Sherwin-Williams (SHW) Q2 2025 Earnings Transcript

Image source: The Motley Fool.

DATE

• Tuesday, July 22, 2025, at 10 a.m. EDT

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Heidi G. Petz
• Senior Vice President — Jim Jaye
• Chief Financial Officer — Al L. Mistysyn

Need a quote from one of our analysts? Email [email protected]

RISKS

• Management reduced adjusted earnings guidance for 2025, citing "softer architectural sales volumes than anticipated" and ongoing "supply chain inefficiencies, due primarily to a reduction in production gallons."
• Paint Stores Group reported "volume down low single digits" in Q2 2025, despite price mix gains, reflecting ongoing demand challenges in key end markets.
• Consumer Brands Group experienced lower-than-expected sales in Q2 2025, with volume, price mix, and FX all down by similar low single-digit percentages. including ongoing softness in North America DIY.
• Performance Coatings Group saw segment operating margin decline due to "increased costs to support sales, higher foreign currency transaction losses, and a prior year gain on a sale of assets, which did not repeat in the quarter."

TAKEAWAYS

• Consolidated Sales: Within guided range, as growth in Paint Stores Group was offset by a decline in Consumer Brands Group and mixed results in Performance Coatings Group year over year.
• Gross Margin: Achieved a twelfth consecutive quarter of year-over-year gross margin expansion as of Q2 2025, supported by price realization and mix shift toward higher-margin products.
• SG&A Expense: Increased 3.8% on an adjusted basis; all incremental growth attributed to Paint Stores Group, driven primarily by new stores, additional field representatives, and targeted marketing spend.
• Paint Stores Group Performance: Reported low single-digit percentage sales growth, with price mix up mid-single digits and volume down low single digits; opened 20 net new stores in Q2 2025 and 38 year-to-date as of Q2 2025.
• Consumer Brands Group Performance: Sales declined, with all components -- volume, price mix, and FX -- down low single digits; adjusted segment margin decreased, driven by lower sales and supply chain inefficiencies.
• Performance Coatings Group Performance: Sales met expectations, with volume, acquisitions, and FX each up low single digits, offset by negative price mix; margin reduction due to cost increases and lack of prior-year asset sale gain.
• Restructuring Initiatives: Full-year 2025 restructuring target more than doubled to $105 million (or $0.32 per share), with $80 million in annual savings expected from restructuring initiatives, with about 20% of restructuring savings realized through gross profit improvements.
• Capital Expenditures: Guidance for 2025 CapEx reduced by $170 million (approximately 20%), to $730 million, including $300 million for new building projects; decision attributed to cash preservation amid soft demand.
• Raw Material Costs: Revised outlook asserts costs will be "flat" for 2025 (from low single-digit increase), with modest deflation in solvents and resins expected in the second half of 2025, but pressure continuing in applicators, packaging, and certain pigments due to tariffs.
• Shareholder Returns: Returned $716 million to shareholders through share repurchases in Q2 2025.

SUMMARY

The Sherwin-Williams Company(SHW -0.04%) management reduced adjusted earnings per share guidance for 2025 due to weaker-than-expected architectural sales volumes and ongoing supply chain inefficiencies. A "softer for longer" demand environment was reaffirmed, with macro indicators and real-time customer sentiment pointing to further turbulence for the remainder of 2025. The company doubled its restructuring target to $105 million and is accelerating related cost actions. Annualized savings from restructuring initiatives are expected to begin impacting results in the second half of 2025 and into 2026. Paint Stores Group outperformed industry volume trends in new residential and commercial segments. even as overall group volume declined, indicating market share gains. Capital expenditure plans were lowered for 2025 while maintaining a focus on growth investments in Paint Stores Group and continued discipline in general and administrative spending.

• CEO Petz said, "believe we are at a major inflection point in the North American architectural coatings industry, and we refuse to miss this once-in-a-career opportunity that is unfolding before us."
• Management indicated that competitor actions include a recent "high single-digit minimum price increase in the heart of the paint selling season," as described in the Q2 2025 earnings call and significant reductions in customer-facing roles, which may provide competitive advantages for Sherwin-Williams.
• About half of 2025 SG&A expenditure related to new building transition is expected to be non-repeatable, according to CFO Mistysyn.
• Administrative SG&A, excluding restructuring and building costs, was "down by a high single-digit percentage" due to ongoing cost controls.
• Performance Coatings Group's regional segment growth in Europe, Asia, and Latin America was offset by lower sales in North America. with ongoing uncertainty attributed to steel tariffs.

INDUSTRY GLOSSARY

• Architectural Coatings: Paints and coatings applied to stationary structures such as residential and commercial buildings, as opposed to industrial or automotive uses.
• Price Mix: Shift in revenue due to changes in product pricing and the relative sales of higher- or lower-margin products.
• CapEx: Capital expenditures; funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, or equipment.
• Restructuring Initiatives: Actions designed to reduce costs, streamline operations, and adapt to market changes, typically involving facility consolidations, workforce reductions, or organizational changes.
• Production Gallons: Total volume of goods produced within the company's supply chain, a key driver of internal cost efficiency in paint manufacturing.
• DIY: Do-It-Yourself; retail customer segment purchasing products for personal use rather than professional application.

Full Conference Call Transcript

Jim Jaye: Thank you, and good morning to everyone. The Sherwin-Williams Company continued to execute our strategy in a demand environment that remained choppy as we expected. We also continued to take aggressive and deliberate operational and commercial actions in response to, number one, a softer for longer demand environment, and number two, a rapidly changing and opportune competitive environment, which we are taking advantage of by accelerating our strategic intensity in the short term to favor The Sherwin-Williams Company over the long term. On a year-over-year basis, consolidated sales were within our guided range, with growth in Paint Stores Group offset by softness in our other two segments. Gross margin and gross profit dollars expanded.

It was the twelfth quarter in a row of year-over-year gross margin expansion. SG&A in the quarter increased for the reasons to Despite the higher level in the quarter, we remain on track for our original guidance of a low single-digit percentage increase in SG&A for the full year. The decrease in adjusted earnings per share in the quarter reflects the anticipated higher non-operating costs year-over-year, sooner than expected new building expenses, and targeted growth investments we continue to make. From a capital allocation perspective, we continue to execute our disciplined strategy, returning $716 million to shareholders through share repurchases.

