Sherwin-Williams Stock

Good afternoon, everybody, and welcome to the 2026 Sherwin-Williams Financial Community Presentation. I'm Jim Jaye, Senior Vice President of Investor Relations and Corporate Communications for the company. And on behalf of our leadership team who is here today, thank you for joining us in Cleveland as well as those who are online. We really appreciate you being with us today.

We are especially pleased to host you in our new global headquarters and later today at our new Global Technology Center. These are more than new buildings. They're strategic investments in continued industry leadership and a culture focused on talent, collaboration, innovation and ultimately delivering a world-class customer experience, and they're already beginning to create value for us.

This year also marks Sherwin-Williams' 160th anniversary. Few companies endure that long and even fewer continue evolving, continue leading and continue compounding value generation after generation. So today, you will hear how we expect to extend that track record for decades to come. As a reminder, today's presentation and remarks are being made within the context of our forward-looking statements disclosure.

And at Sherwin-Williams, safety is unconditional. So we always begin with what we call a safety grabber. And so should you hear the fire alarm activated, please leave to the marked exits and our security teams will be out in the hallway to assist you. So let's get started. You know us as the leader in paint and coatings. But today, we're going to show you that we are much more than that. We are a well-positioned share gaining compounder that delivers through all cycles.

Our company is led by a deep and experienced team with a proven track record of delivering growth, execution and long-term value creation. Today, in a few minutes, I'm excited for you to hear from several members of our team, including our Chair, President and CEO, Heidi Petz; and our Chief Financial Officer, Ben Meisenzahl. Sherwin-Williams is the premier global paint and coatings company in the world. Last year, our sales were about $23.6 billion. And at the midpoint of our most recent guidance, we'll surpass $25 billion in 2026. We have over 64,000 dedicated employees operating in more than 120 countries.

We operate in a global market estimated at just shy of $200 billion, and the competition there is significant. The top suppliers make up approximately 50% of that pie with the remainder being highly fragmented and made up of hundreds of additional suppliers. Over time, that pie is expected to continue to grow. And given the softer for longer environment that we've been speaking of for the last 4 years, we're confident that there's significant pent-up demand to be released ahead of us.

So from 2019 through 2025, the global coatings volume grew less than 1% annually with North America and Europe actually down low single digits. That includes both architectural and industrial coatings. Some third-party outlooks are suggesting that volume growth should improve across regions in the years ahead, and we expect that recovery to be gradual and uneven rather than a linear progression. But even so, the direction appears more constructive than what the industry has experienced over the last several years.

U.S. demographics should continue to provide opportunity over the long run. While there are several variables to consider and the pacing may vary, the fact is that Gen X, millennials and Gen Z are still driving growth in household formations. This should support new single and multifamily housing, remodel and remaintenance over time -- not remaintenance, maintenance over time.

In addition, aging homeowners have accumulated substantial wealth, including $90 trillion of baby boomer wealth, which drives home spending and second home spending as well. The U.S. has underbuilt homes for more than a decade with estimates of the housing gap commonly in the 2 million to 4 million range with some estimates as high as 6 million. We all know mortgage rates remain high, but activity should gradually normalize as households adjust and the lock-in effect fades.

Homebuilders also continue to offer very attractive incentives. Ultimately, the recovery, we know is going to be driven by a combination of things: rates, affordability, income growth and consumer confidence. And while single-family new residential is a very important end market for us, I want to remind you that it's less than 10% of our consolidated Sherwin-Williams sales.

Existing home sales have been near historic lows for much of the past 3 years, which suggests that the market is more likely to recover than to deteriorate further. And existing home sales are actually up slightly year-to-date through August. At the same time, we have record homeowner equity, more than double 2019 levels at roughly $36 trillion, and that provides a powerful funding source for repair, remodeling and upgrades.

This slide reinforces the pent-up demand story. U.S. architectural gallons are down about 11% from the 2020 peak, even as square footage put in place has continued to grow. That square footage eventually needs to be maintained, which will drive res repaint and property maintenance gallons. In sum, housing activity may remain muted in the near term, but home price appreciation, homeowner wealth, aging housing stock and stay-in-place behavior continue to support paint and coatings demand.

On the industrial side of our business, we compete in a broad range of premium end markets. So as you know, there's no single indicator that tells the full story for us there. But that said, the manufacturing PMI trends have improved in recent months, particularly in the U.S., which represents about half of our industrial business. As I mentioned with architectural coatings, we expect the recovery here to be gradual and choppy.

So we're not waiting for a recovery in any of these markets. We're controlling what we can control, and that's catalyzing growth on the top line and the bottom line. We're determined to put even more distance between Sherwin-Williams and our competitors. And it's with this mindset that I'm pleased to welcome to the stage our Chair, President and CEO, Heidi Petz.

Good afternoon, everyone. Thank you for investing your time to be here with us today. Today, we're going to answer 2 fundamental questions, which is why Sherwin-Williams and why now? The answer is that regardless of the cycle, we continue to invest in a winning strategy. We continue to strengthen our advantage, especially in this softer for longer environment. We have tremendous momentum on our side. We are confident in our strategy. And even more importantly, we've got a proven ability to execute regardless.

Today, you're going to see a company with a 160-year track record of delivering through all types of cycles. And you're going to see an enterprise that's becoming smarter, faster and more efficient as we enter what we believe is a new era of productivity and value creation. Our value creation story is crystal clear. We deliver differentiated solutions that help our customers be more productive and therefore, more profitable. We often talk about success is that our customers are making more money by partnering with Sherwin-Williams.

If you believe in your strategy, you do not abandon it when things get tough. You commit to creating long-term value even through a relentless focus on consistent execution and partnership. That's exactly what Sherwin-Williams has been doing while others have been pulling back. The result is a wider set of competitive advantages. Through consistent and disciplined execution, we continue to find new ways to strengthen our competitive advantage across the enterprise.

Our controlled distribution. This gives us unmatched proximity to our customers through our stores, our branches and our blending facilities. Pricing effectiveness. This is earned through decades of building trust and providing solutions to our customers. Data. This includes the world's largest database of painting contractors, a portfolio of premium assets. This is unrivaled in our industry and importantly, world-class talent, including thousands of sales reps and technical reps that are working every day side-by-side with our customers. Because of our consistent strategy and a very disciplined execution, we have never been better positioned to win.

Our advantage is not one asset. It's our unique combination of capabilities that become stronger year-over-year. It's hard for competitors to replicate because its credibility and trust that has been built over decades. And this has been built through people, systems and continued investment. With that, I'm going to invite our operational leaders to join me on stage to share a little bit about what makes their businesses so unique. And to begin, we're going to start with our Architectural business, if you join me in welcoming Justin Binns, our President of Global Supply -- or sorry, our President of Global Architectural.

Thank you, and thank you, Heidi. Paint Stores Group is built around the professional painter and powered by our unique controlled distribution, local service, innovative products, pricing discipline, trusted relationships and unmatched customer intimacy. Our model helps Pros save time, win work, manage jobs and most importantly, improve their profitability. That's why this business continues to compound share over time.

We have decades, decades of growth ahead of us in Paint Stores Group. There are approximately 12,000 specialty paint distribution points in the U.S.A. and Canada, and well over 7,000 of those distribution points today do not sell Sherwin-Williams products. And we expect to open 80 to 100 net new stores annually on the way to our next milestone of 6,000 locations. But it's not just about the number of stores. We continue to purify the mission of every store resulting in a premium experience for customers in each of the priority segments that we serve.

Our aggressive footprint strategy also drives densification in key metro markets, and this drives economy of scale, enhanced service capabilities and speed to profitability. And above all, the number of job sites are extensive. Nobody, and I mean nobody is better equipped to meet the customer where they are and service these sites through both our stores and our delivery service.

Our relentless focus on serving our customers has also resulted in increased store productivity. Sales per store, PBT per store and segment margin have all increased from pre-pandemic levels. And as you can see, the investments we are making in our newest stores are generating a return at a faster pace than prior stores investments as we improve on our use of data, better alignment across our real estate resources and a continued focus on the highest returning markets.

Now I'd like to welcome to the stage, Todd Rea, President of our Consumer Brands Group.

Thank you, Justin, and good afternoon. Consumer Brands Group is highly complementary to Paint Stores Group. It serves a DIY customer in the growing Pros Who Paint segment through some of the strongest retail partners in the market. Our value comes from trusted brands, category expertise, channel partnership, field support and innovation that help our partners win at retail.

And despite the tough demand environment that we're in, I'm very proud of the progress this team has made to continue optimizing our business and positioning us for upside. We've introduced a steady stream of innovative new products. We've targeted reps adds in the field to support our retail partners. We've divested non-core businesses in China, Australia and specialty aerosols in the U.S. and we've optimized our legacy store footprint in Latin America.

And speaking of Latin America, we're going to celebrate our 1-year anniversary of the Suvinil acquisition on October 1. The talent, products and capabilities of this business are a formidable addition to our portfolio and are already providing additional momentum, growth and priority for our business. And with that, I'd like to welcome Karl Jorgenrud, President of Global Industrial.

Right. Thanks, Todd, and good afternoon, everyone. So the Performance Coatings Group is made up of 6 dynamic global businesses who serve the premium industrial end markets where performance, reliability and total cost of ownership matter. And as you just heard across our architectural end markets, this portfolio operates with the same level of discipline in our strategy and our execution. We are not trying to be everything to everyone, and we have no interest in being in the commodity end markets.

These billion-dollar businesses are each led by a group of seasoned leaders, who are here today, and I hope you guys have some time to connect with them after our presentations. But we differentiate through local service, innovative products and solutions, global reach and more than 1,500 technical service reps in the field around the world working side-by-side with our customers to provide them with solutions for their most challenging issues.

Now there are many organic growth opportunities in front of us in every one of our divisions, and that remains our #1 priority. And this has been evidenced by the strong market share gains that we've experienced. And while we don't need M&A to grow, you should expect us to continue adding to our momentum with targeted bolt-on acquisitions at the right value that bring differentiated technology or fill a product gap or a geographic gap.

So now every day, we serve many of the world's largest global manufacturers, but a key differentiator and potentially one of the most underappreciated parts of our story is our unique asset configuration. In PCG, we've got over 300 strategically located automotive refinish branches and industrial blending facilities, which similar to our stores business provides us with meaningful competitive advantage. So think of it as combining the reach and responsiveness of a local business with the capabilities and scale of a global company.

So for example, we're able to deliver small custom batch orders to customers in days versus our competitors that can take weeks. And that network allows us to serve customers large and small in a unique way and gives us access to an attractive profitable opportunities with thousands of medium and small manufacturers that value speed, service and technical support and are willing to pay a premium for it.

So the team continues to drive the performance of this business higher. And over an extended period of soft demand in many of our global end markets, we've grown sales in the mid-single-digit range and grown adjusted PBT even further. We've improved adjusted segment margins by several hundred basis points into the high teens, and we are confident that the 20% margins are absolutely attainable for this portfolio.

Now for both Architectural and Industrial, our success would not be possible without the support and high level of collaboration and execution with our global supply chain organization. So with that, I'm pleased to turn it over to our President of Global Supply Chain, Colin Davie.

Thank you, Karl, and good afternoon, everybody. Our global supply chain continues to be a competitive advantage, but what truly separates Sherwin-Williams apart is that every link in this chain creates competitive advantage on its own. And together, they form a system that drives superior customer service, stronger scale and efficiency and long-term value creation in ways that are exceedingly difficult to replicate.

It starts with R&D, a globally connected innovation-driven organization, which I'm excited to -- for you to see later this afternoon. Our global procurement team builds strategic relationships with key suppliers that enable us to grow together profitably. Our planning teams use AI tools to respond faster to shifts in customer demand, delivering high levels of service at the right cost. Our integrated manufacturing platform gives customers supply assurance and globally available technology. We've also added new capacity, so we are well positioned for the demand we see ahead.

Our distribution centers are highly automated. They deliver consistently high service to our paint stores network and our retail partners. Our award-winning company-owned fleet gives us security of supply and helps us manage costs more efficiently. At every step of our supply chain, our team are focused on 4 things: safety, quality, service and cost. But what makes this even more powerful is how we leverage our scale as one company. We drive operational advantage by leveraging our capabilities across the enterprise.

Here are a few examples of how that works for our architectural and industrial portfolios. Our global manufacturing footprint gives us the right capacity in the right locations close to our customers. Our procurement team use enterprise-wide scale and a preferred raw material strategy to reduce complexity and strengthen supply chain resilience.

Our R&D teams share technology platforms across architectural and industrial product lines, creating differentiated solutions and getting them to mass market faster. Our distribution centers allow us to position inventory more strategically across the network, reducing freight costs, improving service and reducing working capital. I'm highly confident about what we're doing today, but I'm even more confident about where we're going.

Now let me turn it back to Heidi. Thank you.

All right. Thank you, Colin. So clearly, you can see that the combination of our scale and our agility is evident across the enterprise. We can solve harder problems. We can consistently serve customers better, but we're creating advantages that competitors cannot easily create. We're leveraging these advantages consistently and aggressively.

We are not waiting for a market recovery. We are acting now, controlling what we can control and catalyzing growth importantly on both the top line and the bottom line. Our enterprise priorities are the framework of this growth. They're part of our success by design operating model, and it helps us to continuously improve, but also to adapt and to find new ways to create value. While above-market growth is the ultimate outcome, the other priorities that you see here enable and accelerate our ability to get there.

We continue to invest in the pursuit of new accounts and share of wallet. Our share gains are becoming increasingly visible across multiple end markets, and we do see significant runway ahead. Part of the strength of our portfolio is also our inherent annuity model. A new single-family home at some point needs to be repainted. New commercial and multifamily construction eventually requires maintenance for upkeep or simply to compete. In Protective & Marine, more than half of the revenue comes from ongoing maintenance. These are just a few examples of durable revenue streams.

Innovation also plays an important role in catalyzing growth. As we've stated now for nearly a decade, and we've demonstrated for even longer, we innovate both in and out of the can that allows us to provide more comprehensive solutions that improve our customers' productivity and ultimately, their profitability. Our new global technology center in Brecksville will only accelerate our ability to innovate and provide that value, and I am very excited for all of you to be able to enjoy that later today.

Our digitization priority is building a smarter, faster, more efficient Sherwin-Williams. By using data, AI and process discipline, we can generate better insights that lead to better decision-making. We can improve our forecasting. We can increase our sales and service productivity. But ultimately, we want to make Sherwin-Williams an even easier company to do business with.

There are many examples of AI in our business today. Ask Henry is a really great example of AI in action. Named after our founder, Henry Sherwin. This tool mines our internal data and our expertise to enable our sales and our service employees to answer customers' questions faster, more consistently, but importantly, more confidently. Another great example, the Color Expert App also uses AI to speed color selection, which helps our painters spend less time getting to color and more time painting.

We continue to expand on our digital tools, including our PRO+ app, which really helps our professional painters manage their business better. And we're really pleased to see the adoption continues to grow here. As Colin said, our supply chain responsiveness is a competitive advantage, and we continue to invest in it. Our new manufacturing and distribution center in Statesville, North Carolina is now fully operational. With a 10-year capacity planning road map, we are confident that we are prepared for the volume that the market recovery will bring.

Simplification is another good example of an enterprise priority that helps us to think about how we unlock value. For example, there are still opportunities to optimize our global asset footprint, and we're taking a very thoughtful and disciplined approach to provide premier service but at the right cost. Next, our customers are increasingly looking for sustainable solutions, and we are in lockstep with their business goals.

