Sherwin Williams Co Q4 FY2025 Earnings Call

Good morning. Thank you for joining The Sherwin-Williams Company's review of fourth quarter and full year 2025 results and our outlook for the first quarter and full year of 2026. With us on today's call are Heidi Petz, chair, president, and chief executive officer; Ben Meisenzoll, chief financial officer; Paul Lang, chief accounting officer; and Jim Jaye, senior vice president, investor relations and communications. This conference call is being webcast simultaneously in listen-only mode by Newswire via the Internet at www.sherwin.com. An archived replay of this website 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 by 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 it is a result of new information, future events, or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Jim Jaye. Thank you, and good morning to everyone.

Sherwin-Williams ended the year with strong fourth quarter results, driven by solid core performance and inclusive of the first full quarter of the Suvenil acquisition. Consolidated sales in the fourth quarter increased by a mid-single-digit percentage, inclusive of a low single-digit contribution from Suvenil. Reported gross margin was flattish year over year but expanded excluding the dilutive impact of the Suvenil acquisition. SG&A as a percent of sales decreased year over year, including severance and other restructuring expenses and Suvenil, reflecting our disciplined ongoing cost control measures. Adjusted diluted net income per share in the quarter increased by 6.7%. Adjusted EBITDA in the quarter grew 13.4% and expanded 120 basis points to 17.7% as a percent of sales. Free cash flow conversion in the quarter was 90.1%. 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 protective and marine, against a high single-digit comp. Residential repaint remains solid, and growth was just slightly below the mid-single-digit range, also against a high single-digit comp. Group sales included positive low single-digit price mix partially offset by a low single-digit decrease in volume. Segment margin expanded 90 basis points to 20.8%. Consumer Brands Group sales exceeded our expectations. Sales from the Suvenil acquisition and positive low single-digit FX were partially offset by price mix and volume, both of which were down less than a percentage point. Sales in the underlying business, excluding Suvenil, were essentially flat, which was better than we expected and drove the top-line beat. Adjusted segment margin decreased, including a negative impact from Suvenil and related transaction closing costs and purchase accounting items. Adjusted segment margin increased excluding these impacts. Within Performance Coatings Group, sales were at the high end of expectations, led by strength in packaging and auto refinish. Adjusted segment margin improved 150 basis points to 19%, driven by new business wins, as well as good control of SG&A, which was down mid-single digits. We also continued our strong cost control efforts within the administrative segment, where SG&A was down a low single-digit percentage in the quarter, including one-time restructuring costs of approximately $2 million. Excluding these restructuring costs and the non-annualized new building operating costs, administrative SG&A was down by a low teens percentage, improving on third-quarter results that were down low double digits, demonstrating our continued tight management of G&A costs. The slide deck accompanying our press release this morning provides more detail on fourth-quarter segment results. Let me now turn it over to Heidi, who will provide a few full-year highlights before moving on to our 2026 outlook and your questions.

