Sherwin-Williams Aktie

Good morning. Thank you for joining the Sherwin-Williams Company's Review of First Quarter 2026 and our outlook for the second quarter and full year of 2026. With us on today's call are Heidi Petz, Chair President and Chief Executive Officer; Ben Meisenzahl, 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 Access Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes.

This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open up the session to questions.

I will now turn the call over to Jim Jaye.

Thank you, and good morning to everyone. Sherwin-Williams delivered strong sales in a quarter characterized by heightened global uncertainty and persistent demand softness in most end markets.

Our growth investments and ongoing new account and share of wallet initiatives continue to yield results as sales exceeded guidance on a consolidated basis and in all 3 reportable segments. Consolidated sales grew by a high single-digit percentage, inclusive of a low single-digit contribution from the Suvinil acquisition.

Reported gross margin expanded by 90 basis points, inclusive of a dilutive impact from Suvinil. This was the fourth quarter out of the last 15 quarters we have delivered year-over-year gross margin expansion. Against a challenging prior year comparison, SG&A increased by a mid-single-digit percentage, excluding the anticipated headwinds from our nonannualized acquisition of Suvinil, nonannualized operating costs and depreciation related to our new buildings and foreign currency translation that we anticipated to unfavorably impact our SG&A as a percent to sales by approximately 100 basis points.

Our full year guidance of a low single-digit increase in SG&A remains unchanged. Adjusted diluted net income per share in the quarter increased by a mid-single-digit percentage. And adjusted EBITDA increased by a high single-digit percentage. Net operating cash improved by $200 million, driven by an increase in net income and working capital being a lower use of funds.

Our full year guidance for adjusted diluted net income per share remains unchanged. We continue to execute our disciplined capital allocation strategy in the quarter by returning $773 million to shareholders through share buybacks and dividends. We ended the first quarter with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.5x.

Let me now turn it over to Heidi, who will provide some color on first quarter segment performance before moving on to our outlook and your questions.

Thank you, Jim, and good morning to everyone. I want to begin by thanking our more than 64,000 employees for executing our strategy in what remains a very challenging operating environment. We are continuing to deliver reliability, consistency and solutions for our customers at a time when these are more valuable than ever. Our differentiation continues to widen the gap between Sherwin-Williams and our competitors as evidenced by our strong top line and robust new account growth across the business.

Looking at our segment results in the first quarter, I'll begin with Paint Stores Group, which grew by a mid-single-digit percentage. Price mix and volume both increased by low single-digit percentages with price mix increasing more than volume. Effectiveness of our January 1 price increase is trending slightly better than expected.

Our Protective & Marine team continued to deliver impressive growth for us as sales increased by double digits versus a high single-digit comparison. It was the seventh straight quarter of high single-digit growth in this business.

In the commercial business, sales increased by mid-single digits in what remains a choppy market, reflecting our very targeted and ongoing share gain efforts. These efforts are also evident in residential repaint, which returned to mid-single-digit growth in the quarter. Low single-digit growth in property maintenance was encouraging, while demand in new residential remained very challenging as we anticipated.

Segment profit grew by low single digits, with segment margin basically flat. We opened 21 new stores during the quarter and as planned, closed 27 or about 0.5% of total PSG stores. As we have done for decades, we continually assess and optimize our store portfolio to drive profitability, strengthen operational flexibility. Drive improvement in return on net assets employed and ensure we maintain the highest level of service for our customers.

We still expect to open 80 to 100 new stores for the year. Consumer Brands sales exceeded our expectations, driven by high-teens growth from the Suvinil acquisition. Price mix and FX both increased in the low single-digit range. and volume decreased in the mid-single-digit range. Group sales, excluding Suvinil increased by low single digits, driven by high-teens growth in Europe and high single-digit growth in our legacy Latin America business.

Softness persisted in North America where sales decreased by low single digits. Adjusted segment margin increased driven by the strong top line with flow-through of 34.3%.

In Performance Coatings Group, sales increased slightly above the mid-single-digit range we expected with growth in every division and region. These results reflect the strong new account growth focus we have spoken about over the last year as demand in our underlying core business is still declining in some end markets. Volume in the quarter grew by low single digits, acquisitions were slightly positive.

Price mix was flat and FX was a tailwind. Automotive refinish sales increased by a low-teens percentage, driven by high single-digit volume. The growth was broad-based with sales up by double digits in all regions, providing further evidence of the value we are delivering in this end market to win new business. Packaging continued its strong performance as sales increased by high single digits against a high single-digit comparison.

General industrial, coil and wood also delivered solid growth. Group sales expanded in all regions, including double-digit increases in Asia Pacific and Europe. Adjusted segment profit for the group increased by mid-single digits and segment margin was flat. Higher incentive compensation related to the strong year-over-year sales along with the significant FX headwinds drove segment SG&A higher, resulting in muted flow-through.

These same dynamics in addition to our nonannualized new building costs also drove SG&A higher within the administrative segment. The slide deck accompanying our press release this morning provides more detail on second quarter segment results.

Now moving on to our guidance. The assumptions we provided in our January call and slide deck largely remain intact. What hasn't changed is that our customer feedback as well as the indicators we track continue to signal little support for meaningful recovery in most end markets. What has changed is the Middle East conflict, which has added further complexity and uncertainty in navigating the macro landscape.

Our team has repeatedly demonstrated its ability to manage through crises most recently during the pandemic and the U.S. supply chain disruption to name just a few. I am highly confident we are well equipped to manage through this newest challenge and continue supporting our customers at the highest levels.

Let me provide some perspective here. First, we expect to see some negative impacts on demand from recent events as the year progresses. So it is difficult to predict the magnitude at this time given the highly fluid nature of the situation. But I will remind you that this is our fourth year in a row we have been operating with the expectation of getting no help from the market.

We know we are operating in a share gain environment, and we will continue to be very aggressive here. We see opportunity and uncertainty. We will continue to support our existing and new customers by being the most reliable and consistent business partner in our industry.

From a raw material perspective, our first objective is certainty of supply. The good news is that over 80% of our consolidated revenue is in North America. The majority of raw materials for these sales are sourced in region and remain largely insulated from supply disruptions tied to Strait of Hormuz volatility. In areas such as Asia Pacific and EMEA, where supply could become more challenged, we are managing risk closely. Our focus over many years on building strong relationships with strategic suppliers versus transactional ones is a competitive advantage and should continue to serve us well.

In terms of raw material price cost dynamics, cost for oil, natural gas and key petrochemical feedstocks such as propylene have inflated and remain volatile. As we have previously indicated, sustained inflation in these commodities typically takes about a quarter or 2 before we begin seeing an impact in our P&L. Specifically, we would expect to see these inflating costs impacting us more materially as we move through the second quarter and into the second half of the year.

Our industrial business is seeing inflationary pressures first. starting in APAC and EMEA and to a smaller extent in North America. More recently, we have started to see the inflationary impacts in our North and South American architectural businesses. This leads us to increase our full year raw material inflation outlook to the range of up low to mid-single digits.

In this environment, we continue to focus on securing incremental volume, balanced with appropriate and decisive pricing and cost-out actions that allow us to maintain the products, services and supply solutions, which drive productivity and profitability for our customers.

In terms of pricing, we are out across the business with incremental targeted actions by customer, geography and end markets. As a result, our expectation for consolidated price mix for the year increases to the high end of our low single-digit range. We are actively working to limit these increases for our customers, by accelerating meaningful and aggressive cost reduction actions. At the same time, we expect continued volatility in the raw material environment as the year progresses, and we are prepared to implement additional increases, if necessary. The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the second quarter of 2026.

Our consolidated sales and earnings guidance for the full year are unchanged. Though our deck outlines some adjustments in the mix of volume, price and FX. The deck also contains other details you may find useful for modeling purposes. Sherwin-Williams remains well positioned to outperform the market. We are highly confident in the clarity of our strategy and importantly, our team's deep experience and ability to out execute in this environment.

We remain deeply focused on the success of our customers, while continuously assessing and adapting to market conditions and controlling what we can. Whenever there is uncertainty and disruption, there is significant opportunity to demonstrate what makes Sherwin-Williams so unique. This concludes our prepared remarks.

With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

[Operator Instructions]. Your first question for today is from John McNulty with BMO Capital Markets.

Maybe a question on the price and cost dynamic. It seems like on your pricing commentary, sounds like it's a little bit more surgical than maybe you've taken in the past and a little more customer-specific or very end market-specific. I guess given the global cost pressures that we're seeing, why is it sounding maybe a little bit more surgical than usual and maybe a little bit less of a full across-the-board type price move? Can you help us to think about that?

Yes, John, I'll start, and I'll hand this over to Ben here for some color commentary. I do want to just demonstrate that this is an opportunity. We've operated through so many different types of cycles where volume is clearly key. And the discipline of the team to know when and where to go with pricing is on clear display. You see it in our first quarter results.

But I want to take a moment before I hand this over to Ben. I said this in our prepared comments, it's the credit to our 24,000 employees globally that are operating belly to belly with customers and have that intimacy so that when we do need to take pricing we've got high credibility that it's absolutely out of necessity.

I'll hand it over to Ben to maybe give some comments on a more surgical approach.

John, it's Ben Meisenzahl. Yes, just to add to what Heidi said here, I think one place to anchor is that we have more than twice the pricing now in this new guide than what we had in the original guidance that we gave you in January. And it reflects, if you think about the phasing by the regions, we obviously know that Asia Pacific is maybe more impacted right now. That's going to impact EMEA, North America comes later. You also have the [ basin ] where industrial is impacted sooner than you would have architectural. That's because a lot of the solvent pricing that you would expect is you see first even the way that we buy is a variable here. You think about -- and we're like 50-50 between contractual and spot buying, more of our architectural business is on a contract.

And so you would expect -- on the industrial side, you're going to see more of that stop buying where you got a more varied range of raw materials. And so these are all things that have gone into how we thought about the pricing here and Heidi is absolutely right. we're going to monitor and watch. We're going to work with our customers. We're also really early in the year still. And so we have a lot of opportunity if our base case doesn't play out the way that we think we're going to have that ability to go out and get additional pricing.

And lastly, I mean we always talk about it is balancing price with the right volume and as we looked at some of the competitive opportunities we're not looking for all volume. And so that is an opportunity that we want to make sure that we don't forget about it.

[Operator Instructions]. Your next question for today is from Duffy Fisher with Goldman Sachs.

Just a question on cost. If you could kind of break the basket down a little bit, where you've seen the increase and going from kind of low single digits to low to mid -- what is that based off of vis-a-vis spot prices? Do you think that we've put in the peak already for a lot of the VAMs, the propylenes, all that kind of stuff. And they're starting to roll over? Or do you think they'll continue to go up there? Just some help of kind of what that increases vis-a-vis what you think the market is going to show us over the next several months.

Yes. Duffy, it's Jim. I'd say where we're seeing the most pressure, as Ben mentioned, would be more on that industrial basket. So you're seeing that in the solvents and resins, those petrochemical based commodities. Propylene drives about 75% of our basket, and that pricing is up because of the Middle East forecasted maybe up 50% more through the rest of 26 related to those disruptions.

The solvents are elevated as well, epoxies, I would say, as well. TiO2 for the most part, has not elevated as much yet. I think we've talked, Duffy offline about the sulfur dynamics coming out of the Straight of Hormuz. The good news is we're not really buying sulfate TiO2. I understand it's a global market, but we're more on the chlorinated side. So I think that's important.

And the other thing I would say is again, as Heidi mentioned in her remarks, 80% of our sales are in North America, and the vast majority of our raws that we're buying come from that region. So from a supply perspective, we feel very good and the contractual buying that Ben mentioned the way we buy is also helping us navigate these initial headwinds. And thanks for the question.

Your next question for today is from David Begleiter with Deutsche Bank.

Just a small thing. On your guidance for raw materials, you removed the term select commodity inflation from the prior quarter slide deck. Can you help us with what that meant and what that was removed.

Yes, I'll take that one, David. I think when we talked about it earlier in the year, we just wanted to make sure that people were indicating that tariffs were part of it. And we wanted to say, hey, commodities were moving a little bit as well. We just took that off now because it's very obvious that the commodities are moving upwards. So I wouldn't read much into that. And thanks for the question, Dave.

Your next question is from Christopher Parkinson with Wolfe Research.

You mentioned we've been consistent in a share gain environment over the last several years. Can you just give us kind of a quick update just given the current dynamics on how you're thinking about growth spend, how you're thinking about net new store openings and closures. Just any dynamics that you can help us think about not only 26%, but also the trajectory, which you still see for '27, '28 would be particularly helpful.

Yes. You bet Chris. There's a lot of volatility, obviously, in the macro, but there's also a lot of volatility in the competitive environment. I also said in the prepared remarks, that is absolutely our opportunity. You're going to hear us talk about this jump ball environment. And so in this economy and in this competitive landscape, we're going to be extremely aggressive and making sure that we continue to take more than our fair share of volume.

And I'll point to a couple of examples here, and then I'll come back to the stores and your second question. If you look at our res repaint segment, we're up mid-single digits in a flat to down market, focusing on a lot of these share gains. We see interiors are increasing some bidding activity. We're going to take advantage of that. We see the exterior backlogs are very healthy. We're going to take advantage of that.

Our team has been out laser-focused, Justin Binns and the stores organization committing to aggressive new account activity. I would tell you it's the strongest we've seen in a long time. So even though there's some slowing in the market, our teams are out chasing square footage, earning business with these contractors every single day. I'd point to our commercial segment. we're outperforming.

There's soft completions and yet we're up mid-single digits, while completions are down double digits. And so again, some good bidding activity out there. We see some positive signals that there's uptick with office tenant improvement some modest uptick in multifamily starts that won't benefit us for at least 12 to 18 months. But we're up year-over-year all 4 quarters of '25 and '26 because we've been completely focused on demonstrating value with these contractors.

I'm going to take a moment and just give you a bit more by segment. If you look at our property maintenance, we're up low single digits here in the market where turns and CapEx were both under pressure. So continue to be laser focused on how we can add value. Even in the DIY space, we're up mid-single digits in stores that premium DIY is holding up a bit better than that value-conscious DIY that prefers a home center environment.

Our Protective & Marine, seventh straight quarter of being up at least high single digits. It's all share gains. And so we're going to be relentless and being very targeted on our strategic investments as we are obviously going to be very focused on taking costs out on the admin side. But to your point on stores, it's going to be a continued disciplined process of looking at our portfolio.

Ultimately, we're going to be driving a focus on return on net assets employed. And so it's incumbent upon us that as we're looking at that portfolio as we've done for decades, we're going to make sure that we're driving profitability and strengthening our flexibility and our agility as we see migration as we see changes in the competitive landscape, we're going to be very thoughtful in chasing that volume.

Your next question is from Ghansham Panjabi with Baird.

On the 2026 guidance, I think initially, you had volumes up low single digits for your original expectation. And then it seems like now it's guided towards low single digits decline. Is the delta just your reflection of what you think the market will do the rest of the year just given the sequence of events?

And then what are the offsets as it relates to the intact earnings expectations on the plus side.

Ghansham, it's Ben. On the volume piece, yes, I mean, you heard us talk about a lot of the stronger price that's coming through. We recognize that with some of the inflation that there is going to be a likely demand impact. And so I think what you see in our guide, keeping it full year in that same range. It's how we get there is very, very different. And so we expect maybe volumes to be a little more muted and you think through the consumer sentiment numbers. I mean we've seen the lowest level on record, even going back to GFC and COVID, we've seen prints that are much worse than that. And so some of our guidance is baking in some of the expectation on that volume being softer there.

And again, as we talked about on the prior question, price is obviously an offset to that, and that helps us get to that same kind of guide for the full year.

Your next question for today is from John Roberts with Mizuho.

The current administration has turned its attention towards housing affordability. Do you see anything in the proposed actions that you think could help out the end markets materially?

John, it's Ben. We've been monitoring, obviously, a lot of what they're doing. We agree that affordability is a big part of the equation. We've talked pretty openly we thought rates was maybe going to be the first indicator that could drive additional unlocking demand, then affordability and consumer confidence have been maybe more at the forefront.

Our opinion is that we'd like to see some more of the supply opportunities versus some more of the giving demand. You've seen the 50-year mortgage, you've seen the Trump homes. You've seen some of these other maybe shorter term [ Mox ]. And so what we're looking for in some of these policy changes would be how do you get local governments working better with the federal government to open up land that makes it more cost effective for the new homebuilders to lower their costs. That said, a trickle-down effect to the affordability piece for the consumer who's buying the home.

