The Sherwin-Williams Company ($SHW)

Good morning. Thank you for joining the Sherwin-Williams Company's Review of First Quarter 2026 and our outlook for the second quarter and full year of 2026. With us on today's call are Heidi Petz, Chair President and Chief Executive Officer; Ben Meisenzahl, Chief Financial Officer; Paul Lang, Chief Accounting Officer; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by Access Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes. This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open up the session to questions. I will now turn the call over to Jim Jaye.

Thank you, and good morning to everyone. Sherwin-Williams delivered strong sales in a quarter characterized by heightened global uncertainty and persistent demand softness in most end markets. Our growth investments and ongoing new account and share of wallet initiatives continue to yield results as sales exceeded guidance on a consolidated basis and in all 3 reportable segments. Consolidated sales grew by a high single-digit percentage, inclusive of a low single-digit contribution from the Suvinil acquisition. Reported gross margin expanded by 90 basis points, inclusive of a dilutive impact from Suvinil. This was the fourth quarter out of the last 15 quarters we have delivered year-over-year gross margin expansion. Against a challenging prior year comparison, SG&A increased by a mid-single-digit percentage, excluding the anticipated headwinds from our nonannualized acquisition of Suvinil, nonannualized operating costs and depreciation related to our new buildings and foreign currency translation that we anticipated to unfavorably impact our SG&A as a percent to sales by approximately 100 basis points. Our full year guidance of a low single-digit increase in SG&A remains unchanged. Adjusted diluted net income per share in the quarter increased by a mid-single-digit percentage. And adjusted EBITDA increased by a high single-digit percentage. Net operating cash improved by $200 million, driven by an increase in net income and working capital being a lower use of funds. Our full year guidance for adjusted diluted net income per share remains unchanged. We continue to execute our disciplined capital allocation strategy in the quarter by returning $773 million to shareholders through share buybacks and dividends. We ended the first quarter with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.5x. Let me now turn it over to Heidi, who will provide some color on first quarter segment performance before moving on to our outlook and your questions.