Today, approximately 30% of our sales come from products from -- with third-party sustainability-related certifications or declarations, and we expect that percentage to grow over time. And finally, the ultimate engine that drives our success is our people. Talent and culture are at the core of everything that we do. So with a clearly defined strategy, along with 64,000 global employees and these key enterprise priorities in action, we have never been better positioned for growth.

As we're building on this solid foundation, I'm equally excited to talk about what is ahead. As you've just heard, each operating group on its own is powerful in its own right. But the bigger opportunity as we are shaping right now is unlocking value for our customers across the entire enterprise. Only Sherwin-Williams can deliver solutions that combine specification, product, service and digital supply chain capabilities. This is true across our architectural and our industrial portfolio and applications.

It allows us to simplify what is complex for our customers. And this really is one Sherwin-Williams, one strategy, one trusted relationship and one coordinated solution for complex customer needs. We're excited about this capability and all that is ahead. But let me point out to you that the building you are in is a perfect example. More than 90% of the interior and the exterior surfaces in our headquarters are coated with Sherwin-Williams products from multiple divisions throughout our portfolio.

The walls, as you would expect, have our architectural coatings. The metal on the chairs and tables in front of you uses our powder coatings. The metal extrusions on the windows uses our coil coatings. The wood and the doors and the podium use our industrial wood lacquer. And even the cans of water that are in front of you are using our non-BPA packaging coatings. So from architectural coatings to our industrial coatings, this very building shows you a very good example of these capabilities that are coming together in the real world. But I want to give you some more examples.

In Nashville, our solutions are supporting a world-class football stadium. There are many different surfaces that needed to be coated, obviously, within the stadium across Architectural, Protective & Marine, general industrial, wood and coil applications. This is another example of how the full Sherwin-Williams portfolio can solve complex, high-profile customer needs across multiple substrates and multiple applications.

Another great example in Fairfax, Iowa, we're applying the same enterprise approach to data center construction, combining our architectural and our industrial solutions across interiors, exteriors, structural steel, floors, roofing, tanks and mechanical systems. Data centers are a strong example of where our breadth, our technical expertise and our coordinated execution can create very meaningful value. But data centers are only a portion of the AI infrastructure build-out that we know is coming.

The bigger opportunity, if you look at this slide, is what makes up the base of the mountain with markets that require many of the capabilities that you've heard about today, including semiconductor fabs, water infrastructure and the power grid. This is a multiyear build-out and includes another long-term reoccurring revenue stream related to maintenance. Across the entire ecosystem, no one is better positioned for this megatrend.

So today, you've heard about the significant market opportunity ahead. You've heard about our relentless focus on execution and our key priorities. You've heard how we're leveraging the enterprise to do what no one else can do in our industry. But most importantly, I hope what you've really heard is that we are strengthening our advantage and that this 160-year-old company has never been better positioned for what's ahead. Our financial strength and our optionality will create shareholder value for years to come.

And with that, it's my honor to include and bring Ben Meisenzahl, our Chief Financial Officer, up to the stage.

Thank you, Heidi, and good afternoon, everyone. It's really great to see you here at our new headquarters. So I appreciate you joining us. So you've heard about the market opportunity. You've heard about the investments that have strengthened our positions and the growth opportunities across both our architectural and industrial portfolios.

So what I'm going to do today is show you how our unique and differentiated strategy is connected to our financial outcomes. And I'm going to do that using some of our recent financial trends as proof. But before anyone sharpens their pencil looking for a guidance change today, I'm going to make it easy for you. We are not going to be updating the guidance that we provided on our July 28 earnings call, and our outlook for 2026 remains unchanged.

So the last several years, it's tested every company. Yet through each new headwind, Sherwin-Williams has emerged stronger, and we grew sales while building a more resilient business. You just heard that from the teams. We've expanded margins. We've generated cash, and we've continued investing in the long term. And that track record, that demonstrates why Sherwin-Williams and the opportunity to apply a stronger business model to improving end markets demonstrates why now.

This continues to be our financial model for creating shareholder value. A lot of you have seen this slide in the past. We grow profitable market share. We expand return on sales. We earn an attractive return on the capital we deploy, and we convert those earnings into cash. These measures also enforce discipline. Together, there are a set of financial framework that helps guide where we invest and where trade-offs are required to ensure the best use of shareholder capital. This is how strategy becomes measurable execution and measurable execution becomes shareholder value.

However, our financial model is only as strong as the results it produces. From COVID and supply chain disruptions that brought 40% plus raw material inflation. We've had multiple geopolitical events, higher interest rates, and now we're in a new wave of broad inflation. Together, these external factors have created one of the most challenging operating environments our company has ever faced. However, through this period, our results have remained consistent. We've grown sales more than 5% annually. Adjusted EBITDA grew more than 6% annually.

Our adjusted EPS has increased an average of 7% per year, and our operating cash reached approximately $3.5 billion last year. So our ability to create value through all types of operating environments while continuing to invest in our business is proof of the strength and resilience of our differentiated model. If we can deliver these results through years of headwinds and uncertainty, imagine what's possible when our controllables are combined with even a modest end market recovery.

So if there's one takeaway from this slide here, its growth is not dependent on a market recovery. It's driven first by actions we control. Despite the uneven end markets, the periods of high inflation and higher interest rates, we've still grown revenues. In fact, we've grown revenues every year for the last 16 years, and that's because share gains has been our largest and most controllable revenue growth driver.

Our management team showed today how we've deliberately strengthened our model through investments in new stores and sales reps, technology, product innovation, acquisitions and customer relationships. Those investments as well as a strong focus on new account wins are translating into consistent share gains across our end markets. Winning share across end markets is what drives long-term growth. And what gives me confidence in our future growth algo is that we've been doing this in a flat to down market year-after-year.

We're turning market leadership into sustainable revenue growth through service, innovation and execution. If market conditions improve, that's an additional tailwind, but we're not relying on it. The headline is simple. We've proven we can grow by taking share. When the markets recover, we benefit. But while the market stalls, we still expect to win. I talked about our ability to drive growth through our controllable actions. Our gross margin expansion demonstrates the quality of that growth.

Gross margin is the catalyst that fuels reinvestment in future growth. The stronger our economics become, the more aggressively we can continue to invest in winning share. And despite the recent market headwinds, we've expanded gross margin from roughly 42% to nearly 49% over the last 7 years, and that doesn't happen by accident. It's the financial outcome of everything you've heard today. It's the pricing discipline. It's the product innovation, it's supply chain scale, it's simplification.

And as Heidi talked about earlier, it's providing solutions that our customers are willing to pay for so that they can become more productive and more profitable. And while we're proud of the progress we've made, we know that even more is possible. We've demonstrated our ability to grow in any market. We've demonstrated our ability to improve the economics of the business in any market. And together, that's the foundation of long-term value creation.

Since our first full year post the Valspar acquisition, we've expanded our adjusted operating margin over 300 basis points despite the market challenges that I've already talked about. However, we're most proud that we have expanded adjusted operating margins in each of the last 4 years. Some may view margin expansion and growth investment as competing priorities. At Sherwin-Williams, we view them as complementary.

This is yet another example of our controllables at work. We don't control interest rates. We don't control inflation. We don't control the geopolitical events, but we do control pricing discipline, premium mix shift, simplification and where we choose to make operating expense bets. And importantly, we have not yet seen the full benefit of operating leverage. We've been expanding margins, while industry volumes have remained under pressure.

When volumes improve, it's going to be layered on to a structurally stronger business. We've expanded adjusted operating margins, while without relying on that market recovery. That outcome speaks to the strength of our model and gives us confidence in the earnings power of the business moving forward. Our margin opportunity is not based on an assumption of moderating input costs or improving macroeconomic conditions, but it is underpinned by structural self-help levers.

These are not viewed as temporary spending reductions. They are intended to produce sustainable improvements in unit cost, service, speed and operational efficiency. These internal levers create lasting financial resilience. This is disciplined execution and action. Lower structural cost helps fund growth, growth creates scale and scale creates additional productivity. And that is a repeatable model, and it's largely within our control.

So this is where growth, margin and productivity reinforce one another. This is what happens when you combine differentiated capabilities and an operating model that is well positioned for long-term growth and disciplined execution. Every investment, every capability, every strategic choice that we have discussed today ultimately converges here. And that's what makes the opportunity ahead so compelling.

Over the last several years, we've deliberately strengthened the business by expanding our store network, modernizing our digital capabilities, investing in AI, increasing supply chain capacity and as Heidi just talked about, building enterprise solutions. We have invested in these capabilities, capacity and competitive advantages ahead of the demand recovery we believe is coming.

And as Jim shared earlier, we see multiple long-term demand drivers emerging across U.S. housing, maintenance and AI infrastructure end markets. We don't need all of these demand drivers to materialize to create value. But when they do, they will be layered on to a company that is significantly stronger than the one that entered this cycle. Growth and margin expansion only create value, if we earn strong returns on the capital required to produce them.

Return on net assets employed has improved from 13% in 2018 to more than 20% in each of the last 3 years shown here, even with our continued investment in the new stores, supply chain capacity, technology and strategic acquisitions. And we are confident that we can move returns into the mid-20s range. This reinforces an important point. We are not pursuing growth at any cost. We expect profitable growth, disciplined working capital and attractive returns on both new and existing investments, and we have the accountability framework to ensure that.

High returns reflect the quality of the operating model, sustained high returns are what allow value to compound over time. Our capital allocation priorities remain consistent. Strong returns and cash generation give us choices. Our philosophy is straightforward. We do not hold cash. We deploy it where we believe we can create the greatest long-term value. First, we reinvest in the business to support growth, service, innovation and productivity.

Over time, we target capital expenditures below 2% of sales, although individual years may be higher when attractive capacity or automation investments warrant it. We'll continue to return excess cash through a dividend that targets approximately 30% of our prior year GAAP EPS. Then we pursue strategic acquisitions that accelerate our long-term strategy. We do not need acquisitions to grow, so our criteria remains very disciplined.

Absent strategic M&A, we will aggressively buy back our shares, which is the scenario you've seen play out this year. Cash generation is what connects operating performance to strategic flexibility. An underappreciated strength of Sherwin-Williams is our ability to convert earnings into cash. Our mid-teens net operating cash as a percent of sales demonstrates the efficiency in which we turn revenue into deployable cash.

Over time, cash generation gives us options. It funds growth, it funds acquisitions, it funds share repurchases and allows us to continue investing back through all cycles, while others go back on defense and pull back. Cash is not the end of our financial algorithm, though. It is what allows us to reinvest where we have an advantage and then we begin the cycle again. We've consistently translated strong cash generation into shareholder returns. We've increased our dividend annually for nearly 5 decades, while repurchasing approximately 18% of outstanding shares since 2017.

The most important message here is our consistency. We return cash across cycles without compromising our ability to invest in long-term growth. That's not opportunistic, that's systematic. And it's another example of the differentiated strength of our company's financial model. Over the last 8 years, we've returned roughly $17 billion to shareholders, while continuing to strategically reinvest in the business. We've never viewed reinvestment and shareholder returns as competing priorities. Our disciplined execution enables both.

Our balance sheet has been tested alongside the operating model, and it has also proven itself. We've managed through big headwinds, while maintaining the flexibility to continue to make strategic investments. That's why we view our balance sheet not just as a financing tool, but as a strategic asset. And this is what financial optionality looks like in practical terms. We continue to maintain a strong profile. Our financial strength creates optionality. We have liquidity, investment-grade ratings and substantial borrowing capacity.

This allows us to continue executing our strategy regardless of where the macro environment goes next. When opportunities emerge, we have the financial capacity to act. Our financial strength allows us to stay on offense. Despite the continued uncertainty in the macroeconomic environment, we are reaffirming the midterm financial targets we established at our 2024 Investor Day. These targets continue to reflect our confidence in the strength of our strategy, the resilience of our differentiated operating model and our ability to execute over time.

While we are not changing those targets today, we continue to view them as important milestones on our journey, not the finish line of what Sherwin-Williams can achieve. And as I talked about earlier, adjusted operating margin expansion is the clearest scoreboard for our strategy. It reflects the combined impact of growth, pricing discipline, productivity, cost management and operating leverage. If we continue to expand margins consistently, I'm confident the other elements of our financial algorithm will follow.

So looking back on our presentation today, it boils down to these 4 drivers of shareholder value. The sales enablement investments that we presented, they drive above-market share growth. Our simplification efforts, the supply chain investments and productivity initiatives, improve our return on sales. The disciplined way we allocate capital across stores, supply chain, digital, M&A and working capital improves our return on net assets employed.

And all of that translates into strong cash generation, giving us financial optionality. These aren't 4 independent metrics. They all reinforce each other. The strength of our differentiated operating model drives share gains. Share gains drives margins, margins drive returns, returns drive cash generation and cash allows us to invest back into our business so that we can continue the cycle of making our model stronger. The question is no longer whether the model works. The question is what happens when a stronger Sherwin-Williams is matched with improving market conditions. And that's exactly why we believe the opportunity ahead is so compelling.

So let me close where Heidi started. Why Sherwin-Williams? Because we've demonstrated the ability to grow our top line, expand margins and generate cash through one of the most volatile operating environments in our recent history. And why now? Because the company leaving this cycle is fundamentally stronger than the one that entered it. We have more growth platforms. We have better capabilities and a balance sheet that provides optionality. We've proven what this business can do under pressure.

The opportunity ahead is not just improving market conditions, it's what's possible when those tailwinds are amplified by the exceptional execution on the things we can control. After 160 years, Sherwin-Williams continues to be a growth company, and that is success by design. And we believe that the best chapters of our story are still ahead. So I thank you for the time here this afternoon. And I'd like to call back up Heidi, Jim and our Group Presidents for our Q&A session.

All right. Well, -- thank you, everybody, for listening to our prepared remarks. And we're going to begin our Q&A session right now. So please raise your hand if you have a question and a microphone will be brought to you. Please state your name and your company so we all can hear where you're from. So we'll start off, Heidi?

Lot of hands in the air. I like it. Okay. Patrick, we'll start over here with you.

Patrick Cunningham with Citi. So Heidi, you've talked about in the past couple of years, this jump ball opportunity with disruption in the industry. Now we're in this period of heightened volatility. I think you've seen good evidence that some of the share gains have played out. But can you maybe talk about the success or pipeline of some of the large enterprise account initiatives? What market segments are you seeing the most traction? Where do you still feel like the contracting cycle needs to play out?

Yes. Great. So I'm going to -- I'll start that, and then I'll hand it to the operational leaders here. Maybe Justin and Karl, if you want to maybe highlight some of the end markets. I have characterized it as a jump ball environment, and it's interesting because as we came through the Kelly-Moore bankruptcy a few years ago, as you'll remember, it was up $300 million. That's now in our run rate, put that aside.

And then the PPG now PPC really truly presented a unique environment competitively because there were a lot of contractors that were being told business as usual. And I think the execution was anything but that. And so it was a right competitive environment, and it still is. These contractors are highly habitual. They're looking for routine and dependable service and what we say is more predictability as a supplier. And so we've been out in the team. I'm very proud of the organization. Maybe, Justin, if you want to talk about some of the approaches we're taking here to be very data-driven and very surgical in our approach.