Thank you, Jim, and good morning. I want to start by thanking our 65,000 global employees for their dedication and determination to deliver a solid year during one of the more challenging operating environments our company has seen. Sherwin-Williams celebrates 160 years in 2026, and it's because of our employees and our culture that we're able to deliver sustainable results through all types of cycles. Our team continues to execute our playbook while finding new ways to help our customers become more productive and more profitable. I'm proud of what our team accomplished in 2025. At this time last year, we talked about the potential for a softer-for-longer demand environment, and that is exactly what we saw play out, as there was no meaningful improvement in demand across our end markets. Our team refused to wait for the market and instead focused on creating opportunities and controlling what we could control. We stayed true to our strategy, 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. Our success-by-design approach resulted in our team delivering record full-year consolidated sales and record adjusted diluted earnings per share. Gross profit dollars and gross margin expanded. Adjusted EBITDA dollars and adjusted EBITDA margin also expanded. It was also another very strong year for cash generation, with net operating cash growing 9.4% to $3.5 billion or 14.6% of sales. This percent of sales is right in the middle of the most recent target range that we've previously announced. Free cash flow was $2.7 billion, and free cash flow conversion for the year was 59%. In terms of capital allocation, our policy remains consistent. We returned $2.5 billion to shareholders through share repurchases and our dividend, which we raised for the 47th consecutive year. We completed the acquisition of Suvenil, and we continue to make strategic CapEx investments, including our new global headquarters and global technology center, which opened at the end of the year. We've been talking about these buildings for years, and we are thrilled that we are here. The move-in is going extremely well, and I'm confident that this will continue to strengthen our culture of collaboration, innovation, and winning together. All in, we ended 2025 with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.3 times. Looking at our reportable segments on a full-year basis, Paint Stores grew sales by a low single-digit percentage. Protective and marine increased by high single digits. Residential repaint increased by mid-single digits and, for the third year in a row, meaningfully outperformed the market where existing home sales remained soft. Low single-digit growth in commercial reflects share gains and above-market performance, as multifamily completions were down significantly during the year. Share gains are also evident in property maintenance and new residential, both of which were flattish in a down market characterized by muted CapEx spending, high rates, and affordability challenges. Segment margin increased, reflecting operating leverage and solid returns on our investments. We also added 80 net new stores and 87 net new sales territories. Consumer Brands' full-year sales grew by a low single-digit percentage, driven by the Suvenil acquisition, as underlying sales decreased by low single digits, resulting from soft DIY demand in North America and unfavorable FX. Adjusted segment margin decreased, including a negative impact from Suvenil, as we previously described, as well as lower production in the segment's manufacturing operations to match softer demand, resulting in lower fixed cost absorption. Performance Coatings' full-year sales varied by division and geography and were flat overall, which outpaced a very challenging industrial demand backdrop. Acquisitions added a low single-digit percentage in the year, and FX was a slight tailwind, but these were offset by unfavorable price mix. Packaging grew at the high end of high single digits as we continued to win new business globally, including those complying with new non-BPA coding requirements. Auto refinish was flat for the year, with share gains becoming more evident in the second half, where sales were up mid-single digits. Coil sales decreased by low single digits, as meaningful new account wins were not enough to offset steel tariff impacts. Industrial wood and general industrial each decreased by low single digits, driven by soft housing and industrial markets, respectively. Adjusted segment margin remained in our high teens target range but was impacted by unfavorable geographic mix, as Europe grew by mid-single digits while other regions were down low single digits. As we close out 2025, I'm also pleased to share that we are reinstating our 401(k) matching program for eligible US employees effective February 1. We'll also be restoring the matching contributions that have been paused since October 1 by the end of our first quarter. As I described last quarter, the decision to pause the company match was made after we had implemented multiple cost savings initiatives and significant restructuring actions, driven by multiyear demand and macroeconomic uncertainty. Given what we anticipated back in July, and with the prospect of additional risks materializing, we faced a difficult decision: either pursue further workforce reduction or temporarily pause the 401(k) company match. While many companies chose widespread layoffs, we chose a different path. We chose to protect jobs, retain talent, and invest in the long-term health of the organization by keeping our teams intact. We also committed to restoring the match as soon as performance allowed, just as we have done in the past. Our teams responded exactly as strong teams do. We elevated our performance and focused on controlling what we could control, including winning new business, growing share of wallet, pricing discipline, and accelerating further cost reductions. We demonstrated what truly differentiates Sherwin-Williams. At the same time, some of the risks that we saw in July did not materialize or were less severe than expected, including the delayed realization of some tariff impacts. The combination of all these factors is enabling us to both resume and retroactively restore the match sooner than originally anticipated. Now moving on to our 2026 guidance. The demand environment feels much like it did a year ago. The softer-for-longer dynamic we described again back in October remains intact. While some conditions are gradually becoming more stable, many of the indicators we track, along with cautious consumer sentiment, provide little support for any broad-based or accelerated recovery at this time. This environment is likely to persist well into 2026. The slide deck issued with our press release lays out our key economic assumptions for 2026. I'd also like to provide you with some additional color that informs our outlook. On the architectural side of the business, residential repaint remains our single biggest growth opportunity, and we have and will continue to make investments to win here. Demand remains difficult to predict, with industry forecasts for existing home sales growth varying widely from slightly down to up double digits. The mortgage rate lock-in effect remains real. Harvard's LIRA Index is projecting very modest growth, and select retailers have forecasted flattish home improvement growth as a base case. Additionally, consumer sentiment remains muted. These same dynamics also signal another potentially challenging year for DIY. We expect the new residential market to be down at least in the mid-single-digit range this year, given negative single-family starts over 2025 and many forecasters' expectations for further softening in 2026. National Association of Home Builders sentiment