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    SHW
    Earnings call· Dec 2024(Q4 FY24)

    SHERWIN WILLIAMS CO SHW

    Jan 30, 2025 Source

    Executive summary

    The Sherwin-Williams Company Q4 FY24 — Strong Earnings Growth Amidst Choppy Demand

    Sherwin-Williams delivered strong Q4 and full-year 2024 adjusted earnings growth and cash generation, despite a persistently choppy demand environment. The company anticipates these market conditions to continue through the first half of 2025, with some end markets not improving until 2026. Management is focused on targeted investments, share gains, and cost control to drive outperformance and deliver consistent shareholder value.

    Highlights

    5

    • Full year adjusted earnings per share grew by a near double-digit percentage to $11.33.

    • Adjusted earnings per share in the fourth quarter increased by 15.5%.

    • Full year cash generation was $3.2 billion, representing 13.7% of sales.

    • Adjusted margin expanded year-over-year in all three operating segments in Q4.

    • Residential repaint drove mid-single-digit growth in the Paint Stores Group, outperforming the market.

    Concerns

    5

    • Full year consolidated sales increased only slightly due to a choppy demand environment.

    • Consumer Brands Group sales decreased in Q4, primarily due to unfavorable FX.

    • Performance Coatings Group sales were slightly below expectations due to softness in certain divisions.

    • Raw material market basket is expected to be up a low single-digit percentage in 2025.

    • Interest expense is projected to increase by $60 million in 2025, including $40 million from debt refinancing and $20 million for new building financing.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year 2025 Consolidated Sales Growth
    low single-digit percentage increase
    high materiality
    High
    Full-year 2025 Diluted Net Income Per Share (GAAP)
    $10.70 to $11.10
    high materiality
    High
    Full-year 2025 Adjusted Diluted Net Income Per Share
    $11.65 to $12.05
    high materiality
    High
    First Half 2025 Sales Growth
    up or down low single digits
    medium materiality
    High
    Second Half 2025 Sales Growth
    up low to mid-single digits
    medium materiality
    Medium
    Paint Stores Group Price Increase
    5%
    medium materiality
    High
    Raw Material Market Basket Trend
    up a low single-digit percentage
    high materiality
    High
    SG&A Dollars Growth
    low single-digit percentage
    medium materiality
    High
    Interest Expense Increase
    up $60 million
    medium materiality
    High
    Other General Expense Increase
    approximately $75 million
    low materiality
    High
    New Store Openings
    80-100 new stores
    low materiality
    High
    Annual Dividend Increase
    10.5% to $3.16 per share
    medium materiality
    High
    Net Debt-to-Adjusted EBITDA Ratio
    2.0x to 2.5x
    medium materiality
    High
    Full-year 2025 Gross Margin
    expansion
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Paint Stores Group
    Q4 sales increased in the expected range, led by strong growth in residential repaint and protective and marine. Full year sales grew by a low single-digit percentage, driven by mid-single-digit growth in residential repaint. Full year segment margin was flattish due to continued growth investments.
    		—high single-digit (residential repaint, protective and marine in Q4)—expanded (adjusted margin in Q4)
    Consumer Brands Group
    Q4 sales decreased in the expected range, primarily due to unfavorable FX, though volume and price mix were slightly positive. Full year sales were lower due to soft DIY demand and unfavorable FX. Full year adjusted segment margin expanded back to target levels due to higher fixed cost absorption.
    Volume and price mix: slightly positive (Q4)
    		—decreased (Q4)—expanded (adjusted margin in Q4)
    Performance Coatings Group
    Q4 sales were slightly below expectations, with strength in packaging and coil offset by softness in other divisions. Full year sales varied by division and geography; acquisitions added a low single-digit percentage, offset by unfavorable price mix and FX. Coil and packaging were strong performers. General industrial remained under pressure. Full year adjusted segment margin expanded to 18%, the highest since the Valspar acquisition.
    Acquisitions contribution: low single-digit percentage (FY24)Industrial wood growth: mid-single digits (FY24, acquisition-driven)
    		———expanded (adjusted margin in Q4)

    Operational metrics

    24
    Adjusted EPS
    $11.33near double-digit growth
    FY24

    Concluded a record year for the company.