Yes. I think where I would start with is we don't wait for the jump ball. We create the jump ball. So there's a lot of activity that's going on prior to that even coming to fruition, right? So we utilize the data, as Heidi just touched on, to really truly dig deep and recognize where we have the opportunities and where we need to go.

And this is a great example, too, of where technology comes into play from an AI perspective because really, we can take that data, we can utilize that. We can create next best actions for our teams so we can direct them exactly where they need to go and what opportunities they need to pursue. We're seeing that play out. We're still -- there's a ways to go on our journey, but we feel comfortable about where we are, and we know that we're focused on the right things and the right opportunity.

Karl, anything from your...?

Yes. I mean from the industrial side and our portfolio, we talked about share gains have been a big part of our success here in the last couple of quarters and really the last couple of years. And every one of our businesses, all 6 of them have tremendous runway and opportunities in front of them. And I think we've seen that in our numbers. If you look at even last quarter, all 6 divisions up year-over-year in sales in a really tough industrial market.

So really proud of what those guys are doing. And like I said, the value propositions that we're bringing are working. The areas that we're focused on in these premium segments within the 6 portfolios is coming to life, and we're starting to really see the benefit of that work coming together.

One final comment, and then we'll go to the next question here is there's -- we're out with customers, I'm with customers very often, and I hear this, you guys are -- you just do what you say you're going to do. And especially in a volatile environment, you have a supplier that is a safe harbor and a flight to safety. I hear and you guys are so dependable, you are so predictable.

And so I share that because the backdrop of the softer for longer, our customers are feeling that volatility. They're living it every day. So we often say, we don't want us to be the issue. You've got a lot on your plate, but we don't -- we want paint to not be the issue. We want to make sure that we're adding that value every day. So good question. Okay? Dave. So [indiscernible] team. We'll alternate sides, right?

Dave Begleiter, Deutsche Bank. On the operating margin expansion, do you expect more to come from gross margin expansion or SG&A leverage? And on the gross margin, as you push above maybe 50%, any concern that either you risk pushback from customers or invite further competition?

There's 2 questions, Ben, why don't you start with the operating margin? I'll start...

Yes. I think it's going to come from a combination of both. I mean this is why we talk about adjusted operating margin. And so each of the different businesses, one of the reasons we try to talk about adjusted operating margin and not gross margin so much is that the cost to serve in each of our segments is very different. We have some businesses that might have lower gross margin than the average, but their cost to serve that business. That SG&A could be single digits in some cases.

And so that's why we like looking at the operating margin. And so if you see some businesses that are growing that fit a profile like that, it could put pressure on the gross margin, but we can still grow that adjusted operating margin. If I point you back to the midterm targets and you look at in-stores Paint Stores Group growing mid-single digit to high single digit, that's our biggest segment. It's got the biggest growth opportunity. It does have the biggest -- the highest gross margin.

And so even just mix between the businesses as you see the U.S. architectural improve, that's also going to help lift that gross margin up to that target and beyond. But this is why, again, we want to continue to come back to -- and we've talked about openly with you guys before that adjusted operating margin, that's going to be a true barometer. If growth is happening in a different vertical, different part of the business than maybe where the average of just SG&A or just gross margin is, we can still grow that adjusted operating margin.

But your second question on gross margin and elasticity is kind of what I sense you're getting to. First, I'll remind you, as we think about gross margin, we're not -- nothing has changed in terms of our short and midterm targets, but we don't believe that's a ceiling. It's also a core belief of what drives our potential margin expansion over time has to start with volume, right? So I wouldn't start with price. It has to start with volume and then it has to come in next with volume and then has to have -- I mean, we need volume.

Obviously, price plays a role, but mix shift, even in an inflationary environment because 85% of our contractors' cost is labor, -- we continue to drive premium mix shift up. And so our ASP is continuing to grow even in this environment. So it's a combination of a lot of things. Self-help will also be an important unlock in addition to price. So I would think of them in that order. It would be volume first, certainly mix. I would look at price and then self-help. So that's not a ceiling for us.

Okay. We did 2 on the side. We'll do 2 over here. Okay. We'll start here. That's right. You can go -- we're going to get to you too. Duffy you'll be next.

Mike Rehaut, Melius Research. I wanted to zero in on the growth targets, mid-single digits over the cycle. And how do you think about that number relative to above-market growth? I'm trying to understand if market grows 2%, you expect to grow 4% or 5%, what's that delta?

And specifically in Paint Stores Group, how would that translate to the mid- to high single digit? And I guess just as a subset of that, are we talking about new accounts versus deeper wallet penetration or a combination?

Yes. So just really quickly, and then Ben is going to take this question. If you look at our leaders in the back of the room here, they would all know when we talk about above-market growth, the expectation is that we are at a minimum 1.5 to 2x the market. So that is the -- those are the marching orders that we talk about. It's not this loose esoteric ambition. It's got to be that. But with your -- we'll let Ben walk you through the assumptions on the mid-single digits.

Yes. I mean if you look at the combination, again, going back to the midterm target with Stores Group to grow that mid-single digit to high single digit. We talked about industrial growing mid-single digits. That's going to include bolt-on acquisitions. And so even though we talk about not needing acquisitions to grow, we do still look to the geographic and technology acquisitions that Karl talked about. So that will be part of helping that algorithm as well.

We've talked about Consumer Brands Group to being that low single digit with DIY being a little more challenging right now here in North America. And it's going to come from, as Heidi talked about, it's volume, it's our ability to get price. And we generally price with -- when you see inflation, but you're also getting price because of all the value that we're bringing. And you see it in our -- some of the investments that we made. Some of you have talked and maybe even challenged us on our SG&A. But I think what you see in the cycle and the trend and the results is that those investments allow us to have that ability to grow sales, to keep that high margin and turn that back into investments that, again, our customers are willing to pay for because it helps them be more productive and profitable.

But I think you can see, again, in each of the different areas, we did do the acquisition of Suvinil last year. I wouldn't take that as a signal that we're looking for more international architectural. But in the right moments in the right places with assets that we've looked at for a while, M&A will play into that algorithm as well.

But we can't discount share of wallet to your point. I mean, certainly, new accounts continue to chase share gains. But when you think about in this environment because there's such a volatile backdrop, if we can continue to be at that point of stability, our ability to gain incremental share of wallet where typically these customers are looking for more diversification.

I hear often, we can't afford not to be all in with you in this environment. You have an asset base, you have a willingness to listen and partner differently. It's a unique environment that goes back to the original jump-all question. So we're going to take share. We're going to earn that share of wallet. Okay. Duffy, you're up next. Hands straight up.

So I think Justin made a comment that you guys have about 5,000 stores now going to 6,000 and there's 7,000 other stores in the -- one, you gave us your revenue per store. What would you estimate the revenue per store of that other 7,000? And then as you go to 6,000, what does that 7,000 number do? Does it come down commensurate with your 1,000? Or does it come down even more than that? How does the market play out as you're growing into it?

You want to start?

Yes, I can start. I mean the average per store as far as competitive set, it's tough to say, right? Because you have different competitors. It's a pretty wide range across just depending upon the specialty side, right? What we do know is we feel really, really confident with the number that we put in front of you today. We're really confident in where we're headed. And one of the things that I touched on there specifically was what we're doing from a segmentation standpoint.

And when you look at that, that's really going to be a differentiator for us because we know that if we can get stores more pure we can grow faster. So there's plenty out there for us to get. I think you and I both talked last night about some of that segmentation on how we're looking at our industrial businesses differently. So as an example, we have industrial stores now that we've started to stand up across the U.S., which has made us more hyper focused on that segment. And we don't only just see lift in those stores, we see lift in the stores that are surrounding those stores in that pot or in that area, that general area.

So I'm going to get to Ben here in a second. Justin mentioned this store mission. So we talk about segment purification. And so the more focused we are on following our data and getting more kind of customized, if you will, by segment, we see not just lift within the store, but within the territory. So let Ben comment on your kind of store level question.

Yes. I mean I'll just add maybe a different angle to that and things we've talked about, too, when we do acquisitions and Kelly-Moore is a good example. Even though we're dense, even though we have reps and stores in their market, there's still upwards of 30%, 35% of those accounts that we didn't know existed there. And so I think that speaks to the opportunity that's in these 7,000 stores. And the other thing I would tell you as well, we have our own data. We talk about the opportunity to get the next decades of growth. We're using benchmark data externally.

Even some of you in here have written about opportunities where we have white space that we're not playing in yet. And so I can tell you, we're triangulating all of that, and that's a good foundation of the thesis and the opportunity that's forward as well. But it's a lot of POSs that still don't have Sherwin and some of them may not be the same size of our stores, but Justin and his team are out there trying to get that -- make that number a lot smaller.

I would add that, that 12,000 that we referenced is specialty paint distribution points. That does not include home centers where we don't participate today. So that's an opportunity on top of that.

Okay. Greg here. Greg, you will be next. We'll try to get to everybody. We'll talk back. How about that?

Kevin McCarthy with Vertical Research Partners. You've talked a few times about the Kelly-Moore experience as well as the PPG transition to PPC. One of the things that I think is interesting about the global coatings market today is you have 2 very large competitors that are preparing to merge.

So I'd welcome your thoughts on what you're seeing out there in today's marketplace in the areas where you overlap with those companies. Often, there are some combination of understandable distractions or concerned customers. Another way of phrasing it is, should we view this as an opportunity to accelerate share gains in any areas, where you compete?

Yes. And I'll hand this to Karl to give you a little bit of perspective on why we're so confident of that. I think distraction and disruption is real, and we want to take full advantage of that.

Yes. So for sure, that's an opportunity for us in each one of our businesses, and again, we talked about those 6 divisions and the growth potential in front of them, 100% there is share gain opportunity that we're focused on in those particular overlap areas. I'd say it's early in that process that you described, but we still see the timing is right to get -- continue to talk about our value proposition, how we're different and what we can bring to that customer set, and we see it as a great opportunity for us.

Okay. Chris, got the floor to you.

So over the next 6, 12 to 18 months, so to be clear, not a guidance question, you spoke a lot about catalyzing growth. So for Justin or Heidi, how should we think about the contributions from P&M, data center across commercial? You've been pretty clear on the resi repaint share gains. But just how much of a jump all is it to get volumes for PSG in positive territory based on some of those ancillary factors, which have been benefiting you?

Why don't you start, Karl?

Just from a P&M perspective, for sure, this is a huge opportunity, not only just the AI infrastructure, but across all of those end segments within Protective & Marine. Obviously, Heidi hit on the AI side, but our water, wastewater business is strong. We talked about our flooring portfolio. Just to remind you guys, we made an acquisition about 3, 4 years ago called DuraFlex, and that is now coming to life as we're bringing that in and integrating that commercially.

So a lot of those cost synergies upfront have been realized, but now we're starting to realize the growth opportunities on that business. So really across all of the portfolio within the Protective & Marine side that we utilize our store network for distribution on is really strong at this point. Lots of projects and lots of activity.

Chris [indiscernible] after hold. I'll give you more. Okay, Greg, back to you.

Greg Melich with Evercore ISI. I wanted to go back to investment. So CapEx is stable at 2% of sales. Then you also have R&D and then you have acquisitions and bolt-ons. So I'd love to just hear how you're thinking about investment, whether it's on the balance sheet or running through the income statement and even how AI might influence that in terms of accelerating R&D development and getting more new products out faster through that.

Yes. I mean our target -- our CapEx target will remain the same. I think our thought process is some of where we're making investments today as we take steps into AI, and you heard how we're using it today, and I can assure you there are other value pools and game-changing opportunities for us to really take advantage of that in different ways. I think our company is built for some of the things that are out there now. But just as we have historically, we're going to look to get a return on something. We'll use those returns to help fuel additional investments. We want to make sure that we can see the returns.

And I think we're spending a lot of time as we're looking at some of these next opportunities with -- whether it's the system modernization, whether it's AI, how do we make sure we are going to get the return out of it. So you call out formulation. Yes, there are things there that could get us maybe 90% of the way. And then -- so you're innovating from a point of not step 1, you're at step 7 or 8. And so you may even see some of that today as you go through the technology center and how they're thinking about formulation.

But I can assure you that we're looking at each of our business units, each of our end-to-end processes. We're trying to modernize. I think that's probably the best word to use there. That will take friction away from our processes that will help internally that will help our customers. And so I can assure you that this team here and our teams, we're looking for ways to do that. And yes, that will -- some of that will come through the balance sheet. Some of that will be in higher operating expense, but it goes back to my adjusted operating margin comment.

Yes, we may have higher SG&A as we're fueling some of this, but the expectation is you're going to get the revenue lift, you're going to get the margin benefit, and we'll be looking at operating margin as the barometer for success there.

Okay. Let's go back, John, all the way back.

I wanted to ask a little bit about the intersection. You sound like they're selling manufacturing paints through architectural stores. Now if I read that right, you've got, I don't know, 35 stores or so focused on factory applied finishes. And could you maybe expand that to talk about auto refinish because your competitor has talked about maybe using architectural stores as auto refinish. And how would you manage that between the 2 sides of Sherwin?

I can maybe hit the refinish side. So we actually do have what we call automotive refinish branches. So we've got nearly 200 branches scattered strategically across the United States and geographic locations that are really built to service the individual body shops. So think of it as like what a traditional paint store that you probably have been in, specifically geared towards the automotive refinish section.

So to your point, unlike our competitors, we've got controlled distribution, controlled service model, controlled deliveries for that specific body shop, which is separate from our architecture.

And John, maybe think of the intersection more as our go-to-market intersection more so than as we are so focused on getting to this kind of purification of segments, what we'd want to do is maintain that and not dilute that with trying to get everything else through that box. And so we're going to continue to stay focused on our core. We're going to continue to lay stores in and the barometer of success as we continue to accelerate getting a return faster and faster on those stores.

But I think to your point, what you're hearing from the enterprise standpoint is more of the intersection and how we can thoughtfully bring solutions as we organize our teams differently, as we organize how we're working collaboratively differently, as we're changing how we're incenting those behaviors differently. And so it is very early. I mean there are some parts of what we are doing here that we have been doing for a while.

You mentioned Protective & Marine with our architectural business. But now we're able to leverage some of that great momentum and history that we have. And now we bring in general industrial, we're bringing in coil. And so the way that we're organizing to have that intersection and how we're going to market with these larger projects, we're very excited because as you can see, this -- we were our own customer in this building. We really kind of -- it was an eye opener for us that we have something here that we want to be very thoughtful in how we take it out to market.

Okay. Back in the back here. Not all the way back, halfway back. Yes, your hand in the air. Is that Abigail? Okay.

Abigail Eberts from Wells Fargo. You've talked at length about your customer-centric approach, your customer intimacy. And you've mentioned in the past that pushing price increases during painting season can upset some. Given the raw material setup for 2Q '27, just wondering how you're continuing to balance your margin preservation with also simultaneously preserving customer relationships.

So let me start that, and then I'll hand this over to Ben. So when we talk about customer intimacy, it's equally about respecting their economics and helping them think about growth in their productivity. And so nobody is asking for a price increase. But if we're transparent, and we handle it the right way and we talk to them at the right time and give them enough time to put it into their bids and their contract, then it's a different conversation.

Success for us is we have customers on the other side of having to have those conversations because what we're not going to do is bear our heads in the sand. We need to be able to obviously, in an environment where we have to take price, we will unapologetically go out and take price. And so that's how we think about when I think customer intimacy, it's -- we want to make sure we're helping them grow in profit. And so success is that they are passing that price increase along, and they're not stuff holding -- absorbing that margin. So let me hand it to Ben to answer the other piece.