Thank you, Jim, and good morning to everyone. I want to begin by thanking our more than 64,000 employees for executing our strategy in what remains a very challenging operating environment. We are continuing to deliver reliability, consistency and solutions for our customers at a time when these are more valuable than ever. Our differentiation continues to widen the gap between Sherwin-Williams and our competitors as evidenced by our strong top line and robust new account growth across the business. Looking at our segment results in the first quarter, I'll begin with Paint Stores Group, which grew by a mid-single-digit percentage. Price mix and volume both increased by low single-digit percentages with price mix increasing more than volume. Effectiveness of our January 1 price increase is trending slightly better than expected. Our Protective & Marine team continued to deliver impressive growth for us as sales increased by double digits versus a high single-digit comparison. It was the seventh straight quarter of high single-digit growth in this business. In the commercial business, sales increased by mid-single digits in what remains a choppy market, reflecting our very targeted and ongoing share gain efforts. These efforts are also evident in residential repaint, which returned to mid-single-digit growth in the quarter. Low single-digit growth in property maintenance was encouraging, while demand in new residential remained very challenging as we anticipated. Segment profit grew by low single digits, with segment margin basically flat. We opened 21 new stores during the quarter and as planned, closed 27 or about 0.5% of total PSG stores. As we have done for decades, we continually assess and optimize our store portfolio to drive profitability, strengthen operational flexibility. Drive improvement in return on net assets employed and ensure we maintain the highest level of service for our customers. We still expect to open 80 to 100 new stores for the year. Consumer Brands sales exceeded our expectations, driven by high-teens growth from the Suvinil acquisition. Price mix and FX both increased in the low single-digit range. and volume decreased in the mid-single-digit range. Group sales, excluding Suvinil increased by low single digits, driven by high-teens growth in Europe and high single-digit growth in our legacy Latin America business. Softness persisted in North America where sales decreased by low single digits. Adjusted segment margin increased driven by the strong top line with flow-through of 34.3%. In Performance Coatings Group, sales increased slightly above the mid-single-digit range we expected with growth in every division and region. These results reflect the strong new account growth focus we have spoken about over the last year as demand in our underlying core business is still declining in some end markets. Volume in the quarter grew by low single digits, acquisitions were slightly positive. Price mix was flat and FX was a tailwind. Automotive refinish sales increased by a low-teens percentage, driven by high single-digit volume. The growth was broad-based with sales up by double digits in all regions, providing further evidence of the value we are delivering in this end market to win new business. Packaging continued its strong performance as sales increased by high single digits against a high single-digit comparison. General industrial, coil and wood also delivered solid growth. Group sales expanded in all regions, including double-digit increases in Asia Pacific and Europe. Adjusted segment profit for the group increased by mid-single digits and segment margin was flat. Higher incentive compensation related to the strong year-over-year sales along with the significant FX headwinds drove segment SG&A higher, resulting in muted flow-through. These same dynamics in addition to our nonannualized new building costs also drove SG&A higher within the administrative segment. The slide deck accompanying our press release this morning provides more detail on second quarter segment results. Now moving on to our guidance. The assumptions we provided in our January call and slide deck largely remain intact. What hasn't changed is that our customer feedback as well as the indicators we track continue to signal little support for meaningful recovery in most end markets. What has changed is the Middle East conflict, which has added further complexity and uncertainty in navigating the macro landscape. Our team has repeatedly demonstrated its ability to manage through crises most recently during the pandemic and the U.S. supply chain disruption to name just a few. I am highly confident we are well equipped to manage through this newest challenge and continue supporting our customers at the highest levels. Let me provide some perspective here. First, we expect to see some negative impacts on demand from recent events as the year progresses. So it is difficult to predict the magnitude at this time given the highly fluid nature of the situation. But I will remind you that this is our fourth year in a row we have been operating with the expectation of getting no help from the market. We know we are operating in a share gain environment, and we will continue to be very aggressive here. We see opportunity and uncertainty. We will continue to support our existing and new customers by being the most reliable and consistent business partner in our industry. From a raw material perspective, our first objective is certainty of supply. The good news is that over 80% of our consolidated revenue is in North America. The majority of raw materials for these sales are sourced in region and remain largely insulated from supply disruptions tied to Strait of Hormuz volatility. In areas such as Asia Pacific and EMEA, where supply could become more challenged, we are managing risk closely. Our focus over many years on building strong relationships with strategic suppliers versus transactional ones is a competitive advantage and should continue to serve us well. In terms of raw material price cost dynamics, cost for oil, natural gas and key petrochemical feedstocks such as propylene have inflated and remain volatile. As we have previously indicated, sustained inflation in these commodities typically takes about a quarter or 2 before we begin seeing an impact in our P&L. Specifically, we would expect to see these inflating costs impacting us more materially as we move through the second quarter and into the second half of the year. Our industrial business is seeing inflationary pressures first. starting in APAC and EMEA and to a smaller extent in North America. More recently, we have started to see the inflationary impacts in our North and South American architectural businesses. This leads us to increase our full year raw material inflation outlook to the range of up low to mid-single digits. In this environment, we continue to focus on securing incremental volume, balanced with appropriate and decisive pricing and cost-out actions that allow us to maintain the products, services and supply solutions, which drive productivity and profitability for our customers. In terms of pricing, we are out across the business with incremental targeted actions by customer, geography and end markets. As a result, our expectation for consolidated price mix for the year increases to the high end of our low single-digit range. We are actively working to limit these increases for our customers, by accelerating meaningful and aggressive cost reduction actions. At the same time, we expect continued volatility in the raw material environment as the year progresses, and we are prepared to implement additional increases, if necessary. The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the second quarter of 2026. Our consolidated sales and earnings guidance for the full year are unchanged. Though our deck outlines some adjustments in the mix of volume, price and FX. The deck also contains other details you may find useful for modeling purposes. Sherwin-Williams remains well positioned to outperform the market. We are highly confident in the clarity of our strategy and importantly, our team's deep experience and ability to out execute in this environment. We remain deeply focused on the success of our customers, while continuously assessing and adapting to market conditions and controlling what we can. Whenever there is uncertainty and disruption, there is significant opportunity to demonstrate what makes Sherwin-Williams so unique. This concludes our prepared remarks. With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

