful dispersion in your expectations between say the five or six different verticals within the segment?

Yes, Mike, I think you're correct. I think price will be stronger than volume, especially as you ramp up going through the year. I would say residential repaint, we'd expect to be at or above the high end of that range, continuing the market share gains and momentum we experienced in the second half of 2024, which was actually up a high single-digit number. I think Heidi talked about the other verticals. We do think new residential maintains a positive momentum throughout the year, and then I think commercial property maintenance, she touched on both of those. The two that I would also touch on, P&M within our paint stores group, I do think up low, low to mid. And then DIY, I mean, I think is going to be flattish in the first half and then possibly improve as existing turnover improves.

Curious, if you think about Q1, obviously impacted by weather, maybe you expect kind of the Q2 to Q4 kind of sales growth to be above Q1 levels. And if so, would that be the same for all of the segments or mostly for PSG? Thanks.

Yes, Arun, I would say it's not, I wouldn't point to the weather in our first quarter. Our first quarter is a small quarter. I think it's a continuation of the choppiness we saw in our fourth quarter. And then as the year unfolds, you're going to see varying degrees across the segments. Let's be clear, residential repaint, we are very confident you're going to see consistent mid-single digit growth if not improving. I think between the other paint stores group segments, I think we just touched on those, that new residential I think is pretty consistent and the others will improve except for commercial as the year goes on. I think within our industrial businesses, we're very excited about our packaging group and the improvements we saw in our fourth quarter and the continuation of that, not to mention the European standard and regulation that goes in the first half of '26. So we are going to see customers converting to our non-BPA epoxy which we believe is first in class. I think we've talked about auto refinish and our optimism and we talked about claims being down double digits. I think when you look at North America in our fourth quarter, you're seeing the new account wins that got us into a low single digit improvement and we expect that to improve as the year goes on in 2025, as you annualize some of these claims data, you'll see improvement in that area. We're also, we've talked about coil, the new win gains there and that consistency of that team and that's going continue in 2025. And then industrial wood, we've talked, as new residential improves, existing home turnover improves, it really impacts cabinets, flooring, furniture and the expectations that improves as the year goes on. I think general industrial has seen the biggest headwinds. They take longer to come out of that and I'm not expecting that we'll see improvement throughout 2025.

Hopefully sales and demand improve in 2026 or perhaps later. Can you tell us what kind of demand improvement can your current footprint of stores and associates accommodate before you need to ramp up as G&A investments? So would it be 5%, 10% and then you need to ramp up as G&A or perhaps a higher number?

I'll start and I'll ask Al to come in. I would tell you we have the capacity. I think the fact that, again, the market's not going to help us we're out aggressively focused on taking share. We've got the capacity relative to stores having said that we're going to continue as part of our capital allocation that Al laid out laying in 80 to 100 new stores throughout the year and that will be largely focused on geographies where we know we have opportunity to grow and win. But by and large, I don't know that there's a magic number per se, I mean, our ability to help these contractors to grow is within our capacity. Our ability to help our contractors travel from store to store is well within our capacity.

Yes, the only thing I would add to that, Aleksey think of it as from a rep standpoint it's a really variable kind of cost that we can ramp up as we see volume improving one to two quarters out with our forecasting model. I think Heidi said that we're adding 80 to 100 stores a year that gives us great capacity to handle any residential repaint or other segment increases.

Yes, thank you and good morning. I have two questions, one for Heidi and one for Al. Maybe to start off with Heidi on the subject of pricing. I think you mentioned in your prepared remarks you're pursuing increases in consumer and performance coatings in addition to the paint store hikes that we already talked about. How would you, can you elaborate on that? How would you characterize prospects for positive pricing contributions from those two segments in 2025? And then for Al, what is the level of foreign exchange drag that you're baking into your guide in light of the recent dollar strength? Thank you.

Yes, thanks, Kevin. I'll start. The comment that I shared relative to pricing for the segments is that it would be very targeted within the segment. And so you look at that through the lens of regions and geography. Obviously, we're not going to announce here today what the specific actions are, but where we know we need to get priced, we're going to be very aggressive and make sure that we do so.

Yes, Kevin. I think in a consolidated basis, FX, we expect to be a headwind of about 1%. But when you really break that out, it's more pronounced in our Latin America teams in which case you'll see maybe mid-teens impact on Latin America, which translates to about a mid-single-digit impact on consumer, and then roughly a 2% impact on our performance coatings group.

Kevin, I would just add, you asked about the specific pricing. I'd point out in the slide deck, there's a slide that may be very helpful in there that for the year breaks out volume price FX by segment. So you might want to use that as a guide.

You talked about gross margin expansion in 2025. Can you maybe put a finer point on the magnitude you're anticipating, and that's embedded in your guidance? And also, should we think about that as relatively even across the quarters or more second-half weighted?

Yes, Adam, we'll not give you an exact number, but you would expect our gross margin expansion to be, let me put it this way. It'll be less than it was that we saw in 2024 on a year-over-year basis. As the year progresses, I would expect to see our gross margin get stronger in our second half versus our first half because of the expectation that volume improves. The price increases are meant to offset raw material costs of inflation of the low single digits. Other cost basket increases of low single digits. And I view that as probably about 75% of the increase. We're also continuing as we've talked about self-help initiatives with simplification. We expect acquisition synergies to continue to progress. Both sales synergies, but also on cost synergies. And then we do expect low single-digit production volume increases that with the cost control that our supply chain teams have put in place that we get some efficiencies out of that and get some small improvements and a tailwind on supply chain efficiencies in 2025. Those wrapped together, probably about a quarter of the improvement.

In consumer brands, just wondering if you could speak to how DIY and propane volumes were in the fourth quarter and any color on how you expect them to trend in 2025 would be great.

We'll start with DIY. I think we've covered this earlier. Certainly weaker than expected. I will share, given from a CVG standpoint, the importance of these customers, strategic partnerships that we have. Continuing to invest in making sure that we are taking their success and our success. And this is really important that we're laser-focused on ensuring that as the market does recover, that we and they are best positioned on that run-up. In terms of propane, I'm going to jump, let's leave it over to Al here.

Yes, I think the propane, we are under pressure in our fourth quarter. I think that being said, we've maintained our investments in propane, understanding that we don't react to a short-term headwind. We stay focused on the longer term and fully expect as, think about it as the paint stores or, I'm sorry, as the existing home turnover improves, we ought to see propane improvements in that segment and also DIY improvements in that segment as the year goes on. And that's kind of how we laid out the plan from a top line standpoint for consumer brands, really similar to how we were looking at paint stores group, first half, second half.