levels were notably negative exiting 2025, and mortgage rates remain in the six-plus range. We welcome meaningful economic and policy proposals to address affordability and increase supply, though these will take time to finalize, implement, and take effect. We expect to outperform the market as we continue strengthening our homebuilder customer relationships. In the commercial segment, the Architectural Billings Index has continued its long run of negative readings. We do see a bright spot in multifamily starts, which were positive for most of 2025. However, these starts won't turn to completions in painting until late this year and into 2027. We are pleased with the share gains we are making here, as demonstrated by our above-market growth over 2025, and which we expect will continue throughout 2026. Property maintenance CapEx spending still appears to be idling and neutral, so we are well-positioned to capture pent-up demand when rates moderate. We expect flattish sales as we continue to grow our account base to help offset core softness. In protective and marine, the project pipeline remains solid, though the timing of starts and completions remain variable. We expect this business, along with residential repaint, to be the best sales performers in Paint Stores Group this year. On the industrial side, the US manufacturing PMI ended at its lowest point in the year in December after ten months of contraction. Brazil and the Eurozone PMIs are also contracting. Optimism is easing in China, and the PMI there remains below its historical average. We see a 2026 backdrop where our core business remains flat at best, but strong new account wins from last year and this year, along with positive price mix, will drive low single-digit sales growth in Performance Coatings Group. We expect modest growth in auto refinish, driven by share gains and price mix, with the industry remaining flattish to down given pressure on consumers and related softness of insurance claims. In coil, we expect flattish sales as the market remains under pressure related to steel tariffs. In packaging, share gains and our industry-leading non-BPA coating should drive flattish sales against a tough double-digit comparison. Our industrial wood and general industrial divisions have the strongest new account growth in the group last year. We expect these wins to drive low single-digit growth in both of these divisions, even as core demand remains very weak. In summary, for the third year in a row, the market is not going to give us much help. And for the third year in a row, we expect to outperform the market and grow sales and earnings per share. We'll continue to remain extremely aggressive with a focus on helping existing customers grow as well as winning new business and converting share gains. I want to be very transparent here. We're providing guidance that we believe is very realistic given this backdrop. We are also confident that if the market is better than we're currently seeing, we would expect to outperform the guidance that we are providing to start the year. The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for 2026. The deck also includes our initial expectations for the full year, where consolidated sales are expected to be up a low to mid-single-digit percentage. Diluted net income per share is expected to be in the range of $10.70 to $11.10 per share. Excluding acquisition-related amortization expense of $0.80 per share, adjusted diluted net income per share is expected in the range of $11.50 to $11.90, an increase of 2.4% at the midpoint compared to 2025 adjusted diluted net income per share of $11.43. I'll note that at the $11.70 midpoint, earnings growth will outpace the midpoint of our core sales growth, excluding the impact of Suvenil sales. Our slide deck contains several additional data points that provide important context that I'd also like to briefly address. Any comparisons described are year over year. From a sales perspective, I'll remind you that the Paint Stores Group implemented a 7% price increase effective January 1. Realization should be in the low single-digit range given market dynamics and segment mix. We are also implementing targeted price increases in specific areas with our other two reportable segments. We expect the market basket of raw materials to be up a low single-digit percentage in 2026, driven by tariffs along with select commodities also inflating. We expect to overcome these raw material headwinds and deliver full-year gross margin expansion given both incremental 2026 pricing and accelerated simplification efforts across our supply chain. We expect GAAP SG&A dollars to grow by a low single-digit percentage in 2026, inclusive of a low single-digit contribution from Suvenil. As we pointed out last quarter, interest expense will be up this year. This increase includes approximately $40 million related to the lease payments for our new global headquarters and approximately $35 million of interest related to the $1.1 billion one-year delayed draw term loan that we executed in September. It also includes approximately $15 million in increased interest expense related to refinancing at higher rates. We expect to end the year within our current long-term target debt to EBITDA leverage ratio of two to 2.5 times. We expect to open 80 to 100 net new stores in the US and Canada in 2026. We'll also continue adding sales reps in territories, accelerating innovation, and expanding our digital capabilities. Next month at our Board of Directors meeting, we will recommend an annual dividend increase of 1.3% to $3.20 per share, up from $3.16 last year. If approved, this will mark the 48th consecutive year we've increased our dividend. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit and accelerate our strategy. In addition, our slide deck provides guidance on our expectations for currency exchange, effective tax rate, CapEx, depreciation, and amortization. Finally, I'll remind you that as our first quarter is a seasonally smaller one, we do not plan to make any updates to full-year guidance up or down until our second quarter is completed, at which point we will have a better view of how the paint and coatings season is unfolding. Sherwin-Williams is extremely well-positioned as we enter 2026. Again, while we expect little, if any, help in terms of end-market demand, our teams refuse to be discouraged by these near-term trends. We know stronger demand will return at some point, driven by powerful demographics and enduring market fundamentals. But we're not waiting for that moment. We're focused on winning today and securing our long-term future. We know the playbook. Stay true to our proven customer-first strategy. Control what we can control. And turn volatility into opportunity. That means relentlessly pursuing new accounts and share of wallet, innovating in and out of the can, investing where returns are clear, maintaining price-cost discipline, advancing our enterprise priorities, and driving accountability to ensure flawless execution. This is how we grow and create value regardless of market cycles. We're proud of what we've accomplished, but we're even more energized by the opportunities ahead. Across every business, we see room to grow, innovate, and lead. Our focus remains sharp: grow sales, drive returns on sales and assets, and generate cash. We'll continue to deliver unique solutions for customers and outperform the market. This is a great time to continue demonstrating what makes Sherwin-Williams so unique. We win when our customers win, and that is exactly what we plan to do. I'd like to end where I started by thanking our team for being truly the best in the industry. This concludes our prepared remarks. And with that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

