The Sherwin-Williams Company (SHW) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the 2024 Sherwin-Williams Financial Community Presentation. My name is Jim Jaye. I'm the Senior Vice President of Investor Relations and Corporate Communications for the company. And on behalf of our entire leadership team, we're really glad that you took the time to be with us today. We've got an absolutely wonderful agenda with some very good speakers. As you can surmise putting on an event like this is no easy task. So before we begin, I do want to recognize just a couple of people, namely our Vice President of Investor Relations, Eric Swanson, in the back, who many of you know; and Mandy Pavlich; Eric Griffiths; [indiscernible] and Natalie Darr, all who helped put together today's program, amazing team. So today's presentations will be available on our website after the presentation. What I would tell you as well is our commentary today is covered by our customary forward-looking statements. Today, I'm going to provide you with a market update. And what you're going to hear is that demand remains choppy. What you're going to hear is that some end markets are stronger than others. But what you're also going to hear is how Sherwin-Williams continues to overcome these conditions. You're going to hear why the Sherwin-Williams investment thesis remains such a compelling one. We've got the right strategy, we've got the right people, got the right solutions, and we're relentlessly focused on making our customers more profitable, more productive. We've got room for share gains in every market that we serve, and we've continued to invest for success. We're never arrogant about what we do, but we're very confident that we're going to continue to outperform the market. So let me begin with the U.S. architectural paint market. I'll walk you through some ideas there. The chart on the left shows you our best estimate of U.S. architectural gallons. And you see the peak there was in 2020 during the outsized DIY growth that we had during the pandemic. Since then, no secret, the market has been under pressure. Winter Storm Uri significantly disrupted the raw material availability in '21 and well into '22. And '22 and '23 has been a story of inflation impacting demand as well. So while the industry was down in those years, our Paint Stores Group actually bucked that trend and actually grew volume over that period, including a mid-single-digit gallon growth in 2023. We're very confident that, that trend is going to continue. And shortly, you'll hear from our team why. On the right, you see building stock square footage, and that's the installed base, if you will. This means that there's more to maintain because it's continued to grow and grow every year. There's more put out there every year. But because of the challenges in the last few years, portions of that maintenance have been delayed. But we all know you can't delay maintenance forever. At some point, that square footage is going to get repainted and Sherwin will be there. These are the major architectural end markets that we serve, and we would love for every one of these to be up at the same time. But we're very realistic, we know that's not going to happen very often, and we plan for a variety of conditions. Strength of our company is that we're strong and well positioned across all of these, and we can pivot between them as market conditions change. In each of these verticals, you see here on the slide, we've indicated our view of where market demand is near term and the expected trend longer term. We know we're not immune from macroeconomic factors. But again, our job is to outperform these markets where we participate, and we're working hard to do that every day, and we have significant share gain opportunities in every one of these. We believe U.S. demographics underpin our confidence in the markets ahead and should sustain long-term demand. You have the baby boomers aging in place and remodeling. You have GenX moving up or downsizing, which creates new and remodel demand. And the millennials continue to form households and our new renters or first-time homebuyers, and if you're waiting in the wings, you've got the largest generation in U.S. history, Gen Z, which is going to drive another wave of household formations. And speaking of household formations, we estimate that number at about 16.5 million or so over the last decade. But over that same period, we've had about 13 million housing starts. And I know all of you are very good at math so that difference is about 3.5 million or so. And if you think about that, that gap -- on top of that gap, you have another 2 million structures over that time that have been demolished. So that brings that gap to 5.5 million. The takeaway is clear. We have a fundamental shortage of homes in this country, and demand should be strong for years to come. So if I take a little bit of a deeper dive into new residential, which we define as our single-family offering. Single-family starts were soft in '22 and into '23, and that led to some softer completions in '23. The market, as you all know, was down significantly. But what did Sherwin-Williams do in that period? Well, we grew share and we outperformed. Our sales were down less than 1% in new res in 2023. Those single-family starts then began to recover in the back half of '23 and into '24. Completions are starting to get better, still a little bit choppy, but they're getting better, and we're continuing to outpace in that market. We delivered mid-single-digit growth in new res in 2Q. Yes, mortgage rates are still high, but eventually, we're going to see rate cuts. And in the meantime, builders are taking steps to address affordability. They are still offering incentives. And simply put, life goes on, right? Household formations are going to continue, families are going to grow, and consumers are adjusting their expectations when they realize we're not likely to get back to a 2% or 3% mortgage anytime soon. It's only a matter of when demand strengthens, not a question of if. And we continue to expect that we're going to grow here with national, regional and custom homebuilders. Res repaint, as many of you know, is the largest part of our Paint Stores Group. And it's also the segment where we still have the most growth opportunity. And it's no secret here that we've had some challenges in the demand environment, but there is good news. And that good news, part of it is, Harvard's leading indicator of remodeling activity is bottoming out here in '24 and is going to start to recover in '25. I think the other good news is, if you think about painting, it's an affordable high-impact type of project, and it generally holds up better than the trend that you see here. Another area that impacts res repaint is existing home sales, and they've been down year-over-year for 35 straight months. It's hard to even say that number. But what has Sherwin-Williams done in this environment? We have been on offense. We've been investing in stores. We've been investing in reps and products to gain share, and it's paying off. In a down market, our residential repaint sales have been up by a mid-single-digit percentage in each of the last 4 quarters. Eventually, we're going to see that log jam and existing home sales break. Again, it's only a matter of when, not if. And over the long term, you see some of the other drivers here that are going to drive repaint demand. It's our biggest growth opportunity and the pie gets bigger every year, and you can count on us to continue to be very, very aggressive in this space. If I move on to the commercial side, Sherwin has been on a strong run here with our new commercial sales up double digits in '22 and '23. However, we've seen multifamily and commercial starts soft since early '23. We've previously said that we're going to see at some point some slowness in completions in the latter part of this year and into '25. Some of the other indicators that we look at, Architectural Billing Index have been soft as well. But we know we can't completely defy those trends, but what we can do and what we are doing is, again, going after share gains. And we also expect that momentum that I just talked about in res repaint and new res to be a counterweight here. On the property maintenance side, a couple of important drivers. One is apartment turns, which have held up reasonably well to this point. The other is CapEx projects. And some of those CapEx projects have been delayed near term given the tighter lending standards, inflation. Again, as I said earlier, you can't delay maintenance indefinitely. And if property managers want their properties to be competitive and remain attractive, they're going to have to invest. We've also seen a surge of completions here in multifamily, and we know all of that is going to need maintenance in the years ahead, so significant growth opportunity here as well. The pie continues to grow, and Sherwin continues to grow our exclusive relationships at all levels of this important market for us. So while Pro continues to gain share, DIY is still a very important part of the market for us. We know DIY demand has been soft, inflation, depleted savings, household debt, all those have been weighing on consumers, but we also know it's a cycle. And eventually, DIY is going to recover. I mentioned the LIRA Index starting to point in the right direction. Existing home sales eventually going to turn as well. In the meantime, we're very confident, very confident. We have the right partners, the right products, the right brands, and services to win in the DIY market over the long term, and that's exactly what we intend to do. So whether it's Pro or DIY, Sherwin is there with the right solutions to drive our customers success. Let me now give you a couple of thoughts on the industrial side of our business. And what I would say here is, just like architectural, demand has been highly variable by end market. But just like architectural, we refuse to accept that as an excuse. Our job is to overcome and outperform. And we're continuing to build a really strong and differentiated industrial business. And we're operating with that same discipline, that same mindset. We're gaining share by delivering solutions that make our customers more productive and more profitable. And despite the softer macro, we've continued to drive margin improvement in this business. That tells you that our customers continue to see value in partnering with Sherwin. We operate in a variety of different industrial end markets. There's a lot of different drivers and indicators for us. However, there's one that gives us an overall view, and that would be the Industrial Purchasing Managers Index. And as a reminder, the largest part of this is new orders. Chart shows the index by region over the last 3 years, and I believe the descriptive word here is technical term choppy. So we've seen that over the last couple of years. We know our job not to accept these charts or report these numbers. Our job is to find the areas where we can grow and they're numerous, and you're going to hear about them today. We have trends that favor us in every one of the markets that we've chosen to participate, and we bring distinctive competitive advantages in every market that we choose to participate in. So as far as our specific Industrial divisions, I'll start with Auto Refinish. Near term, we have some economic pressure. Customers reluctant to pay deductibles, and that's resulting in lower insurance claims, but we're offsetting this with our differentiated business system in Auto Refinish. That's helping us to gain share. And our new system installations in Auto Refinish are robust. And in North America, our largest region, sales were up low single digits in the second quarter despite the soft environment. I'm very excited for you to hear more about this business later in the program today. We look at our Protective & Marine business. We've seen some project delays here, but we feel very good about the pipeline. A lot of opportunities here, onshoring, flooring, oil and gas, water, manufacturing and infrastructure. And we've done some bolt-on acquisitions here over the last few years that have filled out our portfolio and added to our differentiation. Packaging, we remain very bullish, and we expect to see momentum in our second half. Near term, you have beverage can demand still remains positive overall, and that overall shift from plastic to cans remains a tailwind. We also feel very good about recovering the temporary share shifts that we saw in the back half of last year. And if we look out a little bit further, you'll see that there is a ban on BPA coatings that takes effect in Europe in 2026. And we expect to see customers that haven't switched yet to non-BPA to begin doing so in 2025. Sherwin is the partner to help them make that transition. We have the industry-leading solution in our V70 product offering. And just this year, in our first quarter, we opened our new plant in Tournus, France to serve those customers making that transition. Our coil business largely serves construction and manufactured products end markets. It's a very differentiated business from its competitors, letting it take share, many of you don't know what this business is all about. That's why I'm thrilled today, you're going to hear more about our coil business and what separates it, what makes it such a wonderful part of our business. And before leaving this slide, I'll point out that both packaging and coil came to us as part of the Valspar acquisition in 2017 and both of these businesses have been just wonderful and high-performing additions to our portfolio. A large portion of our wood business is driven by cabinets, flooring, furniture, and I talked about some encouraging near-term signs in U.S. new res earlier, which should result in some growing momentum for this business. The long-term demand picture on housing is also a tailwind for us here, again, when, not if. We also feel good about the acquisitions we've done here, which have added to our technology and our talent. And last would be our General Industrial division. And quite frankly, some of the more significant end markets here such as heavy equipment and transportation are under pressure at the moment. But we know how to deal with cycles and these markets will recover. And as an offset here near term, we are doubling down and focused even harder on new account wins, share of wallet and optimizing the business. We can't control the demand environment. We're focused on what we can control. Our team is deep and experienced. Our solutions are differentiated. We're passionate about making our customers more successful. And we're committed to creating value for you, our shareholders. Our consistent and disciplined approach is working. And here to tell you more about it, is our President and CEO, Heidi Petz.