Looking ahead, the macroeconomic indicators we track, along with real-time customer sentiment, point to continued turbulence and a slowdown in demand across various segments, businesses, and regions over the remainder of 2025. As a result, we are reducing our adjusted earnings guidance for the full year. This is based on softer architectural sales volumes than anticipated coming into 2025 and supply chain inefficiencies, due primarily to a reduction in production gallons within our global supply chain, partially offset by a reduction in SG&A spending. Despite these softening market conditions, we remain committed to delivering above-market growth. Let me now turn it over to Heidi, who will provide some additional color before moving on to our outlook and your questions.

Heidi Petz: Thank you, Jim, and good morning to everyone. I want to begin by acknowledging that this was not a perfect quarter. I also want to remind you that we do not run the company to achieve perfect quarters. We run the company with a disciplined strategy to deliver significant long-term outperformance of the market. And that is exactly what we are doing, especially in this opportune competitive environment. More specifically, I want to address head-on some of the larger dynamics and actions that played out in the quarter and give you reassurance and, importantly, confidence in what we are doing and why. First, we began the year by telling you that we were operating in a very choppy demand environment.

As a result, we also told you we would be responding proactively and aggressively on the cost side, including guiding to approximately $50 million or $0.15 per share in restructuring initiatives for the year. As the quarter progressed, demand momentum remained stalled and in some areas deteriorated further, notably in new residential, DIY, and coil coatings end markets. We told you we had additional levers available to us, and as you would expect, we did not wait to pull those levers. And we are pulling other levers now. Specifically, we are going broader and deeper in our restructuring initiatives and more than doubling our full-year target to $105 million or $0.32 per share.

We expect these actions to result in savings of approximately $80 million on an annual basis. Second, building a new global headquarters into our RD center is not an exact science. It is not always possible to predict timing with precision on a multiyear project of this scale. Frankly, our construction partners and teams made more progress on the project in the quarter than we expected. That is a good thing. We want to begin operating in our new facilities sooner rather than later. As a result, we incurred costs in the quarter that we did not expect to see until the second half of the year.

Third, one of the many advantages of our direct distribution model is that we have several thousand team members in our stores and in the field that are partnering with our contractors every single day, providing us with real-time market intelligence. Specifically, we have learned of recent and significant reductions in customer-facing positions and assets among our largest architectural competitors. We have also learned of a competitor implementing a high single-digit minimum price increase in the heart of the paint selling season, which can be highly disruptive to customers. We believe these competitive actions are signals that our strategy is working.

We continue to believe we are at a major inflection point in the North American architectural coatings industry, and we refuse to miss this once-in-a-career opportunity that is unfolding before us. This is why we will continue investing aggressively in Paint Stores Group with customer-facing growth initiatives in the quarter and throughout the second half of 2025, while maintaining discipline around G&A costs. We are highly confident that these actions will drive significant above-market growth when the demand environment improves. Professional painting contractors are looking for predictability and reliability. They need partners that are committed to providing solutions that drive their success. That is what The Sherwin-Williams Company provides, especially in the heart of the painting season.

Let me now provide some color on our second-quarter segment performance. In the interest of time, I will keep my comments brief in order to focus on our full-year outlook and provide time for your questions. Sales in Paint Stores Group increased by a low single-digit percentage, with price mix up by mid-single digits and volume down low single digits. As expected, the price mix component was slightly below the level of our first quarter, which included the residual impact of our February 2024 increase. Protective and marine increased by high single digits for the fourth straight quarter. Residential repaint sales again grew by mid-single digits, significantly outpacing the market.

We also outperformed in new residential, where sales increased by low single digits in a quarter when single-family completions were down by double digits. Similarly, commercial sales grew low single digits in a quarter with multifamily completions down mid-teens. Property maintenance and DIY sales decreased. Even with the heightened growth investments I mentioned, segment profit increased and segment margin decreased only slightly. We opened twenty net new stores in the quarter, and thirty-eight year to date, which is ahead of last year's pace. Consumer Brands Group sales were below expectations, with volume, price mix, and FX all down by similar low single-digit percentages.

Sales reflect continued softness in North America DIY and unfavorable FX in Latin America, partially offset by growth in Europe. Segment SG&A decreased by low single digits with continued discipline in controlling general and administrative expenses while maintaining investments to support our customers' sales. Adjusted segment margin decreased primarily due to the lower sales and impact of lower production volumes in our supply chain. Performance Coatings Group sales were in line with expectations. Volume, acquisitions, and FX were all up by low single-digit percentages, but slightly offset by unfavorable price mix. Regionally, segment growth in Europe, Asia, and Latin America was offset by a decrease in North America.

From a division perspective, packaging continued to be a bright spot with double-digit growth inclusive of an acquisition. Oil sales were up low single digits, also inclusive of an acquisition. But the outlook for this business has become murkier with uncertainty related to steel tariffs. Industrial wood and general industrial sales were down as expected. Auto refinish also remained under pressure and was down slightly, although the industry is beginning to annualize lower insurance claims. We are encouraged by meaningful new account wins in this business, which are currently being more than offset by softness in core accounts driven by lower insurance claims.

PCG segment profit and margin decreased primarily due to increased costs to support sales, higher foreign currency transaction losses, and a prior year gain on a sale of assets, which did not repeat in the quarter. Severance and other restructuring expenses also reduced segment margin by fifty basis points. And before moving on to our outlook, I would also like to note the continued good work in our administrative function to control costs. Excluding the corporate portion of restructuring costs and the new building costs, administrative SG&A was down by a high single-digit percentage in the quarter.

As we enter the second half of the year, it is clear we continue to be in a softer for longer demand environment with further deterioration possible. Our slide deck describes several of the demand indicators we track. None of these are particularly encouraging at this time. Customer sentiment reflects continued uncertainty and hesitancy to invest. And consumer confidence remains mixed. To be clear, we expect no help from the market over the remainder of the year. However, we continue to focus our efforts on market share gains across each of our businesses and segments. As a result, we are revising our full-year sales expectations downward while maintaining our performance coating segment sales guidance.