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

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

Yes, John, I'll start, and I'll hand this over to Ben here for some color commentary. I do want to just demonstrate that this is an opportunity. We've operated through so many different types of cycles where volume is clearly key. And the discipline of the team to know when and where to go with pricing is on clear display. You see it in our first quarter results. But I want to take a moment before I hand this over to Ben. I said this in our prepared comments, it's the credit to our 24,000 employees globally that are operating belly to belly with customers and have that intimacy so that when we do need to take pricing we've got high credibility that it's absolutely out of necessity. I'll hand it over to Ben to maybe give some comments on a more surgical approach.

John, it's Ben Meisenzahl. Yes, just to add to what Heidi said here, I think one place to anchor is that we have more than twice the pricing now in this new guide than what we had in the original guidance that we gave you in January. And it reflects, if you think about the phasing by the regions, we obviously know that Asia Pacific is maybe more impacted right now. That's going to impact EMEA, North America comes later. You also have the [ basin ] where industrial is impacted sooner than you would have architectural. That's because a lot of the solvent pricing that you would expect is you see first even the way that we buy is a variable here. You think about -- and we're like 50-50 between contractual and spot buying, more of our architectural business is on a contract. And so you would expect -- on the industrial side, you're going to see more of that stop buying where you got a more varied range of raw materials. And so these are all things that have gone into how we thought about the pricing here and Heidi is absolutely right. we're going to monitor and watch. We're going to work with our customers. We're also really early in the year still. And so we have a lot of opportunity if our base case doesn't play out the way that we think we're going to have that ability to go out and get additional pricing. And lastly, I mean we always talk about it is balancing price with the right volume and as we looked at some of the competitive opportunities we're not looking for all volume. And so that is an opportunity that we want to make sure that we don't forget about it.

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

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

Yes. Duffy, it's Jim. I'd say where we're seeing the most pressure, as Ben mentioned, would be more on that industrial basket. So you're seeing that in the solvents and resins, those petrochemical based commodities. Propylene drives about 75% of our basket, and that pricing is up because of the Middle East forecasted maybe up 50% more through the rest of 26 related to those disruptions. The solvents are elevated as well, epoxies, I would say, as well. TiO2 for the most part, has not elevated as much yet. I think we've talked, Duffy offline about the sulfur dynamics coming out of the Straight of Hormuz. The good news is we're not really buying sulfate TiO2. I understand it's a global market, but we're more on the chlorinated side. So I think that's important. And the other thing I would say is again, as Heidi mentioned in her remarks, 80% of our sales are in North America, and the vast majority of our raws that we're buying come from that region. So from a supply perspective, we feel very good and the contractual buying that Ben mentioned the way we buy is also helping us navigate these initial headwinds. And thanks for the question.

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

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

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

Your next question is from Christopher Parkinson with Wolfe Research.