    Adjusted EPS Growth
    15.5%YoY
    Q4 FY24

    Increase in adjusted earnings per share for the quarter.

    Cash Generation
    $3.2 billion
    FY24

    Another very good year of cash generation.

    Capital Returned to Shareholders
    $2.5 billion
    FY24

    Continued execution of disciplined capital allocation.

    Net Debt-to-Adjusted EBITDA Ratio
    2.2x
    end 2024

    Ended 2024 with this ratio.

    Paint Stores Group Price Increase
    5%
    FY25

    Implemented to offset raw material headwinds.

    Raw Material Market Basket Trend
    up low single-digit percentage
    FY25

    Expected to be spread evenly across the year and different commodities.

    SG&A Dollars Growth
    low single-digit percentageless than 5% (FY24)
    FY25

    A more typical level, with new building operating expenses weighted to the second half.

    SG&A Dollars Growth
    5%YoY
    FY24

    Last year's increase.

    Interest Expense Increase
    $60 millionYoY
    FY25

    Total increase in interest expense for the year.

    Other General Expense Increase
    $75 millionYoY
    FY25

    Expected to return to more historic levels.

    Annual Dividend Per Share
    $3.16up 10.5% from $2.86 (FY24)
    FY25

    Recommended for approval at next Board meeting.

    New Stores Opened
    80-100
    FY25

    Focused on geographies with growth opportunities.

    FX Impact on Consolidated Sales
    1%headwind
    FY25

    Expected consolidated headwind due to recent dollar strength.

    FX Impact on Latin America Sales
    mid-teens impact
    FY25

    More pronounced FX impact in this region.

    FX Impact on Consumer Brands Group Sales
    mid-single-digit impact
    FY25

    FX impact on segment sales.

    FX Impact on Performance Coatings Group Sales
    2%impact
    FY25

    FX impact on segment sales.

    Gross Margin Expansion
    less than 2024YoY
    FY25

    Expected to be less than the expansion seen in 2024, with H2 stronger due to expected volume improvements.

    Paint Stores Group Sales Growth
    up or down low single digitsYoY
    H1 FY25

    Expected for the first half, reflecting continued choppiness.

    Paint Stores Group Sales Growth
    up low to mid-single digitsYoY
    H2 FY25

    Expected for the second half, with PSG at or above the high end of this range.

    Residential Repaint Sales Growth
    high single-digitYoY
    H2 FY24

    Momentum experienced in the second half of 2024.

    Core Capital Expenditure
    $700 million
    FY25

    This is the core CapEx, excluding new building spend. It is higher than the long-term model due to growth investments.

    Long-term Capital Expenditure Target
    2%
    long term

    Expected to be in this target long term.

    Capital Expenditure Return
    60%
    ongoing

    Approximately 60% of CapEx has a return.

    Capital programs

    1
    New Headquarters and R&D Centernearing completion
    Period spend: $200 million
    Spent to date: $532 million (FY24)
    Funding: financing (partially reimbursed)

    This $200 million spend in 2025 is for finishing the R&D center and headquarters. The company expects to begin occupying the building in 2025, and this will be the last year for CapEx on this project. $80 million of operating expenses related to the new building are included in 2025 SG&A, weighted to the second half, and $20 million in interest expense is related to its financing.

    Risks & headwinds

    6
    Choppy Demand EnvironmentH1 2025 through 2026

    Expected to continue through H1 2025, some end markets not improving until 2026.

    Mitigation: Targeted investments, focus on share gains, execution on enterprise priorities, controlling costs tightly in non-customer-facing functions.

    Raw Material Cost InflationFY25

    Market basket expected to be up a low single-digit percentage in 2025.

    Mitigation: Incremental 2025 pricing, simplification efforts across supply chain, faster growth in Paint Stores Group (highest gross margin segment).

    Increased Interest ExpenseFY25

    Up $60 million in 2025 ($40 million from debt refinancing, $20 million from new building financing).

    Mitigation: Expects to end the year within the long-term target debt-to-EBITDA leverage ratio of 2.0x to 2.5x.

    Higher Other General ExpensesFY25

    Increase of approximately $75 million in 2025.

    Mitigation: Implied by overall cost control and focus on efficiencies, though not explicitly stated for this specific item.