Yes. I mean we're going to be very consistent there. I mean we've earned a lot of credibility, I think, with our approach to pricing. I think what we've seen in this cycle here waiting in Paint Stores Group until September 1 helped a lot of our customers get through that cycle. We talked earlier in the year of using maybe even some of our strategic relationships with suppliers to help elongate that point in time for our customers when we have to go. But it is -- we frame it out as having pricing discussions 365 days a year.

You're talking about deliveries. You're talking about all the digital investments that we've made, all the stores that we continue to open. Our customers are willing to pay for that. And so what you won't see us do is change the strategy that we have there. Heidi and I have committed to staying in front of this cycle. I think what's different in this cycle is you could see it coming a little slower towards you, and when we talked about that in April and July. And so our ability to stay in front, and I would characterize that as plus or minus 50 basis points one way or the other. It's not like 2021 where we went back 500 basis points of margin.

And you'll see us continue to work with our customers. We'll talk with them first before we make any pricing decisions, but we're going to be very, very consistent there. And I know we're not giving any guidance in the next year with raw materials, but you guys are all watching the same things that we are. And so as you can expect, we're having discussions on what those impacts could be. And you're going to see us react very consistently with what you've seen in prior cycles.

I'm going to get a question over here, but one final comment, Abigail. One final comment. Thank you. That's good. is procurement is also a bit underappreciated for Sherwin-Williams. Procurement has also become an increasingly competitive advantage for us. And Colin, maybe you want to share in your thoughts here on what we're doing differently to kind of address our supplier community?

Yes. So I think we're very fortunate as a company. We have a great supply base, and we have suppliers that have been proactively working with us to help us take complexity out of our raw material basket, which has helped us tremendously and give us assurance of supply. And so we are able to sit down and like Heidi described and work with suppliers about when we have things, how do we jointly solve them and how do we spread things out so that we're not having surprises coming and that we have great visibility to what's coming.

Colin is being very humble. You don't want to negotiate with Colin. He's separated the strategic from the transactional suppliers and he says, I don't want to just be the front of the line. I want to be the line. So we've gotten some really good procurement advantage out of that, too. Okay. Let's go back here. Jeff?

Jeff Zekauskas, JPMorgan. I thought I'd try the pricing question in a little bit of a different way. So some years, raw materials go up and Sherwin prices up and some years, raw materials go down and Sherwin price is up. And so when that -- when you think through the absolute level of pricing that you seek, how do you do it?

Do you look at your normalized EBITDA growth and the demand environment in the coming year and you have an idea of how much you want your returns to change. Does the pricing decision come from the CEO and the CFO? Does it come from the head of the stores division? Can you give us some idea of how you think about the absolute level of price?

So it's a good question, Jeff. Let me maybe reframe it a little bit for you and talk to you about as a management team, what we do routinely and monthly to really scan and understand all input costs. So raw material certainly is a key component, but so too, there have been years when we've gone out when I was running that there are years when we're out because of logistics, energy, health care. And so it's a much more comprehensive look at all input costs.

That's where -- that's the secret sauce. I mean, that is the review. And so that is driving what we need to cover. We are pricing Justin said this, our pricing contract, if you will, with our customers is that if we need to go, we will, we'll do so transparently, but we only will if we need to go. So we're not looking to get rich off of our customers and take advantage of an environment. That's why the credibility and effectiveness has been where it is.

And so to your exact point, when raws are up and we do need to go or other input costs are up and we do need to go, if those reverse over time, that's where we've -- our track record is we will see margin expansion, and you should expect to see that going forward.

Yes. I'll just add one thing to that, Jeff. I mean I'll remind you, in 2023, when we saw the raw materials go back, we did not do a price increase that year. And so we do have periods where we aren't passing, and that doesn't mean we weren't taking wage increases and everything else that year. I mean there are increases in costs that might be offsetting as raws are dropping.

Again, it comes back to managing that operating margin when you're having pressure in one area, but you get a benefit in another. We're managing it that way there. And again, Heidi said the word again, credibility. We are not going to destroy what we built with our customers. We often have times where customers are calling before we've talked to them as saying, "Hey, we know you're going to do an increase. Can you give us some guidance on that?"

And so I think that just speaks to how our teams work with price. And then the last thing I'll add is it's not just about announcing a price increase. I think what Justin, Todd and Karl's teams do exceptionally well is have that indexed conversation with the customer about how do you work that into your bids? Or how are you passing that along? And so it's not just a pricing discussion. It is how do we help them create that value. They have an understanding of why. And we're really transparent with them on that, and I think that's worked really well for us.

Okay. A question over here. Over here. I mean you're close to us. You probably don't need a microphone.

Salvator Tiano from KeyBanc Capital Markets. I was wondering on AI. You mentioned some of the tools you have. But yesterday, there was a lot of discussion about data and your CRM and how it's helping you. Are you working, for example, on setting productivity targets or improving, say, sales or profit per rep just with new AI tools in the front of the house?

We definitely expect improvement. So let me just start with that. But yes, why don't you start with the CRM?

Yes, I would start with yes, is how I would start. But where you look at our unique CRM that we have to the Paint Stores Group side of things and the architectural side, absolutely, everything that you listed out are things that we're looking at, right? Because we have 3,500 reps that are out there in the field that are highly talented, integrated into their customer business. And what that provides us the opportunity to do is just unleash even more impact out in the field with the folks that we have out there.

So it's part of our daily look. Our folks do have capabilities right now that are in front of them, and it's been really fun to watch because I would tell you, they understand how to use it what they should use it for. And then their #1 focus is how we can make it more impactful on their territory. I think Heidi touched on it as well when you saw the Ask Henry side of things, that's all internal, and you're going to see that show up more often than not in our store side of things as well and just the knowledge of the associates.

But it's with us right now on every single call. It's with us on every single customer interaction, and it's showing up, obviously, in other spots of our business as well.

Something we talked a lot about with our because we have some data. And to your point, when I think about just AI broadly, there's going on offense and going on defense. We're on offense right now in this discussion. And I think that there's a lot of opportunity, sales-enabled AI, operational-enabled AI. But you're going in specifically on the sales side, we talk about this idea of how do we create multipliers of our 10,000 people out in our stores each and every day.

How do we make sure that the most junior employee we have is confident on that front line. And so Justin talks about our CRM. But imagine you're coming into your first or your second role, and you're still learning. It's product knowledge and you've got really sophisticated contractors that really want specific answers. So we're trying to marry up the data and the expertise that we have to make the most junior frontline employee confident having that conversation. That's what we're solving for.

We're still going to continue to upskill our team that's been around that understands a lot of our contractors and our products. So we're not leaving that -- there's still a lot of work there. But I'll take you to, especially in our stores organization, where we have a 7% to 9% turnover. And so our investing in the systems back to Greg's question, are investing in making sure we're driving their productivity. We're driving their adoption of these tools so that they not only become more confident, but then we can measure sales lift. We can measure productivity. Yes, that is absolutely what we're after.

The goal is with 160 years, and Ben mentioned this earlier, as we look to modernize Sherwin-Williams, it's keeping our foot on the gas on what's working, but it's really saying how can we take advantage of this data and the willingness of our team to do something different to unlock more value for our customers. And so that's how we think about modernizing our systems, modernizing how we work together so that we can create more of that value that we're in a unique position in an inflection point, I believe, in the history of the company.

This will have to be our last question, so one more.

Okay. Who's raising their hand, the highest over here? Okay. Right here. Right here in front. Arun, we'll come back to you afterwards, okay?

Steve Forbes, Guggenheim. Simplification was highlighted as one of the key drivers of leverage in the presentation. So I'm curious really 2 parts here. One, can you sort of comment on what are the larger simplification or optimization opportunities that still exist for Sherwin? And then I don't know, if some of you can maybe expand on how you're leveraging these new facilities that you've built and/or collaboration, right, on the back of these facilities to capture these opportunities to drive further separation.

Let me start, Steve, and then we'll hand it over to Ben. We're both like at the edge of our seat wanting to talk about this because we talked about this earlier. Yes, we are not waiting for the market. Yes, we are taking control of what we can control. And yes, we are going to catalyze growth on the top and the bottom line. So in terms of what we can do on the bottom line to create more value, there are a lot of opportunities for -- there are a lot of opportunities for us to continue to find ways to unlock value.

But if you think about where the complexity sits where we're not getting paid for it today, I'll take you to our asset footprint in Europe. This has been -- by design, this has been an accumulation of assets. This is decades of acquisitions, a lot of small bolt-on acquisitions. And because we were so focused on serving our customers and service levels were good, we were humming along and growing. But because we've been under so much more pressure and the markets have not helped us, we're not happy with our utilization rates in Europe.

And so that's one example where you've got years of simplification ahead because sequencing that work, the dependencies that have to be right to get that work done right matter. So we're going to do kind of the base hit SKU rationalization, then we move into raw material rationalization, moving into formula rationalization so that before we get to automation and what we're going to do to optimize our footprint, we've got to get more to a platform-first mentality. You can't just jump to that without clearing out the long tail.

And so Colin and the team have done an incredible amount of work here to put us in a position to do that. But Steve, that's one example. There are a lot of other examples. But Ben, anything you want to add to that, feel free.

Yes. I mean Heidi hit a lot of things there. I mean, I think a big opportunity is still on the digital side. We've done a lot of acquisitions. Heidi talk about formulation. If you think about in Karl's business, if they have multiple systems that they're trying to formulate, that adds complexity. And so that's a good example. We've talked in the past about the product platforms.

And I'm proud about how Colin's team and Karl's team and Justin's team are working together to try to figure out how supply chain and our commercial businesses can operate differently. Product platforms is one that you guys have spent a lot of time on. So why do you have 14 of the same type of resin? If you can go to 2 or 3, that adds simplification into Colin's group that helps the formulators formulate from a smaller base of raw materials.

And so I can assure you we're looking everywhere. I mean even in just your back-office day-to-day processes, really challenging people to look at an end-to-end process and understand what's the role that you play in that? And how do you streamline that so that we can be more efficient working not only internally with your customers, but more importantly, externally with customers as well.

This is where we want to take advantage of this downturn. Nobody wants a downturn. We'll take a point or 2 from the market, and we will knock on the door of mid- to high single digit. We're ready for that. But I've often said, let's not let this downturn go to waste. And I think across the organization, our expectation is that we are putting space between us and our competitors in this downturn. You see it in price. You see you're going to continue to see our more focus on durable advantages, both operationally and commercially, and that's what you should expect to see and hear from us going forward.

Okay. Well, thank you, everybody. I'm going to ask you to stay seated for a few moments. That's the end of our Q&A session. How about a round of applause for our leadership team.

Good morning. Thank you for joining the Sherwin-Williams Company's Review of Second Quarter 2026 and our outlook for the third 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 and Investor Relations and Communications.

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

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

I will now turn the call over to Jim Jaye.

Good morning to everyone, and thank you for joining our call. Sherwin-Williams delivered strong top and bottom line growth in the quarter amid ongoing global uncertainty and without any meaningful improvement in demand. Our sales outperformance reflects continued execution of our strategy, new account wins and a clear return on prior growth investments 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 decreased slightly but increased excluding the dilutive impact of Suvinil. Targeted pricing actions during the quarter enabled us to offset raw material inflation. Reported SG&A expense increased by a mid-single-digit percentage, but decreased 90 basis points as a percent of sales. The increase was driven primarily by nonannualized Suvinil acquisition costs and higher employee service costs related to the greater-than-expected year-over-year sales and profit improvement in the quarter. We expect full year reported SG&A to increase by a mid-single-digit percentage.

Adjusted diluted net income per share increased approximately 10%. Adjusted EBITDA grew by 10.5% to $1.5 billion, and adjusted EBITDA margin expanded 60 basis points to 21.5% of sales. Net operating cash improved by 21% or $235 million in the quarter, driven by an increase in net income and working capital being a higher source of cash year-over-year. Free cash flow conversion was 86%. Consistent with our disciplined approach to capital allocation, we took advantage of volatility in the market to accelerate share repurchases in the quarter and combined with dividends, returned $1.5 billion to shareholders. We ended the second quarter with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.4x. Based on our strong first half performance as well as our assumptions for the remainder of the year, we are increasing our full year consolidated sales and EPS guidance.

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

Thank you, Jim. I want to begin by thanking our more than 64,000 employees for their relentless focus on executing on behalf of our customers. In an environment that remains challenging, our employees continue to work hard and find new ways to deliver the reliability, consistency and customer-focused solutions that set Sherwin-Williams apart.

The strength of our strategy is evident in our performance. We are continuing to widen the gap between Sherwin-Williams and the competition through meaningful customer engagement, robust new account growth and meaningful share gains across the business. At the same time, we continue to focus on optimizing the enterprise and controlling our costs as evidenced by the restructuring actions taken during the quarter. We expect these actions will result in approximately $17 million of annual savings, with about half realized over the remainder of this year.

Looking at our segment results in the second quarter. I'll begin with Paint Stores Group, which grew by a mid-single-digit percentage. Price mix grew at the low end of mid-single digits and volume increased by a low single-digit percentage. Our team delivered growth in all PRO segments. Protective and marine continued its momentum as sales increased by a mid-teens percentage versus a high single-digit comparison. It was the eighth straight quarter of at least high single-digit growth in this business. Data centers, semiconductor infrastructure and manufacturing onshoring are among several drivers of this growth where customers continue turning to Sherwin-Williams for a suite of solutions that can be delivered quickly and consistently.

In the commercial business, the gains we have been targeting over the past 24 months are now evident as sales increased by high single digits in an underlying market that remains soft. These efforts have also resulted in the mid-single-digit increases in residential repaint and property maintenance. New residential remained very challenging as single-family starts and completions have been negative for 5 of the last 6 months, but meaningful account wins propelled us to low single-digit growth in the quarter. Segment profit grew by mid-single digits and segment margin was 24.6%. As planned, we have opened 45 new stores year-to-date, and also as planned, closed 57 or about 1% 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 that we maintain the highest level of service for our customers.

Sales are not being negatively impacted by this targeted surgical approach as our mid-single-digit growth year-to-date is meaningfully outpacing the market. We are still on pace to open 80 to 100 new stores for the year, though the net number will be approximately 30. Cost of closing stores year-to-date is immaterial and the store footprint optimization initiative is behind us. We fully expect to be at the high end of 80 to 100 net new stores beginning next year given the trimming we have completed this year.

We also announced an 8% price increase effective September 1 to offset raw material and other cost inflation. Because of our strong supplier relationships and disciplined supply chain execution, we were able to delay this increase for customers and avoid disrupting their business during the height of the paint selling season. We expect effectiveness of this increase to be in our typical range, though we will continue to be opportunistic in pursuing additional volume. Consumer Brands Group sales exceeded our expectations, driven by a mid-teens contribution from the Suvinil acquisition, mid-single-digit price mix and low single-digit FX were partially offset by a low single-digit decrease in volume. Group sales, excluding Suvinil increased by mid-single digits and our legacy Latin America business, excluding Suvinil increased by a low double-digit percentage.