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

Yes. You bet Chris. There's a lot of volatility, obviously, in the macro, but there's also a lot of volatility in the competitive environment. I also said in the prepared remarks, that is absolutely our opportunity. You're going to hear us talk about this jump ball environment. And so in this economy and in this competitive landscape, we're going to be extremely aggressive and making sure that we continue to take more than our fair share of volume. And I'll point to a couple of examples here, and then I'll come back to the stores and your second question. If you look at our res repaint segment, we're up mid-single digits in a flat to down market, focusing on a lot of these share gains. We see interiors are increasing some bidding activity. We're going to take advantage of that. We see the exterior backlogs are very healthy. We're going to take advantage of that. Our team has been out laser-focused, Justin Binns and the stores organization committing to aggressive new account activity. I would tell you it's the strongest we've seen in a long time. So even though there's some slowing in the market, our teams are out chasing square footage, earning business with these contractors every single day. I'd point to our commercial segment. we're outperforming. There's soft completions and yet we're up mid-single digits, while completions are down double digits. And so again, some good bidding activity out there. We see some positive signals that there's uptick with office tenant improvement some modest uptick in multifamily starts that won't benefit us for at least 12 to 18 months. But we're up year-over-year all 4 quarters of '25 and '26 because we've been completely focused on demonstrating value with these contractors. I'm going to take a moment and just give you a bit more by segment. If you look at our property maintenance, we're up low single digits here in the market where turns and CapEx were both under pressure. So continue to be laser focused on how we can add value. Even in the DIY space, we're up mid-single digits in stores that premium DIY is holding up a bit better than that value-conscious DIY that prefers a home center environment. Our Protective & Marine, seventh straight quarter of being up at least high single digits. It's all share gains. And so we're going to be relentless and being very targeted on our strategic investments as we are obviously going to be very focused on taking costs out on the admin side. But to your point on stores, it's going to be a continued disciplined process of looking at our portfolio. Ultimately, we're going to be driving a focus on return on net assets employed. And so it's incumbent upon us that as we're looking at that portfolio as we've done for decades, we're going to make sure that we're driving profitability and strengthening our flexibility and our agility as we see migration as we see changes in the competitive landscape, we're going to be very thoughtful in chasing that volume.

Your next question is from Ghansham Panjabi with Baird.

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

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

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

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

John, it's Ben. We've been monitoring, obviously, a lot of what they're doing. We agree that affordability is a big part of the equation. We've talked pretty openly we thought rates was maybe going to be the first indicator that could drive additional unlocking demand, then affordability and consumer confidence have been maybe more at the forefront. Our opinion is that we'd like to see some more of the supply opportunities versus some more of the giving demand. You've seen the 50-year mortgage, you've seen the Trump homes. You've seen some of these other maybe shorter term [ Mox ]. And so what we're looking for in some of these policy changes would be how do you get local governments working better with the federal government to open up land that makes it more cost effective for the new homebuilders to lower their costs. That said, a trickle-down effect to the affordability piece for the consumer who's buying the home. And so we welcome, obviously, any of the unlocking of affordability-type mechanisms, and we're watching that closely to see how we should be reacting and be ready to act when you do see something unlock.

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

Could you talk a little bit about the margin improvement in consumer brands? And I guess, from a couple of different lenses. One, should we think about that as a base level. Typically, I believe those margins go up in the middle of the year. So will they be improving sequentially. And then was there any reallocation of costs among the 3 segments? I recall in prior years, sometimes at the beginning of the year, you've changed the the cost allocation of the paint supply from consumer brands in the other 2 segments?

Vincent, it's Ben. On the first part of your question, the margin improvement in Consumer Brands that you saw, a lot of that is coming from our global supply chain efficiencies. And we've talked many quarters over about a lot of the simplification and continuous improvement culture that, that team has. And we continue to see benefits there. If you remember, the second half of last year where our production was lower than what we had called out in the first half of the year. That team is getting lean in a lot of different ways. And so that's a big part of what you see in the improved margin there. You also have some opportunities where our price/mix has been a little bit better. You think about premium gallons improving in that segment and maybe a little bit of price ahead of the things that Heidi and I are talked about with inflation. And so you see that there in that part of it there. There is no reallocation. I know back in 2023, we talked about how we had that fixed cost allocation between the businesses. Nothing here. You should expect to still see low 20s margin in this segment as we've talked about.

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

Was hoping that we could go back to pricing, it seems like maybe the realization that you're getting on that 7% increase from January 1 is a little bit better than you had initially thought. And I'm curious at this point, have all of those conversations with customers taking place and that the pricing is what it is. Or are there still some conversations yet to happen. And in terms of potentially needing another increase in response to what's going on in the Middle East and higher raw material costs. Has the window passed to announce a price increase ahead of this year's paint season? Or would you be willing to kind of break tradition and go with a mid-season increase, if that's what's necessary or if you see competitors doing that?