And so we welcome, obviously, any of the unlocking of affordability-type mechanisms, and we're watching that closely to see how we should be reacting and be ready to act when you do see something unlock.

Your next question for today is from Vincent Andrews with Morgan Stanley.

Could you talk a little bit about the margin improvement in consumer brands? And I guess, from a couple of different lenses. One, should we think about that as a base level. Typically, I believe those margins go up in the middle of the year. So will they be improving sequentially.

And then was there any reallocation of costs among the 3 segments? I recall in prior years, sometimes at the beginning of the year, you've changed the the cost allocation of the paint supply from consumer brands in the other 2 segments?

Vincent, it's Ben. On the first part of your question, the margin improvement in Consumer Brands that you saw, a lot of that is coming from our global supply chain efficiencies. And we've talked many quarters over about a lot of the simplification and continuous improvement culture that, that team has. And we continue to see benefits there.

If you remember, the second half of last year where our production was lower than what we had called out in the first half of the year. That team is getting lean in a lot of different ways. And so that's a big part of what you see in the improved margin there. You also have some opportunities where our price/mix has been a little bit better. You think about premium gallons improving in that segment and maybe a little bit of price ahead of the things that Heidi and I are talked about with inflation. And so you see that there in that part of it there.

There is no reallocation. I know back in 2023, we talked about how we had that fixed cost allocation between the businesses. Nothing here. You should expect to still see low 20s margin in this segment as we've talked about.

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

Was hoping that we could go back to pricing, it seems like maybe the realization that you're getting on that 7% increase from January 1 is a little bit better than you had initially thought. And I'm curious at this point, have all of those conversations with customers taking place and that the pricing is what it is. Or are there still some conversations yet to happen.

And in terms of potentially needing another increase in response to what's going on in the Middle East and higher raw material costs. Has the window passed to announce a price increase ahead of this year's paint season? Or would you be willing to kind of break tradition and go with a mid-season increase, if that's what's necessary or if you see competitors doing that?

Yes, Mike. I'll start. It's kind of a 2-part question. The first part of your question relative to the January increase, yes, the realization is better than we expected. And yes, all of those conversations have happened and are out there. As it relates to has the window passed or how do we think about maybe more of this turbulent environment. And we've done this in the past. In fact, I did this when I was running stores.

When you're in a more volatile environment, our -- what we're not going to do is go out with a big increase in the middle of the season and announced effective immediately. But what we might -- if we need to go out with price, we will go out with price in the middle or at the beginning or the end of the season, but we'll do it the right way.

We'll sit down with our customers. We'll make sure that they are prepared, so they're not stuck absorbing this, and we can work with them to get those into their bids. So we'll do it very methodically. But let me be very clear, if we need to go again, we will go again.

Your next question for today is from Greg Melich with Evercore ISI.

I'd love to dig a little deeper on the gross margin expansion in the first quarter, I guess, the 90 bps. And what would have been without the Suvinil degradation. And if you think about going forward, do you think gross margins could be up each quarter this year, year-on-year? Or does that volatility mean there could be some quarters where it contracts year-over-year.

Greg, it's Ben. We haven't been calling out the specifics with Suvinil, but I could tell you that it's a multi basis point level up, we would have been over 100 basis point improvement without Suvinil in the quarter.

And then as you look forward to prior quarters, you do normally see our gross margins increase into the selling season as our sales improve, and we get better margin dynamics, there could still be a little bit of lumpiness. We've talked about even with our midterm gross margin target, that it's not a straight line up that it is a little bit lumpy. But we would expect that we continue to to get a little bit of expansion there.

And obviously, all the things that we're trying to manage through with the Middle East conflict and the raw materials that plays into it as well. But again, you look at the normal phasing quarter-by-quarter, you should expect us to see improved gross margins as we go into the spring and summer selling season.

Your next question for today is from Arun Viswanathan with RBC.

Great. I guess I was a little bit pleasantly surprised by some of the volume comments and performance and across a couple of your businesses. So maybe in PSG still very strong, I guess, a relatively solid resi repay. Do you see that continuing?

And then in in PCG, better-than-expected performance out of refinish and general industrial and coil turning around, do you see those continuing as well?

The answer is absolutely, we see those continuing. And I'll point to Res repaint, just a little bit more color on that. It's -- the actions that we've taken over the last 3 to 4 years that help Sherwin-Williams has never been better positioned. I would tell you, we're better positioned now than even the turbulent last 2, 3, 4 years. And so the controllable mindset, residential repaint, I won't repeat what I said earlier.

But this is an area where we're bringing really important innovation forward and technologies to help job site productivity. So an example, we just launched a product, a system called the Emerald Symmetry, which is our best-performing interior product that we've ever produced. So these have performance characteristics that are putting our contractors in a position to get on and off of job sites faster.

The secondary benefit of something like this is this happens to be 0 VOC and plant-based interior coatings. So helps us on a number of fronts. We're taking the time to make sure that we're setting our contractors up for success and when we do that, we get rewarded. And so your point on some of the important businesses in PCG, just take a moment here. This doesn't happen by chance.

We talk about success by design. You mentioned Refinish. We have very strong momentum here. We're up double digits in every region. We're getting price in every region. And I think that is a demonstration of a clear value proposition that customers are really understanding. There's a lot of dynamics certainly within the industry that we watch closely. But what we don't do is sit back and wait for the market to correct. We're out chasing new business aggressively.

Our direct installs continue to grow double digits in the quarter. So there's a lot of runway in terms of future share gains there. Packaging. Another fantastic example, we're up high single digits. The global beverage market is up low single digits. The global food market is flat to down low single digits. So it tells you that we're up high single digits. What we're doing is working.

Coil, general industrial and wood all have really positive stories. The coil business, we're up mid-single digits, and that's despite a lot of softness that's tied to the North American commercial residential construction, tariff uncertainty. The teams are out aggressively hunting. And GI is another great example, general finishing, heavy equipment, they're both up double digits. So we're out trying to offset core erosion and core softness there. And industrial wood being up low single digits despite the correlation to residential there, the soft residential end markets that impact wood furniture, flooring and cabinetry.

So despite that backdrop, the team is out chasing. So here's the punch line. We're building new muscle. And I do expect that we will continue to keep our foot on the gas and take share.

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

I had a clarification and a question. On the clarification side, Ben, I think you made a comment that the price embedded in today's guide is more than twice what you had included last quarter. And I guess the clarification was -- is that all to do with the January 1 increase in the realization against that? Or have you implemented incremental pricing since the onset of the war on March 1.

And then just my question is on raw materials. You're ratcheting the guide up a little bit, although, frankly, not as much as I might have thought. So I was wondering if you could just talk about the quarterly cadence of that. I think you're a majority LIFO company. So maybe you can kind of speak to the accounting flow through and the assumptions that you're making on duration of the conflict there?

Kevin, yes, to clarify on the -- my price comment from earlier, that is on the consolidated pricing. That would have been everything that we did in January with stores that would be everything new that we've done since then. You see in our guide that we took up our pricing and Performance Coatings Group and it goes back to the comment we made industrial with all the more solvent borne type raw materials with the international locations. That's where we're seeing it first. So that kind of phases into your second question of how do you see the raw materials flowing through.

And so our updated guide to low to mid on a full year, you have to expect that were first half of this year, even as we have some of the deferrals, you don't see it as much in the first half. You're going to see it heavier in the second half and then you exit the year you're going to be at the higher end of that up low to mid-single digits. And so we're managing that closely. And as I mentioned earlier, we have enough price with what we see right now for what that inflation is at the baseline changes, as Heidi mentioned, we're willing to go out and work with our customers to implement new pricing. There's plenty of time in the year to do that. And so that's how we're going to manage that.

Your next question is from Josh Spector with UBS.

I'll go down a similar line of questioning is Kevin. Just -- I mean it's surprising to hear that at the exit rate, you're talking about the high end of low to mid-single digits on raws. I mean, we have math out there that says you could see raws up 20% in that range. And that seems more consistent with some of the competitor price increases that are out there.

So I don't know if due to your North America exposure, you'd say that inflation is substantially less or it's how you're buying those raw materials and maybe some of the contracts either give you more protection for this year. So this is more of an early 2027 inflationary events that you would see? Or if there's something that gives you more permanent kind of protection against some of that. Can you -- so can you talk about that a little bit and help us understand maybe what's going on that's different for you guys versus some of your competitors?

Josh, it's Ben. I can't comment on how our competitors buy, but I can tell you with and Heidi called out our strategic relationship with key suppliers, our our procurement is maybe tighter than some of the others. And so we're using that as a strategic advantage so that we're not having to maybe pass as much price to our customers as some of our competitors might have to do right now. That aren't advantaged because of the way that their contracts are set up. And so we do have a number of spot buying.

We aren't seeing the exit rates in that 20% range that, that you're seeing. And again, I think you alluded to the mix of our business, the architectural and the industrial, that probably has some impact on that. And then again, I'll point back to of our business on contract, that's an advantage for us right now.

Your next question is from Matthew DeYoe with Bank of America.

Heidi, you talked a bunch about the packaging, and it's been brought up a few times and clearly, the numbers are really good. As we move into next year and we lap some of these regulatory shifts, like how much of what you're accomplishing now is because of that catalyst. Do you expect you can continue to outgrow the industry like this much? Or would you expect growth to shift closer to that low single-digit level that the industry is kind of growing at?

So it's an interesting question because I think based on our preferred technology and our position to be ready for a lot of what's coming. I'm sure with EFS, the European Food and Safety Association, has been on BPA, scheduled to take effect in Q2 of this year, and that we're at the very front edge of that. So there's a nice tailwind there. It's going to continue to drive a lot more customer conversions, certainly first half this year well into the back half and into '27. And I can tell you with confidence that no one is better positioned to ride that. So we do expect to see some significant wins here.

And Matt, this is Jim. Just to add to that. That conversion to the non-BPA Europe, you called out. But really, if you look at Asia and LatAm, there's still a lot of room to run in those regions as well. And thanks for the question.

Your next question for today is from Chuck Cerankosky with North Coast Research.

Can you talk a little bit what you're looking at in terms of the mortgage environment, household formations in North America for the remainder of this year?

Yes. Chuck, it's Jim. I think in terms of the mortgage rate environment for this year, we're not expecting it to move a whole lot. And I think Ben referenced if you dial back a year or so ago, we were putting a lot of emphasis on rates getting below that number. I think that would help. But certainly, it's more about affordability as well. And it's sort of this triangle that we look at of rates, affordability and incomes.

So we need all 3 of those to sort of work in in sync, if you will. In terms of where we go from household formations, it has slowed a little bit, but it's still a pretty healthy rate in terms of household formations, and we expect that to continue. And I'd also point to, as we've talked about many times, Chuck, the structural deficit that's out there in terms of we've underbuilt for a long period of time. So even if household formations do slow a little bit.

There's a tremendous pent-up demand that has to happen. And whether that's single family, if it doesn't come through that way, it's going to come through in multifamily. -- people have need a place to live. So we're well positioned on that multifamily side as well.

One piece I would add to that Chuck, as well because the depth of our position with a lot of these national homebuilders and exclusive partnerships, I do believe we'll be uniquely rewarded as this pent-up demand starts to soften because it's what we do right now in these partnerships, we said this on the supplier side, it's true with our customers.

We want to be the strategic partner that's helping them solve for simplification, helping them solve for cycle time. And so I think the work that we're doing now, it's masked in the market when things start to move, I think we'll be uniquely rewarded for that.

Your next question for today is from Patrick Cunningham with Citi.

I just wanted to unpack the lower performance coatings sales volume guide. Have you seen any evidence of weakness quarter-to-date in order books or any indication that there was perhaps some pull forward in March and conversely, we've seen some fits and starts on stable to expansionary industrial activity, particularly in the U.S. Have you seen any areas of more positive underlying market growth?

No, I wouldn't say, Patrick, that we're seeing any material shift there in terms of orders or timing from a standpoint. But I'll hand this over to Ben to give a bit more commentary on guidance.

Yes, Patrick, I think one way to think about it is we know that there's going to be this gap in feedstock. And you've had boats that are on the water 60 to 90 days from the start of the conflict. And so at some point, Asia and Europe are going to feel the squeeze a little bit more than maybe what they're seeing right now.

And so I think what you have what you see in our guide is a pretty realistic view that there is going to be kind of an inflection point where getting those feedbacks are going to be tougher that could have obviously a greater inflationary impact on the business there. We feel as a big global company is we're going to be able to get our customers' product. It may come at a higher cost. So you may start seeing some people waiting for prices to come down and that could have an impact on demand. And so that's really what you see in our guide that has that there.

And I'll call out, I mean we we started to look at inflation, not as an uncontrollable headwind, but a variable we're actively managing. And so you start to see that with how we're looking at each of the different regions and that realistic view and our confidence for how we're going to support our customers.

Your next question for today is from Laurence Alexander with Jefferies.

This is Kevin Speck on for Laurence. Just in Performance Coatings, just given the macro uncertainty, I guess, how would you characterize customer behavior? Are you seeing, I guess, confidence around production schedules or sort of more short cycle ordering and hesitation to commit to like longer-term orders?

Well, there's probably a mix if we're honest on balance. I mean I think there'll be some prudence and people waiting to see kind of where cost of capital is. But there's also a lot of confidence in the backlogs and the pipelines. And so it's really a mix across the board, Kevin. But I think that it's a portfolio.

And so importantly in that, while we would love for all segments to be up at all times across PCG. The reality is that we're going to be very focused on where the market is and make sure that we are best positioned for that runoff. And so we're going to continue to do what we do, Karl Jorgenrud in that organization. runs with a very strong sense of agility and urgency, and you're seeing that play out right now. I think our strategy is clearly working. What we said we would do, we're doing it and we're doing it better than we even thought, and that's a result of that strategy.

Your next question for today is from Garik Shmois with Loop Capital.

This is a Pacheco on for Garik Shmois. Just another quick 1 on customer behavior. Do you guys get the sense of any prebuy taking place due to inflationary increases in which customers are trying to lock in supply? Or is this not really something you're seeing in this moment?

We're not seeing that in this moment, nothing material. We're not at all heat earned on that.

Your next question is from Mike Sison with Wells Fargo.

It just feels like U.S. architectural paint demand in the U.S. has been structurally impaired. If this continues through the end of the decade, how do you sort of think about strategy in this environment for even longer than we're seeing it.

And then just curious on your 2026 full year, your sales guys for Paint Stores Group. Are we kind of tracking toward the down low single digits given how the housing market is shaping up this year?

So Mike, 2-part question. I'll take the first part on demand and then hand it to Ben for guidance. I wouldn't use the word impaired, I would say, under pressure. But you can imagine when we're sitting in our conference rooms and boardrooms, we are looking at every scenario, including software for much, much longer. And so I can assure you that we do have a whole host of multiple levers that we look at, we contemplate.

We don't want to have to pull some of those. And so we're going to do what we said we would do is control the controllables. We're going to look at this as a jump ball environment. There are a lot of gallons available on up for grabs right now. And if I even point to res repaint, Mike, you know this well, this is an area where not only do we continue to take share, but it's the area where we have the most share to gain. And so even in this environment, we're going to continue to outperform the market, and we're going to compensate for some of that core softness.

Yes, Mike, I'll add to that. I mean as far as our full year guidance for Paint Stores Group, it remains aligned in that low single digit. And you don't see as many of the variables changing as maybe you saw with some of the other segments. And so I think that's a barometer of confidence for us and how we're assessing the business there. But as we've talked about already, we're going to make -- continue to make the right selling investments there.

There could be different mix by the different segments that Heidi has walked through, but we feel pretty confident about our continued opportunities, especially with all the share gains that we've been after in Stores Group. And so that's why you see the guide kind of remaining where it's at.

Your next question is from Sebastian Bray with Berenberg.

I'm interested in 2 areas where Sherwin has taken market share. refinish and the EMEA decorative market. What is it that Sherwin has to offer in Refinish, but its competitors don't? Is the aggressiveness on pricing something that has happened here? And any comments that you can give on EMEA deco are welcome. I think Sherwin has a relatively niche position in U.K. and 1 or 2 other markets.

Thanks, Sebastian. So on the refinish side, I'll take you not to make this a history lesson, but I think context is really important here. If you look at the acquisition of Valspar a few years ago, leverage the best of both. We've combined not only our controlled distribution platform with our automotive business and everything that we have to offer with the subject matter expertise of our reps that are embedded in -- with these customers, body shops.