Little technicality, I would like to say good afternoon, everyone, and it's great to see you all here. I am really pleased at the fantastic turnout here today and that you all have taken the time and the interest to learn more about what it is that Sherwin-Williams is doing to continue to win in our space. So I'm going to start with a very simple concept. It's hard to pull off, but it's something that is very consistent throughout our business is this idea of success by design. And if I could pull you into a store, a facility, a distribution center or a boardroom, you consistently would hear us talk about how we're thinking and planning, how we are making decisions as an organization, how we're investing, when we're investing, this idea, this overall approach of success by design. And I would tell you that this approach is very proactive. It is very aggressive and it is very disciplined. When we think about what we're trying to create, the outcomes that we're trying to ensure that we are designing, it starts with the end in mind and building out a road map that certainly has clear accountability, clear metrics, clear owners, all of the things that you would expect at an organization of our size. But we have a very clear and consistent strategy, and we're very well adept at being able to assess and adapt and be flexible given what's going on in this macro environment that Jim just laid out. Jim made the comment, too, the market is going to ebb and flow. You're going to see some segments that are up, you're going to see some that are challenged and I love how Jim characterized this. We would love to have all segments up at all times. But we are pragmatic, we are realistic, and we want to make sure that we're able to adjust to the market around us without abandoning our strategy. I would also tell you that other companies in our space may be more content to bump along with the market. And I want to be very clear with all of you here today that we are not. Jim said this well. Our job at Sherwin-Williams is to stay close to our customers, make sure that we are reading all of the not the lagging indicators, but the leading indicators in our space and outperform the market. We are consistently refining our portfolio. You're going to see more evidence of that today when you hear from some of the leaders. And we are best positioned within our priority segments, and that does not happen by chance. Making sure that we're timing our investments around seasonality in the architectural business and around the cyclicality in the Global Industrial business. We have a very ambitious profitable growth agenda. You're going to hear more about that today. And I'm excited to hear what our leaders are going to share with all of you and for all of you to walk away with some clarity there. So on our first slide, many of you are very familiar with our company, but I thought I would just take a minute to give a brief overview for some that are new to our story. We have delivered, last year, $23 billion in sales, and many of you have heard us say this. While we are the largest paint and coatings company globally, we never set out to be that. We set out to be the best global paint and coatings company. And we do that by making sure that we are in lockstep with our partners and our customers along the way. Our success is their success, and their success is making more money when they partner with Sherwin-Williams. We operate in 3 reportable segments. Each segment is focused on delivering value to these priority segments that we've talked about and you'll hear a lot more about today. But I also want to be clear about something in our space that is very important. We are not trying to be all things to all people, and we have no interest in playing in commodity spaces. You'll hear us talk about priority segments, you'll hear us talk about having significant market share growth opportunity within each of the segments that we're in. We have more than 65,000 employees globally. We have over 5,000 company stores and branches and more than 140 manufacturing and distribution facilities and serving customers in over 120 countries. And we also have one of the best portfolios of industry-leading brands in the industry. I mentioned this earlier, but I want to come back to, while others are bumping along or, I would say, assessing, reassessing or changing their strategies, we are consistent. The amount of feedback I hear when I'm out with customers, thank you for doing what you say you will do. You are consistent, you're reliable, you're dependable and guess what, we are not going anywhere. We win when our customers win, and we have a very clear mantra, and you heard Jim and you'll hear everybody talk about this. It's almost -- it's practically tattooed on everyone's forehead, which is simply this, we provide differentiated solutions that help our customers to be more profitable and more productive. I'm confident in our team's ability to read the market, to create opportunity when our competitors are abandoning their strategy. And when some of our competition is choosing to pull back or exit the market, it becomes more opportunity for this team. Creating a lot of opportunity for all stakeholders, certainly, our customers, first and foremost, our employees in terms of career opportunity, the communities that we serve and ultimately, obviously, all of you here today as our shareholders. And we measure success on the 4 fundamentals that haven't changed, which is, first and foremost, driving above-market growth, return on sales, return on net assets employed and ultimately generating strong cash. We're guided by these key enterprise priorities that I'm going to share with you along with our core values to drive this success by design model. We also share the obvious here, but we know that success here starts and ends with delivering results. And while we're proud of the recent results, I really want to point to the track record of this organization. The last 2 decades, we have significantly outperformed the market and our competitors. But what we talk about at Sherwin is we don't stop there, we will raise the bar. We know that competition for investment dollars is fierce. And so when we look at benchmarking, it's well outside of our peer set and making sure that we're looking at other multiple high-performing companies across the industrial landscape. So we intend to keep this trend going well into the future. And today, you're going to hear more from our presidents and leaders about how we're going to do just that. So we're proud of the success that we've had, but we're never complacent. And it's important that as we think about taking a very humble and aggressive approach that we're continuing to earn the trust of our customers and our shareholders every day. And we do refuse to be complacent. We have a saying complacency kills, we have no interest in being part of that. We are very well positioned, as you can see here, for continued value creation. We have unique assets that we have disciplined, had a disciplined process to build over decades, that we think and believe sets us apart and creates more distance between us and our competition to have to duplicate. We have significant opportunity in every priority segment that we participate in. Because of our strong cash generation position, we have the ability to consistently and with agility, invest back into our business, when and where we're confident that we can deliver a return. We've talked about this for a long time, and management team knows this. We don't run the company for the perfect quarter. The quarter is very important, but we don't run the company for the perfect quarter. We do run the company to create long-term shareholder value. Our entire leadership team, and I'm really excited to share this with you as we talk about 1 of our core key measures of above-market growth. Our entire team is focused on shaping the next era of profitable above-market growth. And I'll share this with you. This won't be new to many of you. Beginning with my time as the Chief Operating Officer, my last role, we took the time to really align around these key enterprise priorities that ultimately, working together, will help unlock this incremental above-market growth. Each of these priorities, while easy to see on a slide, has a lot of work streams under them, clear ownership, clear time lines, clear KPIs and ultimately, very clear accountability. These priorities also reinforce success by design, and they reinforce together that we will continue to deliver above market growth. And that leads me to the very first one, which is talent and culture. We know that success begins and ends with our people, and this is something that I take very seriously. It's a center of everything that we do, and we are very intentional making sure that we continue to have the very best people in our industry. And we also don't take this for granted. We know that competition for talent is fierce, and that's why we aim to be the employer of choice. So our approach and you'll see it on here, is making sure that we're attracting and onboarding with intent, that we are retaining and developing and focused on internal progression, and ultimately, because of our global footprint and 65,000 employees, making sure we're providing career opportunities and career mobility. In terms of our culture, this is also something near and dear to our hearts, and I think something that makes us extremely unique. Sherwin-Williams is a place where you can create your possible. This is a program that we've launched, and we're continuing to expand on to help all of our employees understand all that is available to them within Sherwin-Williams, ensuring that every employee feels a sense of belonging. We're committed to supporting our employees in 3 key areas: career, connection and life. There's a lot of detail and work behind that, and I would welcome you all to go to our website for more information there. And we continue to focus on making sure, again, we continue to have the very best talent in the industry. The next one is simplification. Another -- these are all near and dear to my heart. So I'll spare you having to hear that 3 more times after this. So simplification and what does that mean? It's simply taking complexity out of the business, and I would phrase this more in an end-to-end approach. It's a mindset, it's culture, and making sure that we continue to optimize our cost position and our speed to market as we grow and scale the company. So some of the key areas that we're focused on here are maybe obvious out of the gate, maybe at the long tail with some raw material consolidation. And then as you move to more complex work to take complexity out would be manufacturing productivity, finished good consolidation and obviously as well service. And it's not just about simplifying what we have today and what exists. It's making sure that we're thinking ahead more proactively by design, and that we're avoiding complexity in the future, how we think about product development, how we think about processes to ensure that, that discipline, that mindset goes far beyond the work streams that we have laid out today. Next, I want to talk to global supply chain and the organization where we believe we have a clear competitive advantage. And if I look back, and I was in my previous role, the industry-wide supply chain disruption that we all lived through, all very well versed on, in 2021 and '22, certainly following winter storm Uri, I would characterize that as difficult, challenging and gave us an opportunity to find ways to get stronger and become even more resilient and even more responsive to our customers. So I'm really excited, and we're going to talk about this a bit here. But under Colin Dave's leadership, who's over here in the corner is taking us down a very impressive path as we look end to end here, starting with procurement, manufacturing, distribution and obviously, logistics. And Colin will be joining us later for anyone that has questions for Colin. We've successfully strengthened our relationships with our key suppliers and qualified additional sources separating strategic suppliers from transactional suppliers. We brought on additional capacity in this time to ensure that we are best positioned for the demand that we know is coming. And our new R&D center that will be coming online in 2025 will help us to continue to build on this momentum as well. Next is digitization. This is a really important enabler to our above-market growth. In the back half of 2023, we called out some strategic investment here that I'm sure many of you will recall, designed to make business easier. And so whether it's externally with customers or certainly internally with our employees, we want to ensure that we are built for the speed that we know is coming. And I will tell you, it all starts with data. Because of our direct model, we own our data. And when we use this data, we're able to understand our customers' needs, sometimes before they do, helping to anticipate and create more tailored solutions. As we continue down our AI journey, this also becomes a multiplier for us as we look to put even more space between us and our competition. We're driving productivity of our sales reps. We're better able to predict and plan as market conditions change around us. We continue to enhance our e-business platform, driving more customer connectivity and as you would imagine, the more tools that we're providing to our customers that are helping them make more money, the more loyal they are to Sherwin-Williams. Internally, we're also continuing to refine, and I would say, harmonize our ERP systems, which will drive increased productivity for us and have -- I would take it to the more data-driven decision-making even than we have today. Really excited at the end of the day, what we're after here is an improved customer experience. And last, but not least, is sustainability. We're simply focused on doing the right things here. And we have a 158-year culture and track record of doing just that. It's also important that we're having open discussion that we're moving in lockstep with our customers. Our product blueprint, our environmental footprint and our social imprint, this approach has proven to be a really good framework for how we are taking advantage of making progress here. You'll see on this slide some recent highlights that show our progress and our ongoing commitment. And another area that I would encourage if there's any more inquiry, we've got a lot of information online, and welcome you to review that as well. We're also continuing to help our customers who are working hard to achieve their sustainability targets. And I do believe that there is incredible opportunity for Sherwin-Williams as we continue to partner with our customers here. So again, all of these priorities that I've laid out are ultimately leading to incremental above-market growth and returns. And it all comes back to our consistent strategy and that mantra of providing differentiated solutions where our customers have increased profitability and productivity. Today, I'm really excited for you all to hear directly from some of our business leaders about their priorities and what they're doing to win in their space. On the global architectural side, you're going to hear from Justin Binns, who will take us through the Paint Stores Group. Justin has been with our organization for 30 years, great experience, and I would encourage you to pull him aside as well when we've got some time. We'll all be up here on the Q&A. Todd Rea will come behind Justin. Todd is another 30-year veteran of the business, runs our Consumer Brands Group and is going to share some insights that build on what Jim laid out and what he's tackling. Then we're going to take a brief break, and then when the lights come back and the music dies down, Karl Jorgenrud will come back up to the stage, Karl is another 30-year veteran that runs our global industrial business. He's going to talk a bit about the overall portfolio approach and then he will introduce a few of his division presence that are going to do a deeper dive. We wanted you to walk away with a little bit more detail into some of these businesses. So with that, I want to thank you all for being here today and look forward to our Q&A at the end of the program. Thank you very much.