Yes, Mike. I'll start. It's kind of a 2-part question. The first part of your question relative to the January increase, yes, the realization is better than we expected. And yes, all of those conversations have happened and are out there. As it relates to has the window passed or how do we think about maybe more of this turbulent environment. And we've done this in the past. In fact, I did this when I was running stores. When you're in a more volatile environment, our -- what we're not going to do is go out with a big increase in the middle of the season and announced effective immediately. But what we might -- if we need to go out with price, we will go out with price in the middle or at the beginning or the end of the season, but we'll do it the right way. We'll sit down with our customers. We'll make sure that they are prepared, so they're not stuck absorbing this, and we can work with them to get those into their bids. So we'll do it very methodically. But let me be very clear, if we need to go again, we will go again.

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

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

Greg, it's Ben. We haven't been calling out the specifics with Suvinil, but I could tell you that it's a multi basis point level up, we would have been over 100 basis point improvement without Suvinil in the quarter. And then as you look forward to prior quarters, you do normally see our gross margins increase into the selling season as our sales improve, and we get better margin dynamics, there could still be a little bit of lumpiness. We've talked about even with our midterm gross margin target, that it's not a straight line up that it is a little bit lumpy. But we would expect that we continue to to get a little bit of expansion there. And obviously, all the things that we're trying to manage through with the Middle East conflict and the raw materials that plays into it as well. But again, you look at the normal phasing quarter-by-quarter, you should expect us to see improved gross margins as we go into the spring and summer selling season.

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

Great. I guess I was a little bit pleasantly surprised by some of the volume comments and performance and across a couple of your businesses. So maybe in PSG still very strong, I guess, a relatively solid resi repay. Do you see that continuing? And then in in PCG, better-than-expected performance out of refinish and general industrial and coil turning around, do you see those continuing as well?

The answer is absolutely, we see those continuing. And I'll point to Res repaint, just a little bit more color on that. It's -- the actions that we've taken over the last 3 to 4 years that help Sherwin-Williams has never been better positioned. I would tell you, we're better positioned now than even the turbulent last 2, 3, 4 years. And so the controllable mindset, residential repaint, I won't repeat what I said earlier. But this is an area where we're bringing really important innovation forward and technologies to help job site productivity. So an example, we just launched a product, a system called the Emerald Symmetry, which is our best-performing interior product that we've ever produced. So these have performance characteristics that are putting our contractors in a position to get on and off of job sites faster. The secondary benefit of something like this is this happens to be 0 VOC and plant-based interior coatings. So helps us on a number of fronts. We're taking the time to make sure that we're setting our contractors up for success and when we do that, we get rewarded. And so your point on some of the important businesses in PCG, just take a moment here. This doesn't happen by chance. We talk about success by design. You mentioned Refinish. We have very strong momentum here. We're up double digits in every region. We're getting price in every region. And I think that is a demonstration of a clear value proposition that customers are really understanding. There's a lot of dynamics certainly within the industry that we watch closely. But what we don't do is sit back and wait for the market to correct. We're out chasing new business aggressively. Our direct installs continue to grow double digits in the quarter. So there's a lot of runway in terms of future share gains there. Packaging. Another fantastic example, we're up high single digits. The global beverage market is up low single digits. The global food market is flat to down low single digits. So it tells you that we're up high single digits. What we're doing is working. Coil, general industrial and wood all have really positive stories. The coil business, we're up mid-single digits, and that's despite a lot of softness that's tied to the North American commercial residential construction, tariff uncertainty. The teams are out aggressively hunting. And GI is another great example, general finishing, heavy equipment, they're both up double digits. So we're out trying to offset core erosion and core softness there. And industrial wood being up low single digits despite the correlation to residential there, the soft residential end markets that impact wood furniture, flooring and cabinetry. So despite that backdrop, the team is out chasing. So here's the punch line. We're building new muscle. And I do expect that we will continue to keep our foot on the gas and take share.