Then you layer in with Valspar, the waterborne technologies that we've been able to bring together, and we really have created kind of a best of both in terms of the value proposition.

Yes. And I'll take a little bit on the Europe sales. Europe benefited from a reporting mix impact this quarter. a certain immaterial resin sales we had previously reported as part of Performance Coatings Group are now fully integrated and reflected in our global supply chain, which is reported here in our Consumer Brands Group. And so don't read too much into the much stronger reported sales.

If you look at the core sales of Consumer Brands Group in Europe, it grew by more of a mid-single-digit percentage if I exclude that resin classification and similar to what we've seen in Europe with the challenging environment, DIY being a more challenged part of the segment, I think you see that playing out here.

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

I'm intrigued, you commented the DIY store volume in stores is up 5%, and it feels like the rest of retail, it was down maybe 5%. Can you just talk about why? And then also talk a bit more about the downside at the rest of retail and where that's going from here?

So Eric, if you look at the DIY segment and split it into the premium the homeowner that's willing to pay a premium rather and is looking for that high-touch service generally prefers the specialty store environment. So the up was -- our sales were up. It was not volume. So that's obviously a mix of both volume and price.

If you then look at more of that value-conscious homeowner that might prefer a special era, home center environment rather, that's where our strategic partnerships with Lowe's and Menards and others are so important so that together, we can cover that landscape. But really, it is kind of unique. If you split those out, there are different behaviors right now, given some of the inflationary pressures.

Your next question is from Jeff Zekaukas with JP Morgan.

Is it fair to say that your architectural paint price increase happened at the very beginning of the year, but there haven't been architectural increases since then. But in your industrial businesses, you have increased prices later in 2026. And I was wondering how much that might be, what those price issuances were?

And then secondly, in your description of raw materials, you said that 75% of your raw materials are related to propylene. And you said that propylene was up 50%. So wouldn't that mean that your raw materials are up 38%, 37% if you would ignore timing?

Jeff, it's Ben. I'm going to take this first part here. I'll let Jim answer the question about raw materials. The pricing phasing, you're right, yes, our architectural price that we went out with in January, the intention before the conflict was that's the price that we needed for the year. And if you go back to our initial raw material guidance of up low single digits for the year.

We built that initial pricing based on that assumption that we made at that time. And as you can imagine, we have a lot of architectural customers who are on contracts. So we have other points throughout the year, and we've talked about our our effectiveness can get better throughout the year as you hit those certain milestones, where we're able to get more pricing. But yes, you're right, a bulk of that comes at the start of the year.

Industrial historically has been all throughout the year at different times based on business needs, based on what the raw material basket is doing. And so I think what you've seen post Middle East conflict we've had to go out and reassess in all parts of the business. And so even though there's not an announced general increase for Paint Stores Group as we try to manage through cost out and other simplification efforts.

There might be some spotty other areas where we are able to get price without doing a full launch. And similarly, with the industrial business, as you can imagine, Asia and Europe where you've got pricing that has got to be 20% or higher to cover where you have the bigger part of the inflation happening, our teams are out by business unit and geography. Getting coverage where they need. And again, that would be bigger, again, on industrial in APAC, in EMEA.

There are still industrial impacts that are happening in the Americas. And so there's pricing that is going out there on the industrial side. But I think as we've talked about on a couple of different questions and even in Heidi's opening remarks, being very surgical in trying to find where we can take that price with how having to be generic because we realize right now in this inflationary environment, we don't want to put volume at risk. And so you have to do that maybe to a stronger degree than you normally would see us do.

And our confidence that being very thoughtful about chasing volume in this environment, that with the right programs, Jeff, we're trading these contractors up because the ability to get them on and off of job sites faster, the ability -- less touch up required, they're willing to pay a premium for that even in an inflationary environment because 85% of their cost is labor. And so we're being very thoughtful to get the volume and it has to be the right volume to Ben's earlier point, but I'm very confident in the team's ability to get these contractors into premium gallons.

And then, Jeff, on your question about propylene, I'd give you a couple of things to think about. The 50% that I mentioned is a forecast of where it could go perhaps over the rest of the year. We'll see how that plays out. And as Ben mentioned here, we'll be out with price if we need to there.

The other thing I would say is, as you know, we're not buying propylene. We're buying the things that are derivatives of propylene. Those do take some time to flow into our basket, and we'll be ready, again, if we need to go out with additional surgical price increases, that is -- we'll be prepared to do that. And thanks for the question.

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

Yes. Thank you, Holly, and thank you again, everyone, for joining our call. And special thanks to our employees for their hard work in delivering a really solid start to our year. I think Heidi said it well. Our strategy is clear. It's working, and it's not changing. We're continuing to focus on providing our customers with solutions that make them more productive and profitable. You can count on us.

We're going to continue executing at a high level, focusing on winning new business and controlling what we can. I'll close with a reminder. Our 2026 financial community presentation is coming up in Cleveland this year, September 24. You'll have an opportunity to see our investments in our new global headquarters and our global technology center. Excited for all of you to experience that and see how that's moving the needle forward for us.

So thanks again for your interest in Sherwin-Williams. As always, we'll be available for follow-up calls and hope you have a great day. Thank you.

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

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 Meisenzahl, 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 Access Newswire via the Internet at www.sherwin.com. An archived replay of this website will be available at www.sherwin.com, beginning approximately 2 hours after this conference call concludes.

This conference call will include certain forward-looking statements as defined under the U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open 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 Suvinil acquisition.

Consolidated sales in the fourth quarter increased by a mid-single-digit percentage, inclusive of a low single-digit contribution from Suvinil. Reported gross margin was flattish year-over-year, but expanded excluding the dilutive impact of the Suvinil acquisition. SG&A as a percent of sales decreased year-over-year, including severance and other restructuring expenses and Suvinil, 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 & Marine against a high single-digit comp. Residential repaint remained solid, and growth was just slightly below the mid-single-digit range and 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 Suvinil 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 Suvinil were essentially flat, which was better than we expected and drove the top line beat. Adjusted segment margin decreased, including a negative impact from Suvinil 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 onetime restructuring costs of approximately $2 million. Excluding these restructuring costs and the nonannualized newbuilding 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 environment 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 continue 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 in our dividend, which we raised for the 47th consecutive year. We completed the acquisition of Suvinil and we continued 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 2.3x.

Looking at our reportable segments on a full year basis. Paint Stores grew sales by a low single-digit percentage. Protective & 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 Suvinil 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 Suvinil 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 continue to win new business globally, including those complying with new non-BPA coating 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 U.S. 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 reductions or temporarily pause the 401(k) company match. While many companies chose widespread layoff, 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 the back half of 2025 and many forecasters expectations for further softening in 2026. National Association of Homebuilder sentiment levels were notably negative exiting 2025 and mortgage rates remain in the 6-plus range. We welcome meaningful economic and policy proposals to address affordability and increased supply [indiscernible] 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 the second half of 2025. However, these starts won't turn to completions and 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 the second half of 2025 and which we expect will continue throughout 2026. Property maintenance CapEx spending still appears to be idling and neutral, though 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 & 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 U.S. manufacturing PMI ended at its lowest point in the year in December after 10 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 to 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 coatings to 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 the first quarter of 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 and 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 approximately $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 Suvinil 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 2 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 Suvinil. 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 1 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 2 to 2.5x.

We expect to open 80 to 100 net new stores in the U.S. and Canada in 2026. We'll also continue adding sales reps and 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 of 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. Gross 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.

[Operator Instructions] Our first question is coming from Ghansham Panjabi from Baird.

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, et cetera. But can 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 Jorgenrud, been in the industry for over 30 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 a very clear aggressive focus on new business wins, taking market share. But also a lot of heavy lifting and 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 over to Ben here to jump in.

Ghansham, yes, adding to what Heidi said there, I'd point to the 2 halves of PCG. How you 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. But if I look at the 2 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% is a 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 not looking just at gross margin or SG&A, here is a really good example of why we do that because we're able to demonstrate and grow operating margin as a really good SG&A controls.

Our next question is coming from John McNulty from BMO Capital Markets.

And maybe kind of a decent segue from that last question. On the SG&A outlook for 2026, I guess, can 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 the markets struggle. You've also got this 401(k) match coming back in. So I guess, can you help us to think about how that should play out as the year progresses?

John, yes, the way to think about that, and we called out 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 that 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 2024, 2025 and then into 2026, there is no quarter-to-quarter, year-over-year 401(k) impact.

As 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. And then you layer on the incremental Suvinil, which is also a low single digit. So you can do the math there to figure out the core versus Suvinil. 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 onetime restructuring costs were a little bit higher than what we guided to in October. That's going to give 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 cost while volumes are challenged.

John, [indiscernible] done a lot of credit. He uses this phrase of -- 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.

Our next question is coming from Chris Parkinson from Wolfe Research.

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've been and how we're thinking about in terms of the implied gross margin guide. Just perhaps just a quick comment on health care labor assumptions, the raw basket, it seems like there's some divergences between solvent [indiscernible] CO2 asset utilization. Just kind of just what underpins that and what gives you the confidence that, that is the correct framework at least to begin the year?

Chris, this is Jim. I'll start with the last piece of your question. So as you saw in our slide deck, we're guiding to 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.

Yes, Chris, I'll add on to the SG&A side and just the overall cost side. You think about -- you called out in the admin segment, interest expense being a headwind for next year. 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 nonoperating costs and just your general SG&A, and you called out health care. We've all seen the headlines health care 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 double digits, down low teens, and that just demonstrates, again, the levers we're able to pull to make sure we can keep that -- the cost in check, knowing that, again, we're in that lower volume environment right now.

Our next question is coming from Greg Melich from Evercore ISI.

I wanted to follow up on price mix in the fourth quarter and then also the 7% price hike on Jan 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 '26?

Yes, Greg, I'll start and I'll hand it over to Ben to give a little bit more color, but I'll take you back to some of the comments I said in my prepared remarks relative to market dynamics. And we are looking at the competitive environment. I would frame it more as a jump ball environment, to be honest with you. 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 get it to Ben to comment on the quarter.

Yes, I agree with everything Heidi said there. And again, we've talked about that price mix, 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 the head on it 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 in our gross margin targets that we put out, and we're going to hold to that.

Our next question is coming from David Begleiter from Deutsche Bank.

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?

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

Our next question is coming from John Roberts from Mizuho.

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?

Yes. John, I would tell you, we've essentially recovered a lot of what we said was kind of temporary share loss. And 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, obviously, dynamics playing out, EFSA the European Food Safety Association's ban on BPA. That's going to be taking effect in Q2. We know that, that will continue to drive more customer conversions for us. So I really like our position here. So we're in good shape. Jim, maybe if you could comment on a few of those areas.

Yes. I would add to that, John, that in terms of how much is left to go, I would say that in Asia and LatAm, there's still quite a bit to go. North America, as Heidi pointed out 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.

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

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 competitive environment, maybe your competitors cannot afford lower prices, so they have to raise their prices and see 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 been very balanced in our view here. And so in this is 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 minds, lose our way. We have 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 Sherwin-Williams family before. We're going to be [indiscernible] in chasing that business.

Aleksey, I'll add to that. We've always talked about volume as the #1 driver of our operating margin. And so when you look 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 that price mix as well. But we recognize over the long term, that securing the volume, the right volume that we want 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 trading them up to premium is they are making more money as a result of working with these higher-end better products. And I'll remind you, the total cost, labor comprises 85%, 87% of their total cost. So their willingness to pay a premium to get on and off of job sites faster, have less touch up, less quality issues, especially in an inflationary environment, it plays to our strength.

Our next question is coming from Jeff Zekauskas from JPMorgan.

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

Jeff, if you look at the fourth quarter, we -- last year, we had -- we were up against a really strong comp in residential repaint, we're up a high single digit. And so that had a little bit of impact of what you're seeing here for the third quarter. We remain very confident in [indiscernible]. This is where we get -- we've made a lot of investments. We're -- the biggest opportunity for share gains. We're very confident with that segment with our pricing realization. And so I think we're -- we continue to be very happy with where residue paint is. And obviously, 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. And so I wouldn't characterize it, Jeff, is slowing. I think if you go back into some of our history, last 2 years, there was a surge as we continue to focus on taking that telling more share. That's now in our history and behind us. So you're probably seeing a little bit of that. But in terms of what is out there, the amount of market share to be gained is extraordinary, and we're going to chase it.

Our next question is coming from Vincent Andrews from Morgan Stanley.

Wondering if you can help us bridge consumer brands from the fourth quarter performance on the top line, up about 25% with Suvinil 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 [indiscernible] 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?

Vincent, yes. So going from fourth quarter into next year, I mean, you nailed it. We got the annualization that's obviously going to have a sizable impact through the third quarter of next year when we annualize. The underlying business, I mean, as Heidi talked about in her opening comments, I mean there's still a lot of challenges with the North American DIY market. We don't expect that to be an over performer for us until we see some of the housing catalysts really catch.

You asked about pricing. All of our businesses have some level of pricing embedded in their guide for next year. And so even though we don't go out all at the same time like we do for Stores Group, you should expect that there are some targeted price increases, not only for Consumer Brands Group but also for Performance Coatings Group that could differ by the different business units or by region. And then FX, we look at a full year basis, and we do have Consumer Brands Group down low single digit because of FX. That's mainly going to come in the second half of the year, and that's mainly coming from headwinds that we anticipate in Latin America.

And I'll mention on the Suvinil piece because I can't help it. We're really excited about this acquisition and the progress that we're making. It's obviously early, but the teams are laser focused. We've got our dedicated integration teams that are commercial teams can remain laser focused on our customer and business continuity. I think that we are certainly pulling out the Valspar playbook, the rigor behind customers and employees and making sure that we're keeping the -- what's happening in the market is going to be really important here.

We've got an opportunity to demonstrate why these brands are better the other way. These teams are better together so that we can drive innovation with a market-leading brand, and I'm very confident in what we're going to be able to do in Brazil.

Our next question is coming from Josh Spector from UBS.

So 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 in your Paint Stores Group is down something like 1%, maybe 2% next year. If I look at your Paint Store 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 2. 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 and share gains?

Josh, respectfully, I disagree. The market is down. I think probably hard to characterize it, but I would say it's down more than that. And where we look at our performance base case, we've guided to down single to up single and the controllables in that space, and I'll point to Res repaint where we continue to take share in a down market, we're going to continue to make the investments, putting a new store in every 4 days, continue to invest in dedicated reps. We're investing in innovation. In fact, in the end of the quarter, we're going to be launching a [indiscernible] plant-based interior coating that will be the best paint we've ever made, and it's because we're that confident in our ability to convert share with residential repaint. I'll hand over to Ben to speak to any of the other segments here.

Yes. I mean if I take it to -- you're talking about volume here. I think one thing to point out in Paint Stores Group is the ability even in a challenged volume market to still grow incremental margins and you look at what happened in the fourth quarter, with volumes down low single digit with stores through good cost control, we're able to generate almost a 50% incremental margin. And if you look at the full year, I mean, it's almost 40%, again, in a volume challenged environment. And so we're going to continue to find ways despite what's happening in the market to continue to drive margin.

Our next question is coming from Mike Sison from Wells Fargo.

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 Marine [indiscernible] like a year. Is that mostly the protective side? And does it do it -- does it go into data centers? And if it does, how big and what's the potential there?

Great. Well, Mike, I thought you were going to offer up a policy recommendation. So yes, we look at this kind of a 3-legged stool, if you will, I don't know that it's going to be 1 without the other. I think it's a combination of household income, rates and affordability. And so as we come into a year of a midterm election, we'll see what moves there. But at the end of the day, our builders, our partners are still -- still hesitating and waiting to see for some of those things to be solved. But I think we're in an environment here where as we partner with these our builders, and I remind you, we've got a pretty healthy position with some 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 going to be important now more than ever.

I'll move on to the P&M side. And yes, it is higher on the protective side than the Marine side. And you said it right, Mike. This is where Sherwin-Williams is so exceptionally well positioned because of the boom we see with AI infrastructure. As you look across that PNM division and the healthy pipeline that the team is working on, and what we can bring to market these data centers, for example, you look at every coating that every service that needs to be coded, we've got a solution. Our high-performance flooring. We just made some acquisitions and recently puts us in market leadership position, and you're going to see us be extremely bullish as we move forward.