Certainly.

Everyone, at this time, we will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question. Once again, if you have any questions or comments, please press 1 on your phone. Our first question is coming from Ghansham Panjabi from Baird. Your line is live.

Yeah. Thanks, operator. Good morning, everybody. I guess, first off, on the performance coatings segment, the margin outperformance there relative to at least our expectations. The incremental seemed very, very high in 4Q, and I know you called out some of the more profitable businesses like packaging and auto refinish being up nicely, etcetera. But could you just give us a bit more color in terms of what drove that?

Yes, Ghansham. I think what you're seeing there clearly is discipline on display. This is an organization led under Karl Jorgensrud, who has been in the industry for over thirty years, and I think this is an environment where we're in the fifth straight year of a challenging demand environment. The team stood tall and delivered. And you're going to see this play out with a very clear aggressive focus on new business wins, taking market share, but also a lot of heavy lifting. We talk about simplification in our enterprise priorities, taking complexity out of the business. I'm very pleased with some of the heavy lifting there. Having said that, we're early innings, and I'll hand it over to Ben here to jump in.

Hey, Ghansham. Ben Meisenzoll. Yeah. Adding to what Heidi said there, I point to the two halves of PCG. Heidi called out simplification. SG&A has been a focus of this team here. They've consistently been able to keep their SG&A at a moderated pace considering where volumes are at. If I look at the two halves, I think that's a good way to look at it here. We were under pressure the first part of the year right after the election, and we started seeing some of the new policies take shape. There might have been some hesitation. The operating margin was backwards about 160 basis points in the first half. The second half, adjusted operating margin showed 20 basis points worth of improvement. The second half was at 17.9%, pretty close to where we ended 2024. Obviously, the 19%, the good pop in the fourth quarter. And so I agree with what Heidi said there. It just comes down to discipline. Focus on SG&A. I think this is also a good example. We always talk about the operating margin and that looking just at gross margin or SG&A is a really good example of why we do that because we're able to demonstrate and grow operating margin as a result of strong SG&A controls.

Thank you, Ghansham.

Your line is live.

Yeah. Good morning. Thanks for taking my question. And maybe kind of a decent segue from that last question. On the SG&A outlook for 2026, I guess, could you help us to think about what you're factoring in? What kind of level of growth we should be expecting? Because I know you continue to invest even when markets struggle. You've also got this 401(k) match coming back in. So I guess, could you help us to think about how that should play out as the year progresses?

Hey, John. The way to think about that, and we called out, you know, Heidi talked about in her opening comments, with reinstating the 401(k) and doing our retroactive match, we're apples to apples 2025 versus 2024. And so the catch-up contribution as it relates to 2025 earnings, we're apples to apples there. And so because we did that, as you look at 2024, 2025, and then into 2026, there is no quarter-to-quarter or year-over-year 401(k) impact. If you look at broader SG&A, as we called out in the opening remarks, SG&A up a low single digit. That obviously includes the history of the restructuring costs that we took in 2025, then you layer on the incremental Suvenil, which is also a low single digit. So you can do the math there to figure out the core versus Suvenil. But really what we have embedded there is that low single-digit growth. Again, that points right back to the cost control, everything that we talked about throughout the year here. We had about $40 million in savings in 2025. You saw that our one-time restructuring costs were a little bit higher than what we guided to in October. That gives us the ability to upsize the other $40 million that we initially called out. That's probably closer to $46 million in savings in 2026. And so again, really proud of what the teams are doing to really control costs while volumes are challenged.

John, give Ben a lot of credit. He uses this phrase to the team. And for those employees listening, I'm talking to you here too. We want to earn our SG&A. Right? And so we're going to always pace that to volume, and you're going to see that discipline play out throughout the year.

Thank you, John. Thank you. Our next question is coming from Chris Parkinson from Wolfe Research. Your line is live.

Great. Thank you so much. You know, should we talk about some of the things that are more or less in your control in terms of your guidance and just how you, Ben, and Al are thinking about in terms of the implied gross margin guide? Just perhaps just a quick comment on healthcare labor assumptions, the raw basket. Seems like there's some divergences between solvents, acrylics, and TiO2 asset utilization. Just kind of what underpins that and what gives you the confidence that that is the correct framework at least to begin the year? Thank you so much.

Yes. Good morning, Chris. I'll start with the raws piece of your question. So as you saw in our slide deck, we're guiding our raw material basket to be up a low single-digit percentage this year. That includes tariffs and some of the commodities inflating in particular. I'd say the areas where we're seeing the most pressure would be on the packaging side of our basket. Also, non-TiO2 pigments, extenders, things of that nature. Also, some pressure on resins, and I'd say that's a little bit heavier weighted on the industrial side of the basket. But those are the things that are driving the raw material guidance that we're laying out.

Chris, I'll add on to the SG&A side and just the overall cost side. You think about, we've called out in the admin segment, interest expense, you know, being a headwind for next year. And so when you look at the growth that we have in our admin spending next year, about half of that is going to be interest expense, and then half of it is normalization of other non-operating costs and just your general SG&A. And you called out healthcare. We've all seen the headlines, healthcare up double digits. We're in that camp. We have things that we can do to mitigate that. So what we're passing on to our employees isn't as meaningful as that. So we're trying to be really diligent there. But we continue to try to keep that cost low. If I go back and point to some of the opening comments on the admin SG&A, the core SG&A, we've been able to keep that down low double digits, you know, down low teens, and that just demonstrates again the levers we're able to pull to make sure we can keep that cost in check knowing that, again, we're in that lower volume environment right now.

Thank you, Chris.

Thank you. Our next question is coming from Greg Melich from Evercore ISI. Your line is live.

Hi. Thanks. I wanted to follow up on price mix. In the fourth quarter and then also the 7% price hike on January 1. I guess it looks like it was 3% to 3.5% price mix in 4Q. And with the price increase coming in, in January, why wouldn't we expect that to be more going into the first quarter in 2026?

Yeah. Greg, I'll start, and I'll hand this over to Ben to give a little bit of color. But I'll take you back to some of the comments I said in my prepared remarks relative to market dynamics. We are looking at the competitive environment. I would frame it more as a jump-ball environment, to be honest, and so we're going to continue to be, as you would expect, extremely aggressive as it relates to chasing volume right now. And so there's a balance. The team is very prepared. There's a lot of tenure in the organization. They know how to strike that right balance, but I'm very confident that when we get some of our customers in, I'm very confident in the team's ability to work with them to add value and continue to trade them into more premium products that ultimately is going to make them more productive. Let me hand it to Ben to comment on the quarter.