    Softness in Specific End MarketsFY25, some into 2026

    New residential and commercial completions expected to be soft; general industrial demand to remain soft; auto refinish demand choppy due to lower insurance claims; DIY demand not seeing meaningful improvement.

    Mitigation: Aggressive pursuit of new accounts, share gains, strengthening homebuilder customer relationships, focus on productivity solutions for contractors, new account wins in coil and packaging.

    FX HeadwindFY25

    Approximately 1% consolidated headwind in 2025; mid-teens impact in Latin America; mid-single-digit impact in Consumer Brands; 2% impact in Performance Coatings Group.

    Mitigation: Not explicitly stated, but pricing actions in specific markets can help mitigate.

    What to watch in Q1 FY25

    5

    Paint Stores Group Sales Growth

    H2 2025
    CurrentH1 2025 expected up or down low single digits
    TargetImprovement to up low to mid-single digits in H2 2025

    Why it matters

    PSG is the fastest-growing and most profitable segment; its performance will dictate overall company results and indicate market recovery.

    Our sales guidance, if you will, for the first half would be up or down low single digits and then up low to mid-single digits in the second half with our Paint Stores Group being at or above the high end of those ranges.

    Q&A highlights

    6

    What specific commodities are driving the expected rise in raw material costs for 2025, and what is the impact of tariffs?

    Raw material inflation, expected to be low single-digit, is driven by industrial resins, TiO2, solvent, packaging, and natural gas. Existing tariffs on Asian epoxy imports are a factor, and the company is prepared to implement additional price increases if potential new tariffs materialize.

    “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.”

    asked by Gregory Melich · answered by James Jaye

    2 min read6 chapters

    Detailed Narrative

    01

    2024 Performance Highlights

    Sherwin-Williams concluded 2024 with record results, including a near double-digit adjusted EPS growth to $11.33 and $3.2 billion in cash generation, representing 13.7% of sales. Despite a persistently choppy demand environment, the company focused on targeted investments and share gains, leading to adjusted margin expansion across all three operating segments in Q4. Capital allocation included $2.5 billion returned to shareholders through repurchases and dividends.

    02

    2025 Market Outlook and Headwinds

    Management anticipates the choppy demand environment to persist through H1 2025, with some end markets potentially not improving until 2026. Residential repaint shows modest signs of recovery, but new residential and commercial construction are expected to remain soft due to high mortgage rates and declining multifamily starts. Industrial demand is mixed, with strength in packaging and coil offsetting softness in general industrial. Raw material costs are expected to rise by a low single-digit percentage, and interest expense will increase by $60 million.

    03

    Strategic Focus and Share Gains

    The company plans to remain aggressive in 2025, focusing on helping existing customers grow and pursuing targeted share gains. This includes leveraging investments in sales reps, training, and digital tools, particularly in residential repaint where the company significantly outperformed the market in 2024. Opportunities are also being pursued from competitor disruptions, such as the PPG sale and the exit of Kelly-Moore.

    04

    Cost Management and Investments

    Sherwin-Williams expects SG&A dollars to grow at a more typical low single-digit rate in 2025, including $80 million for new headquarters operating expenses, weighted to the second half⚖️. The company will continue to control costs in non-customer-facing functions and invest in additional architectural capacity at its Statesville factory and in warehouse automation to drive long-term efficiencies and address labor constraints.

    05

    Pricing Strategy and Gross Margin Expansion

    A 5% price increase was implemented in the Paint Stores Group effective January 6, with targeted increases in other segments. Management expects to overcome rising raw material costs and deliver full-year gross margin expansion in 2025. This will be driven by incremental pricing, ongoing supply chain simplification efforts, and the faster growth of the Paint Stores Group, which is the largest and highest gross margin segment.

    06

    Capital Allocation Discipline

    The company maintains a disciplined approach to capital allocation. For 2025, an annual dividend increase of 10.5% to $3.16 per share is recommended, marking the 47th consecutive year of increases. The company also expects to continue opportunistic share repurchases and evaluate strategic acquisitions that align with its growth strategy, while aiming to end the year within its 2.0x to 2.5x net debt-to-adjusted EBITDA target range.

    AI-generated summary of the company’s earnings call. Not investment advice.