Yes. Mike, I'll add just one more time. And going back to the first question in the policies and how you laid that out well. What that all means to us, as it relates to our outlook. If there are things that happen, if there are policies that are implemented that become tailwinds for us, the plan that we have built is going to enable us to capture those and win from those. And so I know we outlined on Slide 9 of the presentation, some of our economic assumptions. And so we're going to be watching to see if there are policy adjustments that could turn some of those metrics better for us. And in turn, you should expect our performance to mirror that.

Our next question is coming from Patrick Cunningham from Citi.

Heidi, thoughout the past 1.5 years, you've talked about capitalizing on opportunities, disruption industry, given the recent mega merger announcement, there's potentially some fresh disruption. So how would you characterize the opportunity set maybe within more of your industrial-facing businesses?

Yes, it's a great question. I think the word disruption is the right word. And when you think about what's in play there, obviously, there's -- it impacts several of our divisions and the teams are going to continue to be very aggressive out there. But when I step back and look at the big picture, over the last few years, I think it's safe to say that, by and large, there's been a lot of shift across the competitive set on both architectural and industrial.

And what I'm most excited about is the stability of our strategy. We've got a rock solid strategy. We've got the playbook. We've got the management team, the team out in the field every day. Clarity about how to execute that playbook. And so we mentioned earlier that there's -- we think volatility as an opportunity to create opportunity, whether that's in the macro or in the competitive landscape. And we're going to be just that. We're going to continue to stay close and get closer to our customers, find new ways to solve their challenges and we're going to come out winning.

Our next question is coming from Arun Viswanathan from RBC Capital Markets.

I guess I just wanted to understand the element of potential conservatism in the guide here and maybe what could get you to the upper end. It sounds like you will be implementing that price increase, maybe you get 2 to 3 points out of that. And then would it be mainly volume in Paint Stores Group? I mean we have seen some improvement in existing home sales over the last few months? And are you kind of assuming kind of continued softness in commercial and new -- maybe you can just kind of go through some of the verticals within Paint Store Groups and see how maybe some of the different scenarios could play out and maybe push you towards the upper end of that guide?

Arun, I'll start with saying that as you look at our outlook, I would call it realistic. And again, if I point back to the presentation deck and the economic assumptions that or the foundation of our guidance, you can see how we're framing that out. And I'll point to a couple of the indicators. If you look at existing home turnover, there's a wide varying range of assumptions next year. You have some people that think it's going to be back 1% to 2%. You've got some that are reporting it could be as high as 14%. And -- and so I think what's important for us to share and the reason that we put that slide together so you could anchor on -- you can see where we were anchoring our basis for our midpoint guidance.

And so we feel, in that example, with existing home sales, it's more realistic to be in that low single-digit range, absent any major policy shifts or anything else that we talked about. And so the basis of that foundation, I think we feel very comfortable and confident with -- and as I mentioned earlier, if those indicators get better, if we see rates trend lower existing home sales turnover is higher consumer confidence and affordability gets better, you should expect that our results are higher than the midpoint that we're providing.

Our next question is coming from Duffy Fischer from Goldman Sachs.

Could we go back to Consumer Brands Group. I just want to understand the margin implication of Suvinil coming in and the cost-cutting programs are -- so do we need to kind of model a 2% decline year-over-year until we anniversary Suvinil? And then it kind of bounces back up towards normal or how to think about that playing out throughout this year? And then once we've anniversaried what does it look like?

Duffy, yes, if you think about -- the fourth quarter is generally a lower margin quarter for us anyway. And as we talked about coming out of our second quarter call, Consumer Brands Group, we have some supply chain inefficiencies built in there, and that was due to targeted production volume reductions as we're trying to manage our inventory to the end of the year. So I know there's a lot of noise there. Suvinil coming in, that doesn't help as well. But what I will tell you is that from an operating margin point of view, we should expect to see similar core business at our existing Sherwin business. We will have some integrating costs, as you can imagine, a deal of that size, the integrating activities that are going to be required, the system integrations, et cetera. We're going to have some costs as we go through 2026.

But from a margin point of view, yes, until we anniversary that in the third quarter of next year, you can expect it to be maybe a little muted, the same degree that you saw in the fourth quarter.

Our next question is coming from Mike Harrison from Seaport Research Partners.

You've talked in the past about periodic repaint of houses occurring every 5 to 7 years. A lot of demand was pulled forward into the 2021 time frame. 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 thesis 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 just propensity to repaint periodically, what could conflict with that prevailing view of repainting every 5 to 7 years?

Yes. And you're right, it is a kind of a 5- to 6- to 7-year cycle, and we are coming off of that post COVID. I do think there are some natural governors in play right now just because we are in an inflationary environment. Consumer confidence is absolutely impacted. When you think about home improvement in general, though, what I love about our position is that we're one of the most affordable and most quick to update your home versus larger kitchen and bath projects. And so I do believe as we continue to monitor a lot of these indicators, we're going to stay very close to it.

But we'd like to see more tick-up happen faster. I do think it's going to still be a bit choppy throughout the year. And I'll remind you, too, the DIY segment represents about 40% of the available gallons out there. And so when it starts to move, you're going to want to come along for the ride, but we just needed to start moving.

And I think Ben's point that he mentioned a minute ago is important to, Mike, around the existing homesale outlook. I mean that range of something -- existing home sales could be down low single digits to up 14%. That gives you a really good view, I think, into the uncertainty that's out there in terms of demand. So whatever way it goes, though, we expect to outperform, and we're very well positioned to do that based on the investments we've consistently made over the last 2 years. And thanks for the question.

Our next question is coming from Kevin McCarthy from Vertical Research Partners.

Heidi, in the prepared remarks, I think you commented with regard to 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. But maybe you can elaborate on what that trajectory does look like over the next few quarters? And what I'm really trying to get at is 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, maybe at the low end of the historic range, but I would look at this again because of this unique competitive environment that we find ourselves in. When I look at the low single-digit guidance, I would think of that Kevin, as a full year guy, and I'll invite Ben to jump in on any other details.

Yes, Kevin, I think what's important to note here, the teams are engaged, we're getting after the effectiveness, where we can get it. There might be some delayed realization as you have different accounts that go a little later than January. And so we're going to continue to monitor this. We're -- we know how to do this well. There's a high degree of confidence in our Paint Stores Group teams to get the price where they can, and we're going to manage it that way.

Our next question is coming from Matthew DeYoe from Bank of America.

To build a little bit on Pat's question, would you look at or participate in any asset sales on the backs of the kind of the peer merger going on? I mean, I know it's a bit of a broad question considering there's a pretty diversified portfolio. But say, for example, powder coatings, right? Would new market entry be interesting to you or expansion in some of these other more core industrial segments?

Well, Matt, we love to grow, and we love expansion. Having said that, the way we look at our growth strategy, obviously, where we start with an organic focus. When we consider inorganic activity, it's a very disciplined review of our portfolio, which you just said. And so when I think about the -- what's in play there and as stewards of your capital, we're always going to look, but there are a few of those businesses that they fell out of the air and into our laps, all day long. Yes, we would love them. But right now, we're just focusing on growing organically and competing in the market.

Our next question is coming from Garik Shmois from Loop Capital.

As you made the decision to bring back the 401(k) match, you cited delays in tariffs is one of the drivers that helped you decide reinstituted. I was wondering if there's anything else specifically that you're looking at that give you confidence? And just on the flip side, you're talking to a number of choppy macro indicators and trends that don't seem to be flipping anytime soon. I'm just wondering if there's any incremental costs that you're looking to implement this year?

Great. So Garik, I'm going to start, and then I'll hand this over to Ben. I think your point and your recognition and our recognition that the tariffs are going to have a delayed realization. So I'll have Ben comment on that here in a moment. But I do want to take a minute just to address this. I think we said this in the prepared remarks, but this decision was not made on a single quarter or any short-term optics. And we all know this period of elevated and prolonged uncertainty. We had one objective in mind, which was protecting the operating strength, the stability and the long-term health of our company by protecting jobs. And I'm really proud that we've been in a position to restore that.

But here is a reality, and I shared this with you just to bring you into how I'm thinking about this. When you have a differentiated strategy that you believe in, and it's clearly working and you've got a world-class team that knows how to execute through all types of cycles, your #1 focus is on execution. And so I think now more than ever, you've got customers that are dealing with so much uncertainty, they are looking for partners that can be stable, reliable and predictable. And when you've got a winning strategy, you've got customers that need you, you're going to invest in that execution capacity. So which means we're going to continue to not only attract and hire, but it's in our best interest to retain this talent.

So we've seen a lot of widespread layoffs out there in and out of our industry. And I said earlier, we chose a different path and it was to maintain and preserve these jobs. And I think that making sure that we have that execution capacity, that is what has rewarded our shareholders very well over the last few decades. But let me hand it back to Ben to talk more about the '26 implication.

Yes. I mean, just one comment there, and I'll remind you, back in July when we gave our guidance, we were operating in an environment of high uncertainty and Heidi talked about us wanting to have and make sure we preserve that financial flexibility. And so that didn't materialize the way that we had planned out. And part of having that flexibility employing that 401(k) lever is, since it didn't play out the way that we had thought throughout the year, it gave us that ability to reinstate that. And even though it was quicker than we had expected. It's great that we're able to do that.

As we go into 2026, it doesn't mean that the pressures that we see have alleviated. There are still tariff pressures, it's part of our low single-digit raw material guide that we're going to have to contend with this year. And that delayed realization is something that we're going to have to contend with this year. You've seen us on the cost out and pulling levers for some of the big needle movers. We have confidence that our teams are going to continue to do that. And we see our cross business unit teams working really well together to unlock cost in areas that have been harder to get at in prior years. And so our confidence in them being able to do that also helps our decision to make this and get it reinstated, get this behind us, and we're going to find ways to continue to overcome the volume challenges.

Our next question is coming from Chuck Cerankosky from North Coast Research.

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

Chuck, we're going to need a little bit more on the question. If you don't mind. When you say non-coatings, what specifically are you referring to?

I'm thinking about the supplies, brushes, sprayers, things like that, that might indicate now where the Pros head is at. And what you folks might be looking at to change in the baskets?

That was helpful. Jim is going to start off here, and then I'll jump in.

Yes. Chuck, I was just going to say, one of the things you may be thinking about is spray equipment sales, and I'd say those have been flattish, reflecting the environment that we're in, especially those are areas we've talked about new res being under pressure, that would be an area where you might see some more of that activity. But Heidi, did you have anything else you want to add?

Just flat. I mean it's flattish. And Chuck, the way we think about that, and we call it [indiscernible] just obviously can be more of a leading indicator. Sprays equipment is a really good example. But I would just characterize it as flat is what we're looking at.

Our next question is coming from Eric Bosshard from Cleveland Research.

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 the price mix in 4Q and the expectation in '26?

Yes, Eric, volume continues to be very choppy. Obviously, this is similar to the comments I made earlier. It's -- I wish it was a different environment. Having said that, we've got a unique distribution because we service the DIY customer in 2 areas: one, through our paint stores, and we love the -- the margin accretion on that side of the business, that's more of a more discerning DIY customer that's looking for a higher level of service. But our partnerships through a lot of our strategic retail partners are extremely important here. And in this environment, we say don't let a downturn go to waste, making sure that we are aligned thinking differently about what's on the shelf, how we can compete across the street. And so there's a lot of good momentum in terms of planning. We just need the catalyst to come to realization. On price mix, I'll hand it over to Ben.

Yes, Eric, I mean you've seen in our stores. I mean our DIY performance has been a little bit better in the quarter here. If I look at DIY in total, though, a lot of what you see there is maybe the premium gallons push. We talked about that on our third quarter call with some of our channel partners, we're seeing better premium gallons. And so that's obviously a component of the price mix bucket that you see there. And that's a win for our customers because that's putting them in a position where they can be more efficient for the projects that they're doing in their homes. And so that's about what we're seeing there. Obviously, in our stores, again, if we're changing pricing, that's a segment where maybe we can be a little more effective, but that would be my comment there.

Our next question is coming from Laurence Alexander from Jefferies.

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

Laurence, yes. I mean we're going to annualize our pricing. We went out January 6 last year. And so by the time we did our pricing January 1 in stores this year, we've annualized that. There might have been a little bit of pricing that we captured later in the year. But our expectation is, hey, we've lapped last year's price increase, the timing coincides pretty well with the new price increase. And so as we've talked about a couple of times here this morning, we'll be managing high effectiveness in that pricing as best we can as we work through 2026.

And maybe just a final comment as it relates to pricing, I think [indiscernible] again, and the discipline, just to put a bow on this. I think we are in a very unique position. There's a lot of inflection happening across the industry, and I'm very confident in our strategy, our leadership team and confident in where we're taking this company, and I'm excited for what's ahead and we just -- we need the market to help us a little bit, and we're having a very different conversation.

I would just add to tie that all up, Laurence. Again, if you look in the slide deck that we put out with some of the guidance, we're talking for the full year in '26. We've got low single-digit positive price/mix in all 3 segments, and that gives you a positive low single-digit price/mix on a consolidated basis for the full year. And thanks for the question.

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

Yes. 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. The date again is on 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. 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.

Good morning. Thank you for joining the Sherwin-Williams conference to discuss the election of the company's next Chief Financial Officer announced yesterday and effective January 1, 2026.

With us on today's call are Heidi Petz, President and CEO; Allen Mistysyn, Chief Financial Officer; Ben Meisenzahl, Senior Vice President Finance; and Jim Jaye, Senior Vice President, Investor Relations and Communications.

This conference call is being webcast simultaneously in listen-only mode by ACCESS Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com, beginning approximately 2 hours after this conference call concludes.

This conference call will include certain forward-looking statements as defined under the U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted yesterday afternoon. After the company's prepared remarks, we will open the session to questions.

I will now turn the call over to Heidi Petz.

Good morning, everyone, and thank you for joining us today. Today is an important and exciting day for Sherwin-Williams. I'm pleased to announce that Ben Meisenzahl has been appointed by our Board of Directors to assume the responsibilities of Chief Financial Officer of our company effective January 1, 2026. I also want to thank Allen Mistysyn, our current Chief Financial Officer, for his 35 years of dedicated service to the company. Al will remain with the company in a transition role until his retirement in March 2026.

Ben is a dedicated, highly capable and globally experienced Sherwin-Williams executive, who is extremely well prepared to be the next CFO of Sherwin-Williams. He is well deserving of this promotion. Ben has spent his entire 22-year career with the company, and he brings a deep understanding of our people, culture, businesses, customers and investors to his new role.

Ben has worked closely with me, Al, and our entire leadership team over the last several years. Many of you have met Ben over that period as he has helped communicate the Sherwin-Williams value proposition at multiple investor conferences and roadshows in prior Investor Days as well as our sell-side dinner this past summer. I have great confidence and complete trust in Ben, and we are highly aligned in executing our strategy and creating long-term value for all of our stakeholders.

In just a minute, I'm going to ask Al to provide his perspective on this transition. But first, I want to thank Al again for his many outstanding contributions to our company. I could not have asked for a better partner these last 2 years since becoming CEO, and I'm extremely grateful for the strong foundation he leaves for us to build upon.

As I mentioned in our press release, Al provided steady leadership as CFO during one of the most challenging periods in company history. This included the purchase and integration of Valspar, the company's largest ever acquisition, a global pandemic, an industry-wide supply chain crisis and the construction of our new global headquarters and R&D facilities among many others.

Sherwin-Williams market capitalization more than tripled during Al's time as CFO, and he instilled a relentless focus across our entire team on the importance of delivering results. We wish Al a long and healthy retirement with his family.

And with that, let me turn it over to Al.

Thank you, Heidi, for those kind words. It is hard to believe 35 years have passed, and I'm extremely proud of what the people at Sherwin Williams have accomplished during that time. Today, however, is about the future, which I am sure will be extremely bright with Ben and the role of CFO. Heidi often talks about talent as one of our key priorities, and over the last 3 years, we've had a very deliberate and detailed process to prepare Ben for his new role. I'm highly confident in Ben, I've worked side-by-side with him throughout numerous challenges and I know he is the right leader to partner with Heidi and continuing to drive Sherwin-Williams success.

Ben's had multiple roles of increasing responsibility over his 22-year career with the company. In his current position as Senior Vice President, Finance, Ben leads the company's treasury, tax, finance transformation and global business services functions. He's played a key role in developing our annual operating plans and setting targets while driving accountability and execution within our enterprise priorities.