We are only minimally adjusting downward paint stores segment sales guidance as the January price increase realization is not enough to offset the adjustment downward in full-year volume. The lower architectural sales volumes are requiring a reduction in our full-year production gallons in our supply chain, which is also pressuring bottom-line results. Specific third-quarter and full-year ranges are provided in our slide deck. Accordingly, we are also revising our diluted earnings per share guidance downwards. On a slightly more positive note, the softer demand is resulting in a more favorable commodity backdrop. We now expect slight deflation of our raw material back in the back half of the year resulting in flattish full-year costs.

While welcome, these benefits are not enough to fully offset the impact of the softer demand environment. Tariffs also remain a variable in this outlook. While we cannot control the demand environment, what we can control is our commitment to a winning strategy, a team that knows how to pivot in uncertain times, and our ability to execute to help our customers be successful. You have seen evidence of that by the actions we have taken year to date. We will continue to act with discipline and urgency during the remainder of the year. Here is what you can expect to see. We will continue to focus on differentiated solutions that help our customers become more productive and more profitable.

We will continue to invest in growth initiatives in a time of unprecedented competitive opportunity in our industry. We will fund these growth investments by continuing to focus relentlessly on controlling general and administrative spending. And we expect SG&A to be in our low single-digit target range for the year. We are going deeper and broader in our restructuring initiative. As I mentioned earlier, we are doubling our initial target. We are reducing our CapEx spending for the year by $170 million or approximately 20%. Total CapEx moves downward from $900 million to $730 million inclusive of $300 million for our building project. We are accelerating completion and transition to our new buildings as quickly as possible.

As we speak to begin getting a return on this project, more activity in the current year will result in a pull forward of certain transition in operating expenses. We now estimate total investment in the year to be $115 million inclusive of $95 million of SG&A and $20 million of interest expense with approximately 50% of SG&A expenses non-repeatable. We will continue to opportunistically repurchase our shares and pursue targeted acquisitions that accelerate our strategy. We expect the Souvenil acquisition to close before the end of the year. And we will continue to focus on our enterprise priorities. Talent continues to drive us. Simplification and digitization will make us more productive in our supply chain more responsive.

Profitable above-market growth over the long term remains our North Star. Let me conclude by reminding you that because of our success by design mindset and deeply experienced team, we are highly confident that our current course is the right one. While others in this space are abandoning their strategies and are unclear of their direction, we see this as a time for certainty and stability. And an opportunity to demonstrate what makes The Sherwin-Williams Company so unique. We will continue to navigate near-term pressures appropriately and with the discipline that you have come to expect from us. And we will be aggressive and targeted as we expand our competitive moat in the short and long term.

You should fully expect that we will extend our strong track record of delivering for our customers and ultimately for our shareholders. This concludes our prepared remarks. With that, I would like to thank you for joining us this morning, and we will be happy to take your questions.

Operator: Thank you. At this time, we will be conducting our question and answer session. Pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from David Begleiter with Deutsche Bank. Your line is live.

David Begleiter: Thank you. Good morning. Heidi, you mentioned potential deterioration in the back half of the year in demand. What gives you that caution and if it does occur, where do we expect to see that deterioration?

Heidi Petz: Yeah. Good morning, David. There are really three key areas. I do not know that anyone is immune in total here. There is so much volatility. But I would point to new residential becoming, you know, continuing to be choppier, if not a bit more challenging. Seeing a bit of evidence in coil as well. And as you see, you know, some good wins there, it continues to be a challenging environment, especially as it relates to the tariffs and the uncertainty around that. And I would also point to the DIY market. You know, we would love to get back to some of the historical highs. This continues to be choppier for longer.

So we are staying very close to this relative to not only our stores but our strategic partners. I will point to, you know, Lowe's, Menards, and others. I would tell you that we have never been in a better position of strength with some of these partnerships. So, David, those are the three areas that we are continuing to stay focused on.

David Begleiter: Thank you, David.

Operator: Thank you. Our next question is coming from Vincent Andrews with Morgan Stanley. Your line is live.

Vincent Andrews: Thank you and good morning everyone. Heidi, thank you in particular for the proactive comments on the incremental competitive dynamics. I am wondering if you can just help us if we think about, let us just say, over the next twelve months, in PSG, which of the six subsegments do you think these incremental competitive dynamics will lead to the most share in? I noticed in the quarter it looked like there was some improvement in commercial versus the first quarter, but just curious what this opportunity presents for the subsegments going forward.

Heidi Petz: Well, Vincent, I would be remiss if I did not say there is opportunity in all segments. But let me start with the segments that are going to obviously just take a bit longer. Let me start there because we are still being aggressive in terms of conversion market share gains on the segments you mentioned. But relative to the competitors, the competitive environment, we would point largely to commercial, new residential, and property maintenance given where they have largely been focused. Now those projects tend to be longer, bigger, multiyear, and so some of that is just to happen as a function of project timing.

It is not stopping us from being aggressive and getting in front of these customers now. And so some of those wins that you are seeing are a result of short-term market share gains. So we are not waiting for a project timing. And then if I take you to the other segments, I think what you are seeing already in our results point to residential repaint. We continue to be up mid-single digit in a flat to down market, which is one hundred percent driven by market share gain. And as you kind of go around the horn, you know, we have got the challenges in commercial, new residential.

Those are really the biggest opportunities in the short and long term.

Al Mistysyn: Hey, Vincent. This is Al Mistysyn. I would also like to highlight it is not that we talk about the accelerated that allow us to grow market share at a faster rate, and I could point to going back to 2019, we have over four hundred more stores. We have over five hundred more reps. And our six-year compounded average growth rate, that includes our forecast for 2025, is up low single digits in volume. That compares to an industry volume, not our reporting numbers, but ACA and others, that has been down consistently year over year since 2020.

So we have a lot of confidence that the investments we are making, we are going to get a return on them, and it is across each of the pro architectural segments. Because we have more people on the street, relationship building with our customers, and we are very when things get tough, we do not stray away from our strategy. We stick to our strategy to grow market share.

Heidi Petz: And, Vincent, if you hear excitement in our voice, that would be a reflection of how we are feeling right now. The confidence in what we are doing to take advantage of some of this. We framed this as a once-in-a-career opportunity because it is just that. And so there is confidence and excitement, and we are committed to moving forward.

Vincent Andrews: Thank you, Vincent.