Well, good afternoon. I am Justin Binns, as Heidi pointed out. And thank you for that introduction, Heidi. I am pleased to talk to you this afternoon about our architectural business. You've heard this now. We're going to go 3 for 3. Our strategy remains consistent. We believe in it, and we're investing in it. Our global architectural organization leverages the collective strengths and the expertise of our Paint Stores Group and our Consumer Brands Group, while preserving the uniqueness between them. We have a very disciplined focus and provide unique solutions for each of our targeted architectural market segments. For customers that prefer that specialty paint store experience, we have Paint Stores Group. And for customers that prefer to shop at a home center or a dealer, the Consumer Brands Group has a strategic partner -- has the right strategic partnerships in place. This means that we have the right model, we have the right brands, we have the right channels, the right approaches to meet our customers where and how they need us. Our segment-first strategy lets us see the market from a customer's perspective, which allows us to avoid blind spots, so we can grow our business at an accelerated speed and increase our agility at the same time. It also strengthens our ability to address the full marketplace in a way that makes Sherwin-Williams even more unique and differentiated from our competition. If there's one thing I want you to take away from my presentation this afternoon, it's this. In a competitive landscape that's always changing, we are the company that you can bet on. Our success by design, as you've already heard, is there, and we have a track record that we're going to deliver. And we delivered nearly $13 billion in top line sales in 2023. And we did this with a dedicated and knowledgeable army of over 30,000 employees. These employees work in our 4,700 segmented paint stores and in our 3,800 segmented territories. And we added over 1,400 college educated management trainees into our family in 2023 as well, which is our historical number. We remain focused on how we differentiate ourselves from the competition, and we continue to drive this differentiation in all segments, it's residential repaint, new residential, commercial, property management, DIY and Protective & Marine. And as you heard both Heidi and Jim say, we truly believe that we have a very long runway in each and every one of these segments and that the pie is continuing to grow. We remain committed to our unique and controlled distribution model. We know that we own the customer experience. And in my 28 years, I've never seen a more competitive architectural landscape that's ever changing. And I've also never been more confident that we're going to deliver in this environment. We own the key elements and the customer experience that drives our customer success. And when we own everything, we can proactively respond to changing conditions. So that we also know that when new opportunities present themselves, we can capitalize on them faster than anyone else in the market. The complete ecosystem of services and solutions that we offer our customers allows us to stay connected with them at every single step of their journey from the start to the finish. So let's talk about talent development. We own talent development, and we own the investment in our people's development. And there is no doubt that our biggest asset is our people. You heard me say by design already, and that applies here, too. Everything we do with our talent in the stores starts on their very first day, Day 1. We have the most talented employees the industry has to offer, and it's not by chance, it's by design. We handpick our talent and invest in their development from the very beginning. I truly believe and we truly believe that a company is only as strong as its people. And when you're able to attract and maintain the best and educate the best, you're driving long-term success. It goes far beyond the walls of the company. We own our segmented and focused sales reps. Every single day, our team, our rep team is ensuring our Pros receive the support that they need to make their businesses more profitable. When a customer needs a solution, our reps deliver. Whether it's a segment-specific solution or support from marketing, the rep's expertise that we have is unmatched. They hold a strong sense of ownership with their respective markets and territories. And while we provide them the tools, data and resources for their success, our reps are truly the ones that build on this and create a business model that aligns with their customers' needs. At the end of the day, our goal in Paint Stores Group is very simple. We want to help our customers succeed and be more profitable. And when they win, we know that we're going to win. And that's why we built the most knowledgeable team in the industry, starting from Day 1. We also own product innovation in our product portfolio and product -- product portfolio that's focused on productivity. We believe that differentiation is a huge driver in today's economy. And we're committed to investing in innovation to ensure that we bring our customers the newest and the most advanced products to help them be more profitable and more productive. Last year, we introduced Gallery Series, which has been a huge success with the res repaint professional. This coating has the fastest dry time of any kitchen cabinet coating or comparable product on the market. And it allows the professional and our Pros to coat cabinets more quickly and do more jobs, and it also opens up another revenue stream for them. It does all of this while providing a factory-like finish. It's been so successful that this year, we're going to be adding to the line with a new Gallery Series Primer. Another one of our products, Scuff Tuff that prevents the scuffs before they start was recently selected as a 2024 Green Builder Sustainable Product of the Year. This award represents today's most innovative products that make homes more efficient, resilient, healthy, intelligent and safe. We are constantly evaluating our product offerings through the lens of quality and productivity, ensuring that our customers receive both top quality, high-performance products they need to work efficiently and effectively. And that's why Sherwin-Williams was awarded the #1 spot in Customer Satisfaction with Interior Paints by J.D. Power. We truly believe that when you're doing things right, it pays off. We own the color journey. And when it comes to color innovation, we pride ourselves on being the color experts, providing unparalleled solutions and support at every single step of the journey, both in-store and out. Many homeowners are overwhelmed when it comes to color selection. We're committed to making the process simple and as stress free as possible. From color samples to inspiration, we provide everything they need to choose their perfect color with confidence. In April, we launched a new app for homeowners that is quickly becoming a leading app in the color space. Our color expert app makes it easier than ever for homeowners to visualize color in their space, using the power of AI to recommend wall color suggestions based on items that they already have in their space. And with its e-commerce connectivity, they can order color samples straight from the app with just the click of a button. So far, we've reached #100 out of 180,000 apps in the lifestyle category in the Apple Store. And the app isn't just loved by homeowners, it's loved by our contractor base as well. We also bundle our other homeowner color tools and resources into a suite of pro color tools like the Color Toolkit in the Pro Plus app. So Pros have even more resources to help their customers select color and overcome a key pain point, which holds them out from closing sales more quickly. We own digital innovation. And as we know, in today's economy, our Pros are running lean and doing more with less, which makes streamlining their day-to-day even more critical. Our commitment to digital innovation ensures we're providing our customers with the tools and the solutions that they need to work smarter while still growing their businesses. So we know our focus and investment in this area is truly paying off. Last year, we saw an increase in digitally engaged customers, which is significant for us because digitally engaged customers help us increase customer connectivity and more important, loyalty. So to help our Pros who truly value having technology solutions at their fingertips, we launched a new personalized dashboard that they'll see right when they log into our Pearl Plus platform. With this enhancement, our Pros can access past purchases, see their pricing, pay their bills and do much more all with just a single click. We're also making it easier than ever for Pros to see their preferred pricing through our instant registration feature. If one thing is perfectly clear is that we have more data that we own, I say that again, that we own at our fingertips than ever before. And we analyze that data to provide our reps and stores with key insights so they can focus on the biggest selling opportunities and have the highest level of impact. When we have better insights about our customers, and Heidi touched on this, we're able to provide solutions that feel more personalized and are special for them. We also own a dedicated logistics and delivery fleet that is very responsive. Our drivers are another point of connectivity to the customers that we serve. And as our customers increasingly value time-saving solutions, our end-to-end delivery service that is responsive to Pros allows them to allocate more time where it matters most and where we want them, which is on the job site. With over 3,300 trucks and 3,100 drivers, we cover a lot of ground, averaging millions of deliveries each and every year. Our drivers also have a special understanding of customer job sites and where the products need to be left, ensuring that we're working as efficiently and effectively as possible. And speaking of efficiency, we've made it easier than ever for Pro Plus members to get paint supplies when and where they need them with self-schedule delivery. Pros can now choose the date and time they want their online order to be delivered and receive delivery status in tracking via text message when their delivery is in route. We are committed to our unique controlled distribution model. We are dedicated to supporting our customers in every single way possible. Our approach is designed to help contractors and other Pros move seamlessly through every stage of their jobs from the start to the finish. We provide a physical and digital touch point at every single step of their journey, making it easier for them to navigate everything from bidding to color selection to job support and to follow-up. Our commitment to putting our customers' business first has established us as a true partner and a #1 brand. We're the #1 brand preferred by painting contractors, the #1 brand specified by designers and the #1 brand in paint awareness, making us top of mind in all of the customer segments that we highlighted. By prioritizing our customers' needs and desires, we have earned a well-deserved reputation for excellence in the industry. And connecting with our customers is not just a buzzword for us, it is our top priority. We're doing the right things for the right reasons, and that's how you create strong customer satisfaction that leads to repeat business and customer loyalty. You've heard me talk about our partners, so now let's hear what our partners have to say about us. [Presentation]

Thank you for your attention this afternoon. And now I would like to welcome to the stage the President of our Consumer Brands Group, Todd Rea.