Prior to this, Ben held several global finance and accounting roles across our operations that have given him a deep understanding of what makes our company successful. In Pink Stores Group, he served as Vice President and Controller of the Midwest division. He held similar roles in the Performance Coatings Group and our Protective & Marine and industrial wood divisions.

Ben also served as Controller for European operations and our global supply chain organization. I know Ben will do an excellent job as the next CFO of Sherwin-Williams, and I'm very pleased to offer him my congratulations.

Let me now turn it over to Ben for a few words.

Thank you, Al and Heidi. I'm excited and humbled by the opportunity to serve as the next CFO of this great company. As Heidi mentioned, Al is leaving us with a strong foundation, and I want to thank him for his confidence in me and all the knowledge and support he has provided leading up to this announcement.

As far as what you can expect from me, my goal is to ensure a seamless transition that focuses on continued profitable growth, disciplined capital allocation, financial excellence and transparency. I've enjoyed interacting with many of you over the last 2 years, and I look forward to getting to know all of you better in the quarters ahead. Sherwin-Williams future is extremely bright and I'm excited to continue working alongside Heidi and our entire senior leadership team to continue driving results for our customers, employees and shareholders.

Thank you, Ben, and congratulations again. I'm highly confident in your leadership and I'm looking forward to delivering the next chapter of Sherwin-Williams success together with you.

At this time, we would be happy to take a few questions. Since we just had our earnings call a few days ago, I'll respectfully ask that we focus this call on our transition announcement.

[Operator Instructions] Your first question is coming from Vincent Andrews from Morgan Stanley.

I appreciate the comments about how this was worked on and anticipated for the past 3 years. But just if you could put a finer point on why now is the time to make this transition versus we could say, 12 months ago or 12 months from now, but just what makes now the right time for this?

Vincent, I'm going to start, and then I'll hand this over to Al after I take a first run at this.

I think after 35 years with Sherwin-Williams, not only has Al earned this, this is obviously his choice. To be honest, it's hard to believe that there's life outside of Sherwin-Williams. But Al tells us that, that's true. 9 years as CFO, this was -- this is his opportunity, and we're very excited to your point. This has been a very deliberate and detailed process personally and for the leadership team, certainly with our Board.

And so Ben is ready. He's been working alongside Al every step of the way here. I'm extremely confident not only is he ready, but he's the right person for the role at this time. But respectfully, let me kick this over to Al, so he can give you his thoughts.

Yes, Vincent. As Heidi mentioned, I've had a 35-year run, 9 as CFO. I think that's enough. And I'm confident the company is in a really good place. We have a solid foundation. And I have a lot of confidence in Ben and his wide-ranging experience across stores, across performance coatings in our global supply chain. So I can't be more pleased with turning the reins over to Ben. And again, I know he's going to knock it out of the park, and it's going to be a great run. So...

Thanks, Vincent.

Your next question is coming from Arun Viswanathan from RBC.

Congratulations on the announcement, Al and Ben as well. I guess my question is really related to strategy. Obviously, you said that you'd like to make the transition as smooth as possible. Can you just elaborate that means from a financial standpoint? Will you still be prioritizing capital allocation from a share buyback standpoint? And maybe you could also talk about leverage and M&A as well.

Arun, it's Ben. As you know, Al builds a strong foundation of financial rigor and operational excellence. And as you would expect, I intend to carry that forward. And so what won't change is our disciplined approach to our long-term strategy, our capital allocation philosophy, our strong focus on shareholder value creation and also the strong partnership that I'll continue to have with Heidi as it relates to these.

And so I've been very fortunate, as Heidi called out in the beginning to work alongside Al for the last couple of years. And even before his tenure, when Sean Hennessy was here as CFO, I got to see and get some valuable insights from him. And so I look forward to continuing to emulate the financial discipline, as shown by both Al and Sean.

[Operator Instructions] Your next question coming from Chris Parkinson from Wolfe Research.

Congratulations, Ben. Ben, I know you've been behind the scenes for several years, and you've been working on a lot of the advance in technologies ranging from helping your own store reps and also your customers to kind of streamlining a lot of new processes. Does any of that necessarily going to filter into your new role? Is that something that you're leveraging, collaborating with and that was part of the prep? Or is that just part of kind of doing what you needed to do to help the organization in prior years?

Yes. Thanks, Chris. I mean it's a little bit of both. I mean you know that we went through the financial transformation initiative coming out of COVID. And a lot of that caused us to have to take a step back and really just reimagine the whole finance process. And so that includes a lot of process and technology. And so naturally, we had a lot of experience there looking at data, reporting, et cetera.

But part of the transition, I mean, Al has had me play a closer role with our technology organization. And so I've been able to sit side-by-side there with those teams. And those, as you know, when we talk about our enterprise priorities, those are enablers of our long-term strategy. And so by design, getting really close to that because that's going to help our above-market growth aspirations.

And one piece I would add to that, Chris, too, and you're dealing with very humble people here in both Al and Ben. I think with Ben, as we're talking about some of these things that we've worked on, it really is the best of both. It's leveraging his time across stores, Performance Coatings Group, local supply chain and being very forward-looking as we think about modernizing systems, technologies, leveraging data so we can make even better data-driven decisions become even more efficient across our business processes. At the end of the day, it's about making sure we have both scale and agility and Ben is the perfect partner alongside me to make sure that we go down that path.

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

Yes. Thank you, Matthew. I just also wanted to thank Al for his tremendous contributions to Sherwin-Williams and all the insights and experiences he shared with me. We've worked together very closely since I joined the company back in 2017, and I wish Al and his family a very happy and healthy retirement.

Also very pleased to offer my congratulations to Ben and looking forward to building on our strong relationship that we already have and continuing to drive success for Sherwin. So as always, thank you for joining us today, and thanks for your continued interest in Sherwin-Williams.

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

Good morning. Thank you for joining The Sherwin-Williams Company's review of the third quarter 2025 results and our outlook for the full year of 2025. With us on today's call are Heidi Petz, President and CEO; Allen Mistysyn, 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 ACCESS Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes. .

This conference call will include certain forward-looking statements as defined under the U.S. Federal Securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Jim Jaye.

Thank you, and good morning to everyone. Sherwin-Williams delivered solid third quarter results as we continue to execute our strategy in a demand environment that remains softer for longer, as we have previously described.

Throughout the quarter, we continue to serve our customers, invest or success, control our costs, take advantage of a unique competitive environment and execute on our enterprise priorities. On a year-over-year basis, consolidated sales increased at the high end of our guided range. Paint Stores Group and Consumer Brands Group exceeded expectations and Performance Coatings Group was in line.

Gross margin and gross profit dollars expanded. SG&A growth in the quarter moderated to the low single-digit percentage level we expected, driven by ongoing control of general and administrative expenses and inclusive of restructuring costs and new building costs. We remain on track for our original guidance of a low single-digit percentage increase in SG&A for the full year, including our targeted growth investments.

Adjusted EBITDA margin expanded 60 basis points to 21.4%, and adjusted diluted earnings per share grew by 6.5%. We also returned $864 million to shareholders through share repurchases and dividends. Let me now turn it over to Heidi, who will provide some additional color on the third quarter before moving on to our outlook and your questions.

Thank you, Jim, and good morning to everyone. Let me begin by thanking our employees for delivering a solid quarter as we continue to navigate a very choppy demand environment across every one of our end markets. Our strategy continues to resonate with professional painting contractors and manufacturers who now more than ever are looking for partners that can provide them with predictability and reliability.

Sherwin-Williams provides customers with differentiated solutions that makes them more productive and profitable. This is even more valuable at a time when competitive offerings are inconsistent. We know what works, and we're investing in it while continuing to assess, adapt and control what we can control. We remain confident our approach is the right one to continue winning near term and it leaves us well positioned for when the demand cycle eventually turns.

Let me now provide some color on our third quarter segment performance. Sales in Paint Stores Group increased by a mid-single-digit percentage, with price mix up at the high end of low single digits and volume up low single digits. This solid top line performance is not due to any market improvement in demand, but rather clear evidence that our growth investments are delivering a return. Given the market data we track, we believe we outperformed the market in all segments that we serve.

Protective and marine increased by low double digits. This was the fifth straight quarter we have delivered high single-digit growth or better in this end market. In residential repaint, sales again grew by mid-single digits. We have grown this business by at least this level in every quarter since the start of 2022, a period during which existing home sales have been negative almost every month.

We also outperformed in Commercial, where sales were up mid-single digits in a quarter where multifamily completions were down double digits for the 2 months of available data. Our systematic approach to capturing new opportunities in this segment, created by recent competitive actions is working. In new residential, sales increased by low single digits in a quarter when single-family completions were down slightly for the 2 months of available data.

Property maintenance and DIY sales both increased by low single-digit percentages. Exterior sales were slightly better than interior sales, and both were up mid-single digits. We opened 23 net new stores in the quarter and 61 year-to-date, which is ahead of last year's pace. We've also added a commensurate number of sales reps to serve new accounts and customers through these stores.

Even as we continue to make these growth investments, we continued to drive profitability. Segment profit in the quarter grew by a mid-single-digit percentage and segment margin increased by 40 basis points. With segment gross margin being flattish, this increase reflects leverage on SG&A, with over 30% incremental margin on low single-digit volume growth.

Moving on to Consumer Brands Group. Sales beat our expectations with price/mix up low single digits, volume down mid-single digits and FX, a slight headwind. Sales reflect continued softness in North America DIY and unfavorable FX in Latin America, partially offset by growth in Europe. Adjusted segment margin increased primarily due to a favorable product mix shift and good cost control, partially offset by supply chain inefficiencies from lower production volumes.

Severance and other restructuring expenses also reduced segment margin by 85 basis points. We're also very pleased to have closed on Suvinil acquisition earlier this month. and I want to take this opportunity to officially welcome this highly talented team to Sherwin-Williams. This business is an outstanding addition to the Consumer Brands Group Latin America portfolio, and we're excited by the many profitable growth opportunities ahead for our combined offerings.

Additionally, we continued our channel optimization efforts in this region during the quarter, closing 8 net Sherwin-Williams stores and shifting that volume into selected qualified dealers. In Performance Coatings Group, sales were in line with expectations. Volume, acquisitions and FX all increased by low single-digit percentages but were partially offset by unfavorable price/mix. Regionally, segment growth in Europe and North America was partially offset by decreases in Latin America and Asia.

From a division perspective, packaging remained our strongest performer with double-digit growth, inclusive of an acquisition. We're also pleased with mid-single-digit growth in auto refinish, inclusive of high single-digit growth in North America. This growth was driven by share gains that more than offset continued lower insurance claims.

Sales in Coil, Industrial Wood and general industrial all decreased by low single-digit percentages. PCG segment profit and margin decreased due to lower gross margin, primarily from unfavorable product and region sales mix and higher cost support sales. Severance and other restructuring expenses also reduced segment margin by 30 basis points. 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 low double-digit percentage in the quarter. Before moving on to our outlook, I want to address the topic that some of you have asked about, and that was our very difficult decision to temporarily pause the company matching contributions to our 401(k) benefit plan effective October 1. I want to be very clear, this is not a decision made lightly, nor was it made without deep appreciation for its impact on our people. It was a decision made after implementing a number of cost-saving initiatives, and completing significant restructuring actions, all at a time when we have and continue to face a period of prolonged demand and macroeconomic uncertainty.

Our goal was to preserve as many jobs as possible in the near term, while also protecting the company with targeted customer-facing investments at a time of unprecedented competitive opportunity. Our goal is to restate the match as soon as possible, just as we have done successfully in the past. We are focused on delivering the performance that enables us to do so while also building long-term value for all of our stakeholders.

With that, let me move on to our outlook for the remainder of this year, along with some initial considerations related to 2026. The slide deck issued with this morning's press release provide specific sales guidance for the fourth quarter, which reflects our normal seasonality. This sales guidance includes the Suvinil acquisition, which we expect will increase the company's consolidated sales by a low single-digit percentage in the quarter, with an immaterial negative impact to diluted earnings per share, given transaction closing costs and purchase accounting items.

Given our third quarter sales performance and the addition of Suvinil, we are updating our full year 2025 sales guidance to be up by a low single-digit percentage versus 2024. Our second half EPS is in line with what we were expecting in July, excluding the immaterial headwind of Suvinil. We are narrowing our earnings outlook and now expect adjusted diluted net income per share to be in the range of $11.25 to $11.45 per share with a prior midpoint of $11.35 remaining unchanged.

Additionally, we remain on track to open 80 to 100 North America paint stores for the year. We will also continue to manage production and inventory closely over the rest of the year, on pace with customer demand. We remain laser-focused on our strategy of driving our customers' success. As far as 2026, our teams have begun working through our annual operating plan process. We'll provide you with a more definitive outlook in January as we typically do.

But at this time, we can provide some initial expectations that may be helpful. From a demand perspective, it appears that a very challenging environment will persist through the first half of the year and most likely beyond that. In other words, softer for longer and continued choppiness across most end markets. The leading indicators we track point to minimal positive catalysts at this time. We will continue to focus on our new account and share of wallet initiatives and driving continued returns on the growth investments we have made.

Our initial view of raw material costs is that they will be up low single digits, inclusive of tariffs with varying costs for individual commodities. We also expect other parts of the cost basket to inflate, particularly health care, which will increase by a low double-digit percentage in wages, which we expect to increase by a low single-digit percentage. We also expect to continue investing in growth initiatives, including stores and reps to win new business and support existing customers and strategic retail partners as the competitive environment continues to inflect in our favor.

We will continue to counter cost headwinds through efficiency and simplification initiatives, and disciplined pricing actions. Specifically, we have announced a 7% price increase in Paint Stores Group effective January 1, along with targeted increases in our other segments. Effectiveness in paint stores should be in our typical historical range, but likely will be tempered by market dynamics and segment mix.

We will continue to be very aggressive in growing the business, and in controlling general and administrative expenses, so we do not see a reason to be heroic in our initial guidance. We expect interest expense will be higher given our new headquarters financing arrangement and refinancing of debt at higher rates earlier this year. We remain on track with the restructuring initiatives we've previously called out, and we expect a total benefit in 2025 of approximately $40 million in savings.

We expect our actions to result in savings of approximately $80 million on a full year basis going forward. On a very exciting note, we've begun the move into our new headquarters and R&D center in Cleveland, and we expect the process to be completed in the spring. As a result, we anticipate our CapEx returning to a more typical range of around 2% of sales next year. These new world-class facilities are investments in our people and our customers that we are certain will deliver strong returns and there will be multiple chances for you to come visit in the coming year.

All in, including our new and current buildings, we would expect a modest cost headwind next year. We will provide more details on our January call. 2025 is not over, and we know we still have work to do. You should expect us to continue acting with discipline and urgency during the remainder of the year.

Beyond that, we expect the demand environment to remain soft well into 2026. We are not immune from these persistent challenging market conditions, which leads us to focus even more intensely on differentiated solutions that help our customers become more productive and profitable. With our success by design mindset and a deeply experienced team, we see this as a great time to continue demonstrating what makes Sherwin-Williams so unique and outperform the market, and that's exactly what we plan to do.

This concludes our prepared remarks. And with that, I'd like to thank you all for joining us this morning, and we'll be happy to take your questions.

[Operator Instructions] Your first question is coming from Ghansham Panjabi from Baird.

Heidi, could you just give us a bit more color on the 7% price increase for Paint Stores Group? How did you come about that number? I mean raw materials looks like they're going to be flat this year, up low single digits next year. I know you have wage increases, et cetera, but the demand environment seems pretty tepid. So how do we get to the 7%, which is, I think, the highest since the COVID inflation spike?

Ghansham, I'm going to hand it to Al here in a moment, but let me start with this is more about our pricing philosophy in general, you and I've had this discussion when we need to go to the market, our customers understand that we need to go to the market. And so we work the entire year before that to make sure that we're demonstrating value and earning the right to do that so we can continue to make the investments that I referred to in my earlier remarks. But I'll let Al give you a little bit of color on why the 7%.

Ghansham [indiscernible], how we got to the 7% is it's really driving it because of higher year-over-year increases. You talk about our initial view of raw material costs being up low single digits as compared to being flattish in the current year. And the other basket -- cost basket increases. But I think what I would like to also add to that is Heidi mentioned in her opening remarks about being -- the effectiveness being in our typical range but being tempered by market dynamics and segment mix.

As you said, we're going to -- in this environment, a slow growth, choppy demand environment, we're going to be very aggressive in growing the business with new account growth and share of wallet. And why is that important to us is because when we look -- as I talked about a year ago on this similar call, we look at price mix as 1 bucket and we report on that metric quarterly. And we've got a number of pro-architectural segments that perform at varying levels. And as an example, in our third quarter, we saw commercial property maintenance, new residential improve and perform better.