North America sales increased by high single digits against a soft comparison and included low single-digit volume growth. The North America growth was driven by new product offerings, favorable mix and the Pros Who Paint as DIY demand remained muted. Field decreased in Europe by a double-digit percentage against the high teens comparison, driven by customer inventory management and destocking. Adjusted segment margin increased 210 basis points to 24.5%. Leverage from mid-single-digit sales growth and flat SG&A, excluding Suvinil drove half of the improvement, with the other half coming from favorable nonoperating items.

In Performance Coatings Group, sales beat expectations with growth in every division and region. These results reflect the strong new account focus that we continue to drive as demand largely remains unchanged in our underlying core business. Price mix and volume both grew by low single digits in the quarter, with price mix greater than volume. FX was a low single-digit tailwind. Growth was strongest in the General Industrial division, led by strength in heavy equipment as sales were up high single digits, inclusive of mid-single-digit volume growth.

Automotive refinish also grew in the high single-digit range, driven by price/mix and favorable FX. Packaging continued its strong performance as sales increased by mid-single digits against a low teens comparison. Coil and wood also delivered mid-single-digit growth. Group sales expanded in all regions, including a strong double-digit increase in Asia Pacific and mid-single-digit growth in North America. Adjusted segment margin increased 50 basis points, with strong incremental margin of 26.4%. Within the Administrative segment, SG&A declined 9.8%. As a reminder, this improvement largely reflects a favorable year-over-year comparison with the prior year period, including approximately $49 million of severance and other restructuring expenses versus approximately $3 million in the current quarter. The slide deck accompanying our press release this morning provides more detail on second quarter segment results.

Now moving on to our guidance. Our better-than-expected first half performance gives us increased confidence in our ability to deliver growth through the balance of the year. Importantly, our updated outlook assumes there is not a broad-based demand recovery. Customer feedback and the leading indicators we track continue to show limited signs of meaningful improvement in most end markets. In this environment, we continue to focus on the levers within our control. securing incremental volume while maintaining the products, services and supply solutions, which drive productivity and profitability for our customers. Inflation remains a variable we are actively managing. Our supplier relationships are strong and continue to be a competitive advantage. And we do not expect raw material availability to be an issue for us.

At the same time, we are not immune from inflation. We are seeing the impact of higher oil and related cost pressures, and we expect continued volatility throughout the balance of the year. We expect inflation in our raw material basket to be up in the high single-digit range in the second half moving our full year outlook to the mid-single-digit range. We have taken a thoughtful approach to balance the timing and amount of price increases for our customers, and we are taking actions to keep pace with inflation while continuing to deliver the products services and solutions that our customers value. We expect consolidated price mix for the year to increase to the mid-single-digit range, and we expect to maintain full year gross margin at last year's level at the midpoint of our guidance.

The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the third quarter and full year 2026. Based on our strong first half performance and the momentum that we are carrying into the second half, we are raising our full year sales and adjusted EPS guidance. Consolidated sales are now expected to increase by a mid- to high single-digit percentage and adjusted diluted net income per share is now expected to be in the range of $11.80 to $12.20 a share. Our guidance reflects stronger execution versus our initial January expectations, continued share gains, disciplined price/cost management and ongoing productivity actions. Our slide deck contains other details you may find useful for modeling purposes.

We are encouraged by our second quarter performance and proud of what our teams accomplished during the first half of the year. Their execution demonstrates the strength of our business, the durability of our strategy and the advantages that continue to differentiate us in the marketplace. Our mindset has not changed. In this environment, we know growth will need to come from what we do, not from what the market gives us. We remain focused on being our own catalyst for growth, which means taking share, serving customers better than anyone else, and creating opportunities regardless of the demand backdrop. That's exactly where Sherwin-Williams excels, and we intend to continue leaning into these strengths.

At the same time, we are not satisfied as we know there is more business to earn more productivity to unlock and more value to create. Our employees are the key to our success, and I want to take a moment to speak directly to them and express my deep respect and appreciation. As we have just demonstrated, we will continue approaching the many opportunities ahead of us with urgency, discipline and confidence in our ability to deliver.

This concludes our prepared remarks. As a reminder, we will be hosting our financial community presentation at our new global headquarters and Global Technology Center on September 24. I look forward to seeing many of you there. Please reach out to our Investor Relations team if you have not registered as space is limited.

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 is coming from John McNulty from BMO Capital Markets.

Congrats on some really solid results, especially in a tough environment. So I wanted to ask, maybe you can unpack a little bit. Mid-quarter, you and DuPont made a bid for Akzo and then relatively quickly thereafter, pulled that bit. I guess, can you walk us through the rationale for both moves and how we should be thinking about M&A going forward in terms of the opportunities that you may see out there?

Yes, I'll take that. We take a very disciplined approach, not only to our capital allocation philosophy that remains unchanged. But as it relates specifically to M&A. As you can imagine, we are constantly looking and assessing assets that would be a fit or an accelerator to our strategy. And so we probably pass -- we pass well over 90%, I would say that across our desk.

But when we look at those specific assets, those were very premium targeted assets that we had long admired and there was an opportunity at the right price at the right time if the right value that would have been something that would absolutely have been complementary to our strategy. Having said that, I think timing is everything. Value is everything. And when we get to a point where we're 2 bids in and which I think was a very fair, reasonable and premium all-cash offer without the level of engagement that we wanted it was a simple decision that there was absolutely more attractive uses of our shareholders' cash. And so the decision to walk away and put that cash to use was in our and our shareholders' best interest.

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

Can I ask for a little more color on the Consumer Brands margins, obviously, very strong improvement. How should we expect those margins to move on a go-forward basis? I also sort of noticed versus the other 2 segments there. There wasn't really a call out here on market share gains or anything. Obviously, some other nice call-outs, but nothing on the share gain. So what drove these margins to be so much better than the other 2 segments? And what is the sustainability of it?

Vincent, it's Ben Meisenzahl. On the margin piece, it really comes from probably 2 parts. First, you look about half of it is coming from just the core operating performance. You look at the stronger sales that Consumer Brands had in the quarter. And if I strip out Suvinil and just look at the core business, which was up about mid-single digits, the result in SG&A was flat. And so you think about the leverage that you get in a situation like that. And then the other half of the margin expansion was from more favorable nonoperating items that also impacted the sequential first quarter to second quarter. So if you back out those nonoperating items, we're more flattish first quarter to second quarter. So that's what's driving the adjusted segment margin there.

Vincent, I'll add in from a market share standpoint, DIY, obviously, there's not been any meaningful improvement in that particular segment. Pros Who Paint, however, we are seeing continued share gains there. And that's a testament to the team successfully executing on our strategy. We've got, obviously, our very strategic partnerships, Lowe's and Menards and others, but this is a growing segment, still a small base but the fundamentals are intact there. So a lot of credit to the team for continued focus.

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

Just a question around kind of the implied guidance at the midpoint. So in the first half year-over-year, you guys were up about $0.40 of EPS. And at the midpoint in the second half, you're up a little more than $0.10, even though you have a pretty big price increase rolling through in September. So, one, just wanted to see what is it that might slow down when you're looking at it year-over-year that would have a smaller increase. And then second part of that, between Q3 and Q4, should Q4 be seasonally bigger than normal because of that price increase when you look at it versus history?

Duffy. Yes, if you look at the year-over-year, I mean there's 2 things really that impact the first half versus the second half. If you look first at the comps, last year's first half, were more difficult than the second half. And so if you look at that phasing and what we're going against this year here, that does have an impact. But if you do look at the second half of this year and that slower growth of EPS.

As we've talked about, we still expect that ramp-up of raw material costs. We've taken our guide up a little bit for the back half or for the full year, and that's coming on the back half. And so even though we have pricing that we're still laying in and our commitment to staying in front of that with balanced management of the price cost environment. It is still an economic headwind that we're facing here. And so that's probably the biggest reason why you would see maybe a little less of the group growth in the second half that you [indiscernible] in the first half.

Your next question is coming from Ghansham Panjabi from Baird.

Heidi, going back to your comments on the outlook and just given the steady increase in interest rates recently, specific to the PSG segment, are you embedding any sort of volume deterioration sequentially for the back half of this year, which will be offset by share gain initiatives on your end? Just sort of sum to that low single-digit volume growth. Is that the right way to think about it?

No. I look at this cash, we don't expect that to happen. We don't expect a material change, and I'll see if Ben is going to give some color commentary to give you a little bit more perspective. But -- and I'll ask him to touch base in a minute. I just want to take a moment though and give you a little bit of segment perspective to reinforce my point.

You look broad strokes and obviously, we talk a lot about what's going on for residential standpoint. New residential, I would say the exact opposite, obviously, very confident. And the backlogs are stable, but the team is really standing tall. We continue to take share here, our new account activity continues to be very strong as our active accounts where we're growing our current customers' share of wallet. And so even though it's a challenging market, we're still continuing to be very aggressive out there. We talk a lot about innovation with this segment, and we talk about innovating in and out of the can. Something I want to highlight here, this is really exciting. We just launched a product called Emerald Symmetry and it's the best performing interior product that we've ever produced. So not only with the right performance characteristics, but it's going to be a great plant-based Zero VOC products, so helping to really advance our sustainability agenda.

So we're doing a lot of work here in this current macro to certainly favor growth in square footage for these res repaint contractors. So volume certainly positive there. New Residential continues to be under pressure. We are outperforming as monthly, single-family completions are down an average of high single digits in 2026, while our sales were down low single digits, so demonstrating that we're taking share there. I certainly can touch on property maintenance. Our year-over-year rent growth remains weak with some sequential improvement. I would underscore some. But our outperformance with low single-digit growth is also evidence of share gains. So the market is not going to help us in any regard.

But I do want to take a moment here on protective and marine because it's been a fantastic highlight I said this in the call earlier, but it's our eighth straight quarter of at least high single-digit growth. So we are exceptionally and uniquely well positioned, I would say, for some of these tailwinds. We talk a lot about data center build-out infrastructure, the semiconductor infrastructure. The team is really going to market very effectively here with a very unique suite of solutions. And so again, back to the comments earlier, we know the market is not going to help us. We're not waiting. We have a lot of time ahead of us this year. We know we can control what we can control, but we're going to expect that we outpace the market.

Ghansham, I'll add to what Heidi said there and going back to the original part of your question. I mean if you look at the phasing of volume year-over-year half over half in the guidance it's relatively consistent. And if you go back to our original guidance in January, our assumptions were the same. What's different is the level of volume is higher than what we would have expected, and you see that in our original January guidance, down low single digit to up low single digit stores group volume and now we're guiding to that up low single-digit volume. And so that supports all the things that Heidi talked about there.

But again, the quarter-over-quarter volume, you're going to see consistent and what changes is the pricing as we try to balance that against the inflation.

Your next question is coming from Gregory Melich from Evercore ISI.

I guess I'd follow up on that last point. I think you mentioned in the prepared comments the price increase in September, you expect realization to be in the historic range. Can you just -- is that the range that we're seeing this year, I think they're more like 40%? Or is it the historic more 60% to 70%? And then the second part of that question is, would that be enough for gross margins to grow year-over-year in the back half given the raw material still accelerating?

Yes, Greg, I mean starting with the back part of your question there, I mean our expectation is that we're balanced with pricing, and our commitment has been to stay in front of that. And so you'll continue to see that there. Again, going back to your September price increase question, we normally see a glide path. And to Heidi's point, the this pricing will be at that same historical trend.

And as you know, we have customers that have contracts. There are probably some things that go into 2027 as well. But we would expect that over time that we're really, really able to capture that the same way. And I'll remind you as well, I mean our -- the goal here has been to implement pricing when the market can support it. And we can do it in a way that preserves our customer relationships and manages our ability to get share gains. And so we felt that September provided the best balance between those objectives, and that's why you see us going right now.

Your next question is coming from Patrick Cunningham from Citi.

I was hoping you could just give a little bit of detail beyond -- behind the drivers for both the commercial and Protective segments. And what sort of multi-quarter or multiyear visibility do you have there from some of your share gains, new product wins, anything that we should think about across those 2 strong segments?

Yes. Patrick, it's Jim. I'd say on the commercial side, you're seeing this is a couple of quarters in a row where we're outperforming. We've talked about some of the market share opportunities that we've been targeting over the last 24 months or so, I think you're starting to see those come through in a more prominent way now, a lot of credit to the team that's driving the commercial side there.

The other part of your question, Patrick, just again, was which other segment? The P&M piece? Yes. So the P&M piece is -- I think, touched on it, the data center build-out, the infrastructure build-out semiconductor fabs. There's others that maybe aren't getting as much of a headline, but water treatment, pharmaceutical, the onshoring, all of that is opportunity for us. A great suite of solutions, flooring, structural steel, and there's also an architectural element of the office space in all of those applications as well.

Patrick, one other piece to add, and Jim mentioned this, but we talk about AI, data centers and the build-out. You think of the race of these hyperscalers and speed matters, and we can provide speed. We can provide a comprehensive one-shop solution for many of their coatings needs across the board that Jim just mentioned. So we're -- we love the tailwind, and we're ready for it.

Your next question is coming from John Roberts from Mizuho.

Back to the original M&A question. Sherwin didn't appear to be interested in the #1 European deco business. Why was that?

Well, we've looked at that, John, for a long time. And one of the things that we love about our controlled distribution model certainly is the backdrop, the market dynamics in which we sit here in North America. We've absolutely are proud of help the playbook that we've created. Obviously, there's a lot of agility within that playbook. But the market fundamentals outside of North America simply don't support that level of capital deployment. So we do think there are, again, other very attractive alternatives of shareholders' cash and we're going to put that to good work.

Your next question is coming from Arun Viswanathan from RBC.

I was hoping to ask just on 2 segments, resi repaint and packaging. I think both of those are in the mid-single-digit range, if I'm not mistaken. Could you just elaborate? It sounds like resi repaint, obviously, you've been at higher ranges before. But is that kind of plateauing? Is there anything else that you could do to drive higher growth there? And then similarly, in packaging, are you still working on some share gains there? And where are we in kind of the European PPA transition?

Yes, you bet. Well, let me start with resi repaint is a plateauing. Absolutely not. In fact, I would say we're just getting started there. I'll remind you that this is the segment where we have the largest share gains ahead, and we are continuing to be agile and deploy resources and make sure that, that team is well prepared. There's a lot of share available for grabs right there. And so we're going to continue not only with our dedicated stores, our residential repaint reps, the product launches, the innovation that we're providing in the can, all of the digital suite of tools that we're innovating and continue to innovate for these residential repaint contractors regardless of their size to help them with their economics, be better planners, make sure that we're helping them leveraging our store -- multiple stores and helping them grow and travel. So we're in a really good place.

Also a testament to the team. We've got an organization that we've long been focused on not just selling but shifting to more of a consultative selling approach. And so our team, I'm very proud of what our folks in the stores are doing day in and day out to help our customers succeed here. And it's evident in our numbers, and we continue to expect that outsized growth. I'll touch on packaging. You mentioned mid-single-digit volume. That certainly was by strength in beverage cans. We're clearly outgrowing the market here. I think the FCP piece you mentioned, the ban on DTA taking effect in Q2, obviously, of this year that will continue to drive customer conversion back half of this year and into next year. So we expect that to be good news heading our way.

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

I just wanted to ask kind of a clarifying question a little bit on the consumer business. You'd mentioned some nonoperating tailwinds absent that, things would have been flat quarter-over-quarter. Is that a [indiscernible] would have been flat? Or was that EBITDA would have been flat. Can you just tie that up then.