I agree with everything Heidi said there. And again, we've talked about that price mix, you know, looking at incremental pricing and mix of some of the business as well. And so you may have a little bit of noise in there. But Heidi hit it head on with volume. I mean, we've talked about, in this environment, prioritizing volume. And so as our teams know that high effectiveness is critical for us to get to the high end of our guide, we're going to continue to put the pressure on there to capture as much price as we can, but we're not going to put volume at risk to do that. And so that may be what's a little bit different than what you've seen in the past. But still very confident when they're in our gross margin targets that we put out, and we're going to hold to that.

Thank you, Greg. Thank you. Our next question is coming from David Begleiter from Deutsche Bank. Your line is live.

Thank you. Good morning. Heidi, can you discuss the impact of the severe winter weather on your current demand trends? And does that mean that Q1 EPS could be down year over year just because of the weather impacts? Thank you.

Hey, David. It's Ben. Let me make a couple of comments here. I realize right now in the midst of watching the storm go through this week, we have weather every quarter. It impacts us every year. If you remember last year, we had the Gulf winter storm. It had all the classic ice, wind, snow, everything that you would expect with a winter storm like that. But our Southeast division, our Southwestern Division, they deal with weather this time of year every single year, and so no concerns there right now.

Thank you, David. Thank you. The next question is coming from John Roberts from Mizuho. Your line is live.

Thank you. In your packaging coatings performance is impressive here. Have we recovered to new highs since the correction you had? And how much more is left in terms of the conversion of the industry?

Yeah. Good morning, John. I would tell you we've essentially recovered a lot of what we said was kind of temporary share loss, but that doesn't mean that we're happy with where we are. There's still a lot more to go get. I really like our position here with our leading technology. We continue to win and demonstrate value. We've got some dynamics playing out. EFSA, the European Food Safety Authority, ban on BPA is going to be taking effect in Q2. We know that that will continue to drive more customer conversions for us. So really like our position here, we're in good shape. Jim, maybe if you could comment on a few of those areas.

I would add to that, John, that in terms of how much is left to go, I would say that in Asia and Latin America, there's still quite a bit to go. North America and Europe are farther ahead on that. But in terms of that conversion, those other regions still have quite a ways to go. Thanks for the question.

Thank you. Your next question is coming from Aleksey Yefremov from KeyBanc Capital Markets. Your line is live.

Thanks. Good morning. Heidi, I wanted to come back to your comments on focusing more on volumes than price this year. I guess, typically, this could lead to a bit of a zero-sum game where your competitors would also focus on volumes. Is there something that's different right now about the competitive environment? Maybe your competitors cannot afford lower prices, so they have to raise their prices and cede some volume? Or is there another dynamic that kind of makes your strategy of being more volume-focused the right one this year?

So, Aleksey, let me reframe what I heard you say. I think you said not putting volume above price. And I would say it's not putting volume above price. It's being very balanced in our view here. In this environment, it's a jump-ball competitive environment. There's a lot of market share up for grabs right now, and we're not going to lose our mind or lose our way. We're very disciplined when it comes to pricing. But we want to make sure that the teams are empowered out in the front line to convert some of these larger, bigger customers that weren't in the Sherwin-Williams family before. We're going to be dog on a bone and chasing that business.

Aleksey, I'll add to that. We've always talked about volume as one driver of our operating margin. Over the long term, getting that wider base of business, getting that share of wallet and new accounts in, and even when we bring them in, we have ways in our stores, wherever the customer is in their journey, to help get them up into those premium products and other ways that flows into price mix as well. But we recognize over the long term that securing the right volume is how we get to our midterm and long-term goals.

One piece Ben just said, and I think it's really important to emphasize: when we bring our contractors in, the confidence we have in moving them up to premium is they are making more money as a result of working with these higher-end, better products. I'll remind you total cost of labor comprises 85% to 87% of their total cost. Their willingness to pay a premium to get on and off job sites faster, have less touch-up, and fewer quality issues, especially in an inflationary environment, plays to our strength.

Thanks, Aleksey. Thank you. Our next question is coming from Jeff Zekauskas from JPMorgan. Your line is live.

Thanks very much. Your residential repaint sales were up low single digits, but your prices were probably up higher than that? So were residential repaint volumes flat or down? And have they decelerated through the course of the year? And if so, why?

Hey, Jeff. If you look at the fourth quarter, we were last year up against a really strong comp in residential repaint. We were up a high single digit, and so that had a little bit of impact on what you're seeing here for the quarter. Remain very confident in residential repaint. This is where we made a lot of investments. We're at the biggest opportunity for share gains. We're very confident with that segment with our pricing realization. As you look forward into 2026, that's a segment that we're going to continue to count on and invest in.

This is also a segment we have a lot of confidence in because we continue year over year to outperform the market. I wouldn't characterize it, Jeff, as slowing. If you go back into our history, the last two years there was a surge as we continued to focus on taking Kelly-Moore share. That's now behind us. We're probably seeing a little bit of that normalization. But in terms of what's out there, the amount of market share to be gained is extraordinary, and we're going to chase it.