They have similar operating margins, but they do dilute the price/mix realization. And if you look at our third quarter price/mix realization, it was up at the upper end of the low single digits, which was compared to a mid-single-digit percentage in the second quarter and as said before, we're focused on growing operating margin. In the third quarter, our net sales and volume growth was better in the third quarter than we expected.

So even though we have flattish gross margin, we experienced SG&A leverage. We grew our operating margin and saw strong incremental margins of 30-plus percent on that low individual -- low single-digit volume gain. So my point here is it's a balance. We are going to go strong after volume. We're going to come out of the other end of the price increase with our customers, but we're going to balance both.

Your next question is coming from Jeff Zekauskas from JPMorgan.

[ 30-year ] mortgage rates have come down. I think they're about 6.4% now. Where do you think those rates need to go to really catalyze demand in the paint store script?

Yes, Jeff, I think I can go back [ because it sticks out ] in my head where mortgage rates dipped to around 6% in October of last year. We saw a nice bump in applications. So I think when you look at the pent-up demand and depending on what number you look at and how long it's been with existing home turnover being flat down and now it's starting to turn. there's a lot of pent-up demand. So when we get towards 6% and certainly, we've seen the 10-year dip below 4% for a day, which was exciting. .

But I think that around 6% or a little bit below should drive stronger existing home turnover since the homebuilders have been paying down the rate to get more people and more traffic into their homes already.

Jeff, 1 piece, I think I would add to that too, 6% seems to be the magic number, but we spent a lot of time with our national and regional homebuilders. And not a surprise, I think everybody is squarely focused on affordability. And while they're trying to reduce upfront construction costs, redesigning floor plans, even looking at lot sizes and the actual product, the biggest impact is obviously affordability. Rates will certainly have an impact. So we are all hoping that the Fed makes some shifts here in the future.

Your next question is coming from Vincent Andrews from Morgan Stanley.

Al, I wanted to ask on the investment spending. We're a bit more than 2 years into it. I think we can all look and see the positive results that are coming from it in terms of market share gains and how it's manifesting itself in your volume results. I think what's less clear to us from the outside is just how you define the efficiency of the spend. And you can look at it both ways. You can say, could you get the same results spending less? Or could you get better results if you were spending more.

And so I think it would be helpful if you could just sort of talk to a little bit of a look-back analysis on this as we're a little bit more than 2 years in. And what defines and what helps you understand what the right level of spend is and what causes you to add more or presumably you've pulled back at the same time in other areas where you haven't seen the effectiveness [indiscernible], some detail there would be helpful. Likewise, as we look into '26, if we don't get the help from the Fed that we all want and things remain choppy, what causes you to continue to make the incremental investments?

Yes, Vincent, I think it always starts and ends with how we get a return for the investments we make. We have a very disciplined process around new store adds, rep adds, and we look for stores on what's the time to get to a steady-state profit? And how long that is. And that gives us some idea, are we in a saturated market or not?

And I would tell you that each of the stores we add, including in our densest markets get to profitability faster as we continue to invest in our least dense markets. For our reps, we look at residential repaint in the mid-single-digit growth we've had in residential repaint through this year through most of the last year. And we look at the investments we made in the second half of 2023, we can look by territory, by sales growth, by margin growth, and I would tell you without a fact -- without a doubt that we are getting a return on those investments, and what dictates how fast or slow you go, and this has been very consistent over many years.

We put a plan in place, 80 to 100 stores, similar or a little bit higher number of reps. We look at our performance through the first half. We look at outlook for the second half. We think sales are going to be stronger if we think our gross margin is going to be stronger than we had planned. we are willing and able to invest heavier typically on the rep side. It's a little harder to invest more on the store side. But typically, on the rep side, and they're more focused on res repaint. And again, we look very, very tactically and look at each of those reps and see what kind of return they're getting.

But a ton of confidence that we are getting a return for those based on the sales performance we're seeing in a very difficult, I would argue, down market in res repaint.

And it's a huge testament to our team. They're out every day [indiscernible] with these customers. And while the market may have gotten kind of worse in some pockets here, I think Al makes a great point on res repaint, we continue to outperform in what I would also consider a highly unprecedented competitive environment. So in that 2-year span, Vincent, obviously, as you well know, there's a lot of gallons up for grabs and we're going to be relentless to grab them.

[Operator Instructions] Your next question is coming from John McNulty from BMO Capital Markets. .

Maybe an early 1 on Suvinil. Can you help us to think about some of the actions you plan on taking there? How to think about maybe some of the opportunities around synergies and where we might be looking at the profitability levels as we look to 2026.

Yes. John, I'll start and then hand it over to Al to talk a bit about kind of further out as we think about profitability. But I'm thrilled, I'm beyond excited on this acquisition. I'm going to be out with our team in Brazil here shortly, of course, getting in front of some customers. Really proud of the team's joint effort and their laser focus on business continuity, where we can create more value together as 2 great companies. So a lot of opportunity both commercially and operationally. It's early days. The teams are just getting started. I wish I had all the answers laid out, but I can tell you we've got the right people, the right leaders that are going to help us to realize that value at an accelerated rate.

Yes, John, let me just start impact on the fourth quarter, Suvinil will increase consolidated sales of low single-digit percentage. It increases our consumer brand sales, a low 20% -- 20 percentage. How you talk about an immaterial headwind in the fourth quarter, predominantly due to onetime transaction costs and inventory step up, we'd be accretive in the quarter, slightly accretive in the fourth quarter.

As you look out, and we'll give you more detail on our January call. But as you recall, we talked about a $525 million business, mid-teens EBITDA. And I would expect, as we implement our systems, tools and processes and realize the synergies across both organizations because as you recall, we talked about being somewhat of a reverse integration. We'd expect to see that growth into the high teens, low 20s over a midterm period of time.

Your next question is coming from Alexi Yefremov from KeyBanc Capital Markets.

Heidi, I wanted to ask you about your comments on the second half of next year. I realize it's pretty far away, but are you seeing anything specific to found maybe a little less hopeful about recovery? Or is this just looking at current trends and being conservative? .

Yes. I think it's more a function of our current sight line given how far out we can see relative to backlogs, overall pipeline of the business is honestly more of the comments there. But I will go back to the statements regarding we are not yet seeing consistent data points that really telling a story that there's this catalyst coming anytime soon. So I don't believe it's conservatism. I think it's pragmatism. But I can assure you, if the market rebounds faster, we will be prepared for it.

Your next question is coming from Duffy Fischer from Goldman Sachs.. .

You might be on mute, duffy. Why don't we move on? We'll come back to Duffy later.

Certainly. Your next question is coming from Mike Harrison from Seaport Research Partners.

I was wondering kind of piggybacking on the last question, if you could give some more detail on what you're hearing from your contractor customers about their backlogs and about visibility over the next 3 to 6 months. And I'm just curious within Paint Stores Group, what submarkets are your contractors sounding maybe a little bit more confident? And what submarkets are giving you a more cautious outlook?

Yes. Mike, I'll start. Let me -- I'll point to the Commercial segment. Within that includes the multifamily starts. Again, you're seeing a continued outperformance here for the company. We are seeing some improvement on starts, but I would tell you that we're looking more for trends and a sustained view of some of these positive signals. So we need to see more of that.

This also comes over some soft comps over the last 2 years. Our sight line in this area is more like 9 to 12 months. And so when that does start to pick up, it would likely be -- late back half is not early '27, some of that movement is accounted for in our current commercial outlook. Any additional comments, Al, you would like to share. Okay.

Your next question is coming from Matthew Deo from Bank of America.

Can we just flesh out briefly the 4Q implied guidance and the deceleration in year-over-year growth? Is that because it's harder to grow a seasonally weaker quarter? Is there a regional mix issue there? Or is there anything else that might point to higher cost of decel?

No, Mike. I think when you look at our fourth quarter sales guide or consolidated is expected to be up low to mid. And Paint Stores grew up low to mid. I think we saw -- we beat our third quarter forecast for stores on the back of better exterior gallon sales, I'd say, our fourth quarter sequentially smaller and exterior is really going to be dependent, as we've talked about in the past of Southeast and Southwest and how those pan out.

I don't think we're expecting anything dramatically changed. It's more of the same across each of the other segments within stores. I think consumer is a similar kind of outlook including -- or excluding Suvinil and then our PCG group has been in line with our second half guide. So I don't think there's anything to read into that other than exterior being stronger, both in stores and in consumer in our third quarter, and then we'll see how that pans out in our fourth quarter.

Your next question is coming from Mike Sison from Wells Fargo.

Your pricing capture this year has been better or higher than in the past. What do you think pricing capture would be in '26 and going forward? And do you think it's structurally better than you've had historically?

Yes. Mike, I think I'll just touch on '26. Going further than '26 in this environment, it's a little hard to see. We've talked about market dynamics and going out with a higher rate to cover the higher costs that we're experiencing. But in this softer for longer demand environment and the dynamics in the market with our competitors and some of the actions they've taken, we've talked openly about this on each of our calls this year.

We're just going to be very aggressive on gallons and balance the gallon growth with the price increase effectiveness. And what I talked about earlier is what we report on with price/mix as one bucket. Can be impacted by changes in segment sales. Like we saw in our third quarter. So if you look at our third quarter versus our second quarter, we said price mix was up low single digits. We said on our second quarter, it was up mid-single digits. The price effectiveness itself is similar quarter-to-quarter, but we had better performance in commercial new res and property maintenance. And that's what kind of tempered the effectiveness of that price/mix bucket.

Your next question is coming from John Roberts from Mizuho. .

Could you talk about where you think industry gallons are down in the U.S. by subsegment, just in buckets here, which subsegments are down low single digit percent balance against for the industry, mid-single digit. And are any of the subsegments down high single-digit in your opinion.

Yes, John, this is Jim. I think this is another year where gallons -- obviously, we're not through the year, but I think the gallons this year are likely going to be down again, which is what we've seen since we've come out of COVID. I'm not going to get into the specifics by end markets, I would say. But if you look at the different signals that we look at, for example, existing home sales, the starts on single-family, some of the property maintenance, which has remained neutral.

I think you can say that gallons are probably challenged across most of our end markets. I think the good takeaway is as Heidi said in her prepared remarks, we're outperforming in all of those, which is our North Star, right, at above-market performance. So it's further evidence of the investments we've made, delivering a return. And even in a down market, we've been able to grow our volumes.

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

Maybe I could get like a little bit of an early read on next year. You do have some share gains coming to you. You've announced the price increase. So in Paint Stores Group, I know you've also signed up some exclusive new contracts. So do you think a mid-single-digit comp is reasonable? Or should we push maybe to high single digits, given that 7% price increase.

Well, I'll start with what we just covered in the last question, which is we don't expect any help from the market whatsoever anytime soon. We do hold ourselves to higher expectation as you should expect as well. We don't often hold a yard stick based on what's happening in the competitive landscape where we really push ourselves.

We talk about what's possible often in our organization and really push to think differently and think outside of the box. So when I think about this environment, our ability to go demonstrate value with these contractors and gain some exclusivity, I think, is a testament to our differentiation on display. In this environment, these contractors in the stores are looking for predictability and reliability to partner, and that's exactly what we're setting out to accomplish.

Arun, the only thing I would add to that is, as we have typically done, we're headed into our 2026 operating plan process where we sit down with each of the divisions and the field sales organizations and field sales teams to talk about what's happening in their individual markets and by segment. And it gives us a much better idea of the trends that we expect they'll be having conversations with their customers on the price increase, and we'll see how those are progressing and that will give us a clear picture what to expect on the full year when we look at sales volume, and we certainly will give you an update on that in January.

We're going to continue taking share, but we're not immune from what's happening in the market. .

Your next question is coming from Patrick Cunningham from Citi. .

Maybe just a question on Performance Coatings. Can you help square the negative operating leverage despite the positive sales? Maybe just some color around the mix drag and higher costs there. And then it seems like you're pretty firmly guiding for low single-digit growth across that segment for 4Q. Should we expect similar margin declines with [indiscernible] mix dynamics? Just any sort of framework there would be helpful.

Yes, Patrick. On the adjusted segment margin, we talk about unfavorable [indiscernible] region and by business. We look at North America, which is our most mature market, and our sales were only up low single digits. And when you look at Europe, which we have grown quite a bit through acquisitions, and we were up a high single digit at a differing margin operating margin performance along with Latin America being down, which is typically a better market for us.

So those combinations drove that our gross margin down, drove the profit margin down and offset by higher volumes. I think looking at our fourth quarter, my expectation is we're planning to see some moderation in that mix, unfavorable mix. We're looking at -- I expect to see some gross margin expansion due sales volume, I think, are -- as we continue to maintain good cost control, and that team has done a terrific job all year controlling their costs.

I'd expect to see some leverage on SG&A and segment profit margin improving in our fourth quarter. And we'll see how it goes into '26. And again, we're going through the planning process now, and we'll give you an update on '26 in January.

We don't see any strong catalyst for market recovery, but we're not waiting for that either. I think there's some really good bright spots to point to. We mentioned in my prepared remarks, I'd point to Auto Refinish as a great example being up mid-single digits, and we are confident in taking market share, especially in North America, where we're up high single digits, with [ a point to ] certainly the direct business, but our branches continue to demonstrate value.

The large A shops are improving. The larger shops, some of the small and medium shops continue to see declines, but we are being very bullish right now, making sure that our Collision Core continues to build momentum. Adoption continues to grow, very proud of the team's efforts there. There are a number of different examples to point to across the portfolio, but just to reinforce Al's point, a lot of confidence in the team's focus on both growing volume and significant cost control.

Your next question is coming from Josh Spector from UBS. .

This might be redundant, but I'll try again to hear around Paint Store volumes. I guess if we look at the first half, your organic volumes same-store sales down maybe 3% to 4% depending on where you landed on pricing. Your second half guide is closer to flat, maybe plus or minus 50 basis points on the volume side. So as we think about a lower for longer environment and maybe some acceleration in share gains in commercial and multifamily, should we be thinking about a flattish volume environment for '26 as the base case? Or would you go back to what we might have thought a quarter ago, which is maybe down low single digits?

Yes, Josh, I don't want to give you a firm outlook today for 2026. But from quarter-to-quarter or half to half, you look at how like in our third quarter exterior sales performed better than it did in the first half, which gives us a little bit of tailwind on volume. So when we look at our forecasting models, depending on the timing of how commercial comes in, is property maintenance CapEx is going to come back or still stay soft. .

You're looking up or down low single digits. And I think initially in our first consideration is starting there and then working with our teams to see how we can accelerate the share gains both the new account activity and share of wallet and see how we can build those in to get to a sustainable up low single-digit volumes with all the good actions they've taken as a team to control their G&A costs while still putting in stores, still putting in reps.

We have 95 more reps year-over-year, our stores year-over-year. We have over 110 more reps year-over-year and their SG&A, we got leverage in SG&A in the third quarter. So I think there's a combination of things that we're looking at. But segment by segment, we'll look at and see where we end up. But initially, right now, it's probably up or down low single digits until we get a better line of sight coming out of the year.

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

Heidi, just on your price increase, given the challenges we're seeing now in Pittsburgh Paint, why wouldn't you not raise prices next year just to apply maximum pressure on Pittsburgh Paint and really step on their neck while they were down and sorry to be so graphic.

That was very graphic. David, I'll go back to a comment Al made earlier and completely this guides how we're thinking about the current operating environment, which is about balancing gallon growth with price increase effectiveness. We are going to be extremely aggressive on volume. I mentioned there's a lot of gallons up for grabs. We need to go earn that. It doesn't just come our way naturally. The team is out there across the paint stores organization, every store manager, assistant manager, our reps, they're fighting tooth and nail every day to make this happen, and I'm very proud of the team's achievement that allows us to kind of beat the market.

But it is a balance. And I think what you'll find, as we've always done historically, when we come out with price, we want to do it the right way. We want to get out in front of our customers, give them time to plan, get ahead of the bidding season. We don't want our customers start absorbing this and helping them to pass that along. But the timing of the increase is of strategic importance, but we're going to be extremely aggressive on volume. So if there's a way to thread the needle, it is going to be a little bit of art and science to balance the two.