Operator: Thank you. Our next question is coming from John McNulty with BMO Capital Markets. Your line is live.

John McNulty: Yeah. Thanks for taking my question. Maybe just a little more detail on the SG&A spend. So it sounds like you have got some big opportunities here. I guess, can we should we be thinking about that as primarily headcount ads? Should we be thinking about maybe the store count creeping higher than what you have targeted? And it also seems like SG&A in the back half of the year, if you we kind of adjust for the corporate headquarter move, like, it actually seems like it may not be as robust in the back half of the year. So is this I guess, how should we be thinking about that?

Al Mistysyn: Yeah, John. Let me start with the building. Just to get that off the table. You are right. We had originally estimated a hundred million, eighty million of that was SG&A all in the second half. We did have some cost pull forward and were quicker and we took those. Now I expect our new building costs on SG&A to be about, you know, less little less than sixty million in our second half compared to the eighty. I think when you look at the investments we are making in stores, we are still are going to open eighty to a hundred stores this year. Likely, that will continue to next year.

So it is really targeted rep ads in very specific markets where we believe we can get a bigger return and a quicker return, quite honestly. For those investments. When you look at our second quarter and I will use adjusted, was up, you know, a little over a hundred and eight million. New BOF cost of about forty were in that. So our SG&A in quarter was up three point eight percent. All of it was incremental an increase in Paint Stores Group.

There is some timing in advertising and marketing in there to support some in quarter promotions, but it is primarily new stores, which is over ninety-one stores and over a hundred and eight reps additional reps in the field that is driving those increases. You look at our other segments. Consumer was down. PCG was up slightly. Part mainly because of acquisitions. And then admin was down as Heidi mentioned, a high single-digit percentage excluding the new BOS. So in the short term, we are pulling levers to manage through this tough environment. You saw the restructuring charges are higher than we have originally forecasted. That will carry into our second half. With continue ads and paint storage group.

But I would tell you, we are going to have a lot of discipline around G&A, and we are going to realize the benefits of the restructuring charges we have already put in place. So I expect our second half SG&A to be up only low single digits and, you know, one to two percent range, which is better than what we had planned coming into the year.

John McNulty: Thank you, John.

Operator: Thank you. Our next question is coming from Jeff Zekauskas with JPMorgan. Your line is live.

Jeff Zekauskas: Thanks very much. Heidi, you have talked about there being an inflection point for the stores business. So once in a career opportunity, following the divestiture is that because of the opportunities of the PPG architectural business. Or is it because we are in a higher interest rate environment and so demand increase in the future. That is what is it about the current moment that makes it so important? And then secondly, in the consumer brands group, your stores, decreased from three twenty-five to three twelve. What is that about? And why are prices down in consumer brands?

Heidi Petz: Great. Well, good morning, Jeff. Let me start with your first question, and I think it is a great question. It starts and ends with a differentiated strategy that we have been working on for decades. And so while this is a unique moment in the industry, it is also a result of a strong and very steadfast commitment to what we believe is important to showing up for our customers every single day. Then layer into that certainly, what is happening from a macro standpoint, the uncertainties, some of the turbulence. And there has been a lot of, I would call it, competitive turbulence that I believe is playing to our favor because of our stability.

Because of our predictability. When I am out with customers, mentioned this on our last call. I just was out with another contractor last week and heard the very same sentiment, which is who would have thought that simply doing what you say you will do in an environment where there is so much volatility and uncertainty, you guys show up, and you are focused on our success. So I think in this environment, the backdrop of we have been stable for decades.

You combine that with the macro and some of the competitive choppiness, and then, yes, there is an opportunity there to continue to focus on the fundamental relative to market share, new business wins, making sure that we are securing the best possible market position. It is a unique point in time, and we are not going to you never let a crisis go to waste. We are not going to let this environment go to waste. I mean, I will pivot to your question on the CVG side. Maybe, Jim, I will start with you.

Jim Jaye: Good morning, Jeff. This is Jim. Yeah. On CVG, we did have the store closures as you pointed out. Those were really transitions from company-owned stores to dedicated dealers. So the channel continues to evolve. Down in Brazil, and that was the pivot that we made down there. Your question around the price and consumer brand, remind you, it is price mix. So there is also a mix element in there. You saw that the Europe piece was higher this year than the North America piece. The Latin America piece. There is a little bit of mix impact there and maybe a little bit of price mix in Latin America. Thank you for the questions, Jeff.

Operator: Thank you. Our next question is coming from Christopher Parkinson with Wolfe Research. Your line is live.

Christopher Parkinson: Thank you so much for taking my questions. Heidi, when we took a look at growth spend, one of your main competitors has allegedly been kind of, you know, laying off customers, and obviously some others have been facing a lot of challenges. Has that changed your calculus at all on how you are thinking about allocating growth spends between, you know, PSG and consumer brands. Is there anything there? Is that kind of just been the status quo?

Heidi Petz: Well, Chris, let me start with you said laying off customers. I think you meant laying off employees, but we would not be able to Excuse me. Yes. So in that environment, I think I am going to ask Al to jump in on a few of these items. I think there are a few things. There are unique dynamics here. Let me just take you to the view of a contractor. In the middle of the paint selling season. You know, the way that we approach things like pricing, the way that we approach conversations relative to tools to help our contractors be more productive. You know, we are starting those conversations well ahead of the paint season.

But we want to make sure that we are honoring that in the middle of that cycle. So I think you are seeing some short-term pressures where customers and contractors are confused. We are seeing some layoff relative to some of our competitors. And yet you should expect that we are going to be extremely aggressive relative to customer acquisition in that environment.

Al Mistysyn: Yeah. Chris, the only thing I would add to that is, you know, we with consumer brands and the second half outlook on sales be down to mid to high single digits. We have to manage our expenses with the outlook. But, again, we have a strategy. We are not going to cut our way to health, and we are not going to cut our way to hurt long-term growth. But we are looking at opportunities there.

Within our performance coatings group, I think one of the key things that they have been doing all along and they have done a really nice job, is with demand environment being softer for longer, and what we are talking around the fifth year. They have done a really nice job controlling their costs and their field expenses without taking away from the customer differentiating things that we do. Tech service reps and how we approach new account activity. They have been laser-focused on accelerating new account activities so that as demand does improve and it will improve, GI, industrial wood, auto refinish, they all will improve. We will get more than our fair share of that market growth.