Yes. Matt, that would have been -- the adjusted segment margin would have been flat. And so again, roughly half of the improvement that you saw quarter-over-quarter if you adjusted that for what we saw in the first quarter, you would have seen more flattish adjusted segment margins in CBG.

Okay. I appreciate that. That's helpful. And then to jump back a little bit on John's earlier question and I guess maybe both John's, but -- and I don't know if I want to drag this conversation too much. But like ultimately, what changed between your first 2 attempts on AkzoNobel and then the release of the slide deck and then your decision to walk away? Like I appreciate the price discipline comment. But conceptually, you kind of already you had to come up in a more material way. And then the slide deck comes out and then a few days later, you walk. Is that -- am I reading too much into what was a couple of days lapse? Or is there something else there? Because, I mean, that deal isn't necessarily done, though, I think the market expects, but just wondering how it relates to your appetite? And then conceptually, I would assume any spin-offs or a fair game for Sherwin to consider? [indiscernible] asset right?

Right. So Matt, let me attack your question here. I think there's basically 3 parts of it. First, I do think you're signing too much weight to the days. And if you look at the discipline in which we think about capital allocation deployment, we've been looking at those assets for years. And so we're not desperate for those assets. I want to be very clear.

And we've said we don't need acquisitions to grow. We have a lot of organic scale opportunity. The team is doing a fantastic job demonstrating that. we're not going fast enough, we'll happily take more. But you asked about what's changed kind of between bid 1 and bid 2. And it was what I stated earlier as we talked about putting a very -- what we thought was not only fair and reasonable, but superior all-cash offer forward. at some point without getting the level of engagement that you want. What we're not going to do is negotiate against ourselves if we're not desperate for these assets. We're going to be laser-focused on growing these businesses with or without.

But I think your third point, and it's a very fair point, should these assets fall out of the sky at the completion of the MOE at the right value, then we would absolutely take a look at those. But it would have to be at the right value at the right time. I will take a moment, Matt, just to point to the success of Suvinil is a great example of capital being put to great use. And just a moment on this, while you didn't ask about it, I think it demonstrates the discipline of how we think about M&A. We've long admired that asset down in Latin America and have been looking at that for over 10 years. We were very thoughtful in our approach, not just in terms of the deal, but in terms of the integration.

Coming from the Valspar side and playing a big role on integration, it's extremely important that when we're thinking about success here. It is customer and employee first, and I'm very pleased with the success that the team is having. The business continuity continues to be our North Star, making sure that we're providing stability, not only in our relationships with our customers, but in our service levels. I think the cultural compatibility. It's also worth noting. You've got 2 great teams coming together. We say 1 plus 1 equals 3 here and the compatibility of strong teams and what we're able to do to leverage a strong asset of the market leadership and certainly the strong ability to provide innovation from Sherwin-Williams, we are really just getting started there.

And Matt, I just want to build on one thing that Heidi said here again, it's -- we've talked about how our cash generation remains a strategic advantage for us. And you look -- to look at the first half and that's really on display. I mean, we returned almost $1 billion more in cash to shareholders. We did the ASR in between the -- when we walked away from the joint bid to when we were blacked out for the quarter. And so you can see us there taking decisive actions in an environment where our share price is on sale. And so you're going to continue to see us be really strategic with how we're managing our capital allocation. And just wanted to put an explanation on that.

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

Just on DIY. I saw it did tick down versus the prior 3 quarters of it being up. What changed the DIY market for you guys this quarter?

I don't think there's really any material shift there, David. It would be more nominal than material. We're still waiting for the catalyst kick in the DIY segment. I think if you look at bifurcating that segment, you've got more of the premium DIY homeowner in our stores that prefer a specialty kind of experience, and we're faring better there, the recovery there is certainly less inflationary sensitive on the more value-conscious DIY homeowner that prefers a home center, still under pressure. But again, this is where our strategic partnerships are extremely important that we continue to find new and different ways to look at that volume.

But I want to take a moment on this point, and we talk a lot about this in our prepared comments, but the fundamental theme here is we do not believe there will be a catalyst in the market anytime soon. And the charge to the team is that we have to be our own catalyst for growth. And so you're going to continue to hear us talk about that. There are a lot of levers that we can pull, they're not infinite, but it is a control what we can control mindset, and that is what gives us confidence. We continue to focus on execution discipline. I think we've built strong credibility on that front because we've been able to demonstrate even in a challenging environment.

Your next question is coming from Josh Spector from UBS.

I wanted to follow up on the pricing side. Just -- I mean, I heard your comments around the realization of the 8% increase. But just trying to think about the timing of that relative to kind of your updated pricing guidance. I mean it seems like my interpretation is maybe you're realizing 1% to 2% in the fourth quarter and then maybe more of that falls into 2027. So one, is that kind of the right interpretation? And then two, what does that mean for your approach to pricing for what you typically do around January 1, 2027? Is that coming up in conversations now? Or is that going to be a separate conversation 3 months from now?

Josh, yes, the phasing of this, and again, we've done a lot of pricing throughout the year here, and we're being realistic with what the approach is. And I know we keep hammering back on volume being the premium. There is going to be a balance there to make sure that all the work that we've done to keep our customers and to make sure that we're able to supply them and keep a minimum price increase because we did. We've waited long.

I mean -- as I mentioned, waiting until September, that was a strategic decision to make sure that we didn't impact our customers the way that some of our competitors may have by going earlier in the painting season. And so obviously, the season is rolling over later in the year. I mean, that might have an impact on realization. But I can assure you that the way that we're approaching this year, it is balanced with the inflation that we continue to see. And obviously, that will go into the first part of next year. And so that is part of the calculation.

But we're not ready to call anything beyond 2026 right now. We're watching this quarter-by-quarter, half by half, and we'll continue to watch the market. There are uncertainties out there what inflation will do. And our teams are constantly assessing what those impacts are and what actions we would need to take.

Your next question is coming from Jeff Zekauskas from JPMorgan.

Two-part question. You talked about 57 store closures. Is there a pattern to the closures? Are these unprofitable or in a particular region or too small? And why are they happening this year? And secondly, in terms of pricing, you're lifting your Paint Stores pricing by 8%, if you compare that pricing action to what's going on in Performance Coatings, should Performance Coatings price initiatives be at least that number because the raw material inflation would be a little bit higher? Or is there some other dynamic at work? What are you doing in pricing and performance?

Yes, Jeff, I'll start the first question on the stores, and then I'll hand it over to Ben. He can comment on the pricing question that you had. You asked if there was a pattern and there is a pattern, they didn't meet the profitability threshold. And so if you think about the -- we've built what I would consider one of the industry's premier distribution platforms over many, many decades. And with that comes the responsibility for us to actively manage that platform.

So we're going to continue to open stores, and you heard in my prepared remarks, as we were pruning we wanted to take advantage of why would just this downturn being really candid, to do that and make sure that we're favoring the best use of shareholder cash in the right places. The expectation going forward is that we get to the higher end of the 80 to 100 net new stores beginning next year and you should expect to see us be aggressive there on that front.

So in this environment, while we've got this great platform, we think that it's in our shareholders' best interest if we are looking at making these increasingly productive our platform increasingly efficient, leveraging AI, where it makes sense and where it's helpful, but also making sure that we're increasingly aligned with where our customers are growing. So that's what we're solving for. And I think the result is going to be a healthier, more productive platform that better serves customers and better generates stronger returns for our shareholders. So we're excited that this is behind us, and we can move forward with a more productive platform.

And I'll hand it to Ben on the pricing question here.

Yes. Jeff, on pricing, as you know, the way we go to market with pricing is very different between our architectural business and the industrial business. And so with PCG, and we've talked about this going back to April and even into January, where we had announced some pricing, it is a little more surgical within PCG. And so as you can expect, with raw material inflation continuing to climb here in the second half that PCG has been out with pricing a little more surgically by business unit or by region.

And again, our decision to wait on the architectural side to make sure we preserve volume in our share and made sure that we didn't put those pressures on our customers. It's just -- it's a different approach that we have between the 2 different businesses. But your thought is right. There are -- there's pricing out in all of our segments right now as we're trying to balance the price cost dynamics that are there.

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

I'd like talk a little bit about Suvinil, how the integration is going, where you're at in the process and to what degree it contributed or dent to EPS dollars?

Chuck, yes, Suvinil continues to really be a great addition to Sherwin-Williams for us. And as we've talked about on the last couple of calls, really encouraged by what we're seeing down there is we're bringing Suvinil into the existing Sherwin-Williams business that's been there for 80 years.

I think some of the highlights that I call out here because our teams have gotten their hands more on what that Suvinil business brings. We've identified additional synergies even things that maybe we didn't appreciate through the industrial lens when we were initially looking at opportunities. On the customer front, there's been a lot of really great growth opportunities as the 2 brands come together. And so we're really encouraged about that. In April, I talked a lot about we were going to continue to be doing integrating activities. The rest of this year into early part of next year. And so we still think it's a material tailwind to our EPS for the year as we continue to merge the companies.

Your next question is coming from Abigail Eberts from Wells Fargo.

Congrats on the quarter. You've talked in the past about your strategy for driving new business wins in Paint Stores with your rep network, your app launches and things like that. Can you speak to how you're driving new business wins in PCG given the different customers?

Yes, Abigail. I think it's -- Ben kind of alluded to this a little bit on the last question. These are very different models, different customers, end markets, regions. And so you're right, we need to think about our ability to kind of standardize within Paint Stores Group, it's a little bit different on the Performance Coatings side. This is really a team with incredible tenure and expertise in these end markets and regions, and it really is about making sure that we are best serving these customers.

And so if you think about some of the assets that we have on our Performance Coatings side that are underappreciated would be our blending facilities. And so our ability to have these assets that are close to industrial wood, coil large customers we're able to better serve oftentimes at days and weeks versus even longer versus our competitors and these customers are willing to pay a premium for that. So the speed, the consistency of color, our ability to demonstrate value every day affords us a position to create these new business opportunities and new business wins.

Your next question is coming from Kevin McCarthy from VRP.

I have a broad question for you on the subject of market share gains that doing a nice job with broad-based gains for a while now. But wanted to ask, are there certain businesses where you've been pleasantly surprised by the magnitude of share gains where you wound up winning more than you had expected? And then in contrast, are there any businesses that come to mind where share gains have proven to be more challenging than you would have thought maybe due to competitive behavior or otherwise, where you see room for improvement moving forward?

Well, Mike, I have to start -- or Kevin, rather I have to start with, there's never enough share gains, right? So let's agree with that. I'm not surprised by the magnitude anywhere. In fact, the team has been really, really hard at work, and I'll point to commercial as a really, I think, good example. We've talked a lot about res repaint, and I do continue to see heightened growth there.

The commercial segment, we talked a lot about this for the last few years, putting additional focus on what it is that only Sherwin-Williams can provide to some of these contractors, even some of these larger contractors. And so the team has been really focused and hard at work in a very data-driven, very disciplined approach by looking for customers that maybe had -- we had some share of wallet in the past. Is there opportunity to earn and demonstrate the value that Sherwin-Williams can bring with our delivery, with our ability to -- as we talked about the PRO+, our app, our ability to help these contractors to plan to bid, to grow, to travel, to better leverage our stores and delivery.

So we're hard at work out demonstrating our value every day. Some of these projects are multiyear in nature. And so the timing in which we're seeing these conversions that you're seeing in our share gains now are a realization of some of those projects coming to completion and new projects beginning, but I'm very pleased about that. I think your question on where it's more challenging. New residential, I'd have to point to New Residential, industrial wood is it's really tied mostly to new residential just based on cabinets and furniture, those are the areas that are still under pressure the most. I am pleased though that even despite New Residential is down low single digits in the first half of '26, it's flat, I think, full year in '25. And we are outperforming given the soft single-family completions. They've been very choppy to start the year with a lot of economic uncertainty, but we're continuing to take share in a really challenged environment.

So the expectation across the board is we're not waiting for the market, and we need to be at a minimum of 1.5 to 2x the market. So as the market starts to move, we expect to continue to have outsized growth there.

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

Within the PCG segment, you said that your general industrial sales were up high single digits. Just was looking to see if you could break down how much of that was pricing versus volume? What end markets are showing strength in industrial? And do you think that, that strength is going to be sustainable into the second half?

Yes, Mike, the volume was up mid-single digits and price mix up low single digits. We had some FX tailwind low single digits there. But like I mentioned in my prepared comments, the growth is really coming from general finishing and heavy equipment construction. So we're continuing to see transportation and energy have some headwinds. But a lot of complements to the team that despite that backdrop, they're out focusing very heavily on new business to offset some of that core erosion.

Your next question is coming from Laurence Alexander from Jefferies.

This is Dan Rizzo on for Laurence. Just getting back to the store closures. I understand this is kind of an unusual situation, but just historically speaking, how -- I mean how many stores do you close kind of on an annual basis prior to this kind of period we've been in? And also is franchising something that's ever been considered for the Paint Stores Group?

Yes. I mean, in a normal year, you're talking a small handful, 2, 3, 4. A lot of times, again, you may see those because of prior acquisitions and you got duplication. And so generally, the focus is getting those new stores in. And so as Heidi talked about earlier, strategically finding the stores were maybe they're not hitting the return profile that you want and getting those out now. It allows us to go faster later, and we have that. We're looking for the opportunity to be at the higher end of that 80 to 100 stores. And then franchising is not something that we've considered doesn't fit the long-term strategy value model and so it wouldn't be something that you see us talk about.

Laurence, one of the things that we talk a lot about with our stores is this idea of ownership. And we -- our store managers own the P&L. They own the culture of the store. They own the hiring of that store. Obviously, they own bringing business into the store. But I think Ben said it well, and it really is making sure that at the core, we're really -- we're grooming that ownership mindset.

The store closures piece, we have our 6 enterprise priorities. Simplification is a very, very important priority that I want to take a moment and talk about. The reason that we're taking this approach to -- so really pruning stores is so we can go faster, but it is by design. We don't expect to annualize that level year-over-year. That's why I intentionally said it's behind us. So that we could continue to put the new stores in when and where they make sense to support our customers.

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

Just on the back of that, when you take a step back as CEO, is there anything else in terms of major initiatives that you feel the Sherwin team should be even more aggressive on? I mean you've gone through the store count, you've been increasing the average price point by attacking some of the lower volume, higher price point paints and going after kind of the top end of the market over time, you've increased your sales force. Is there any 1 or 2 initiatives where you said, "You know what, we can double down on X, Y and Z to even further improve our trajectory and really go after that 1.5x market growth". Is there anything that comes to mind?

Well, how long do we have? So Chris, it's a great question. There's a couple of things here. And I think when you look at the moat and you look at what we're trying to do, especially in a downturn to put more space between us and our competitors, there are absolutely not only levers, but we talk about growth vectors, top line growth, bottom line growth, and I said this earlier, we need to be our own catalyst in this market that's not going to simply provide one.

And so, yes, there's a lot here. What gets me really excited, not just our stores, our employees or the data that we own, we've assembled the world's largest database of painting contractors. There's so much we can be doing with that to be better partners to our customers. We've got a distribution platform that I'm very proud that we can do 2 things very well at the same time, which is provide scale and agility, again, which our contractors, our customers value. This is an opportunity, especially in a downturn with so much volatility and inflationary pressure. This is an opportunity for Sherwin-Williams to really stand tall and demonstrate our differentiation to our customers and to elevate our partnerships with our customers. That's where the team is focused. That's why we're taking share, and that's why I'm confident we're going to have a strong back half.