And David, I'd just add. I appreciate the comment on [ PPC ]. But we have a disciplined approach to how we look at pricing, how we approach our strategy. And we just aren't going to react to each competitor's actions in the market that we can't control. We've done very well. We've been very successful on managing what we can manage and sticking to the things that we know how to do. So we're going to stick with that. It's been a successful formula for us, and it's going to be going forward.

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

Do you have any price increases on the table that you care to call out for consumer brands or across the Performance Coatings group. Just trying to get a sense of whether there might be a potential for any price acceleration on those platforms relative to the 7% that you called out for Paint Stores?

Yes, Kevin, based on the overall cost basket dynamics and increasing, we have targeted price increases across each of the businesses in each of the regions to help offset that and keep moving us forward.

And to move forward by investing in our customer success. And so it's going to be incumbent that we get that accomplished. .

Your next question is coming from Chris Parkinson from Wolfe Research.

Great. Understanding there are a lot of moving parts heading in 2026. So when we think of all the dynamics between price cost and manufacturing. Is there a scenario out for which you see Sherwin consistently being at or above 50% gross margin absent any material volume recovery. Have those dynamics or puts and takes really changed since last year's Analyst Day?

Yes, Chris, can we sustain sustain 50% gross margin [ implies ] volume growth. And like we talked about, there's going to be choppiness across each of the segments, each of the businesses and regions. And one thing I will say is, I believe Paint Stores Group will grow faster, excluding Suvinil acquisition, but will grow faster than the other segments over the next year over the midterm at a higher gross margin that helps drive an overall consolidated gross margin improvement.

We did experience a headwind in our supply chain this year because of the lower production volumes. And I would say that the global supply chain team has done a really terrific job trying to offset these low to mid-single-digit production gallon decreases by controlling their costs and being really creative on how we control our costs. So we're not losing people because we are confident in our strategy. We're confident that, that volume will return. And we want our people there when it does return and we bring hours back and we fill our factories back up to more efficient capacity utilization. So I don't want to commit to above 50% until I understand we have a consistent, sustained volume growth but we've certainly positioned ourselves very well to get there when volume does come back.

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

Maybe on -- following up on that point, Al, could you help us understand this year, if we look at the full year or just the third quarter, how much volume hurt gross margin rate? And what sort of volume growth you'd need to get 100 bps of leverage out of margin? What's the variable margin there?

Yes, Greg, I think the -- you're talking gross margin impact with the supply chain inefficiencies are in the low 10, 20, 30 bps. And Greg, I'm glad you asked that follow-up question because it gives me an opportunity to talk about our focus on driving operating margin and not just the gross margin. And we saw that in our third quarter with the gross margin expansion. We got leverage on SG&A to help drive the operating margin forward on an adjusted consolidated basis.

I think you know volume is the #1 driver of operating margin expansion. And all the things, the good things each of our groups and divisions have done to get their cost base down, I would tell you that a low single-digit volume growth or any volume growth will be accretive, and we'll see operating margin expansion. And I'm trying to -- what I'm trying to say is it will be less today than it would have been 2 years ago, if that makes sense to you. We'll get better leverage on future incremental volume than we would have had prior to coming into the cycle.

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

Just wanted to follow up on that last point. You said the 30% incremental margins on the low single-digit volume growth in Paint Stores that you got in this quarter. Just wondering if that's a good benchmark moving forward, just given what you just mentioned, both for that segment and maybe help us think about incremental margins and volume in the other segments when demand does start to improve more consistently?

Yes, Garik, I think with Paint Stores Group, historically, what we've said is we expect mid-20% incremental margins on lower volume growth, low single-digit volume growth. I think you saw the benefit that, that group, all the actions they've taken throughout the year to get their costs lower, while still investing. So we've got SG&A leverage in the quarter on flattish margins, and that's what helped drive that. I think -- drove the 30%. I think as we go forward, we'll consistently look at the outlook. And if we think our volumes are higher, we'll lean in like we've done in previous years and add more selling -- sales reps to take advantage of the market share opportunities that we have.

I think it's -- our Performance Coatings group, I think, is dependent on -- because of the difference in business region mix, that one's a little harder to say. If you told me that our volume growth would be predominantly in North America, our largest region, our most mature region and by definition, our highest operating margin region. Then yes, I'd say our float -- incremental margin will be in that 20s, [ in the ] 30s, depending on -- so if it's the other regions, we're going to get varying degrees. And then Consumer Brands Group, I would just point to the strong volume we had in 2020. And the strong incremental margins that we had there and the strong volume will also help supply chain efficiencies to help their operating incremental margins growth. So we have examples. We just have to see sustained volume growth as we come out of this.

Garik, 1 piece I would add to that as well, we launched a few years ago, we talked about Success by Design, but our 6 enterprise priorities, one of them is simplification. And we've done a lot of work globally to understand what are costs sitting that we're not getting paid for. So the team's credit, you've heard the expression, don't let the downturn go to waste -- or don't let a crisis go to waste. We're saying, don't let a downturn go to waste. There's a lot of self-help that we can do to make sure we're continuing to improve our cost position. So I'm confident that there's good progress, but there's a lot more ahead.

your next question is coming from Eric Bosshard from Cleveland Research.

On the consumer brand side, I'm curious what organic growth you saw in that business. And then if you zoom back, I'm interested in the volume and pricing in '25 and how you think about that in '26?

I'll start us off here. Not a lot of organic growth. I think DIY is still very much under pressure. And as a reminder, the DIY segment is a very important part of our long-term strategy. It represents about 40% of the available gallons in the market. So very important certainly within our stores, but absolutely our strategic retail partners as well.

The Provo Paints, we continue to see some good progress in movement here. We like how our position here. It continues to be a growing segment on a smaller basis, but it is an area that we're continuing to invest in people, products, services to support our strategic partners. So we're good trajectory. We just need more volume.

Eric, the only thing I would add color around for the quarter is we did see adjusted operating margin expansion and predominantly, even though we had our volume backwards, the sales volume we had in the quarter was more skewed to exterior sale gallons and also our premium product gallons grew faster than the total, which was a nice tailwind for us in the quarter and more than offset the supply chain inefficiencies that we saw with the lower production volumes in the quarter.

So I know that team is continually pushing for driving the premium side of the business, and we saw it in our third quarter, and you can see the positive results with that.

Your next question is coming from Chuck Cerankosky from Northcoast Research. .

Great quarter. I'd like to ask about a portion of the Res Repaint market, if that's how it's categorized, there seems to be a lot more activity based on our work around investors buying houses and doing very significant rehab of those properties and then selling them back into the existing home market. Is that how it flows through the housing numbers and how significant is that business for Sherwin's contractors?

Well, remodeling is definitely, I think, more favorable than what we're seeing relative to the new residential side and the building side. There has been certainly increasing activity. By and large, though, the market does still continue to be choppy. So I don't believe that, that subsegment is enough to offset the core of the Residential Repaint contractor in general. But we're certainly going to take advantage of that subsegment.

Yes. Chuck, I think the only other thing I would highlight there is, again, we continue to invest in the Res Repaint segment. It's our largest segment. It's our fastest-growing segment, and it's our largest opportunity in that situation you talked about would be part of that Res Repaint segment. And again, we're being aggressively going to the new account and share of wallet growth.

Your next question is coming from Laurence Alexander from Jefferies. .

In the past, you've spoken about when a recovery occurs, you expect to get an amplification effect or an acceleration in the rate of share gains or the delta that Sherwin outperforms. If we do have another year or so of software for longer, and you're leaning heavily into share gains, in a tougher environment, are you pulling forward some of the share gains that we would normally see in a recovery? Or do you still expect that amplification effect? And do you expect that even to be larger because you're taking more share in the downturn?

So Laurence, that was a 2-part question because I answered your first question. So no, we do not believe it's a pull forward on market share. The expectation is that regardless of where the market is, that we are at a minimum of 1.5 to 2x the market. So we are taking share gains. I also would point to some of the exclusive contracts that we're picking up across different end markets on the store side. We're doing that quietly. I believe that when the market starts to move that you will see that we've created structural competitive advantage given some of the additional wins we have here.

Your next question is coming from Duffy Fisher from Goldman Sachs.

So question on the SBUs within Paint Stores. So if you look, both of the Resi businesses have been pretty flat -- I mean sequentially flat as far as their improvement, so they're not accelerating. The other 4 businesses all accelerated in the third quarter in their growth rate. And so I was just wondering, is that delayed pricing rolling through, is that that those markets actually accelerated in demand themselves? Or is that basically where the overlap on your competitive advantage is taking share? What's driving those for with the acceleration in Q3.

Duffy, it's not the pricing piece that you referenced. It is our opportunity in this unprecedented environment to demonstrate the value that Sherwin-Williams can provide. And I would tell you, across every one of our end markets our teams are out, they're responding -- our employees understand how to -- in this environment, how to rapidly adapt and adjust to make sure that we are anticipating what it is that our customers and our contractors are needing.

When we talk about bringing differentiated solutions, it's in these times when I think our differentiation is even more on display because we're committed to our strategy. We are steadfast in putting our customers first, and we have their success in mind. So we're going to continue bringing new solutions even in these times. Al used the word creative earlier and our team's willingness to be creative in this environment is why this is such an important quarter for us, and Sherwin-Williams is weathering this softer for longer environment, we're going to continue to do that.

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

Yes. Thank you again, everybody, for joining our call today. And thanks to all the employees of Sherwin-Williams for all of their hard work. As Heidi said, we continue to operate here in a really challenging demand environment, and we expect that's likely going to continue well into next year. But at the same time, we see challenge as opportunity. So we've got a lot of confidence in our strategy, controlling what we can control: serving our customers, focusing on their success, making our targeted growth investments and controlling our G&A spending. That's the recipe, that's the playbook. So we are focused on finishing '25 strong, and we're going to continue to build on our momentum hopefully, that will propel us well into '26. So thanks again. As always, we'll be available for your follow-up calls and appreciate your interest in Sherwin-Williams.

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

[Audio Gap]

Heidi Petz, Chair, President and Chief Executive Officer; Allen Mistysyn, 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 Access Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com, beginning approximately 2 hours after this conference call concludes.

This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date of which the statement is made. And the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning.

[Operator Instructions]

I will now turn the call over to Jim Jaye. Sir, the floor is yours.

Thank you, and good morning to everyone.

Sherwin-Williams continued to execute our strategy in a demand environment that remained choppy as we expected. We also continue 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 Sherwin-Williams 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 2 segments. Gross margin and gross profit dollars expanded. It was the 12th quarter in a row of year-over-year gross margin expansion. SG&A in the quarter increased for the reasons described in our press release. 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 nonoperating 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 and dividends.

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 the 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 on the second quarter before moving on to our outlook and your questions.

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 don't 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're 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 remains 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 approximately $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 in our R&D 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's 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 didn't 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've learned of recent and significant reductions in customer-facing positions and assets among our largest architectural competitors. We've 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's 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 Sherwin-Williams 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 & 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 the quarter with multifamily completions down mid-teens. Property maintenance and DIY sales decreased. Even with the heightened growth investments I mentioned, segment profit increase and segment margin decreased only slightly. We opened 20 net new stores in the quarter and 38 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. Coil 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, support sales, higher foreign currency transaction losses and a prior year gain on the sale of assets, which did not repeat in the quarter. Severance and other restructuring expenses also reduced segment margin by 50 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 the 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 in our Consumer Brands segment while maintaining our Performance Coatings 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 and full year volumes. 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 basket 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've 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 initiatives.

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 moved downward from $900 million to $730 million, inclusive of $300 million for our building projects. We are accelerating completion and transition to our new buildings as quickly as possible. As we seek to begin getting a return on this project, more activity in the current year will result in a pull forward of certain transition and 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 Suvinil 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 Sherwin-Williams so unique. We will continue to navigate near-term pressures appropriately and with the discipline that you've 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'd like to thank you for joining us this morning, and we'll be happy to take your questions.

[Operator Instructions]

Our first question is coming from David Begleiter with Deutsche Bank.

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 you expect to see that deterioration?

Yes, David. There's really 3 key areas. I don't know that anyone's immune in total here as there's so much volatility. But I would point to new residential continues to be choppier, if not a bit more challenging. We're seeing a bit of evidence in coil as well. And as you see, some good wins there 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. We would love to get back to some of the historical highs. This continues to be choppier for longer. So we're staying very close to this relative to not only our stores, but our strategic partners. I'll point to Lowe's, [indiscernible] and others. I would tell you that we've never been in a better position of strength with some of these partnerships. So David, those are the 3 areas that we're continuing to stay focused on.

Our next question is coming from Vincent Andrews with Morgan Stanley.

Heidi, thank you in particular for the proactive comments on the incremental competitive dynamics. I'm wondering if you can just help us if we think about, let's just say, over the next 12 months in PSG, which of the 6 subsegments 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.

Well, Vincent, I would be remiss if I didn't say there's 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're 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 that -- those projects tend to be longer, bigger multiyear. And so some of that is just going to happen as a function of project timing, it's 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're not waiting for project timing.

And then if I take you to the other segment, I think what you're 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 100% driven by market share gains. And as you kind of go around the horn, we've got the challenges in commercial new residential. Those are really the biggest opportunities in the short and long term.

Vincent, this is Allen Mistysyn. I'd also like to highlight, it's not the -- we talk about the accelerated investments that allow us to grow market share at a faster rate. And I could point to going back to 2019, we have over 400 more stores. We have over 500 more reps in our 6-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's been down consistently year-over-year since 2020.

So we have a lot of confidence that the investments we're making, we're going to get a return on them and it's across each of the Pro architectural segments because we have more people on the street, relationship building with our customers, and we're very disciplined. When things get tough, we do not stray away from our strategy. We stick to our strategy to grow market share.

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

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

Maybe just a little more detail on the SG&A spend. So it sounds like you've got some big opportunities here. I guess, should we be thinking about that as primarily headcount adds? Should we be thinking about maybe the store count creeping higher than what you've targeted? And it also seems like SG&A in the back half of the year, if 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?

Yes, John. Let me start with the building or -- just to get that off the table. You're right. We had originally estimated $100 million. $80 million of that was SG&A all in the second half. We did have some cost pull forward and we're quicker, and we took those. Now I expect our new building costs on SG&A to be about a little less than $60 million in our second half compared to the $80 million. I think when you look at the investments we're making in stores, we still are going to open 80 to 100 stores this year, likely that will continue into next year. So it's really targeted rep adds 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'll use adjusted, it was up a little over $108 million new BOF costs of about [ 40 ] were in that. So our SG&A in the quarter was up 3.8%. All of it was incremental -- an increase in Paint Stores Group. There's some timing and advertising and marketing in there to support some in-quarter promotions. But it's primarily new stores, which is over 91 stores and over 108 reps additional reps in the field that's driving those increases.

If you look at our other segments, consumer was down, PCG was up slightly mainly because of acquisitions. And then admin was down as Heidi mentioned, a high single-digit percentage, excluding the new BOF. So in the short term, we're pulling levers to manage through this tough environment. You saw the restructuring charges are higher than we had originally forecasted. That will carry into our second half with continued adds and Paint Stores Group. But I would tell you, we're going to have a lot of discipline around G&A and we're going to realize the benefits of the restructuring charges we've already put in place. So I expect our second half SG&A to be up only low single digits and 1% to 2% range, which is better than what we had planned coming into the year.

Our next question is coming from Jeff Zekauskas with JPMorgan.

Thanks very much. Heidi, you've talked about there being an inflection point for the stores business, a once in a career opportunity. Is that because of the opportunities following the divestiture of the PPG architectural business? Or is it because we're in a higher interest rate environment, and so demand should increase in the future. Then what is it about the current moment that makes it so important. And then secondly, in the Consumer Brands Group, your stores decreased from 325 to 312, what's that about? And why are prices down in Consumer Brands?

Well, Jeff, let me start with your first question, and I think it's a great question. It starts and ends with a differentiated strategy that we've been working on for decades. And so while this is a unique moment in the industry, it's 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. You then layer into that certainly what's happening from a macro standpoint, the uncertainty, some of the turbulence, and there's 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'm out with customers, I 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's so much volatility and uncertainty, you guys show up and you're focused on our success. So I think in this environment, the backdrop of we've 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 fundamentals relative to market share, new business wins, making sure that we are securing the best possible market position. So it is a unique point in time, and we're not going to -- we never let a crisis go to waste. We're not going to let this environment go to waste. Let me now pivot to your question on the CBG side, maybe Jim, we'll start with you.