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

I had a clarification and a question. On the clarification side, Ben, I think you made a comment that the price embedded in today's guide is more than twice what you had included last quarter. And I guess the clarification was -- is that all to do with the January 1 increase in the realization against that? Or have you implemented incremental pricing since the onset of the war on March 1. And then just my question is on raw materials. You're ratcheting the guide up a little bit, although, frankly, not as much as I might have thought. So I was wondering if you could just talk about the quarterly cadence of that. I think you're a majority LIFO company. So maybe you can kind of speak to the accounting flow through and the assumptions that you're making on duration of the conflict there?

Kevin, yes, to clarify on the -- my price comment from earlier, that is on the consolidated pricing. That would have been everything that we did in January with stores that would be everything new that we've done since then. You see in our guide that we took up our pricing and Performance Coatings Group and it goes back to the comment we made industrial with all the more solvent borne type raw materials with the international locations. That's where we're seeing it first. So that kind of phases into your second question of how do you see the raw materials flowing through. And so our updated guide to low to mid on a full year, you have to expect that were first half of this year, even as we have some of the deferrals, you don't see it as much in the first half. You're going to see it heavier in the second half and then you exit the year you're going to be at the higher end of that up low to mid-single digits. And so we're managing that closely. And as I mentioned earlier, we have enough price with what we see right now for what that inflation is at the baseline changes, as Heidi mentioned, we're willing to go out and work with our customers to implement new pricing. There's plenty of time in the year to do that. And so that's how we're going to manage that.

Your next question is from Josh Spector with UBS.

I'll go down a similar line of questioning is Kevin. Just -- I mean it's surprising to hear that at the exit rate, you're talking about the high end of low to mid-single digits on raws. I mean, we have math out there that says you could see raws up 20% in that range. And that seems more consistent with some of the competitor price increases that are out there. So I don't know if due to your North America exposure, you'd say that inflation is substantially less or it's how you're buying those raw materials and maybe some of the contracts either give you more protection for this year. So this is more of an early 2027 inflationary events that you would see? Or if there's something that gives you more permanent kind of protection against some of that. Can you -- so can you talk about that a little bit and help us understand maybe what's going on that's different for you guys versus some of your competitors?

Josh, it's Ben. I can't comment on how our competitors buy, but I can tell you with and Heidi called out our strategic relationship with key suppliers, our our procurement is maybe tighter than some of the others. And so we're using that as a strategic advantage so that we're not having to maybe pass as much price to our customers as some of our competitors might have to do right now. That aren't advantaged because of the way that their contracts are set up. And so we do have a number of spot buying. We aren't seeing the exit rates in that 20% range that, that you're seeing. And again, I think you alluded to the mix of our business, the architectural and the industrial, that probably has some impact on that. And then again, I'll point back to of our business on contract, that's an advantage for us right now.

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

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

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

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

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

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

Yes. Chuck, it's Jim. I think in terms of the mortgage rate environment for this year, we're not expecting it to move a whole lot. And I think Ben referenced if you dial back a year or so ago, we were putting a lot of emphasis on rates getting below that number. I think that would help. But certainly, it's more about affordability as well. And it's sort of this triangle that we look at of rates, affordability and incomes. So we need all 3 of those to sort of work in in sync, if you will. In terms of where we go from household formations, it has slowed a little bit, but it's still a pretty healthy rate in terms of household formations, and we expect that to continue. And I'd also point to, as we've talked about many times, Chuck, the structural deficit that's out there in terms of we've underbuilt for a long period of time. So even if household formations do slow a little bit. There's a tremendous pent-up demand that has to happen. And whether that's single family, if it doesn't come through that way, it's going to come through in multifamily. -- people have need a place to live. So we're well positioned on that multifamily side as well.