Christopher Parkinson: Thanks, Chris.

Operator: Thank you. Our next question is coming from Arun Viswanathan with RBC Capital Markets. Your line is live.

Arun Viswanathan: Great. Yeah. Thanks for taking my question. Congrats on the progress here. I guess, I just wanted to maybe if you could frame us on how to think about your future growth algorithm. So it sounds like you are leaning into a lot of investments that will help you drive continued above-market growth. Should we also kind of take away that, you know, you have made some comments about, softer for longer. So you know, the housing market maybe will should it settle into maybe a one to three percent growth rate and you could be maybe two times that or should we think about your long-term volume opportunity?

And do these investments kind of increase it from what it was in the past? Maybe was one and a half to two times in the past. Now we are squarely in the two to two and a half times range. Is that is that kind of the strategy and objective behind really leaning into these investments during this opportune time? Thanks.

Al Mistysyn: Yeah, Arun. I you know, I would say we have been here before and go back to 2007, 2008, 2009. And we continue to invest when the industry lost thirty percent of its paint volume. And although we are in a different environment, what I would say is because demand and has been pent up for longer with existing home sales down, now we are seeing a little bit of softness in new residential. So with the market opportunity is very similar. And coming out of that environment and look at 2010 to 2020, we grew Paint Stores Group sales low double-digit percentage.

And as we talk about what our expectations are for growth and that algorithm coming out of, you know, we get interest rates to start moderating. We get affordability of homes start moderating. And the position we have relative to our competitors, yeah, our expectation is higher that instead of one and a half to two, we would grow two and a half to three in some cases with minimal high single-digit growth. So that we have set the bar very high for our paint storage groups. And when we see demand start turning, the expectations are even going to be stronger than.

Arun Viswanathan: Thank you, Arun.

Operator: Thank you. Our next question is coming from Greg Melich with Evercore. Your line is live.

Greg Melich: Hi. Thanks. I would love to follow-up on the dynamics of volume and gross margins. So clearly the weakness continuing in architectural I guess, what would gross margins had been if we even managed to have volume be flat or up the quarter. Can we think of, you know, that being forty, fifty, sixty bps of relative pain?

Al Mistysyn: Yeah. I think, you know, you are you are probably because of the way it flows out. So think about paint storage group, was down low single digit consumer volumes were down more than that. You have a little bit of mix. So I would be hesitant to go all the way to sixty basis points but what you did see in the quarter to drive the incremental gross margin, which is we talked about in our opening remarks, up sixty basis points in a tough volume environment. Twelfth consecutive quarter due to the price increase effectiveness within paint stores, Paint stores is growing faster than the other segments. Which also at a higher margin.

So that helps our gross margin. But with supply chain efficiencies due to the lower production volumes because we need to manage our inventories tightly. We need to manage our inventories with the our production volumes, with our sales volume, and you will see us do that through the second half. But that is also a drag. On gross margin in the quarter.

Operator: Thank you. Our next line is coming from John with Mizuho. Your line is up.

John: Thank you. Where are the CapEx reductions coming from? And think the new accelerated depreciation is retroactive. Back to the start of the year. Is there any meaningful benefit coming here from cash taxes?

Al Mistysyn: Yeah, John. The know, so we just to level set, we took our CapEx down from nine hundred to seven hundred and thirty with the idea that we are going to continue to completing our Statesville architectural capacity project. We are going to continue to work through our warehouse automation and even coil. We have a coil capacity expansion in process because of the confidence we have in our long-term growth. I think what we have had to do is slow down spending in some of our other areas that yeah, they need to be done. We are going to do them. They just got pushed back. So we are not canceling things.

We are just moving things back as we reset cash with the demand environment.

John: Thank you, John.

Operator: Thank you. Our next question is coming from Patrick Cunningham with Citi. Your line is live.

Patrick Cunningham: Hi. Good morning. Thanks for taking my question. You know, Resideo repaint continues to have strong above-market growth. I think there is a lot of debate on the direction of this market. Can you comment on how underlying backlogs and activity, you know, evolved throughout the balance of the quarter and into July. Thank you.

Heidi Petz: Yeah. Good morning, Patrick. The sentiment among these contractors and, obviously, there is some variability relative to the size of these risk-free paint contractors. But by and large, they would characterize that backlogs are stable and that there is work to be done. You know, we are seeing some marginal increase in bid activity. But the caveat here is that, you know, as you think about some of these projects, project size could be smaller. But we are working hard with these contractors to help them know, work, look leads, help them travel, and find new opportunities. Launching products to help them have more surface area once they are in a home and have more activity to bid on.

But by and large, we have gotten to a point of a bit of stability, but we need more volume here. I think we would be remiss to say that we are happy with where the market is. We are happy that we continue to take share in this environment, but when the market recovers, we are going to absolutely be best positioned given the market share gains that we are seeing in the down cycle.

Patrick Cunningham: Thank you, Patrick.

Operator: Thank you. Our next question is coming from Ghansham Panjabi with Baird. Your line is live.

Ghansham Panjabi: Hey, guys. Good morning. Heidi, just given the current backdrop that you summarized in slide eight, you know, it is your base case at this point that the volume weakness you are seeing at an industry level is likely to spill over into at least the first part of 2026. And then that on the flip side of that, as you think about your PSG verticals, which do you think would be the quickest to show any signs of improvement if in fact, you know, long-duration interest rates crack lower?

Heidi Petz: Well, I think it starts with, you know, as you look by segment, obviously, there is devil's in the details here. Resideo briefing, we have talked a bit about. I do want to hit on, you know, as you think about our other segments here, commercial is a really good example where the backlog of projects continues to be a challenge. I am out with some of our existing and some new large commercial contractors.

And the conversation is changing a bit as they are looking for true partners here that I would say now more than ever, that we can help them, you know, look at their growth plans, bid activity, becoming even more productive on job sites, that would be another big opportunity. As we talk about multifamily completions of the downs double digits year over year. We continue to be up low single digits to taking share within that segment. If I point to property maintenance, property management, interest rates still continue to be a challenge here. Putting a lot of them on pause. And we are continuing to stay really focused with these customers and these contractors.