Thanks, Justin, and good afternoon. Thanks also for your time today. As Justin said, my name is Todd Rea, and I look forward to sharing more about Consumer Brands Group, and why I'm confident that we have the right strategy to drive above-market profitable growth. As you heard Justin talk about, Consumer Brands is a complementary model to Paint Stores Group, serving distinctly different end markets. The Consumer Brands Group, we have the distribution model, the brands and solutions to meet customers that prefer to shop in channels other than a specialty paint store. As you know, it's been a challenging year, especially in the North America DIY market, as you heard Jim talk. Despite these challenges, our team remains focused on our long-term strategic initiatives, including investing in the products and programs so that we are ready when the market returns. As a reminder, Consumer Brands sells one of the industry's most recognized portfolios of brands across multiple segments is among the industry's most respected. In North America alone, we have over 10,000 distribution points. In addition to North America, we have distribution in Latin America and EMEA. Our primary channels of distribution include home centers, independent paint dealers, wholesalers and specialty distributors. We also do have company-owned stores in parts of Latin America that provide a real differentiator in this region. Over the last few years, we've reshaped our business to remove complexity and maximize our operating margins. As we evaluated our business, we didn't see a path to market share growth and acceptable profitability in Australia and China, so we made the decision to divest these businesses. We've also divested other noncore assets that didn't fit our strategy or meet our profitability expectations. Additionally, we have taken out complexity out of our operation by reducing ship points, eliminating thousands of long tail and margin-dilutive products and consolidating technology platforms. These important actions remove complexity from our supply chain and ensures our cost position is optimized for growth and allows us to serve our customers more efficiently. We've also implemented rigorous governance that will allow us to drive continuous improvement in our simplification efforts that you heard Heidi talk about. This is just another example of our disciplined approach that we expect will result in improved shareholder returns, both in the long and short term. Our strategy starts and ends with our end consumer. You hear us talk about the importance of how we have to sell each gallon twice. It's not good enough just to gain placement on the shelf of our strategic partners, our efforts continue until it leaves their doors, and this is how we measure success. This commitment means we are hyper-focused on ensuring our partners have the right brands with best-in-class performing products and technology to meet the needs of their consumers. Our strategy is built around targeting the right end user segments with innovative products and services for each unique customer and project. And we are proud to distribute our brands through strategic partners that have a broad consumer reach and have a strong right to win. Lastly, we amplify our brands through value-added solutions and services that elevate the equity of our brands and provide their customers with outstanding experiences and build long-term consumer preference. And I'll start with our portfolio of brands, which sets us apart with differentiated technology and innovative solutions. Our portfolio includes interior and exterior paints and stains, applicators, caulk and sealants and many different types of specialty coatings. Valspar has over 6,000 distribution points in home center and paint dealer channels, highlighted by our strong position at Lowe's. HGTV Home by Sherwin-Williams is exclusive to our strategic partner, Lowe's. Our Dutch Boy brand at Menards continues to expand into new categories and segments. And Cabot recently ranked #1 in Customer Satisfaction in Exterior Stains by J.D. Power. Purdy applicators were rated #1 preferred brand by Pros for the ninth consecutive year. And these are just a few of our leading brands that support our strategy of helping our retail partners be successful and drive profitable volume and growth. We continue to strengthen our brands by leveraging best-in-class technology and bringing innovative products to market. As you heard earlier, we use a segment-first strategy to enable us to create unique value through in-depth consumer research and custom retail solutions, we understand what products and services are required to serve the needs of our priority segments. Our largest and most important segment is the DIY consumer. And as mentioned, this segment is under pressure. However, this is a premium segment, and we've optimized our business model, and we are invested in this segment as a part of our long-term architectural strategy as you heard Heidi talk about. With our strong portfolio of brands and significant distribution footprint in home improvement, we are well positioned to drive above-market growth. We've also prioritized the Pros Who Paint segment, and we've seen strong momentum. This is a pro contractor that prefers the home center experience, the remodelers, renovators, home flippers, among other types of pros and paint is an important part of their project. We've consistently invested in products, reps, tools and programs to meet this customer's needs. This is our fastest-growing segment and one that we will continue to invest in going forward. We have similar efforts in our other regions with heavy focus on DIY complemented by strategic Pro segments. This is a sample of some of our strategic retail and distribution partners across the different channels that we serve, and we're proud to partner with some of the top retailers and distributors in this industry. These companies are focused on consumer segments that align with our brands and strategies and are well positioned in their markets because of their massive consumer reach, their customer service models, digital capabilities and customer programs. Lastly and importantly, they are investing in strategic priorities that will deliver long-term sustainable growth for them and us. We based our model on adding value to our partners and driving their success, and it begins and ends with our people in ensuring that we have the right talent. Heidi and Justin did a great job talking about our corporate talent strategy, so I'm not going to be redundant. But in consumer, we make the same investments in training and tools to develop experts and business partners for our customers. Our people are the real difference makers. We prioritize investments in product innovation by developing robust product pipelines, next-generation technology and sustainability initiatives, all of which are inspired by consumer segment data and insights. Our field team delivers training, execute in-store events and supports our retail partners with high-touch experiences to improve close rates and drive success. As a category expert, our solutions include assortment recommendations, inventory optimization, and multi-brand cross-merchandising and promotions. And finally, our digital solutions deliver engaging brand experiences, user generated and influencer content across digital platforms to inspire and educate. These are the solutions that are designed to help our customers succeed. Now I want to show a short video that demonstrates the impact of our brands and how they inspire consumers. [Presentation]

Hopefully, this video gave an idea of the power of our brands and how we inspire consumers to achieve their project goals and help our partners grow their business. In summary, our strategy is anchored by a strong portfolio of brands. And by focusing on priority and premium segments, we maximize our market impact and ensure our resources are utilized efficiently. Our collaboration with our partners strengthens our competitive edge and broadens our reach throughout all regions. Ultimately, our commitment is to delivering value-added solutions that drive sustainable growth and reinforces our strong position in the industry today and well into the future. As I mentioned in my opening comments, I acknowledge that there are short-term challenges in the market. However, we know that the foundation of home improvement is resilient. And it's not a matter of if, that when it returns, I am confident that we are positioned to execute our strategy, and deliver profitable growth, and shareholder value. Thank you for your time today. We're now going to take a short break. And when we come back, you're going to hear from Karl Jorgenrud and he'll kick off our global industrial presentations. Thank you. [ Break ]

All right. We're going to go ahead and get started. Coming down the final stretch here. We're going to switch over and talk about our industrial businesses. I'm Karl Jorgenrud, President of our Global Industrial business. And very excited to hear talk more about our solutions and strong momentum that's driving success in our marketplace. I'm honored to be here with my leadership team who's sitting over here, a group of business leaders that have over 170 years of combined experience. It's the best industrial team in the business. And I hope that you guys will have some time to spend with them later after the event. So I do want to kick off our time today here with a brief video that captures kind of the scale and the heart of our PCG portfolio, and the impact that our divisions make on everyday life. So let's go ahead and take a look. [Presentation]

So I think what that video captures, which I think is kind of hard to explain just how much our industrial coating solutions cover the world in the areas that we're in. But it's not just about being everywhere, it's about focusing in on the markets and the segments where our customers value the solutions that we're actually bringing. And to add on that a little bit and bring some more context, each one of these businesses in our industrial portfolio are stand-alone, billion-dollar businesses, operate globally, and they're all growing. So we strongly believe in our ability to continue to drive profitability and drive organic sales in all of these divisions. And when we look at what's empowered us to profitably grow the PCG business consistently, it's our unique combination of people, core competencies and our customer-first culture. Our people are difference makers, and our culture drives our ability to deliver innovation and differentiation that our customers value. We've got some of the best teams in the business, and they continue to deliver for our customers and our shareholders. Our ability to capture and maintain market share is a direct result of our core competencies, which include the knowledge, skills and dedication that our teams demonstrate day in and day out. These competencies lay a solid foundation, and allow us to execute on our mission to provide differentiated business solutions that drive customer productivity and profitability. And it's no different than what you just heard in our Paint Stores business or our Consumer Brands business, we're all focused on the right combination of value drivers for our customers. So the first core competency that I want to highlight is our customer-driven innovation, which starts by listening to them and understanding their needs and performance requirements. We're lockstep with our customers from concept to commercialization, and we evaluate and adapt to their changing needs to ensure we're offering the right products and services that's going to provide exceptional value. And this starts with our technical service organization and the connectivity they create working side-by-side with our customers in their facilities in the field every single day. This is an amazing organization. Our tech service team is not just a resource that's on call, they're setting up paint rooms, they're working the paint lines, providing real-time support for our customers immediately right with them in their operations. And when we pair that approach with our connected global expertise, we're able to deliver solutions that extend beyond a singular region and across all segments. With representation in more than 120 different countries, we think globally, but we also have the capabilities to act locally. And this is important to our customers because whether you're an independent regional organization or a global multinational manufacturer that requires performance and service requirements consistently around the world, we've got you covered. And Sherwin-Williams can meet them where they're at. Take, for example, our facility and brand services model. We own more than 300 industrial blending facilities in automotive branches throughout the world, all strategically located to best support our customer base. This expansive footprint enables our customers to have access to inventory, tinting, sales and technical support quickly and conveniently. And in many cases, our customers are receiving products or services within 24 hours versus days to weeks from our competitors. So the next area I want to talk about is our color and design expertise, and we really deliver a world-class experience that goes well beyond choosing a color from [ fan-deck ]. For example, our color specialists at our brick-and-mortar design house centers offer a one-of-a-kind color collaboration service. They work side-by-side with our customers to create custom colors, stains, effects, and they see that process all the way from inspiration to execution. And I've seen this power firsthand. We've got customers that we've worked with and optimize their planning and accelerate time to market on new product offerings through color collaboration. So think about the appliance industry, for example, multiple substrates, multiple coating technologies, multiple manufacturing locations all over the world, all of that has to come back to match perfectly when it hits the retail store. This is the differentiation that we're bringing. Only Sherwin can harness the power of color development and connect it through to some of the most difficult supply chains around the world. We also excel at engineering sustainability-focused solutions. Our commitment to reducing our environmental footprint is evident across all segments of our organization. In PCG, we've got dedicated sustainability teams, along with formal programs that analyze environmental impacts from the early stages of product development. And these resources continue to evolve to match our customer and market needs. And then the last area that I'm going to highlight is our M&A strategy. And I just want to be very clear here, our #1 priority is organic growth, period. And we do not need acquisitions to grow. However, we do see M&A as a tool to help us accelerate growth in strategies in specific certain strategic segments. We're very disciplined in our approach, and we only pursue strategic opportunities that are driven by high-value technology, geographic footprint or exceptional talent. And we've been pleased with the multiple acquisitions that we've completed in the industrial space the last few years they've really exceeded our expectations and provided, again, additional talent, technology and global reach capabilities. So together all of these competencies create what we feel is meaningful value to the marketplace. Now within our industrial portfolio, we align around customer and business needs, and each of our divisions represent a [ grouping ] of customer with distinct requirements for performance. This model ensures we bring and build and maintain expertise in our strategic markets to continue to develop valuable services for our customers. Solutions across the entire portfolio are intentionally designed to optimize customer productivity and profitability. And while these solutions can look different across the 6 industrial divisions, everything we do at Sherwin-Williams is ingrained in service and expertise. And I think what's really important here is that we're not trying to be everything to everyone. We find strategic opportunities that we can leverage these core competencies, which we just talked about that support the growth of our customers in focused markets. This is where true value is created, and this is how we're going to continue to reward our shareholders. Now today, we're going to provide a deeper look into 2 areas of our portfolio that demonstrate the true value that I just mentioned. So first, we're going to hear from Brian Gallagher, the President and GM of our Automotive division. He's going to share more about how distribution, speed, color and service all come together to satisfy this particular market space. And then Josh Bagshaw, the President and General Manager of our Coil Coatings business, he's going to take the stage, and we're going to look at how speed of service, innovation and color are driving differentiation within the coil market. And in both presentations, you're going to hear a very consistent theme, one that applies to every single one of our industrial divisions, PCG delivers differentiated solutions that help drive productivity and profitability for our customers. So with that, I'd like to welcome Brian Gallagher to the stage, our President and General Manager of our Automotive business. Thank you.