Thank you, Jeff. Thank you. Our next question is from Vincent Andrews from Morgan Stanley. Your line is live.

Thank you, and good morning, everyone. Wondering if you can help us bridge Consumer Brands from the fourth quarter performance on the top line up about 25% with Suvenil in the mid-20s to your expectations for 1Q. And for the full year with 1Q up low to mid-teens now and the full year up high single to low doubles, recognizing that you have to comp Suvenil late in the year. But what does that imply that the existing business is going to do from a volume price mix perspective? And then what is your FX assumption within there as well? Thank you.

Hey, Vincent. Going from the fourth quarter into next year, you nailed it: we have annualization. That's going to have a sizable impact through the third quarter of next year when we annualize. The underlying business, as Heidi talked about in her opening comments, still faces challenges with the North American DIY market. We don't expect that to be an overperformer for us until we see housing catalysts really catch. You asked about pricing: all of our businesses have some level of pricing embedded in their guide for next year. Even though we don't go out all at the same time like we do for Stores Group, you should expect targeted price increases not only for Consumer Brands Group but also for Performance Coatings Group that could differ by business unit or by region. And then FX, on a full-year basis, we do have Consumer Brands Group down a low single digit because of FX. That's mainly going to come in the second half of the year and is mainly coming from headwinds we anticipate in Latin America.

We are really excited about the Suvenil acquisition and the progress we're making. It's early, but the teams are laser-focused. We've got our dedicated integration team so that our commercial teams can remain focused on customer and business continuity. We're pulling out the Valspar playbook, with rigor behind customers and employees, making sure we keep momentum in the market. We have an opportunity to demonstrate why these brands are better together, why these teams are better together so that we can drive innovation with a market-leading brand. I'm very confident in what we're going to be able to do in Brazil.

Thank you, Vincent. Thank you. Our next question is coming from Josh Spector from UBS. Your line is live.

Hey. Good morning. I was trying to go through all the macro assumptions you have in that slide, which is very helpful. When I put that all together, it seems to say that maybe you're thinking the market and your Paint Stores Group is down something like 1%, maybe 2% next year. If I look at your Paint Stores Group guidance, you're flat. Your store addition is typically at a point. So to me, that implies that you're basically saying you do closer to in line with the market versus outperform by a point or two. I'm just curious if you disagree with any of that framing. Is the market lower? Are you assuming more? And just square that with the comments you've been talking about earlier about focus on gaining volumes of share gains. Thanks.

Josh, respectfully, I disagree. The market is down. I think it's hard to characterize exactly, but it's down more than that. Our performance base case we've guided to is down single to up single. In the controllable space, I'll point to residential repaint, where we continue to take share in a down market. We're going to continue to make the investment, putting a new store in every four days, continuing to invest in dedicated reps, and investing in innovation. At the end of the quarter, we're going to be launching a zero-VOC plant-based interior coating that will be the best paint we've ever made, because we're confident in our ability to convert share with residential repaint. I'll hand over to Ben to speak to the other segments.

If I take it to volume, one thing to point at in Paint Stores Group is the ability, even in a challenged volume market, to still grow incremental margins. In the fourth quarter, with volumes down low single digit in Stores Group, with good cost control, we were able to generate almost a 50% incremental margin. For the full year, it was almost 40% again in a volume-challenged environment. So we're going to continue to find ways, despite what's happening in the market, to continue to drive margin.

Thanks, Josh.

Thank you. Our next question is coming from Mike Sison from Wells Fargo. Your line is live.

Hey. Good morning. Heidi, you mentioned that you'd welcome some policies or proposals to help affordability increase supply. What do you think would be helpful in terms of maybe sparking a recovery in paint demand this year? And then quick follow-up in protective and marine. Had another good year. Is that mostly the protective side? And does that go into data centers, and if it does, how big is that potential? Thank you.

Great. Mike, I thought you were going to offer a policy recommendation. We see it as a three-legged stool. It will take household income, rates, and affordability improvements. We're in a midterm election year, so we'll see what moves there. Our builders and partners are hesitating and waiting for some of those things to be solved. We have a healthy position with many of the largest builders from an exclusive standpoint, so our ability to lock in with them, help them see around the corner, and plan is important. On the protective and marine side, it is higher on the protective side than the marine side. Sherwin-Williams is exceptionally well-positioned because of the boom we see with AI infrastructure. As you look across that P&M division and the healthy pipeline the team is working on, these data centers: every coating that every surface needs to be coated—we have a solution. Our high-performance flooring, including recent acquisitions, puts us in a market leadership position. We're going to be extremely bullish as we move forward.

Mike, going back to the policies and the outlook, anything that becomes a tailwind for housing or affordability would enable our plan to capture those opportunities. We outlined in the presentation the economic assumptions. If those indicators get better—rates trend lower, existing home turnover is higher, consumer confidence improves—our performance would reflect that and be higher than the midpoint we've provided.

Thank you, Mike. Thank you. Our next question is coming from Patrick Cunningham from Citi. Your line is live.