One piece I would add to that Chuck, as well because the depth of our position with a lot of these national homebuilders and exclusive partnerships, I do believe we'll be uniquely rewarded as this pent-up demand starts to soften because it's what we do right now in these partnerships, we said this on the supplier side, it's true with our customers. We want to be the strategic partner that's helping them solve for simplification, helping them solve for cycle time. And so I think the work that we're doing now, it's masked in the market when things start to move, I think we'll be uniquely rewarded for that.

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

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

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

Yes, Patrick, I think one way to think about it is we know that there's going to be this gap in feedstock. And you've had boats that are on the water 60 to 90 days from the start of the conflict. And so at some point, Asia and Europe are going to feel the squeeze a little bit more than maybe what they're seeing right now. And so I think what you have what you see in our guide is a pretty realistic view that there is going to be kind of an inflection point where getting those feedbacks are going to be tougher that could have obviously a greater inflationary impact on the business there. We feel as a big global company is we're going to be able to get our customers' product. It may come at a higher cost. So you may start seeing some people waiting for prices to come down and that could have an impact on demand. And so that's really what you see in our guide that has that there. And I'll call out, I mean we we started to look at inflation, not as an uncontrollable headwind, but a variable we're actively managing. And so you start to see that with how we're looking at each of the different regions and that realistic view and our confidence for how we're going to support our customers.

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

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

Well, there's probably a mix if we're honest on balance. I mean I think there'll be some prudence and people waiting to see kind of where cost of capital is. But there's also a lot of confidence in the backlogs and the pipelines. And so it's really a mix across the board, Kevin. But I think that it's a portfolio. And so importantly in that, while we would love for all segments to be up at all times across PCG. The reality is that we're going to be very focused on where the market is and make sure that we are best positioned for that runoff. And so we're going to continue to do what we do, Karl Jorgenrud in that organization. runs with a very strong sense of agility and urgency, and you're seeing that play out right now. I think our strategy is clearly working. What we said we would do, we're doing it and we're doing it better than we even thought, and that's a result of that strategy.

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

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

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

Your next question is from Mike Sison with Wells Fargo.

It just feels like U.S. architectural paint demand in the U.S. has been structurally impaired. If this continues through the end of the decade, how do you sort of think about strategy in this environment for even longer than we're seeing it. And then just curious on your 2026 full year, your sales guys for Paint Stores Group. Are we kind of tracking toward the down low single digits given how the housing market is shaping up this year?

So Mike, 2-part question. I'll take the first part on demand and then hand it to Ben for guidance. I wouldn't use the word impaired, I would say, under pressure. But you can imagine when we're sitting in our conference rooms and boardrooms, we are looking at every scenario, including software for much, much longer. And so I can assure you that we do have a whole host of multiple levers that we look at, we contemplate. We don't want to have to pull some of those. And so we're going to do what we said we would do is control the controllables. We're going to look at this as a jump ball environment. There are a lot of gallons available on up for grabs right now. And if I even point to res repaint, Mike, you know this well, this is an area where not only do we continue to take share, but it's the area where we have the most share to gain. And so even in this environment, we're going to continue to outperform the market, and we're going to compensate for some of that core softness.

Yes, Mike, I'll add to that. I mean as far as our full year guidance for Paint Stores Group, it remains aligned in that low single digit. And you don't see as many of the variables changing as maybe you saw with some of the other segments. And so I think that's a barometer of confidence for us and how we're assessing the business there. But as we've talked about already, we're going to make -- continue to make the right selling investments there. There could be different mix by the different segments that Heidi has walked through, but we feel pretty confident about our continued opportunities, especially with all the share gains that we've been after in Stores Group. And so that's why you see the guide kind of remaining where it's at.

Your next question is from Sebastian Bray with Berenberg.

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

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

Yes. And I'll take a little bit on the Europe sales. Europe benefited from a reporting mix impact this quarter. a certain immaterial resin sales we had previously reported as part of Performance Coatings Group are now fully integrated and reflected in our global supply chain, which is reported here in our Consumer Brands Group. And so don't read too much into the much stronger reported sales. If you look at the core sales of Consumer Brands Group in Europe, it grew by more of a mid-single-digit percentage if I exclude that resin classification and similar to what we've seen in Europe with the challenging environment, DIY being a more challenged part of the segment, I think you see that playing out here.