Jeff, this is Jim. Yes, on CBG, 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, I remind you, it's price mix. So there's also a mix element in there. You saw that the Europe piece was higher this year than the North America piece and the Latin America piece. There's a little bit of mix impact there and maybe a little bit of price mix in Latin America. And thank you for the questions, Jeff.

Our next question is coming from Christopher Parkinson with Wolfe Research.

Heidi, when we took a look at growth spend, One of your main competitors has allegedly been kind of laying off customers and obviously, some others have been facing a lot of challenges. Has that changed your calculus at all and how you're thinking about allocating growth spend between PSG and consumer brands? Is there anything there? Or has that kind of just been the status quo?

Well, Chris, let me start with laying off customers. I think you meant laying off employees, but we would not see...

Yes. Excuse me, yes.

So in that environment, I think I'm 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. The way that we approach things like pricing, the way that we approach conversations relative to tools to help our contractors be more productive. We're starting those conversations well ahead of the paint season, but we want to make sure that we're 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 layoffs relative to some of our competitors. And yes, you should expect that we're going to be extremely aggressive relative to customer acquisition in that environment.

Yes, Chris, the only thing I would add to that is, with consumer brands in the second half outlook on sales to be down to mid- to high single digits, we have to manage our expenses with the outlook. But again, we have a strategy we're not going to cut our way to help, and we're 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've been doing all along and they've done a really nice job as with demand environment being softer for longer, we're tuck-in around the fifth year. They've done a really nice job controlling their costs, in 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've 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'll get our -- more than our fair share of that market growth.

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

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 made some comments about softer for longer. So the housing market may be will -- should it settle into maybe a 1% to 3% growth rate and you could be maybe 2x that or how 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 it was 1.5 to 2x in the past, now we're squarely in the 2 to 2.5x range. Is that kind of the strategy and objective behind really leaning into these investments during this opportune time?

Yes, Arun, I would say we've been here before and go back to 2007, '08, '09, and we continue to invest when the industry lost 30% of its paint volume and although we're in a different environment, what I would say is because demand has been pent up for longer with existing home sales down, now we're seeing a little bit of softness in new residential. So 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 talked about what our expectations are for growth and that algorithm coming out of -- we get interest rates to start moderating. We get affordability of homes to start moderating and the position we have relative to our competitors, yes, our expectation is higher that instead of 1.5 to 2, we'd grow 2.5 to 3, in some cases, with minimal high single-digit growth. So that -- we've set the bar very high for our Paint Stores Group and when we see demand start turning, the expectations are even going to be stronger then.

Our next question is coming from Greg Melich with Evercore.

I'd 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 managed to have volume be flat or up in the quarter? Can we think of that being 40, 50, 60 bps of relative [ pain ]?

Yes. I think you're probably because of the way it flows out. So think about Paint Stores Group was down low single-digit, consumer volumes were down more than that. So you have a little bit of mix. I'd be hesitant to go all the way to 60 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 60 basis points in a tough volume environment, 12th 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 our production volumes with our sales volume, and you'll see us do that through the second half. But that's also a drag on gross margin in the quarter.

Our next question is coming from John Roberts with Mizuho.

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

Yes, John. So we -- just to level set, we took our CapEx down from $900 million to $730 million with the idea that we're going to continue completing our Statesville architectural capacity project. We're 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've had to do is slow down spending in some of our other areas that yes, they need to be done. We're going to do them. They just got pushed back. So we're not canceling things. We're just moving things back as we reset cash with the demand environment.

Our next question is coming from Patrick Cunningham with Citi.

Resi repaint continues to have strong above market growth. I think there's a lot of debate on the direction of this market. Can you comment on how underlying backlogs and activity evolved throughout the balance of the quarter and into July?

Patrick, the sentiment among these contractors and obviously, there's some variability relative to size of these risk repaint contractors, but by and large, they would characterize the backlogs are stable and that there's work to be done. We are seeing some marginal increase in bid activity. But the caveat here is that as you think about some of these projects, project size could be smaller, but we're working hard with these contractors to help them work, look leads, help them travel and find new opportunities, launching products to help them have more surface area once they're in a home and have more activity to bid on. But by and large, we've gotten to a point of a bit of stability, but we need more volume here. I think we'd be remiss to say that we're happy with where the market is. We are happy that we continue to take share in this environment that when the market recovers, we're going to absolutely be best positioned given the market share gains that we're seeing in the down cycle.

Our next question is coming from Ghansham Panjabi with Baird.

Heidi, just given the current backdrop that you summarized on Slide 8, is your base case at this point of the volume weakness you're seeing at an industry level is likely to spill over into at least the first part of '26. And then 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, long-duration interest rates get lower?

Well, I think it starts with -- as you look by segment, obviously, the devil in the details here. [indiscernible] we've talked a bit about. I do want to hit on -- 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'm out with some of our existing and some new large commercial contractors and the conversation is changing a bit is they're looking for true partners here that I would say now more than ever that we can help them 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 have been down double digits year-over-year. We continue to be up low single digits, so taking share within that segment. If I point to property maintenance, property management, interest rates still continue to be a challenge here, putting -- put a lot of them on pause, and we're continuing to stay really focused with these customers and these contractors, the overage of supply occupancy preservation efforts are still causing a bit of a reduction, but we're continuing to focus on share gains. So Al, if you want to?

Yes. Ghansham, I think I'd say when you look at first half '26, clearly, we're not going to guide to that, but you know we run our forecasting models. And I would just say our line of sight today and this dynamic, rapidly changing environment is less transparent that may be in a stable environment. And that seems obvious. But early indications would say that there is a continuation, and that's why we're paid to influence results, and that's why we're taking action now with additional investments within Paint Stores Group to influence results in the first half. We don't have to -- we're not -- we don't have to be satisfied and aren't satisfied in the demand environment. So we're trying to do things about that to do better. So you can expect us to continue doing that.

Our next question is coming from Michael Sison with Wells Fargo.

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 longer term, what mortgage rate do you think we need to get to for industry volumes to turn the corner? I mean would 6% help, 5%, maybe there's some historical correlation you can walk us through.

Yes, Mike, it's Jim. I think I'll start, maybe turn it to Al or Heidi for other comments. But as Heidi mentioned in her opening, I think if you look in the second quarter, you see that our new res business was up slightly. We've seen completions down in the quarter very meaningfully. For us to be up, I think, tells you we've got to be 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.

And Mike, on your other question here relative to what would be the trigger. I think it's a mix of a few variables. Rates is obviously a huge piece of that as I'm spending time with a lot of these builders while they're anticipating a rate reduction, anything south of 6 is going to be seen as a positive. I would tell you that the general sentiment is while that's important -- of equal importance is consumer confidence and affordability. So I think it's somewhere in the mix of those 3 things coming together that we are absolutely staying laser-focused on.

Our next question is coming from Aleksey Yefremov with KeyBanc.

I wanted to ask you about new construction markets within PSG. You just mentioned outperformance in new commercial and to keep on performing in new residential as well. Do you expect to stay roughly these levels of sales in the sentiments in the second half? Or could there be more pronounced deterioration sort of in line with the completions?

No. I think, Aleksey, what we've talked about with -- coming out of our first quarter call, the commercial property maintenance and property maintenance was already under pressure because of CapEx projects and the higher interest rates. We really don't expect to see an inflection good or bad in property maintenance. It's just -- it's bouncing along. We talked about new res in our first quarter call the same way, just kind of bouncing along up or down a little bit. Clearly, with foot traffic and some of the reports you've seen it's gotten softer. And that's what's driving our second half low single-digit volume decline in Paint Stores Group, offset by higher price. So it just feels like we're kind of in a not -- we're not getting better. We're not getting worse in a number of these segments.

Our next question is coming from Josh Spector with UBS.

I just had a few quick follow-ups just probably mostly for Al. First, on SG&A, when you're talking about low single-digit inflation, is that the adjusted basis that you talk about? So 2Q was 3.8% ex [indiscernible] items. Is that the right basis to compare against? Second, when you talk about the onetime impacts in SG&A, 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?

Yes, Josh, the 3.8% 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're right. We're going to have essentially 2 quarters of the new building primarily pretty evenly spread on SG&A between the third and fourth quarter, but that adds about 1.5% to our SG&A in the second half. So which tells you that we're going to control SG&A tight on other -- our other segments, in particular, our admin segment. And then when you look at our full year EPS guide, part of the reduction part of that $0.50 reduction was due to lowering our production volumes 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 80-20, 80% 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.

Our next question is coming from Chuck Cerankosky with Northcoast Research.

Could you talk about what role product pricing plays as Sherwin those aftermarket share and volume growth across the various end markets, please?

Yes, Chuck. I think we have confidence in the value proposition that we provide our customers. So we do not approach new account activity on price alone. I think if you look 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, our sales reps and our store employees. We are very knowledgeable and can help them not only on getting through projects, but also helping them utilize the tools and 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's 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.

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

Heidi, I think you commented that you doubled the size of your previously announced restructuring program. I was wondering if you could elaborate on the magnitude and flow-through and sources of the savings there. For example, 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?

Yes, Kevin, the -- obviously, the rationale of equal importance here. And as we did expect a choppy environment coming into '25, but we didn't expect a 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., I'll have Al give you a little bit more color into some of the areas.

Yes, Kevin, I think when you look at the [ $105 million ], about 20% of that is in gross profit. 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 as we get later this year and into the first half of next year, we'll start seeing the benefit of those. Obviously, the biggest increase is on SG&A. And we do expect to see annually about $80 million in savings related to the restructuring chart restructuring activities that we have completed thus far. I think you'll start seeing a good portion of that in our second half and will annualize into 2026. And we'll continue to look for opportunities and levers as we monitor the demand environment.

That'd be one of of the -- we talk about our 6 enterprise priorities very consistently with our 64,000 global employees. One of them, as you remember, is around simplification. And so where we have laid out road maps to everything from raw material to asset optimization. What you're seeing here is that, in effect, and essentially pulled forward. So a lot more work to be done in simplification, but some good progress done by the team.

Our next question is coming from Duffy Fischer with Goldman Sachs.

Just a 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 CSB into PSG a couple of years back. But this is the first time that we're 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 2 segments? Or might we get kind of a disproportionate burden in CSB?

Yes, Duffy, you're going to get in the short term, meaning over the last 2 quarters of the year, that deficit, if you will, because of the lower production gallons will stay in our Consumer Brands group and then we'll true up what the costs are in the -- when we do the standards in January. And some of that will flow through Paint Stores Group, some of it will find its way in our Performance Coatings Group. Because part of what we're trying to do, Duffy, is maintain the staffing we have at our factories and distribution centers similar to what we have done in the past with lower volumes, like when we were having trouble getting raw materials through our factories and products through our distribution centers, maintaining those head count because it's hard to -- once you lose them, it's very hard to get them back. So we're trying to do everything we can and trying to be creative to do different things to keep as many people as we can.

Our next question is coming from Mike Harrison with Seaport Research Partners.

A couple of questions around raw materials and pricing. First of all, in terms of the deflation that you're expecting to see in the second half, can you give a little bit more detail on what specific raw material baskets might be improving? And are there any materials that you're kind of keeping an eye on and then on the pricing front, I'm 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?

Yes, Mike, sure. I'll take the raw's question. So as we said earlier in the year, our initial guidance for the year was to be up low single digits, and now we're 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're seeing a little bit of relief, some of the resins as well, where we're seeing pressure is around applicators, packaging, certain pigments, not so much [ TI ], but other pigments and extenders. That's really being driven by the tariffs.

So when you shake it all out, Mike, 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, and I'll see if Heidi or Al want to add to this, but as Heidi mentioned, we're seeing competitors actually do the opposite. We saw competitors with -- in the quarter, a high single-digit price increase announced in the part of the paint selling season, which as you know, can be highly disruptive. So I think we're going to maintain our discipline. We don't 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 don't know if you want to add anything to that.

I think you said it really well. 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 -- we don't want all the sales to 1 quality sales. So when we look at price volume, you should expect that same discipline in the back half and going forward.

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

You called out unfavorable mix in Performance Coatings is the main impact on pricing in the quarter. I was wondering if you can expand on that in a little bit more detail. And was there any mix impacts in Consumer Brands as well driving the lower price?

Yes, Garik. When you look at both of those businesses because of our maturity and scale in North America, 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 midsized accounts through our facility. So I think quick turnaround, custom color and higher gross margins. 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's quite honestly, what we saw in the quarter.

Our next question is coming from Aron Ceccarelli with Berenberg.

You say, your Performance Coatings Group sales were flat but your adjusted segment margin was down 260 bps, and you mentioned increased cost to support sales. Perhaps can you explain a little bit on this. Is this relating to promotional activity to support sales and on PCG again, I see that you kept your full year guidance stable for up or down low single-digit percentages. We saw this morning compared to [ ExxonMobil ] also downgrading guidance on volumes. I'm 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 doesn't seem more than 1%, let's say.

So I'm going to start with your second question first, and then I'll 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 -- the market is not going to help us, the core health of where markets are even globally or are under pressure. The team's focus on 2 things are at the forefront of everything that we're doing. It's obviously market share gains, but a big focus on new business wins and conversions. And you'll see that across every of the divisions, a great leader in Karl Jorgenrud of that business, a lot of discipline. And even in a volume constrained environment that they work with the high teens that we've committed to when we put more volume through that, we're very confident we're going to continue to expand our operating margins there.

Yes. Aron, when you look at the second quarter year-over-year decrease, obviously, the lower net sales, partially offset by good cost control that I mentioned earlier. We also had other nonoperating expenses, which were significantly higher year-over-year. And so the decrease in segment profit and segment operating margin would have been down maybe 120 basis points due to the just -- we had a gain on sale last year. You have FX losses this year that we didn't 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.

Our next question is coming from [ Matt Dale ] with Bank of America.

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 of 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?

Yes, Matt, what you saw in the second quarter was that we adjusted our production schedules to down to account for the lower sales volumes that we saw. And so when you look at our sites, we're probably 60% fixed, 40% 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, we believe we have a good production plan. I talked about the reduction in our consumer brands outlook, primarily 80% of which is gross margin, gross profit driven. 80% of that is lower volume sales, 20% of it is due to the global supply chain inefficiencies. And we're trying to build more flexibility into that organization.

I think [indiscernible] and team have done a nice job of reducing their fixed costs. But we'll see. We'll see if it's -- if the markets in demand sutures further, we have discipline on getting to the right inventory number by year-end. So we don't have an issue going into 2026. So it's hard to judge at the current time. I think we've been pretty realistic about volumes, but we'll have to -- we're going to manage it as we go.

Our next question is coming from Laurence Alexander with Jefferies.

Just very quickly, could you give a bit more detail on what you're 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. Could you just give us a sense for what the run rate will be at year-end? So what the net tailwind would be in 2026 from the cost measures this year? And as demand accelerates or as you see volumes come back, how quickly would CapEx need to come back to support a better environment?

Great. Laurence, I'll start on the Refinish question. We mentioned. You said it well, the growth in new accounts, new business continuing to drive record high installs to offset the core. I don't necessarily see any underlying health coming back within the industry itself. As you know, there's been a lot of challenges relative to some of the claim environment, higher insurance premiums, et cetera. That continues to be a headwind. But as I mentioned, 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're very confident there's a lot of market share gain opportunity for us in that segment. Maybe if you want to touch on the productivity of Laurence's question.

Yes, Laurence, the restructuring activities that have been completed to date should provide us about $80 million savings annually. We'll see a little bit less than half of that in our second half and then the rest we'll see in the first half next year. And then on your CapEx question, we're still going to target 2% of sales for CapEx. And the reason I have a lot of confidence in being able to maintain that as we've gotten ahead of some of the growth in packaging and the capacity expansion we completed in our [indiscernible] new France factory, our D side factory, our Rochester, Pennsylvania factory. We're 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 states that 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, we'll 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.

And one last piece, Laurence, to leave you within this. Al said this earlier, and I think it's really worth underscoring is this notion of discipline. So discipline when things are good, but also disciplined in a challenging environment. And as we've said earlier, this is not an environment for incrementalism. This is truly an opportunity for a step change in our industry.

I also want to take a moment just thank our 64,000 global employees who are out there on the front lines every day, partnering with our customers, our contractors to help them win. We couldn't do it without them. So I appreciate your question.

Thank you. As we have reached the end of our question-and-answer session, I'd like to turn the call back over to Mr. James Jaye for closing remarks.

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

We feel very good about what we're doing and appreciate your confidence in us and your support for Sherwin-Williams. We'll be available for your follow-ups and thank you very much.

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