Hi. Good morning. So, Heidi, throughout the past year and a half, you talked about capitalizing on opportunities, disruption in the industry, and given the recent mega merger announcement, there's potentially some fresh disruption. How would you characterize the opportunity set maybe within more of your industrial-facing businesses?

Great question. Disruption is the right word. It impacts several of our divisions. Our teams are going to continue to be aggressive. Over the last few years there's been a lot of shift across the competitive set, both architectural and industrial. What excites me is the stability of our strategy. We have a rock-solid strategy, the playbook, and a management team and field team with clarity on execution. Volatility is an opportunity to create value, whether in the macro or competitive landscape, and we're going to do that. Stay close to customers, find new ways to solve their challenges, and we will come out winning.

Thank you, Patrick. Thank you. Our next question is coming from Arun Viswanathan from RBC Capital Markets. Your line is live.

Great. Thanks for taking my question. I guess I just wanted to understand the element of potential conservatism in the guide here. Maybe what could get you to the upper end. It sounds like you will be implementing that price increase. Maybe you get two to three points out of that. Would it be mainly volume in Paint Stores Group? We have seen some improvement in existing home sales over the last few months. Are you assuming continued softness in commercial and new? Maybe you can go through some of the verticals within Paint Stores Group and how different scenarios could play out and push you toward the upper end of the guide.

Arun, our outlook is realistic, and the presentation deck shows the assumptions that are the foundation of our guidance. For example, existing home turnover has a wide range of forecasts next year, from down 1%-2% to up as much as 14%. We anchored our midpoint guidance on a realistic low single-digit range absent major policy shifts. If indicators get better—rates lower, existing home sales higher, consumer confidence improved—you should expect our results to be higher than the midpoint.

Thank you, Arun. Thank you. Our next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.

Yeah. Good morning. Could we go back to Consumer Brands Group? I want to understand the margin implication of Suvenil coming in and the cost-cutting programs. Do we need to model a roughly 2% decline year over year until we anniversary Suvenil, and then it bounces back up towards normal? How should that play out throughout this year and once you've anniversaryed it?

Duffy, fourth quarter is generally a lower margin quarter for us. Coming out of our second-quarter call, Consumer Brands Group had targeted production volume reductions to manage inventory to year-end. Suvenil adds noise in the quarter. From an operating margin standpoint, you should expect to see the core business perform similar to our existing Sherwin business. We'll have some integration costs—system integrations and other activities—in 2026. From a margin point of view, until we anniversary it in the third quarter next year, you can expect it to be a little muted, similar to what you saw in the fourth quarter.

Thanks, Duffy. Thank you. Our next question is coming from Mike Harrison from Seaport Research Partners. Your line is live.

Hi. Good morning. You've talked in the past about the periodic repaint of houses occurring every five to seven years. A lot of demand was pulled forward into the 2021 timeframe. So we should be getting into a period where we should start to see more repaint activity. In your view, Heidi, what is preventing that piece from playing out? Is it the cost of labor and maybe availability of paint contractors? Is it the cost of the paint itself? When you think about consumer sentiment and propensity to repaint periodically, what could conflict with that five-to-seven-year repainting view?

You're right: it's a five-to-seven-year cycle, and we're coming off the post-COVID surge. There are natural governors now: inflationary pressures and muted consumer confidence. Home improvement remains one of the more affordable and quicker updates versus larger remodels. I do believe we'll see repainting activity increase, but it will likely be choppy throughout the year. Also note DIY represents about 40% of available gallons, so when it starts to move you'll want to be positioned to capture that demand, but we need the catalyst to materialize.

Ben's point about the range of existing home sale forecasts—some say down low single digits, others up double digits—illustrates the uncertainty in demand. Whatever way it goes, we expect to outperform and are well-positioned due to investments made over the past two years. Thanks for the question.

Thank you. Our next question is coming from Kevin McCarthy from Vertical Research Partners. Your line is live.

Yes. Thank you, and good morning. Heidi, in the prepared remarks, I think you commented regarding the 7% price increase that you'd expect realization to be in the low single-digit percentage range. I'm not sure if that was a near-term comment or if that's where you would expect to be in the fullness of time. Could you elaborate on the trajectory over the next few quarters? What's the nexus between this realization versus your historical realizations against the backdrop of your aggressive pursuit of volume? Will it be lower this time, or do you think ultimately it will be the same?

We've said it's going to be in the historic range; it may be the low end of that range. Given the unique competitive environment, I would think of the low single-digit realization as a full-year guide. I'll invite Ben to jump in with additional detail.

Kevin, the teams are engaged and focused on effectiveness. There might be some delayed realization as different accounts implement later than January. We're going to continue to monitor and capture as much price as possible while managing volume, and there's high confidence in our stores teams to execute.

Thank you, Kevin. Thank you. Our next question is coming from Matthew Dio from Bank of America. Your line is live.

Yeah. Good morning, everyone. To build on Pat's question, would you look at or participate in any asset sales on the backs of the merger going on? I know it's broad, but say powder coatings—would market entry be interesting to you or expansion in some of these other more core industrial segments?

Matt, we love to grow and expand. Our growth strategy starts with organic focus. For inorganic activity, it's a disciplined portfolio review. If assets that fit fell into our laps, we would be interested, but right now we're focused on growing organically and competing in the market.