The overage of supply occupancy, preservation efforts, or causing a bit of a reduction, but we are continuing to focus on share gains. So if you want to Yeah. Gotcha. I think, you know, I would say when you look at first half 2026, clearly, we are not going to guide to that. But, you know, we run our forecasting models. And I would just say our line of sight today in this dynamic rapidly changing environment is less transparent maybe in a stable environment. And that seems obvious, but, you know, early indications would say that there is a continuation.

And that is why you know, we are we are we are paid to influence results, and that is why we are taking action now with additional investments within Paint Stores Group to influence results in the first half. We do not have to be we are not we do not have to be satisfied and are not satisfied in the demand environment. So we are trying to do things about that to do better. So you can expect us to continue doing that.

Ghansham Panjabi: Thank you, Gotcha.

Operator: Thank you. Our next question is coming from Michael Sison with Wells Fargo. Your line is live.

Michael Sison: Hey. Good morning. I wanted to visualize the market share gains a little bit better in paint stores group. Your volumes were down low single digits in 2Q. What do you think industry volumes were down in 2Q? And what do you think the outlook is for the full year? And then, Heidi, maybe you know, longer term, what mortgage rate do you think we need to get to for industry volumes to turn the corner? I mean, with six percent help, five percent, maybe there is some historical correlation you can walk us through.

Jim Jaye: Yeah. Mike, it is Jim. I think I will start, maybe turn it to Al or Heidi for other comments. But as Heidi mentioned in her opening, if you look in the second quarter, you see that you know, our new res business was up slightly. We have seen completions down in the quarter very meaningfully. For us to be up, I think, tells you we have got to be, you know, outperforming our competitors. Same thing on commercial where you saw commercial up slightly in the quarter, but you saw multifamily completions were down in the teens during the quarter. So I think that bodes very well for the share gains, and we expect that trajectory to continue.

Heidi Petz: And, Mike, on your other question here relative to what would be the trigger I think it is a mix of a few variables. Rates is obviously a huge piece of data. As I am spending time with a lot of these builders, while they are anticipating a rate reduction, anything south of six is going to be seen as a positive. I would tell you that the general sentiment is while that is important, of equal importance is consumer confidence and affordability. So I think it is somewhere in the mix of those three things coming together that we are absolutely staying laser-focused on.

Michael Sison: Thanks, Mike.

Operator: Thank you. Our next question is coming from Aleksey Yefremov with KeyBanc. Your line is live.

Aleksey Yefremov: Good morning. I wanted to ask about new construction markets. Within PHD. I mean, you just mentioned a performance in new commercial and to keep outperforming in new residential as well. Do you expect to stay at roughly these levels of sales when we send them to the second half, or could there be more pronounced deterioration sort of in line with the completions?

Al Mistysyn: No. I think, Aleksey, you know, what we have talked about, you know, with, you know, coming out of our first quarter call, the commercial property maintenance and property maintenance is already under pressure because of CapEx projects and the higher interest rates. You know, we really do not expect to see and in slight property maintenance. It is just it is bouncing along. We talked about new res in our first quarter call. The same way, just kind of bouncing around along up or down a little bit. Clearly with foot traffic.

And some of the reports you have seen, it has gotten softer, and that is what is driving our second half low single-digit volume decline in paint stores group offset by higher price. So it just feels like we are kind of in a not we are not getting better. We are not getting worse in a number of these segments.

Aleksey Yefremov: Thank you, Aleksey.

Operator: Thank you. Our next question is coming from Josh Spector with UBS. Your line is live.

Josh Spector: Hey. Good morning. I just had a few quick follow-ups just probably mostly for Al. First on an SG&A, you know, when you are talking about low single-digit inflation, is that the adjusted basis that you talk about? So 2Q was three point eight percent ex the items. Is that the right basis to compare against? Second, you talk about the one-time impacts in SG&A, you know, how much do we get back in next year maybe net of another quarter of the new building? And then third, the higher cost to bring the inventory down or the production overhang. Are you able to size the second half EBIT impact from that? Thanks.

Al Mistysyn: Yeah, Josh, the three point eight percent is adjusted SG&A less the impact of the new building. On the second half outlook, we talk about low single-digit SG&A that has the building into it. Think of the building as you know, you are right. Well, if we are going to have, you know, essentially two quarters of the new building primarily they are pretty evenly spread on SG&A between the third and fourth quarter, but you know, that adds about you about one and a half percent to our SG&A in the second half, which tells you that we are going to control our other segments in particular our admin segment.

And then you know, when you look at our full-year EPS guide, part of the reduction part of that fifty-cent reduction was due to lowering our production volumes in the in really for the year, lowering our production volumes for the year a low single-digit percentage to match up with that reduced architectural sales volume and when I look at our gross profit reduction, for the year, think of it eighty twenty. Eighty percent of it is going to be sales volumes, lower, partially offset by the better price effectiveness in paint stores group. And the rest of it is the unfavorable impact on our global supply chain.

Josh Spector: Thank you, Josh.

Operator: Thank you. Our next question is coming from Chuck Cerankosky with Northcoast Research. Your line is live.

Chuck Cerankosky: Good morning, everyone. Could you talk about what role product pricing plays as Sherwin's goes after market share and volume growth across the various end markets, please?

Al Mistysyn: Yeah. Chuck, I think we have confidence in the value proposition that we provide our customers in. So we do not approach new account activity on price alone. I think if you looked at the surveys, third-party surveys, not our surveys, painting contractors' price, is probably fourth or fifth on the list of importance when you talk about consistent quality, service, knowledge.

You know, our sales reps and our store employees, we are very knowledgeable and can help them not only on getting through projects, but also help helping them utilize the tools that we have in our Pro Plus app to better run their business so that they can be more efficient at that and spend more time painting, which is where they make all their money. And really the differentiated solutions that Heidi talks about is really all about how do we help them make more money. And that is the driving factor behind our new account activity.

And I could say that across all our PCG businesses, all our segments within Paint Stores Group, and within our consumer brands group.

Chuck Cerankosky: Thank you, Chuck.

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

Kevin McCarthy: Yes. Good morning, and thank you very much. Heidi, I think you commented that you doubled the size of your previously announced restructuring program. Wondering if you could elaborate on the magnitude and flow through and sources of the savings there. For example, you know, how much was achieved in the second quarter and would you expect those savings to accelerate as we progress through the back half of the year?