Well ,thanks, Karl, and thanks to all of you for giving me the opportunity to share more about the automotive Refinish business. I began my career with the company in 1994 as a management trainee in our Paint Stores Group. And since then, I've held various leadership roles throughout the company with my most recent role as President and General Manager of the Automotive Refinish division. I'm excited to work with the best global Automotive Refinish team in the business. We take a disciplined approach and place our customers at the center of everything we do. And we have an incredible business model with best-in-class people, solutions and services. We're 2,300-plus strong. And with the acquisition of Valspar in 2017, we brought together 2 amazing companies that are even better together, 1 plus 1 equals 3, and we're just getting started. This slide is just a snap shot of what we do. And today, i couldn't be more excited to talk about our business, our advantages, our growth outlook and how we deliver differentiated business solutions that enhance customer productivity and profitability. Our distinct business model is unique in the Auto Refinish space, and that we have multiple sales channels. Similar to our architectural organization. And throughout the few years, we've really strengthened our focus on specific segments where we can provide the most value for our customers. We're very targeted in who we serve. This brings us to one of our largest competitive advantages in the United States, our direct sales model. No other competitor has its own branch network. While Sherwin-Williams Automotive Refinish has over 170 of them. We also have a fleet of 429 delivery trucks that's solely focused on servicing Automotive Refinish customers. And while our brick-and-mortar presence is certainly a major benefit to our customers, the service our highly trained people deliver is what really sets us apart. We influence the entire customer experience relatable to the way our Paint Stores Group interacts with their customers. Our automotive branches function in a similar way to ensure we're meeting and exceeding customer expectations. We influence the entire customer experience, and our Automotive Refinish reps and tech reps work hand in hand with our branch employees on new business opportunities and service programs. Our business model drives a closeness to the customer that is unrivaled in the industry, whether it's having the right inventory, the tinting and blending expertise or the sales and technical support, our people remain a key differentiator. Let's get into more about the high-touch service our associates bring to our customers. Unlike competitors who rely on jobbers or distributors to manage a significant part of the customer relationship, we own the end-to-end relationship. Our competitors don't get to the same level of depth as we do with our customers. Not only do we own the end-to-end relationship, but we also own the data that's needed for strategic future forward business acceleration. The direct service our team provides is where we add value in the most influential and impactful ways. We intimately know the businesses of our customers, which allows us to be total solution providers, not just paint suppliers. Let me underscore that. We're not just supplying paint. We're providing total and complete business solutions that enhance and optimize customer productivity and profitability. We can leverage our full suite of capabilities to make them more productive and thus, more profitable. These consistent high-touch point relationships between the customer and our teams are substantially unique in the industry. In Automotive Finish, we always operate with a customer-first mindset. We look at opportunities that will enhance the service and technology systems our customers need to improve their productivity and profitability. That's why we developed the Collision Core suite of solutions, and why we continue to invest in future releases and features. Let's start with the inventory app. It's a cloud-based solution that optimizes the shop's inventory process, reduces overstock and saves time by leveraging our branches or stores. Our app-using customers increase production efficiency and are able to control purchasing costs all from their phone. There's also our Collision Core Pronto, automated paint dispenser, engineered to increase body shop throughput and reduce operating costs. Unlike many manual solutions in our channel, our solution is truly automated and requires no skilled labor to mix colors. And then there's our Collision Core color app, which provides instantaneous and accurate color retrieval. This system accelerates our customers' speed to color. It's crucial for the vast and endless range of colors in today's market. Next, I want to highlight some of our top-performing innovations in the Automotive Refinish division. It's been 7 years since the Valspar acquisition, and it continues to pay dividends through the marriage of Valspar technology and Sherwin distribution. A great example of this technology is our industry-leading waterborne system, Ultra 9K. This product is engineered to help enhance customers' productivity through its quick and easy application characteristics and improved cycle time. It also air dries in as little as 15 minutes, which eliminates the need for baking systems and increases throughput and energy savings. As Karl mentioned, our customers are the folks who assign our value. In that regard, let's hear from our customer, Mercedes-Benz, specifically their F1 race team, about what it's like to partner with Sherwin-Williams Automotive Refinish. [Presentation]

So as you heard in that video, our customers look to Sherwin-Williams for trust, quality and consistency. And you're going to hear more about those competitive advantages along with speed and color from Josh Bagshaw, our President and General Manager of the Coil Coatings business. So please join me in welcoming Josh to the stage.

Thank you, Brian. And thanks to everyone here and online for this opportunity to talk about my favorite PCG division, Coil Coatings. So similar to Brian, I started the first 20 years of my career in stores. But for the last 2.5 years, I've been serving the Performance Coatings Group in my current role as President and General Manager of our Coil Coatings business. So to level set, let's take a quick moment to review what our Coil Coatings business looks like. And to simplify what we do, our customers coils of metals and factories that have paint and finishing lines the size of 3 football fields. This coated metal is then used for various end-use applications that we see and touch every day. And I can tell you that when I first started, I had no idea how many things around us have coil coatings on them, like building wall panels, metal roofs, windows, doors and even appliances. And once you really know about coil and our applications, you begin to see them everywhere. Many of the products that we quote have very specific performance requirements, and our coatings play a monumental role in protecting these end uses from degradation into deterioration. And a lot goes on behind the scenes to make these assets work and last in our cities, our homes and our offices. So now that we've covered a little bit of the basics on how our coatings are used, I want to take a few more minutes to review a few details about our coil business. In 2023, we generated another record year of organic sales despite a choppy and challenging environment. Our Coil Coatings division has a proven track record of significant organic growth through share gains and new business wins. And we have the best sales force in the business with expertise and experience through our 400 employees with more than 2,000 years of combined service. And we see growth opportunities in every single in new segment we serve because we partner with customers who see value in what we do. We take a very focused approach. We go after segments and regions that we know that our customers can win and we zero in on them. And we don't view ourselves as a commodity and neither do our customers. We see ourselves as service providers and a trusted supplier that can meet all the qualifications our customers demand. And speaking of service, let's get into some of Coil's most compelling differentiators, the first of which being the speed of responsiveness, which is a direct reflection of our people. From R&D to sales and marketing, we have a team that's committed to providing world-class service and speed matters to our customers. Their manufacturing companies that need to keep their production on track and moving, and to keep them running smoothly, we're able to efficiently produce small, customized batches with industry-leading turnaround times. And our tech services team is with our customers every step along the way on their lines, helping them drive their productivity. And that ability to deliver products and services quickly keeps our customers running at a pace that lowers their overall costs. Simply put, we can do in days what many of our competitors do in weeks, and that's real savings. So this next major differentiator for us is really rooted in trust. Reliability and predictability from batch to batch around the globe are benefits that our customers can expect and count on from Sherwin-Williams Coil Coatings. Regardless of where we manufacture our products, we're able to efficiently deliver consistency and quality, relentlessly meeting the needs and expectations of our customers. We also conduct thorough product testing with our in-house R&D teams and third-party organizations, which ensures that our customers get the best solutions on the market. And as a highly spec-driven industry, Coil Coatings must undergo an intensive and comprehensive qualification process. And every Sherwin-Williams Coil Coating system goes through the harshest testing environments to ensure that they can withstand the elements, which brings me to our 6-acre testing fence in Fort Myers, Florida. It's one of the most accredited natural exposure facilities in the coil industry and has more than 100,000 sample panels, including one from 1968. That's 56 years of testing. And what makes this unique is not only do we own the facility, we own the data that we gather when we test the strategic mix of products. Owning this data allows us to quickly analyze long-term performance and make decisions about bringing new products to market. So speaking of products, let's take a closer look at the broad Coil portfolio developed in partnership with our customers. And while we have a versatile offering that meets the needs of various segments we focus on, I want to highlight 2 of these systems today that have been engineered to help our customers reduce their carbon footprint and last for decades. Our RadGuard system can be used for a wide range of applications and is designed for long-lasting performance. Our leadership position in radiation care technology allows us to deliver sustainability benefits like energy savings, less emissions and retrofitting, which reduces the need to buy new and costly equipment for our customers. Next, I'd like to highlight our Fluropon line. Now this system offers best-in-class performance when protecting metal against abrasion, extreme temperatures, moisture and UV light. And that level of durability is crucial to preserving the color and glass a customer specifies, which makes their buildings look newer for longer and prolonging the need for costly renovations. So lastly, I want to touch on color. Color is a substantial differentiator for us. From color customization to color trend forecasting, we're able to bring versatile solutions to our customers, ones that they didn't even know were possible. Depending on the customer, whether it's an architect or OEM, color matching and consistency is often the difference maker in the coating supplier that they select. And when I say color, for Coil Coatings, that includes prints, metallics and really color-shifting technologies that are really captivating. So here's a few examples. This is the Independence Library and Apartments in Chicago designed by John Ronan Architects. It's a mixed-use building that features 8 custom Sherwin colors specified to create a vivid, bold visual and distinction between the library and residential housing. And pictured here is the Smithsonian National Museum of African American History and Culture in Washington, D.C. It uses a custom bronze that project owners discussed over the course of years. The exact right color was absolutely crucial to the customer, and we were able to achieve it. And finally, here, we have a fantastic example of our Chameleon Technology for a mixed-use building in St. Louis designed by Architect HOK. This color was chosen because of its bold shift from copper to green. And this shift appeared when viewed from different angles or in changing light. This stuff is really cool. And we have countless projects like this happening everywhere all around the globe. So as I wrap today, I want to reiterate that the Sherwin-Williams Coil Coatings business has been growing and it will continue to grow because we will continue to provide our teams with tools and resources that they need to support our customers. And when you look at all the factors that differentiate us in the market, innovation, color, sustainability, speed and consistency, each of these factors are pretty powerful on their own, but it's our team's ability to deliver and execute on all of them together every day that allows us to drive value to our customers and to help them be more productive and profitable. And all of that comes back to PCG's core competencies and Sherwin-Williams 158-year old history in the paints and coatings business. Thank you for your time today. And now I'd like to invite up Al Mistysyn, Chief Financial Officer, up to the stage for his prepared remarks.