Thank you, Matt.

Thank you. Our next question is coming from Garik Shmois from Loop Capital. Your line is live.

Oh, hi. Thank you. As you made the decision to bring back the 401(k) match, you cited delays in tariffs as one of the drivers that helped you decide to reinstitute it. I was wondering if there's anything else specifically that you're looking at that gave you confidence. And on the flip side, you're talking to a number of choppy macro indicators and trends that don't seem to flip anytime soon. Is there any incremental cost that you're looking to implement this year?

Garik, the delayed realization of tariffs was a factor. I want to emphasize this decision wasn't made for short-term optics. With prolonged uncertainty, our objective was protecting operating strength, stability, and the long-term health of the company by protecting jobs. We're in a differentiated strategy that works and a world-class team that executes through cycles. It's in our best interest to retain talent and preserve execution capacity. Many companies chose layoffs; we chose a different path to protect jobs. Restoring the match is consistent with that strategy. I'll hand it over to Ben to discuss 2026 implications.

Garik, back in July when we updated guidance, we were in an environment of high uncertainty. Pulling the 401(k) lever gave us flexibility; since the pressures didn't materialize as we feared, it enabled us to reinstate the match sooner. As we go into 2026, pressures remain—tariff pressures are part of our single-digit raw material guide. We've executed cost-out initiatives and will continue to unlock costs in areas that have been harder to address in prior years. Our confidence in the teams to do that helped us decide to reinstate the match and get this behind us while continuing to manage volume headwinds.

Thank you, Garik. Thank you. Our next question is coming from Chuck Cerankosky from Northcoast. Your line is live.

Good morning, everyone. I want to take a look at the Paint Stores Group and see if there's any insights to be gleaned by how the non-coatings sales are going, especially with the professionals' basket when they're in your stores.

Chuck, can you be a little more specific on non-coatings? What are you referring to?

I'm thinking about supplies, brushes, sprayers, things like that. That might indicate where the pro's head is at and what you folks might be looking at to change in their baskets.

That was helpful. One of the things you may be thinking about is spray equipment sales; those have been flattish reflecting the environment we're in. Areas tied to new residential are where you might see more activity.

Just flat. Applied products are flattish overall. Spray equipment is a good leading indicator, but overall it's flat.

Thanks, Chuck. Thank you. Our next question is coming from Eric Bosshard from Cleveland Research. Your line is live.

Good morning. On the DIY market, could you just frame a bit of what you're seeing in terms of perhaps your performance in terms of volume and what's going on with price mix in 4Q and the expectation in '26?

Volume continues to be very choppy. We service the DIY customer in two ways: through our paint stores, which attract a more discerning DIY customer and higher margin, and through our strategic retail partners. In this environment, don't let a downturn go to waste: we are aligning with partners on assortment and competition. There's good momentum in planning but we need the catalyst to come to fruition. I'll hand it to Ben on price mix.

Eric, in our stores we've seen some better DIY performance in the quarter. A lot of what you see in DIY is the premium gallon push we highlighted previously. That's a component of the price mix. In stores, if we're changing pricing, that segment may be a bit more effective in capturing price, but in total it's primarily premium gallon mix contributing.

Thanks, Eric. Thank you. Our next question is coming from Laurence Alexander from Jefferies. Your line is live.

Good morning. Could you give an update on what your net price tailwind is expected to be going into 2026 and how that compares to trend pricing absent a sharp cyclical improvement?

Laurence, we've annualized our pricing. We lapped last year's price increase and the January 1 price increase timing coincides well. We'll manage high effectiveness for pricing through 2026, and teams are focused on capturing that as they can.

A final comment on pricing discipline: we are in a unique position with industry inflection and volatility. I'm confident in our strategy and leadership team and excited for what's ahead. We need the market to help a bit, but we're executing and having a different conversation.

To tie that up, if you look at the slide deck for 2026 full year, we have low single-digit positive price mix in all three segments, giving a positive low single-digit price mix on a consolidated basis for the full year.

Thank you. That concludes our Q&A session. I will now hand the conference back to Jim Jaye for closing remarks. Please go ahead.

Thank you, Matthew, and thank you, everybody, for joining our call. And thanks to all the employees of Sherwin-Williams for all their continued hard work. Clearly, you heard today we're continuing to operate in a very challenging demand environment. And we expect that to continue well into the year. But as Heidi mentioned, Ben mentioned, we believe the guidance we're giving today—this initial guidance—is realistic, given all the economic assumptions that we laid out in our slide deck. And, quite frankly, should the market be better than we're seeing today, we'd expect to outperform that guidance. So regardless of the environment, you can count on us. Our strategy is clear, which is providing those differentiated solutions for our customers. I will close with a save-the-date request for everybody for our 2026 financial community presentation. It's going to be in Cleveland this year on Thursday, September 24. And it will include the opportunity for you to see our new global headquarters and our new global technology center. So we're excited for all of you to experience this amazing investment that we've made for our customers and our people. That date again is September 24, and we'll have more details on that later in the year. As always, we'll be available for your follow-ups here, and thanks again for your interest in Sherwin-Williams. Have a great day.

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