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

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

So Eric, if you look at the DIY segment and split it into the premium the homeowner that's willing to pay a premium rather and is looking for that high-touch service generally prefers the specialty store environment. So the up was -- our sales were up. It was not volume. So that's obviously a mix of both volume and price. If you then look at more of that value-conscious homeowner that might prefer a special era, home center environment rather, that's where our strategic partnerships with Lowe's and Menards and others are so important so that together, we can cover that landscape. But really, it is kind of unique. If you split those out, there are different behaviors right now, given some of the inflationary pressures.

Your next question is from Jeff Zekaukas with JP Morgan.

Is it fair to say that your architectural paint price increase happened at the very beginning of the year, but there haven't been architectural increases since then. But in your industrial businesses, you have increased prices later in 2026. And I was wondering how much that might be, what those price issuances were? And then secondly, in your description of raw materials, you said that 75% of your raw materials are related to propylene. And you said that propylene was up 50%. So wouldn't that mean that your raw materials are up 38%, 37% if you would ignore timing?

Jeff, it's Ben. I'm going to take this first part here. I'll let Jim answer the question about raw materials. The pricing phasing, you're right, yes, our architectural price that we went out with in January, the intention before the conflict was that's the price that we needed for the year. And if you go back to our initial raw material guidance of up low single digits for the year. We built that initial pricing based on that assumption that we made at that time. And as you can imagine, we have a lot of architectural customers who are on contracts. So we have other points throughout the year, and we've talked about our our effectiveness can get better throughout the year as you hit those certain milestones, where we're able to get more pricing. But yes, you're right, a bulk of that comes at the start of the year. Industrial historically has been all throughout the year at different times based on business needs, based on what the raw material basket is doing. And so I think what you've seen post Middle East conflict we've had to go out and reassess in all parts of the business. And so even though there's not an announced general increase for Paint Stores Group as we try to manage through cost out and other simplification efforts. There might be some spotty other areas where we are able to get price without doing a full launch. And similarly, with the industrial business, as you can imagine, Asia and Europe where you've got pricing that has got to be 20% or higher to cover where you have the bigger part of the inflation happening, our teams are out by business unit and geography. Getting coverage where they need. And again, that would be bigger, again, on industrial in APAC, in EMEA. There are still industrial impacts that are happening in the Americas. And so there's pricing that is going out there on the industrial side. But I think as we've talked about on a couple of different questions and even in Heidi's opening remarks, being very surgical in trying to find where we can take that price with how having to be generic because we realize right now in this inflationary environment, we don't want to put volume at risk. And so you have to do that maybe to a stronger degree than you normally would see us do.

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

And then, Jeff, on your question about propylene, I'd give you a couple of things to think about. The 50% that I mentioned is a forecast of where it could go perhaps over the rest of the year. We'll see how that plays out. And as Ben mentioned here, we'll be out with price if we need to there. The other thing I would say is, as you know, we're not buying propylene. We're buying the things that are derivatives of propylene. Those do take some time to flow into our basket, and we'll be ready, again, if we need to go out with additional surgical price increases, that is -- we'll be prepared to do that. And thanks for the question.

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

Yes. Thank you, Holly, and thank you again, everyone, for joining our call. And special thanks to our employees for their hard work in delivering a really solid start to our year. I think Heidi said it well. Our strategy is clear. It's working, and it's not changing. We're continuing to focus on providing our customers with solutions that make them more productive and profitable. You can count on us. We're going to continue executing at a high level, focusing on winning new business and controlling what we can. I'll close with a reminder. Our 2026 financial community presentation is coming up in Cleveland this year, September 24. You'll have an opportunity to see our investments in our new global headquarters and our global technology center. Excited for all of you to experience that and see how that's moving the needle forward for us. So thanks again for your interest in Sherwin-Williams. As always, we'll be available for follow-up calls and hope you have a great day. Thank you.

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