Heidi Petz: Yes, Kevin. The obviously, the rationale of equal importance here. And, you know, as we did expect a choppy environment coming into 2025, what we did not expect was deterioration in some end markets. And so the absolute right thing to do is a function of our discipline. Was to go deeper on some of those costs on the of Al, give you a little bit more color into some of the areas.

Al Mistysyn: Yeah, Kevin. I think when you look at the hundred and five about twenty percent of that is in gross profit. You know, those are previously announced plant consolidations that will take a little longer to see the savings flow through the P&L, but you can expect, you know, as we get later this year and into the first half of next year, we will start seeing the benefit of those. Obviously, the biggest increase is on SG&A and we do expect to see annually about eighty million in savings related to the restructuring activities that we have completed thus far.

I think you will start seeing a good portion of that in our second half, and it will annualize into 2026. And we will continue to look for opportunities and levers as we monitor the demand environment.

Heidi Petz: So if you want if it is six. We talk about our six enterprise priorities very consistently with our four thousand global employees. One of them, as you remember, is around simplification. And so where we have laid out road maps to, you know, everything from raw material to asset optimization. You are what you are seeing here is that, in effect and essentially pulled forward. So more lot more work to be done in but good progress spread by the team.

Kevin McCarthy: Thank you, Kevin.

Operator: Thank you. Our next question is coming from Duffy Fischer with Goldman Sachs. Your line is live.

Duffy Fischer: Yeah. Good morning, guys. Just question on the transfer accounting. Historically, you could get some wonky numbers when volumes differed from what you expected. I think you changed the way you accounted for that from CSM into PSG a couple years back, but this is the first time that we are going to stress that with a meaningful volume change. Would you expect the pain from the lower operating rates to be evenly distributed between the two segments or you know, might we get kind of a disproportionate burden in CSB?

Al Mistysyn: Yeah. Duffy, you are going to get, in the short term, meaning over this last two quarters of the year, is that all that deficit, if you will, because of the lower production gallons will stay in our consumer brands group, and then we will true up what the costs are in the when we do the standards in January. And some of that will flow through paint storage group. Some of will find its way in our performance coatings group. Because part of what we are trying to do Duffy, is know, maintain the staffing we have at our factories and distribution centers similar to what we have done in the past with lower volume.

Like, when we were having trouble getting raw materials through our factories and product through our distribution centers, maintaining those headcount because it is hard to once you lose them, it is very hard to get them back. So we are trying to do everything we can and trying to be creative to do different things to keep as many people as we can.

Duffy Fischer: Thank you, Duffy.

Operator: Thank you. Our next question is coming from Mike Harrison with Seaport Research Partners. Your line is live.

Mike Harrison: Hi. Good morning. Couple of questions around raw materials and pricing. First of all, in terms of the deflation that you are expecting to see in the second half, can you give a little bit more detail on what specific raw material baskets might be improving? Are there any materials that you are kind of keeping an eye on? And then on the pricing front, I am just curious if raws are coming lower and your competitors are worried about losing more market share. Are you worried about competitors cutting price?

I know you just said pricing maybe is lower on the list of considerations, but is that something that could be a pricing dynamic that we need to keep in mind in the second half. Thank you.

Jim Jaye: Yeah, Mike. Sure. I will take the Ross question. So, you know, as we said earlier in the year, our initial guidance for the year was to be up low single digits and now we are changing it changing that down to flat. We do expect to see some modest deflation in the back half of the year. I would say that is more around the petrochemical parts of our basket. Certainly, around solvents, we are seeing a little bit of relief. Some of the resins as well. Where we are seeing pressure is around applicators, packaging, certain pigments, not so much TI too, but other pigments and extenders, that is really being driven by the tariffs.

So when you shake it all out, Mike, you know, a little bit higher in the first half, a little bit lower in the back half, we come out with a flat for the year. I think on the pricing, you know, see if Heidi or Al want to add to this, but as Heidi mentioned, we are seeing competitors actually do the opposite. We saw competitors with in the in the quarter, you know, a high single-digit price increase announced part of the paint selling season, which, as you know, it can be highly disruptive. So I think we are going to maintain our discipline.

We do not you know, necessarily the game we play, not the game, but the way that we operate certainly is on the value that we deliver. We price for that appropriately. Heidi, I do not know if you want to add that.

Heidi Petz: And you said it really well. If this was maybe at the beginning of some of the earlier business that was for sale competitively, and we focused on quality sales. We want do not want all the sales. We want quality sales. So when we look at price volume, you should expect that same discipline in the back half and going forward.

Mike Harrison: Thanks, Mike.

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

Garik Shmois: Hi. Thank you. You called out unfavorable mix in Performance Coatings. As the main impact on pricing in the quarter. I was wondering if you can mix expand on that a little bit more detail. And was there any mix impacts in consumer brands as well driving the lower price?

Al Mistysyn: Yeah. Garik, when you look at both of those businesses, because of our maturity and scale in North America, it typically it is our higher gross margin type of businesses. And the type of customers. So within PCG, in North America, we have a large businesses small, midsize accounts through our facility. So think quick turnaround, custom color, and higher gross margin. So when our North America does not grow as fast as some of the other regions, both in both segments, you get a negative mix shift. And that is quite honestly what we saw in the quarter.

Garik Shmois: Thank you, Garik.

Operator: Thank you. Our next question is coming from Aron Ceccarelli with Berenberg. Your line is live.

Aron Ceccarelli: Hello. Good afternoon. Thanks for thanks for taking my question. Good morning. I should say, Your Performance Coatings Group sales were flat, but your adjusted segment margin was down twenty-six bps and you mentioned increased cost to support sales. Perhaps, can you expand a little bit on this? Is this relating to promotional activity to support sales? And on this BCG again, I see that you kept your full-year guidance stable for up or down or single-digit percentages. We saw this morning a compared to Axonobello, so then grading guidance on volumes.

I am trying to understand what gives you confidence on the upper end of the guidance today considering that volumes probably have decreased a little bit at least in terms of outlook while pricing does not seem more than one percent, let us say. Thank you.