Thank you, Josh, and good afternoon, everyone, and thank you for joining us today. I am going to reinforce many of the key messages, Jim, Heidi and the group presidents highlighted today. Earlier today, you heard Jim talk about the favorable market dynamics for our U.S. architectural and global industrial businesses. Heidi talked about our mantra of delivering differentiated customer solutions to help our customers grow and be more profitable. This solutions-based approach allows our customers to be successful and creates shareholder value. And our enterprise priorities, highlighted in our opening, are all with the customer success in mind. And you just heard Brian and Josh highlight the differentiators within our Auto Refinish and Coil businesses. Today, I will review trends of key financial metrics since 2018, the first full year of Valspar acquisition, our capital allocation philosophy. And finally, I will be updating a number of our midterm financial targets. These longer-term consolidated metrics are as reported unless noted otherwise. I will not be updating our 2024 full year sales and EPS guidance. I know you're all excited about that. That's not going to happen today. Now let me get into our longer-term financial metric performance that I believe drives and creates shareholder value. Starting with consolidated sales from 2018 through 2023. The 5-year compounded average growth rate through 2023 was 5.7%, in line with our mid-single-digit sales growth targets. You can see that each segment's 5-year compounded average growth rate was in line with our growth expectations in Paint Stores Group, we continue to expect to grow 1.5 to 2x the market. Consumer Brands Group's leading brands and strategic partnerships are driving a low single-digit growth rate, excluding divestitures, and Performance Coatings Group growth, including acquisitions, are driven by differentiated products and services, and you can see the impacts by category. We expect market share gains across all segments we choose to participate in, and we continue to take a disciplined approach to investments to focus on customer solutions, including the convenience of new stores, support from dedicated sales reps, experienced store employees with low turnover, innovative new products and digital solutions that help our customers be more efficient and make more money. This slide shows our gross margin performance over the same time period. Over that time period, we generated approximately $53 billion of gross profit at an average 44.5% gross margin and a really difficult operating environment. We gained positive momentum in 2023, and that momentum accelerated into the second half of the year and continued in the first half of 2024. Each of the two halves, second half of '23 and first half of '24, gross margin performance was above the high end of our current target 45% to 48%. As I have said, we win when our customers win, and we both win when we provide solutions that they value and they are willing to pay for, which helps drive our volumes. We faced a number of raw material headwinds over the cycle shown, including raw material shortages due to the natural disasters in 2021, which negatively impacted our architectural volumes primarily in the Paint Stores Group. We faced a significant raw material inflation of 40-plus percent in '21 and '22. And to offset that significant inflationary environment, we have had the discipline and resolve to implement price increases to offset this inflation, and you can see the negative short-term impacts of our gross margin. However, as in past cycles, the raw materials have moderated, we have hung on to the majority of those price increases, and you can see the positive impact on our gross margin in 2023. And this is while investing in innovation to drive customer productivity. And as Heidi mentioned earlier, one of our key enterprise priorities is supply chain resilience. And we continue to invest to improve our security of supply by expanding our raw material supplier base, investing in capacity increases, including architectural and packaging and resin and other assets such as additional tank wagons to improve the resilience and responsiveness of our supply chain to provide better service to our customers. And as our gross margins have returned to more historic levels, we have taken the opportunity to accelerate our investments in the long-term growth initiatives such as more sales reps in the field and Paint Stores Group, DIY programs and PRO paints in our Consumer Brands group, and field sales and service reps in our Performance Coatings Group. These investments significantly increased our SG&A for the full year 2023. However, these investments will allow us to help our customers grow their businesses faster. And we are confident that these investments will allow us to gain more market share as the macroeconomic environment improves over the next few years. Finally, the more stable demand environment in 2024 has allowed us to return to a more normal bell curve throughout the full year for production and inventory builds prior to the start of the summer selling season in our architectural business, and along with the future improving demand environment, it gives me a lot of confidence to raise our gross margin target range to 47% to 50%, with 50% not being the ceiling of this metric, but the next milestone. I know you're all looking at the bottom line anyway, so I wanted to explain to you why we can raise the target. So on this slide, I'm going to highlight the drivers of future gross margin expansion. And I'll walk through these drivers, starting with the biggest potential impact and work my way down through them. And it's not an either/or proposition for us. We expect to drive improved gross margin while continuing to invest in our supply chain resilience and responsiveness to ensure we can continue to drive improved service to our customers. As I have discussed in the past, volume is the #1 driver of operating margin leverage, but also the most significant driver of gross margin. As volume grows, we get leverage on our supply chain fixed costs. And included in this bucket is the assumption that our Paint Stores Group will continue to be our fastest growing segment with the highest gross margin, which will help drive higher consolidated gross margins. Supply chain efficiencies, we have a culture of continuous improvement within our factories and distribution centers that continue to work on improving our cost per gallon or cost per batch in our factories and our cost per hunter weight in our distribution centers. This bucket also includes manufacturing and distribution, footprint optimization, and these efforts help offset the impact of wages and other cost inflation, which we expect to experience over the near term. Innovation and product mix improvements, we continue to innovate products at the high end of our good, better, best continuum and the work to upsell our customers to more premium products, which helps our customers be more productive and make more money on their top line and bottom line while helping drive improved gross margins. And the remaining portion of the improvement is really split between simplification efforts, including finished goods and raw material rationalizations and acquisition synergies. Price, raw material cost net is assumed to be neutral over time. As we have typically done in the past, as raw materials increase, we push back on our suppliers to justify the increases. We look for ways to internally to offset those increases. And then if we cannot, we will offset those costs by implementing price increases across the company. And we would expect our gross margins to react the same in the future as they have in the past. This slide shows our adjusted operating margin performance. Our focus remains on growing adjusted operating margin, either through gross margin expansion or SG&A leverage. And as I said before, volume is the #1 driver of operating leverage. Over the period shown, we have generated approximately $19 billion of operating income at an average adjusted operating margin of 15.8%. I already talked about our gross margin, but from 2018 through 2023, our core SG&A has grown over $1.8 billion, with a 5-year compounded average growth rate of a mid-single-digit percentage, with over 90% of those investments in our commercial groups. You heard our group presidents talk about the specific investments earlier, but we've been very consistent and disciplined. When we get gross margin expansion, we invest a portion of that increase in our customers through targeted sales and service solutions that help them both grow their top line and bottom line. And this investment discipline has helped us grow our adjusted operating profit in all economic environments. Our 5-year compounded average growth rate through 2023 was a high single-digit percentage in what I would consider one of the most difficult operating environments we have faced as a company. Return on net assets employed, as we define it, is adjusted profit before tax, divided by average net assets employed, including working capital, net fixed assets, goodwill and intangibles, and we use the average net assets employed to account for seasonality. You can see the results over time, but the highlight here is we have grown this metric from the low teens in 2018 to a low 20% in 2023 by growing our profit and taking a disciplined approach to capital expenditures and other investments. Our teams continually focus on how to improve asset utilization while continuing to invest in capacity expansions, automation and modernizing our sites to ensure we can provide the highest level of service to our customers. Along with adjusted EPS, return on net assets employed as a performance metric in our long-term incentive compensation plans, and we believe this truly aligns our management team focus and decision-making with the goals of our shareholders. My expectation is we will continue to drive our asset utilization and efficiencies to drive this metric to the mid-teens -- mid-20s percent range. This slide shows our net operating cash performance. I will talk about the 5-year cumulative net operating cash generation and uses of cash on the next slide. However, I'd highlight 2023 was a strong performance, and the company generated $3.5 billion in net operating cash, which was 15.3% of sales and net operating cash less CapEx of $3.1 billion or 13.6% of sales, and this is excluding our building our future projects. We believe working capital management is a core competency of the company. And we were at 10.8% as a percent of sales in 2023, which was just below our target 11% to 11.5%. The strong cash generation allowed us to return over $2.1 billion to our shareholders in the form of dividends and share buybacks, an increase of approximately 37%. And we are increasing our targeted steady-state future free cash flow defined as net operating cash less CapEx to be greater than 13% of sales from the previous target of 12%. And again, this is excluding our -- building our future capital projects, which will be behind us in 2025. This is over the long term, as we continue to grow sales a multiple of end market growth, increase our U.S. architectural and global packaging capacity and implement systems that will allow us to improve service and manage our inventory more efficiently. This pie chart shows net operating cash as reported over the past 5 years and uses of cash over that same time period. We have generated over $13 billion of net operating cash, or 13.2% of sales. Over this time period, we have returned over $11 billion to our shareholders in the form of dividends and stock buybacks. We've invested back in our business in the form of CapEx and with core CapEx at 1.6% of sales, and we invested $1.3 billion in acquisitions, primarily in our Performance Coatings Group to accelerate our strategy. We have a consistent, disciplined capital allocation philosophy. We will not hold cash. We continue to reinvest in our business to form a CapEx with a long-term target of less than 2% of sales. And approximately 70% of our CapEx investments have a positive internal rate of return. We target a dividend rate of 30% of prior year EPS and have raised the dividend 45 consecutive years. The 5-year compounded average growth rate through 2023 was 16%. As Karl mentioned, we do not need acquisitions to grow. However, we take a disciplined approach to M&A and divestitures and look for acquisitions that accelerate our strategy. Over the past 10 years, we have completed 16 transactions, both acquisitions and divestitures that have improved our portfolio of businesses, increased the breadth and depth of our product lines, primarily in our Performance Coatings Group, that has allowed us to provide better solutions to our customers to make them more efficient. And we take a long-term consistent approach to share buybacks. We repurchased approximately 72 million shares of our stock over the past decade at an average share price of $159.14. I'd say this has been a very good investment for the company with a cumulative return of approximately 125%, and I feel that was through year-end 2023. And if you look at our stock performance in 2024, these returns have only gotten better. I think we've been very crystal clear throughout the day. We win when our customers win. And here is a summary of the financial metrics and targets over the midterm that we believe also creates shareholder value. I talked earlier about increasing the targeted gross margin, which implies a higher EBITDA margin of 20% to 24% versus the previous target of 19% to 22%. The higher targeted EBITDA margin also drive stronger net operating cash, and we are raising our net operating cash as a percent of sales target to 14% to 15%. The improving health of our business allows us to reinvest in new products, supply chain resilience and responsiveness and additional customer solutions that drive more efficiency for our customers to drive higher sales and profit for them. We have not changed our midterm consolidated and segment sales targets or our net debt-to-EBITDA leverage ratio. And our working capital as a percent of sales target remains the same as we are willing to invest in inventory over a period of time to ensure a high level of service for our customers. However, with our continuous improvement mindset and simplification efforts, I would expect this metric to improve over time. And this slide represents the comparison of 5-year cumulative returns of a high teens percentage for our company, which outpaced both the S&P and our peer group. And I would expand that metric to our 10-year annualized returns. We're also up a high teens percentage, which again outpaced the S&P and our peer group. And this slide supports why we have achieved those annual returns. We have been able to outperform through all cycles with above-average market share growth, return on sales and return on net assets employed improvements and strong cash generation. I'm not going to go through all of the numbers on this slide, but I do think it's worth highlighting a few things, starting with the strong compounded average growth rate from 2011 through 2016, with sales growth of mid-single digits, low to mid-teens growth in operating cash and adjusted EBITDA and strong double-digit growth in EPS, which drove a strong annualized return for our shareholders of a mid-20%, and this was after coming out of a tough operating environment in 2008 and 2009. Compare that to our results from 2018 through 2023, with a compounded average growth rate of a mid-single-digit percentage and about double the scale versus 2016. Double-digit growth in net operating cash and adjusted EBITDA and a high single-digit growth in adjusted -- I'm sorry, net operating cash and adjusted EPS and a high single-digit growth in adjusted EBITDA and in one of the most difficult operating environments our company has faced. And again, you can see the growth of high teens in the stock price. The takeaway from this slide as we have been able to create shareholder value in many different environments before and after the Valspar acquisition. And as I said previously, we expect the demand outlook to improve over the next few years. We are continuing to build on our strong foundation, focus on our core operating disciplines in key enterprise priorities, above market growth, talent and culture, simplification, supply chain resilience, digitization and sustainability. We will continue to focus on improving the profitability of our customers through disciplined investments in products and services they are willing to pay for and provide a return to our shareholders. We have an experience and determined management team. We are confident about our strategy and delivering strong results over the long term in all economic cycles. We are confident in our core businesses delivering above market organic growth and expanding our operating margins over the long term. And we are confident in continued strong cash generation that allows us to invest in our business and future growth opportunities and return capital to our shareholders in the form of dividends and share buybacks. Again, thank you for joining us today. And now if I can invite the rest of the leadership team to join me on stage, and we'll move to the question-and-answer portion of the program. Thank you.