Chris, I'll add to what Heidi said there. I think digital is another opportunity. I think the industry is under digitized and this supports all the things -- all the investments that we've been making in digital. And really, I mean, whoever gets demand signals, the quickest, they're going to be the ones that get the disproportionate amount of share. And so our teams are actively working through that through ERP modernizations, CRM work. We've talked a lot about data and how we get insights to our businesses faster. And so I think that remains a really big opportunity for us that our teams are actively working on. You'll see us continue to talk about.

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

Thank you, Matthew, and thank you, everybody, for joining our call. And I want to reiterate Heidi's comments thanking our employees for their hard work in delivering a really strong quarter in this really difficult environment.

Strategy is clear. It's working. It's unchanged. And you can expect us to continue executing at this high level. I want to close out, as Heidi mentioned, also, again, another commercial for our financial community presentation. Cleveland, September 24. You'll have the chance to see our new HQ and our global technology center. So hope that you will -- many of you will be able to join us for that. Thanks again for your interest in Sherwin. And we're available, as always, for your follow-ups. Have a great day.

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

Good morning. Thank you for joining the Sherwin-Williams Company's Review of First Quarter 2026 and our outlook for the second quarter and full year of 2026. With us on today's call are Heidi Petz, Chair President and Chief Executive Officer; Ben Meisenzahl, Chief Financial Officer; Paul Lang, Chief Accounting Officer; and Jim Jaye, Senior Vice President, Investor Relations and Communications.

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

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

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

I will now turn the call over to Jim Jaye.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Your next question is from Christopher Parkinson with Wolfe Research.

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

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

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

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

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

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

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

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

Your next question is from Ghansham Panjabi with Baird.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Your next question is from Josh Spector with UBS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Your next question is from Mike Sison with Wells Fargo.

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

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

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

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

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

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

Your next question is from Sebastian Bray with Berenberg.

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

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

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

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

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

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

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

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

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

Your next question is from Jeff Zekaukas with JP Morgan.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good morning. Thank you for joining The Sherwin-Williams Company's Review of Fourth Quarter and Full Year 2025 results and our outlook for the first quarter and full year of 2026.

With us on today's call are Heidi Petz, Chair, President and Chief Executive Officer; Ben Meisenzahl, Chief Financial Officer; Paul Lang, Chief Accounting Officer; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by Access Newswire via the Internet at www.sherwin.com. An archived replay of this website will be available at www.sherwin.com, beginning approximately 2 hours after this conference call concludes.

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

I will now turn the call over to Jim Jaye.

Thank you, and good morning to everyone. Sherwin-Williams ended the year with strong fourth quarter results, driven by solid core performance and inclusive of the first full quarter of the Suvinil acquisition.

Consolidated sales in the fourth quarter increased by a mid-single-digit percentage, inclusive of a low single-digit contribution from Suvinil. Reported gross margin was flattish year-over-year, but expanded excluding the dilutive impact of the Suvinil acquisition. SG&A as a percent of sales decreased year-over-year, including severance and other restructuring expenses and Suvinil, reflecting our disciplined ongoing cost control measures. Adjusted diluted net income per share in the quarter increased by 6.7%. Adjusted EBITDA in the quarter grew 13.4% and expanded 120 basis points to 17.7% as a percent of sales. Free cash flow conversion in the quarter was 90.1%.

In terms of our segments in the fourth quarter, Paint Stores Group sales increased in the range we expected, led by high single-digit growth in Protective & Marine against a high single-digit comp. Residential repaint remained solid, and growth was just slightly below the mid-single-digit range and also against a high single-digit comp. Group sales included positive low single-digit price/mix partially offset by a low single-digit decrease in volume. Segment margin expanded 90 basis points to 20.8%.

Consumer Brands Group sales exceeded our expectations. Sales from the Suvinil acquisition and positive low single-digit FX were partially offset by price mix and volume, both of which were down less than a percentage point. Sales in the underlying business, excluding Suvinil were essentially flat, which was better than we expected and drove the top line beat. Adjusted segment margin decreased, including a negative impact from Suvinil and related transaction closing costs and purchase accounting items. Adjusted segment margin increased excluding these impacts.

Within Performance Coatings Group, sales were at the high end of expectations, led by strength in packaging and auto refinish. Adjusted segment margin improved 150 basis points to 19%, driven by new business wins as well as good control of SG&A, which was down mid-single digits. We also continued our strong cost control efforts within the administrative segment, where SG&A was down a low single-digit percentage in the quarter including onetime restructuring costs of approximately $2 million. Excluding these restructuring costs and the nonannualized newbuilding operating costs, administrative SG&A was down by a low-teens percentage, improving on third quarter results that were down low double digits, demonstrating our continued tight management of G&A costs. The slide deck accompanying our press release this morning provides more detail on fourth quarter segment results.

Let me now turn it over to Heidi, who will provide a few full year highlights before moving on to our 2026 outlook and your questions.

Thank you, Jim, and good morning. I want to start by thanking our 65,000 global employees for their dedication and determination to deliver a solid year during one of the more challenging operating environment our company has seen. Sherwin-Williams celebrates 160 years in 2026, and it's because of our employees and our culture that we're able to deliver sustainable results through all types of cycles. Our team continues to execute our playbook while finding new ways to help our customers become more productive and more profitable.

I'm proud of what our team accomplished in 2025. At this time last year, we talked about the potential for a softer for longer demand environment, and that is exactly what we saw play out as there was no meaningful improvement in demand across our end markets. Our team refused to wait for the market and instead focused on creating opportunities and controlling what we could control. We stayed true to our strategy, made targeted investments, focused on share gains and executed on our enterprise priorities. We continue to deliver innovative solutions for our customers and in a disruptive competitive environment, Sherwin-Williams stood out by being a consistent, reliable and dependable partner.

Our success by design approach resulted in our team delivering record full year consolidated sales and record adjusted diluted earnings per share. Gross profit dollars and gross margin expanded. Adjusted EBITDA dollars and adjusted EBITDA margin also expanded. It was also another very strong year for cash generation, with net operating cash growing 9.4% to $3.5 billion or 14.6% of sales. This percent of sales is right in the middle of the most recent target range that we've previously announced. Free cash flow was $2.7 billion, and free cash flow conversion for the year was 59%.

In terms of capital allocation, our policy remains consistent. We returned $2.5 billion to shareholders through share repurchases in our dividend, which we raised for the 47th consecutive year. We completed the acquisition of Suvinil and we continued to make strategic CapEx investments, including our new global headquarters and Global Technology Center, which opened at the end of the year. We've been talking about these buildings for years, and we are thrilled that we are here. The move-in is going extremely well, and I'm confident that this will continue to strengthen our culture of collaboration, innovation and winning together. All in, we ended 2025 with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.3x.

Looking at our reportable segments on a full year basis. Paint Stores grew sales by a low single-digit percentage. Protective & Marine increased by high single digits. Residential repaint increased by mid-single digits and for the third year in a row, meaningfully outperformed the market where existing home sales remained soft. Low single-digit growth in commercial reflects share gains and above-market performance as multifamily completions were down significantly during the year.

Share gains are also evident in property maintenance and new residential, both of which were flattish in a down market, characterized by muted CapEx spending, high rates and affordability challenges. Segment margin increased, reflecting operating leverage and solid returns on our investments. We also added 80 net new stores and 87 net new sales territories.

Consumer Brands full year sales grew by a low single-digit percentage, driven by the Suvinil acquisition as underlying sales decreased by low single digits, resulting from soft DIY demand in North America and unfavorable FX. Adjusted segment margin decreased, including a negative impact from Suvinil as we previously described as well as lower production in the segment's manufacturing operations to match softer demand, resulting in lower fixed cost absorption.

Performance Coatings full year sales varied by division and geography and were flat overall, which outpaced a very challenging industrial demand backdrop. Acquisitions added a low single-digit percentage in the year and FX was a slight tailwind, but these were offset by unfavorable price/mix.

Packaging grew at the high end of high single digits as we continue to win new business globally, including those complying with new non-BPA coating requirements. Auto refinish was flat for the year with share gains becoming more evident in the second half where sales were up mid-single digits. Coil sales decreased by low single digits as meaningful new account wins were not enough to offset steel tariff impacts. Industrial wood and general industrial each decreased by low single digits driven by soft housing and industrial markets, respectively.

Adjusted segment margin remained in our high-teens target range, but was impacted by unfavorable geographic mix, as Europe grew by mid-single digits, while other regions were down low single digits.

As we close out 2025, I'm also pleased to share that we are reinstating our 401(k) matching program for eligible U.S. employees, effective February 1. We'll also be restoring the matching contributions that have been paused since October 1 by the end of our first quarter. As I described last quarter, the decision to pause the company match was made after we had implemented multiple cost savings initiatives and significant restructuring actions driven by multiyear demand and macroeconomic uncertainty.

Given what we anticipated back in July and with the prospect of additional risks materializing, we faced a difficult decision, either pursue further workforce reductions or temporarily pause the 401(k) company match. While many companies chose widespread layoff, we chose a different path. We chose to protect jobs, retain talent, and invest in the long-term health of the organization by keeping our teams intact. We also committed to restoring the match as soon as performance allowed just as we have done in the past.

Our teams responded exactly as strong teams do. We elevated our performance and focused on controlling what we could control, including winning new business, growing share of wallet, pricing discipline and accelerating further cost reductions. We demonstrated what truly differentiates Sherwin-Williams. At the same time, some of the risks that we saw in July did not materialize or were less severe than expected, including the delayed realization of some tariff impacts. The combination of all these factors is enabling us to both resume and retroactively restore the match sooner than originally anticipated.

Now moving on to our 2026 guidance. The demand environment feels much like it did a year ago. The softer for longer dynamic we described again back in October remains intact. While some conditions are gradually becoming more stable, many of the indicators we track along with cautious consumer sentiment provide little support for any broad-based or accelerated recovery at this time. This environment is likely to persist well into 2026.

The slide deck issued with our press release lays out our key economic assumptions for 2026. I'd also like to provide you with some additional color that informs our outlook. On the architectural side of the business, Residential Repaint remains our single biggest growth opportunity, and we have and will continue to make investments to win here. Demand remains difficult to predict with industry forecasts for existing home sales growth varying widely, from slightly down to up double digits. The mortgage rate lock-in effect remains real. Harvard's LIRA index is projecting very modest growth and select retailers have forecasted flattish home improvement growth as a base case.

Additionally, consumer sentiment remains muted. These same dynamics also signal another potentially challenging year for DIY.

We expect the new residential market to be down at least in the mid-single-digit range this year, given negative single-family starts over the back half of 2025 and many forecasters expectations for further softening in 2026. National Association of Homebuilder sentiment levels were notably negative exiting 2025 and mortgage rates remain in the 6-plus range. We welcome meaningful economic and policy proposals to address affordability and increased supply [indiscernible] these will take time to finalize, implement and take effect. We expect to outperform the market as we continue strengthening our homebuilder customer relationships.

In the commercial segment, the Architectural Billings Index has continued its long run of negative readings. We do see a bright spot in multifamily starts, which were positive for most of the second half of 2025. However, these starts won't turn to completions and painting until late this year and into 2027. We are pleased with the share gains we are making here as demonstrated by our above-market growth over the second half of 2025 and which we expect will continue throughout 2026. Property maintenance CapEx spending still appears to be idling and neutral, though we are well positioned to capture pent-up demand when rates moderate. We expect flattish sales as we continue to grow our account base to help offset core softness.

In Protective & Marine, the project pipeline remains solid, though the timing of starts and completions remain variable. We expect this business along with residential repaint to be the best sales performers in Paint Stores Group this year.

On the industrial side, the U.S. manufacturing PMI ended at its lowest point in the year in December after 10 months of contraction. Brazil and the Eurozone PMIs are also contracting. Optimism is easing in China, and the PMI there remains below its historical average. We see a 2026 backdrop where our core business remains flat at best, but strong new account wins from last year and this year along with positive price mix to drive low single-digit sales growth in Performance Coatings Group.

We expect modest growth in auto refinish, driven by share gains and price mix, with the industry remaining flattish to down, given pressure on consumers and related softness of insurance claims. In coil, we expect flattish sales as the market remains under pressure related to steel tariffs. In packaging, share gains and our industry-leading non-BPA coatings to drive flattish sales against a tough double-digit comparison.

Our industrial wood and general industrial divisions have the strongest new account growth in the group last year. We expect these wins to drive low single-digit growth in both of these divisions even as core demand remains very weak.

In summary, for the third year in a row, the market is not going to give us much help. And for the third year in a row, we expect to outperform the market and grow sales and earnings per share. We'll continue to remain extremely aggressive with a focus on helping existing customers grow as well as winning new business and converting share gains.

I want to be very transparent here. We're providing guidance that we believe is very realistic given this backdrop. We are also confident that if the market is better than we're currently seeing, we would expect to outperform the guidance that we are providing to start the year. The slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the first quarter of 2026. The deck also includes our initial expectations for the full year where consolidated sales are expected to be up a low to mid-single-digit percentage and diluted net income per share is expected to be in the range of $10.70 to $11.10 per share.

Excluding acquisition-related amortization expense of approximately $0.80 per share, adjusted diluted net income per share is expected in the range of $11.50 to $11.90, an increase of 2.4% at the midpoint compared to 2025 adjusted diluted net income per share of $11.43. I'll note that at the $11.70 midpoint, earnings growth will outpace the midpoint of our core sales growth, excluding the impact of Suvinil sales.

Our slide deck contains several additional data points that provide important context that I'd also like to briefly address. Any comparisons described are year-over-year. From a sales perspective, I'll remind you that the Paint Stores Group implemented a 7% price increase effective January 1. Realization should be in the low single-digit range given market dynamics and segment mix. We are also implementing targeted price increases in specific areas with our other 2 reportable segments. We expect the market basket of raw materials to be up a low single-digit percentage in 2026 driven by tariffs along with select commodities also inflating. We expect to overcome these raw material headwinds and deliver full year gross margin expansion given both incremental 2026 pricing and accelerated simplification efforts across our supply chain.

We expect GAAP SG&A dollars to grow by a low single-digit percentage in 2026, inclusive of a low single-digit contribution from Suvinil. As we pointed out last quarter, interest expense will be up this year. This increase includes approximately $40 million related to the lease payments for our new global headquarters and approximately $35 million of interest related to the $1.1 billion 1 year delayed draw term loan that we executed in September. It also includes approximately $15 million in increased interest expense related to refinancing at higher rates. We expect to end the year within our current long-term target debt-to-EBITDA leverage ratio of 2 to 2.5x.

We expect to open 80 to 100 net new stores in the U.S. and Canada in 2026. We'll also continue adding sales reps and territories, accelerating innovation and expanding our digital capabilities.

Next month at our Board of Directors meeting, we will recommend an annual dividend increase of 1.3% to $3.20 per share, up from $3.16 last year. If approved, this will mark the 48th consecutive year we've increased our dividend. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit and accelerate our strategy. In addition, our slide deck provides guidance on our expectations for currency exchange, effective tax rate, CapEx, depreciation and amortization.

Finally, I'll remind you that as our first quarter is a seasonally smaller one, we do not plan to make any updates to full year guidance up or down until our second quarter is completed, at which point, we will have a better view of how the paint and coatings season is unfolding.