Heidi Petz: So and I am going to start with your second question first, and then I will flip it over to Al on your question relative to the sales environment. What gives us a lot of confidence in holding full-year guide is simply the team's focus on understanding that the core is not that the market is not going to help us. The core health of where markets are even globally are. The team's focus on two things are it is a fourth of everything that we are doing. It is obviously market share gains, but a big focus on new business wins and conversions. And you will see that across every of the divisions.

A great leader in Karl Jorgenrude of business. A lot of discipline. And even in a volume-constrained environment, that is the work with the high teams that we have committed to when we have put more volume through that, we are very confident we are going to continue to expand our operating margin there.

Al Mistysyn: Yeah, Aron, when you look at the second quarter year-over-year, decrease, obviously, the lower net sales, partially offset by good cross control that I mentioned earlier. We also had other non-operating expenses, which were significantly higher year-over-year. And so the decrease in segment profit in segment operating margin would have been down maybe a hundred and twenty basis points due to the just we had a gain on sale last year. You have FX losses this year that we did not have last year. So those are kind of the drivers that are outside of just the mix that I talked about just a minute ago and the impact that had on our gross profit.

Aron Ceccarelli: Thanks, Aron.

Operator: Thank you. Our next question is coming from Matt Dale with Bank of America. Your line is live.

Matt Dale: Morning, everyone. Can we just dig in a little bit on the supply chain inefficiencies? And why they maybe appear to be a bigger headwind this quarter. I mean, I was looking back. It seemed like that was maybe more of an area investment in tailwinds. So what specifically arose in 2Q? And with that in mind, how should we think about the fixed cost leverage? Should some of these businesses kind of deteriorate as you said was possible in the guidance?

Al Mistysyn: Yeah, Matt. What you saw in the second quarter was a, you know, we adjusted our production schedules down to account for the lower sales volumes that we saw in, you know, so when you look at our sites, we are probably sixty percent fixed, forty percent variable. So you lose the absorption on the production gallons. It does have an impact, and it did so in our second quarter. But, really, our second quarter impact in consumer was more driven by the lower volume sales, not the impact on global supply chain. If you look at the second half, you we believe we have a good production plan.

You know, I talked about the reduction in our consumer brands outlook primarily eighty percent of which is gross margin, gross profit driven. Eighty percent of that is lower volume sales. Twenty-five you know, twenty percent of it is due to the global supply chain and efficiencies. And know, we are trying to build more flexibility into that organization. I think Colin and team have done a nice job of reducing their fixed costs. But we will see. We will see if it is if the markets and demand deteriorates further, we have discipline on getting to the right inventory number by year-end. So we do not have an issue going into 2026.

So it is hard to judge at the current time. I think we have been pretty realistic about volumes, but we will have to manage it as we go.

Matt Dale: Thank you, Matt.

Operator: Thank you. Our next question is coming from Laurence Alexander with Jefferies. Your line is live.

Laurence Alexander: Good morning. Just very quickly, could you give a bit more detail on what you are seeing in refinish? You mentioned kind of lapping the comps will help. But any sign of underlying improvement in consumer behavior on that front? And secondly, on the productivity question earlier, can you just give a sense for what the run rate will be at year-end? So what the net tailwind would be in 2026 from the cost of measures this year. And as demand accelerates or as you see volumes come back, how quickly should CapEx need to come back to support a better environment?

Heidi Petz: Right. Laurence, I will start on the refinish question. We mentioned and you said it you said it well, you know, the growth in new accounts, new business, you know, continuing to drive record high installs to offset the core. I do not necessarily see any underlying health coming back within the industry itself. As you know, there have been a lot of challenges relative to some of the claim environment, higher insurance premiums, etcetera. That continues to be a headwind. But as I mentioned, you know, this is an area where we are out demonstrating value every day.

The market share gains our ability to take and hold price and our collision core momentum we continue to drive adoption there. So we are very confident. There is a lot of gain opportunity for us in that segment. Maybe if you want to touch on the productivity of Lawrence's question.

Al Mistysyn: Yeah, Lawrence. You know, the restructuring activities that have been completed to date should provide us about eighty million savings annually. We will see a little bit less than half of that in our second half and then the rest we will see in the first half next year. And then on your CapEx question, still going to target two percent of sales for CapEx. And the reason I have a lot of confidence in being able to maintain that is we have gotten ahead of some of the growth in packaging and the capacity expansion we completed in our turn new France factory or d side factory or our Rochester, Pennsylvania factory.

We are in the middle of expanding our Bowling Green factory for coil capacity expansion because of the confidence we have in our ability to continue to grow share in that business. And then also, Statesville, I mentioned, continuing to build that out to handle the sales growth we expect to see in stores and in consumer. And then finally, warehouse automation will continue to build that out. So I think from a capacity standpoint, I feel pretty good that we have a little bit of a runway before we have to be thinking about another work center within another factory.

Heidi Petz: And one last piece, Lawrence, to leave you within this. Al said this earlier, and I think it is really worth underscoring is this notion of discipline. So discipline when things are good, but also discipline in a challenging environment. And as we have said earlier, you know, this is not an environment for incrementalism. This is truly an opportunity for step change in our industry. I also want to take a moment just to thank our sixty-four thousand global employees who are out there on the front lines every day, partnering with our customers, our contractors, to help them win. We could not do it without them. So appreciate your question.

Laurence Alexander: Thank you, Art.

Operator: Thank you. As we have reached the end of our question and answer session, I would like to turn the call back over to Mr. Jim Jaye for closing remarks.

Jim Jaye: And I hardly agree with Heidi's comment about thanking our employees for all their hard work. As we outlined today, we are operating in a softer for longer environment, and we are also operating in this rapidly changing competitive environment. That is giving us the unprecedented opportunity that we have talked about. As you would expect, we are responding as these things are unfolding in real-time in responding with urgency and discipline. We have great confidence in what we are doing, and we know that is going to drive outsized market growth over time as Al talked about on the call. At the same time, we are going to be very aggressive controlling that G&A.

We have doubled our initiative for this year, and you can expect us to continue to operate with discipline there. So we see this as a time to really differentiate ourselves with our customers in particular. Nobody is better positioned than we are. Feel very good about what we are doing and appreciate your confidence in us and your support for The Sherwin-Williams Company. We will be available for your follow-ups, and thank you very much.

Operator: Thank you, ladies and gentlemen. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.