Okay, shall we start? We got some hands in there. We've got a few people with microphones, and I'm going to kind of facilitate a little bit just to keep us moving. So we've got a couple, why don't we start here in the front, David and we go to [ Chris ].

Thank you. Dave Begleiter, Deutsche Bank. Can you just talk about the benefits share gains you're seeing right now from the PPG disruption from the sales process?

So I'll start that, and then I'll absolutely hand it over to Justin, and there's going to be some probably comments from everyone to my left here. So I'll share with you all, and this was probably day 43 coming in to this role when our #1 competitor in North America decided that they no longer wanted to compete with this team. I say that with a lot of humility because I do believe that it was also a result of very -- what you heard today, a very consistent execution of a strategy. And we've continued to demonstrate a financial performance, and I'm very proud of the team's ability to do that. So that takes me to your question, which is we weren't waiting for the announcement. Justin will walk you through a little bit more in stores. But I think the ability for us to be very laser-focused, very surgical because we own the data, we can look by store, by customers, so I'm going to let Justin walk you through a bit more on that, but we want to absolutely earn that business. And we know it's going to take time. It's not going to be overnight, but we're committed to earning that.

Yes. And I would say this, I think Heidi said it really well. I mean it wasn't not necessarily about day 1. It's about the consistency, the commitment we have to our strategy that creates opportunities for us within the market. And ultimately, at the end of the day, when you look at that and you look at how we approach it, she mentioned our data, and I think I emphasized twice in my presentation that we own it, and it's what we do with it, right? There's great opportunity for us with that data, which we've had for the entire existence that we've been around in utilizing that data to be really, really prescribed and also really laser-focused on what we do with it, right? And I would say one element that we've added in on the back side of it is the ability for AI to model for us to be able to really put a focus for our reps and our store managers into the right space with the competition and with market share growth opportunities. So it's about them making the call to the customer at the right time about really the right topic that allows us the opportunity to move with a little bit more speed and urgency within the market.

And Todd, maybe if I could put you on the spot a bit here just our partnership with Lowe's and obviously Menards, but how do you think about that from a home center comparative comparison?

Yes. So we, like Justin, have thought through all the different potential scenarios, and we believe that with our home center partners, Lowe's is one where we're exclusive that this presents a unique opportunity for us because of the explicit relationship that we have. It's a very aligned approach. There's clear goals in and alignment we have with them, and we've been investing in this business, and we think that there's tremendous opportunity for growth. I'll talk about Pro Who Paints, which we -- I talked a little bit about earlier, where it's a different type of Pro than Justin and his team serve, and we think that this will open up opportunities for us, and we've been investing in that business heavily over the last couple of years. So we're ready for whatever happens. We're prepared.

[ To you ] all, Chris.

One of the things that's been going on with Sherwin is the quality of your pain has also been going up fairly considerably. It's our understanding that you're also upselling some of the homebuilders in the Northeast, Justin, we were talking about last night, you're still at a price point that's considerably lower than some of your peers, like Ben Moore and [ Farrow & Ball]. How much is the opportunity to further upsell in terms of that gamut? I mean, the quality is getting better. Is that a large opportunity that you could address? Or is it something that I'm too enthusiastic?

No, you're not too enthusiastic. We're very enthusiastic. And let me take you -- then I'll hand this over to Justin to comment more specific to stores. But -- if you think about -- Al mentioned this earlier as well, our focus on good, better, best. And there is -- again, we're not leaving this a chance. When you think about where we're innovating at that premium to shift up, it is absolutely by design and understanding where the market will tolerate that. It's always based on the performance characteristics that we know are either going to help total cost of ownership, save time for a contractor or, for a homeowner, it's a more forgiving quicker application, less touch-up. So the willingness to buy premium is there. The team's ability to get our field organization prepared to sell that, I think, is maybe the more important work to be done. But as we go down the path here and really, Todd mentioned, Justin mentioned the long tail, some of the SKU rationalization work. Karl is doing a lot of work on the industrial side to continue to refine and get to more simplified platform so that when we think about speed to market and our ability to truly innovate at that high end, we want to do that with the right basket of raw materials, understanding all the way through the customers' kind of willingness to take that on. So it's the whole gamut, but we are very enthusiastic. I don't think there's a -- there's not a finish line or ceiling there. Now we have to moderate that with the market. So let me maybe hand it, Justin, any comments from your end from...

Yes, I mean we're enthusiastic. This is what my comment would be, and I think how do you hit the nail on the head on that. I mean when we look at our opportunity is, as we welcome customers into our ecosystem that we talk about often, it's the suite of tools that we offer along with the premium product basket that we have, and it's all fixated and focused on that portfolio, as she mentioned, on productivity of the painter, right? So you'll see our innovation will always normally be on that high side in that premium product space, right? Because that's where we really truly feel we can separate ourselves and differentiate within the market.

One other piece on the architecture side, I am going go Karl to give his perspective on the PCG side. I think most people largely know this. But when you think about the cost of it relative to the cost of labor on a job, the cost of paying directionally 12% to 15%, give or take 1%, and then the balance being labor. So Justin's point, it's a great point. You trade them up to a premium product, you're saving them cost of labor. It's a net win. So again, lot of work to make sure that our field is consistently ready and prepared to demonstrate that value. But Karl, I love -- maybe your thoughts on the industrial side?

Yes. I mean the only thing I would add also is in our world, you heard me talk about our technical service organization and working with our customer to help them drive efficiencies in their operations, that's a huge differentiation for us, right? So partnering with the customers, making their lines more efficient, more productive, more profitable that will ultimately end up being a positive for us as well. So that's probably the one difference between our two businesses. But at the end of the day, we're still also equally interested in this topic.

Jack. Let me come up here and then go back to John.

Albert Wang, Marshall Wace. You guys have built real brand equity with Pro contractors for decades off of your ability to not screw them over and really pass through a lot of the scale economics that you guys have received to generate consistent share gains. As you guys think about now the fact that you guys are 2/3 of the U.S. architectural paint market, how is your strategy around pricing changed given that you guys can compete on more than just price today like you guys really have like a selection advantage or a convenience advantage? In being able to like deliver in order -- like being able to deliver on more than just cost?

Yes. Well, let me start with -- go back to a point that a couple of has made earlier, which is there is significant market share to be gained across every one of our priority segments. So let me start with that as a baseline assumption in your math in the calculation because the residential repaint is a great example where we've got strong momentum, and I'll get to your price question. We've got strong momentum, quarter after quarter, last few quarters and a flat market. We've got the most upside in market share to be gained there because if you look across the street at the orange box, certainly, we're very on that. So I don't think 2/3 is a fair characterization of the upside opportunity. So let me start with that. If I think about just the fundamentals of how we think about pricing, I'll ask [ Al ] maybe to jump in here as well is we have built that equity based on the trust and the relationship, which is simply this. We're not going to bring pricing unless we absolutely have to. So despite size, scale, we're going to stay with our philosophy, which is, if we need to take price, it's never going to be off the back of our customers. And then when we do, we're going to make sure we bring it at the right time in the bidding season, again, to help make sure that we're looking at the customers' economics throughout all of this. So we're not going to catch them off guard. We're not going to take moves and promise them that prices aren't coming if we need to take pricing. We will absolutely be -- I won't -- we're leaders in price. We're going to get it and then we're going to hold that. But it's our ability to hold that pricing is a reflection of the fact that our customers know that we are only bringing it to them if we have to. So does that help and...

Yes. But as a follow-up to that, I think you brought a oint on labor and wage inflation has actually outpaced the cost of paint over the -- especially over the last couple of years. And so that would suggest that maybe there's some irrationality to how players within this market are pricing paint. Have you thought about that relative share of the cost of the products relative to the cost of labor? And as you improve the quality of the product, isn't there an argument that you guys could or should be taking more pricing than you have?

Yes. I think Heidi hint it, and we take a very disciplined approach pricing. As you would expect, because of the services that we provide, we get a premium in the market. And we build that credibility up over a long period of time because of that discipline, when raws go up, we're out with price. When we don't go out with price for a year and other costs are compounded higher, and we need to take a price increase we do. But our customers also are very cognizant of their costs. And if they see us driving our gross margins up when raw materials go up, it's going to be very hard to hold on that price when raw materials moderate like it has in the past. So we're very disciplined about I'm going to offset the raw material cost dollars with price, I'm willing to accept a short-term margin impact like we saw in '21 and '22, while continuing to invest in new stores, reps, products that ultimately will make our customers more efficient. But when raws moderate, you see a nice bounce back in our gross margin, typically higher than it was. That model has been very successful for 3 decades. And once our customers start feeling like we're taking advantage of on the price side when raws are going up, our credibility gets lost very quickly. So we have to maintain our discipline.

But I think another piece is as we think about raw material basket and other input costs, we're looking at that management team meets monthly to look through all of those. So we're not just limiting to raw material, but if there's rational data out there, then again, we're going to take action.

John Roberts, Mizuho. Al, you raised the gross margin target 200 bps at both low-end and high-end, but the EBITDA margin increase is only 1% at the low end, 3% at the high-end. So it average is the same. Is that just natural flow-through of volume leverage down the P&L? Or is there some uncertainty here and how much of the gross margin improvement you're going to reinvest back into SG&A?

Yes. I think, John, it's the latter in the sense that as our volumes grow and they grow faster than we expect as our gross margin expands, we'll continue to take a portion of that into SG&A to accelerate future market share gains similar to what we did in the back half of '23, we came through the second quarter. Our gross margin outlook was stronger. Our demand was a little bit better than we thought. So we took the opportunity to accelerate investments across each of the segments. So the messaging should be we're going to continue that model? Because as we continue to invest as the macroeconomic environment improves, we'll take a bigger share of that improvement drives higher volumes and then let that cycle turn even faster.

Okay. You guys can jump here because I can't see very well over here [indiscernible].

I'll take it. It's Greg Melich with Evercore ISI. I really have a follow-up to that question. Think about the margin progression across the different segments. So do we expect that 200 bps sort of midpoint improvement to be proportional across all 3? Or there's more opportunity in certain ones where the margins are currently lower?

Yes, Greg, I think when you look at stores, you're going to see incremental margins flow-through that we've talked about in stores is low single-digit volume growth, you see a mid-single digit, mid-20% flow-through in a steady-state environment. As raws are going down, you'll see a bigger improvement, as raws are going up, you'll see less of an improvement. So you'll see more of an impact on our Performance Coating Group's business. And we've talked about consumer group this year with the fixed cost absorption this being the new base. We'll have to see how that settles out and goes forward, but I expect to see better improvement there. That does not mean that paint stores will not improve. It absolutely will improve. It's our highest operating margin. It's our biggest business. And my expectation it's going to continue to grow higher. There is no bar for Paint Stores Group in my mind.

John?

John McNulty, BMO. Can you speak to the M&A opportunities and where you see things looking out over the intermediate term, not next 6, 12 months, but -- and if that is more heavily weighted to the performance side or do you see opportunities even in whether it's paint stores or consumer brands where you can bolt on adjacencies or other areas where you can leverage that platform.

It's a great question. I'll ask Karl to come in on the heels of this. First and foremost, I would say, you heard this loud and clear, we don't need acquisitions to grow. Now we're always going to be looking and scanning and assessing to see if there things in our portfolio that could be additive or accelerators, you will see that more on the industrial side. That's not to say that we're not looking at other considerations on the architectural side. But I think if you step back broad strokes, what we're not looking at anything is transformational as what you saw obviously with the Valspar acquisitions. So let me get Karl's comment on...

Yes. I mean we talked a little bit about it in the presentation, but each one of the divisions have segment strategies. We're looking to accelerate through M&A certainly not a requirement but there are opportunities out there that we're constantly cultivating and looking for to bolt on and use as an accelerant to the growth opportunities in those business.

And John, one example I'd point to, and I'm looking over at Collin, we had the SPI specialty polymer resin acquisition that we made recently, what was that nearly 2 years ago which was in recognition. So outside of -- from the commercial businesses, making sure that first time in 20 years that we made an acquisition in global supply chain but recognizing our dependence on resin, geographic diversity was really important. So to the credit of the team, we were able to pull that in. But those are examples and exceptions if things can accelerate what we're trying to do naturally, we're always going to look, and you should know that we're always going to look for those.

Kevin McCarthy of Vertical Research Partners. A couple of questions for you on Consumer. As the summer winds down here, I'm curious to hear your latest thoughts on the health of the U.S. Consumer. In Todd's presentation, I think he alluded to some short-term challenges, and we've obviously seen news from Lowe's in recent weeks, not to mention Home Depot guiding comps down. So my questions would be, are you seeing that apply to the paint category or not? Is it varying versus prior expectations or not? And to the extent that there is any incremental weakness, you talked a lot about overcoming, right, which is a great shown trade for many years. What can you do to overcome in the instance of the levers you can pull to preserve and grow your margins there?

Todd, do you want to take that.

Yes. So as I mentioned, specifically in North America in the DIY market, you nailed it. I mean both Home Depot and Lowe's have come out and talked about their performance. But the DIY consumer is under a lot of pressure for all the macro reasons that Jim laid out. And we're not insulated from that in the paint side of the business. I'd say maybe we lagged it a little bit. And you saw the change in their guidance from our perspective in paint and probably came into the year thinking first half of the year was going to be worse headwinds and things would start to provide some relief in the back half. And as Jim laid out, the LIRA metrics, it hears as if even the back half of this year is going to continue to be choppy through the rest of the year going into 2025. We haven't specifically called out 2025 yet. But what we do know is we're making all of the right investments in our business so that when we do come out of this cycle, we're ready. And in many cases, our competitors are pulling back on investments, and we're bullish, and we know that, that means our SG&A kind of metrics are a little bit out of line, but we know it's for the right reason so that we're prepared to drive out of above market growth.

Kevin, I'd just add to that. When you look at LIRA, as you know, it's made up of the high-ticket projects and low ticket projects typically paint has held up better than that. And I think you see that in some of the results that you're seeing from the home centers. The thing is as we talked about, is the existing home turnover starts to improve? DIY will be a part of that improvement as well. And with our exclusivity in Lowe's, we have a better opportunity to drive more shoppers to conversions than maybe some of the others because our sole focus, Low's sole focus is on when that shopper is standing at the colored deck, let's say, okay, collectively, how do we drive that to a conversion. And I think you see more investment from us and Lowe's versus split investments that you get that may be splitting volumes in another home center. So I think those opportunities, and I think Todd hit it, we're continuing to invest in this space with the idea that this is a cycle. When it comes out, we're going to take more share when we come out and DIY will be a strong performer for us.

One other piece, Kevin, I would say it is soft or longer, just getting back to your question on expectations. And I give Todd a lot of credit. I think he used the word discipline probably no less than 17x in CBG and it is a result of multiple years of pruning brands, pruning all the things that just didn't deliver return. So we talk a lot about it's when, not if, and I give Todd a lot of credit. That business is a leaner, meaner. It's ready for growth. So when things do come back, we're best positioned for cost and speed in that business, I would say, arguably ever before in that group. So now having said that, I go back to outside where you saw all capitals 3x volume, volume, volume. We're not happy with what's happening from a demand standpoint in DIY. We're working hard with our partners to try to simulate that.

Great. This is Matt Krueger with Baird. So I wanted to focus in on the Performance Coatings Group for a minute here. And thinking back to the acquired businesses from Valspar. The businesses that are continually called out as high-performing crown jewel type businesses have been coil coatings, packaging coatings most notably, those were already high-performing businesses when it acquired from Valspar, if I'm not mistaken. Can you talk about any businesses across the portfolio that have maybe surprised you with growth or performance since acquisition or addition to the portfolio? And then are there any businesses moving forward where you think those could develop or grow into that same type of crown jewel conversation? Or deserve an outsized allocation of capital.

Well, I consider all of them crown jewels. I don't -- I can't pick a favorite child there. But I would agree, historically, our Packaging and Coil business I actually -- I came from Valspar. These were very high-performing businesses. They continue to be high-performing businesses that we're investing in and growing moving forward. But I'll say the other 4 divisions equally have their own growth targets and operating profit targets that we're going through. As I said earlier, we operate them as stand-alone businesses that they've got to earn that right for capital, right for resource every single day, right? And they are. And if you look at industrial wood business, we've made several acquisitions in that segment over the last couple of years, happy with the performance there. Our General Industrial business covers a lot of different segments but equally a fantastic business for us with lots of upside in the future as well. So I -- we heard about the automotive refinish. We can't -- Brian is here. Love to have you spend a little bit of time with him afterwards as well. All 6 of our divisions have great growth opportunities, and there isn't one that we see that just doesn't get to that level. So I would say all of them have that potential to get to that point.

I'd just add to that, I give the team a lot of credit. They take a disciplined approach to their portfolio reviews. And when you look at the 40% plus raw material increases we saw in '21 and '22, our industrial businesses took the brunt of that. So we identified maybe what segments within what regions were more commoditized. And they did the right thing. They got out of them or they just plowed through with the price increases, which then helps the health of the existing businesses. And I look to the last 5 quarters of high-teens operating margins in what has been a really tough volume environment. So I think the teams have done simplification efforts, the acquisition synergies to broaden the breadth and depth of their product lines, so that when volume comes out, they're going to get more leverage than they would have coming into that cycle. So that's what gives you confidence that you talk about crown jewels, will enhance the profitability of each of those businesses because of the work they're doing today, and they've been doing over the last few years.

Steve Byrne, BofA. Another one for you, Karl. As the MSOs continue to roll up the body shops, is that a headwind or a tailwind for you? And these 170 branches is that legacy Sherwin? Or did you have that at Valspar? Where would you like to see that go? And just one last one. Is there any logic in leveraging the 4,700 stores that Justin has to drive some efficiencies on delivering to the local body shops?

Yes, sure. Well, again, Brian is here, so I certainly want to get you pointed to him after this.

He has jumped out of his chair to answer the question.

Yes, I'll start with the easier one. The branches were part of the Sherwin model, and I think that's a great example. We talked earlier about kind of -- that Brian talked earlier about the business is coming together. Valspar had really great technology but didn't have the strong distribution ability that Sherwin did. On the flip of that, Sherwin had really strong distribution capability and some opportunities on the technology side. So as those 2 businesses have come together we've seen significant opportunities and growth in those markets. On your MSO question, we see that as an opportunity for us. We see that as a potential, certainly not a headwind. We see it as a growth opportunity for us in the future.

Great. Okay. I've got the signal. We've got time for one last question here. Okay, Natalie .

Josh Spector with UBS. I wanted to come back to the SG&A piece. And just, Al, from your perspective, you talked about AI, you talked about digital investment sometime on the PROS PLUS app. When do you -- when are you able to leverage that to get better operating leverage from that? Is that something that's maybe not in this next couple of year cycle and maybe in a longer-term cycle? Or is that not something that we should really be thinking about in terms of a benefit to the algorithm over time?

Yes, Josh, I would say our focus on operating margin leverage comes both ways. We saw SG&A leverage in '21 and '22. These investments that were going to drive above-market growth in volumes, as those volumes improve, I'd expect to get leverage on our SG&A like we have coming out of previous cycles. So you can absolutely expect that. We're going to -- we're to pull each of those levers, gross margin expansion and SG&A leverage to continue to drive that operating margin higher. And I would say that's going to be as demand improves because we've been investing. We've been delevered on SG&A because gross margin expansion has been so strong in the last year and 2 years, midterm, you'll start seeing us get SG&A leverage on that higher volume.

Okay. And with that, I'm going to stand and to close this out, so I can't see everybody back here. So I apologize. I know it's kind of hard to see. But I do just want to take a moment to thank everybody for being here and your interest, your questions and certainly got some more time had. Thank you to the management team. I'm very proud to be part of this group and the folks that helped us present. And if there's one takeaway that I hope you all heard, it's -- there is a reason that we expect to continue to win in the space. It starts with the discipline around our priority segments. There's significant market share across every one of our priority segments. Second, I would say is clarity of our value proposition. We are not trying to be all things to all people. We're going to continue to hone, refine. It's -- there's no finish line there. We're going to work really hard to continue to make sure we have the clarity and that our customers are valuing that. Third is a discipline around investment at the right time in the cycle or in the right time in the season. We're going to watch those indicators very closely and make sure that we're doing that with discipline. And last but not least is we want our customers to believe that they make more money when they partner with Sherwin-Williams. And if we do all of those things, you all will be rewarded as well. So thank you for your interest. Please join me in the management team upstairs. We've got cocktails and all sorts of nonalcoholic beverage choices as well. So thank you all for your time.