Sherwin-Williams is extremely well positioned as we enter 2026. Again, while we expect little of any help in terms of end market demand, our teams refuse to be discouraged by these near-term trends. We know stronger demand will return at some point, driven by powerful demographics and enduring market fundamentals, but we're not waiting for that moment. We're focused on winning today and securing our long-term future. We know the playbook, stay true to our proven customer-first strategy, control what we can control and turn volatility into opportunity. That means relentlessly pursuing new accounts and share of wallet, innovating in and out of the can, investing where returns are clear, maintaining price cost discipline, advancing our enterprise priorities and driving accountability to ensure flawless execution. This is how we grow and create value regardless of market cycles.

We're proud of what we've accomplished, but we're even more energized by the opportunities ahead. Across every business, we see room to grow, innovate and lead. Our focus remains sharp. Gross sales drive returns on sales and assets and generate cash. We'll continue to deliver unique solutions for customers and outperform the market. This is a great time to continue demonstrating what makes Sherwin-Williams so unique. We win when our customers win, and that is exactly what we plan to do.

I'd like to end where I started by thanking our team for being truly the best in the industry. This concludes our prepared remarks. And with that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

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

I guess, first off, on the Performance Coatings segment, the margin outperformance there relative to at least our expectations. The incremental seemed very, very high in 4Q, and I know you called out some of the more profitable businesses like packaging and auto refinish being up nicely, et cetera. But can you just give us a bit more color in terms of what drove that?

Yes, Ghansham. I think what you're seeing there clearly is discipline on display. This is an organization led under Karl Jorgenrud, been in the industry for over 30 years. And I think this is an environment where we're in the fifth straight year of a challenging demand environment, the team stood tall and delivered, and you're going to see this play out a very clear aggressive focus on new business wins, taking market share. But also a lot of heavy lifting and we talk about simplification in our enterprise priorities, taking complexity out of the business. I'm very pleased with some of the heavy lifting there. Having said that, we're early innings, and I'll hand over to Ben here to jump in.

Ghansham, yes, adding to what Heidi said there, I'd point to the 2 halves of PCG. How you called out simplification, SG&A has been a focus of this team here. They've consistently been able to keep their SG&A at a moderated pace, considering where volumes are at. But if I look at the 2 halves, I think that's a good way to look at it here. We were under pressure the first part of the year right after the election and we started seeing some of the new policies take shape. There might have been some hesitation. The operating margin was backwards about 160 basis points in the first half. The second half adjusted operating margin showed 20 basis points worth of improvement. The second half was at 17.9%, pretty close to where we ended 2024. Obviously, the 19% is a good pop in the fourth quarter.

And so I agree with what Heidi said there. It just comes down to discipline, focus on SG&A. I think this is also a good example. We always talk about the operating margin and not looking just at gross margin or SG&A, here is a really good example of why we do that because we're able to demonstrate and grow operating margin as a really good SG&A controls.

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

And maybe kind of a decent segue from that last question. On the SG&A outlook for 2026, I guess, can you help us to think about what you're factoring in what kind of level of growth we should be expecting? Because I know you continue to invest even when the markets struggle. You've also got this 401(k) match coming back in. So I guess, can you help us to think about how that should play out as the year progresses?

John, yes, the way to think about that, and we called out Heidi talked about in her opening comments, with reinstating the 401(k) and doing our retroactive match, we're apples-to-apples 2025 versus 2024. And so that the catch-up contribution as it relates to 2025 earnings, we're apples to apples there. And so because we did that, as you look 2024, 2025 and then into 2026, there is no quarter-to-quarter, year-over-year 401(k) impact.

As you look at broader SG&A, as we called out in the opening remarks, SG&A up a low single digit. That obviously includes the history of the restructuring costs that we took in 2025. And then you layer on the incremental Suvinil, which is also a low single digit. So you can do the math there to figure out the core versus Suvinil. But really, what we have embedded there is that low single-digit growth. Again, that points right back to the cost control. Everything that we talked about throughout the year here. We had about $40 million in savings in 2025. You saw that our onetime restructuring costs were a little bit higher than what we guided to in October. That's going to give us the ability to upsize the other $40 million that we initially called out that's probably closer to $46 million in savings in 2026.

And so again, really proud of what the teams are doing to really control cost while volumes are challenged.

John, [indiscernible] done a lot of credit. He uses this phrase of -- to the team, and for those employees listening, I'm talking to you here, too, we want to earn our SG&A, right? And so we're going to always pace that to volume, and you're going to see that discipline play out throughout the year.

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

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

Chris, this is Jim. I'll start with the last piece of your question. So as you saw in our slide deck, we're guiding to our raw material basket to be up a low single-digit percentage this year. That includes tariffs and some of the commodities inflating in particular. I'd say the areas where we're seeing the most pressure would be on the packaging side of our basket, also non-TiO2 pigments extenders, things of that nature, also some pressure on resins, and I'd say that's a little bit heavier weighted on the industrial side of the basket. But those are the things that are driving the raw material guidance that we're laying out.

Yes, Chris, I'll add on to the SG&A side and just the overall cost side. You think about -- you called out in the admin segment, interest expense being a headwind for next year. So when you look at the growth that we have in our admin spending next year, about half of that is going to be interest expense and then half of it is normalization of other nonoperating costs and just your general SG&A, and you called out health care. We've all seen the headlines health care up double digits. We're in that camp. We have things that we can do to mitigate that. So what we're passing on to our employees isn't as meaningful as that. So we're trying to be really diligent there. But we continue to try to keep that cost low.

If I go back and point to some of the opening comments on the admin SG&A, the core SG&A, we've been able to keep that down double digits, down low teens, and that just demonstrates, again, the levers we're able to pull to make sure we can keep that -- the cost in check, knowing that, again, we're in that lower volume environment right now.

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

I wanted to follow up on price mix in the fourth quarter and then also the 7% price hike on Jan 1. I guess it looks like it was 3% to 3.5% price mix in 4Q. And with the price increase coming in, in January, why wouldn't we expect that to be more going into the first quarter in '26?

Yes, Greg, I'll start and I'll hand it over to Ben to give a little bit more color, but I'll take you back to some of the comments I said in my prepared remarks relative to market dynamics. And we are looking at the competitive environment. I would frame it more as a jump ball environment, to be honest with you. And so we're going to continue to be, as you would expect, extremely aggressive as it relates to chasing volume right now. And so there's a balance. The team is very prepared. There's a lot of tenure in the organization. They know how to strike that right balance. But I'm very confident that when we get some of our customers in, I'm very confident in the team's ability to work with them to add value and continue to trade them into more premium products that ultimately is going to make them more productive. Let me get it to Ben to comment on the quarter.

Yes, I agree with everything Heidi said there. And again, we've talked about that price mix, looking at incremental pricing and mix of some of the business as well. And so you may have a little bit of noise in there. But Heidi hit the head on it with volume. I mean we've talked about in this environment, prioritizing volume. And so as our teams know that high effectiveness is critical for us to get to the high end of our guide. We're going to continue to put the pressure on there to capture as much price as we can. But we're not going to put volume at risk to do that. And so that may be what's a little bit different than what you've seen in the past.

But still very confident in our gross margin targets that we put out, and we're going to hold to that.

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

Heidi, can you discuss the impact of the severe winter weather on your current demand trends? And does that mean that Q1 EPS could be down year-over-year just because of the weather impacts?

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

Our next question is coming from John Roberts from Mizuho.

Your packaging coatings performance is impressive here. Have we recovered to new highs since the correction you had? And how much more is left in terms of the conversion of the industry?

Yes. John, I would tell you, we've essentially recovered a lot of what we said was kind of temporary share loss. And that doesn't mean that we're happy with where we are. There's still a lot more to go get. I really like our position here with our leading technology. We continue to win and demonstrate value. We've got some, obviously, dynamics playing out, EFSA the European Food Safety Association's ban on BPA. That's going to be taking effect in Q2. We know that, that will continue to drive more customer conversions for us. So I really like our position here. So we're in good shape. Jim, maybe if you could comment on a few of those areas.

Yes. I would add to that, John, that in terms of how much is left to go, I would say that in Asia and LatAm, there's still quite a bit to go. North America, as Heidi pointed out Europe are farther ahead on that. But in terms of that conversion, those other regions still have quite a ways to go. Thanks for the question.

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

Heidi, I wanted to come back to your comments on focusing more on volumes than price this year. I guess, typically, this could lead to a bit of a zero-sum game where your competitors would also focus on volumes. Is there something that's different right now about competitive environment, maybe your competitors cannot afford lower prices, so they have to raise their prices and see some volume? Or is there another dynamic that kind of makes your strategy of being more volume-focused the right one this year?

So Aleksey, let me reframe what I heard you say, I think you said not putting volume above price. And I would say it's not putting volume above price. It's been very balanced in our view here. And so in this is a jump ball competitive environment, there's a lot of market share up for grabs right now, and we're not going to lose our minds, lose our way. We have very disciplined when it comes to pricing. But we want to make sure that the teams are empowered out in the front line to convert some of these larger, bigger customers that weren't Sherwin-Williams family before. We're going to be [indiscernible] in chasing that business.

Aleksey, I'll add to that. We've always talked about volume as the #1 driver of our operating margin. And so when you look over the long term, getting that wider base of business, getting that share of wallet and new accounts in -- and even when we bring them in, we have ways in our stores wherever the customer is in their journey to help get them up into those premium products and other ways that flows into that price mix as well. But we recognize over the long term, that securing the volume, the right volume that we want is how we get to our midterm and long-term goals.

One piece, Ben just said, and I think it's really important to emphasize. When we bring our contractors in, the confidence we have in trading them up to premium is they are making more money as a result of working with these higher-end better products. And I'll remind you, the total cost, labor comprises 85%, 87% of their total cost. So their willingness to pay a premium to get on and off of job sites faster, have less touch up, less quality issues, especially in an inflationary environment, it plays to our strength.

Our next question is coming from Jeff Zekauskas from JPMorgan.

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

Jeff, if you look at the fourth quarter, we -- last year, we had -- we were up against a really strong comp in residential repaint, we're up a high single digit. And so that had a little bit of impact of what you're seeing here for the third quarter. We remain very confident in [indiscernible]. This is where we get -- we've made a lot of investments. We're -- the biggest opportunity for share gains. We're very confident with that segment with our pricing realization. And so I think we're -- we continue to be very happy with where residue paint is. And obviously, as you look forward into 2026, that's a segment that we're going to continue to count on and invest in.

This is also a segment we have a lot of confidence in because we continue year-over-year to outperform the market. And so I wouldn't characterize it, Jeff, is slowing. I think if you go back into some of our history, last 2 years, there was a surge as we continue to focus on taking that telling more share. That's now in our history and behind us. So you're probably seeing a little bit of that. But in terms of what is out there, the amount of market share to be gained is extraordinary, and we're going to chase it.

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

Wondering if you can help us bridge consumer brands from the fourth quarter performance on the top line, up about 25% with Suvinil in the mid-20s to your expectations for 1Q and for the full year with 1Q up low to mid-teens now and the full year up high single to low doubles recognizing that you have to [indiscernible] in the year. But what does that imply that the existing business is going to do from a volume price mix perspective? And then what is your FX assumption within there as well?

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

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

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

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

Our next question is coming from Josh Spector from UBS.

So I was trying to go through all the macro assumptions you have in that slide, which is very helpful. When I put that all together, it seems to say that maybe you're thinking the market in your Paint Stores Group is down something like 1%, maybe 2% next year. If I look at your Paint Store Group guidance, you're flat, your store addition is typically at a point. So to me, that implies that you're basically saying you do closer to in line with the market versus outperform by a point or 2. I'm just curious if you disagree with any of that framing. Is the market lower? Are you assuming more? And just square that with the comments you've been talking about earlier about focus on gaining volumes and share gains?

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

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

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

Heidi, you mentioned that you'd welcome some policies or proposals to help affordability increase supply. What do you think would be helpful in terms of maybe sparking a recovery in paint demand this year? And then quick follow-up in Protective Marine [indiscernible] like a year. Is that mostly the protective side? And does it do it -- does it go into data centers? And if it does, how big and what's the potential there?

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

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

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

Our next question is coming from Patrick Cunningham from Citi.

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

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

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

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

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

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

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

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

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

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

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

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

You've talked in the past about periodic repaint of houses occurring every 5 to 7 years. A lot of demand was pulled forward into the 2021 time frame. So we should be getting into a period where we should start to see more repaint activity. In your view, Heidi, what is preventing that thesis from playing out? Is it the cost of labor and maybe availability of paint contractors? Is it the cost of the paint itself. When you think about consumer sentiment and just propensity to repaint periodically, what could conflict with that prevailing view of repainting every 5 to 7 years?

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

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

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

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

Heidi, in the prepared remarks, I think you commented with regard to the 7% price increase that you'd expect realization to be in the low single-digit percentage range. I'm not sure if that was a near-term comment or if that's where you would expect to be in the fullness of time. But maybe you can elaborate on what that trajectory does look like over the next few quarters? And what I'm really trying to get at is the nexus between this realization versus your historical realizations against the backdrop of your aggressive pursuit of volume? Will it be lower this time? Or do you think ultimately, it will be the same?

We've said it's going to be in the historic range, maybe at the low end of the historic range, but I would look at this again because of this unique competitive environment that we find ourselves in. When I look at the low single-digit guidance, I would think of that Kevin, as a full year guy, and I'll invite Ben to jump in on any other details.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On the DIY market, could you just frame a bit of what you're seeing in terms of perhaps your performance in terms of volume and what's going on with the price mix in 4Q and the expectation in '26?

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

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

Our next question is coming from Laurence Alexander from Jefferies.

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

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

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

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

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

Yes. Thank you, Matthew, and thank you, everybody, for joining our call. And thanks to all the employees of Sherwin-Williams for all their continued hard work. Clearly, you heard today, we're continuing to operate in a very challenging demand environment, and we expect that to continue well into the year. But as Heidi mentioned, Ben mentioned, we believe the guidance we're giving today. This initial guidance is realistic, given all the economic assumptions that we laid out in our slide deck.

And quite frankly, should the market be better than we're seeing today, we'd expect to outperform that guidance. So regardless of the environment, you can count on us, our strategy is clear, which is providing those differentiated solutions for our customers.

I will close with a save the date request for everybody for our 2026 financial community presentation. It's going to be in Cleveland this year on Thursday, September 24, and it will include the opportunity for you to see our new global headquarters and our new global technology center. So we're excited for all of you to experience this amazing investment that we've made for our customers and our people. The date again is on September 24, and we'll have more details on that later in the year. As always, we'll be available for your follow-ups here, and thanks again for your interest in Sherwin. Have a great day.

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

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

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

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

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

I will now turn the call over to Heidi Petz.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thanks, Vincent.

Your next question is coming from Arun Viswanathan from RBC.

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

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

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

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

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

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

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

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

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

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

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

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

Good morning. Thank you for joining The Sherwin-Williams Company's review of the third quarter 2025 results and our outlook for the full year of 2025. With us on today's call are Heidi Petz, President and CEO; Allen Mistysyn, Chief Financial Officer; Paul Lang, Chief Accounting Officer; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by ACCESS Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately 2 hours after this conference call concludes. .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sales in Coil, Industrial Wood and general industrial all decreased by low single-digit percentages. PCG segment profit and margin decreased due to lower gross margin, primarily from unfavorable product and region sales mix and higher cost support sales. Severance and other restructuring expenses also reduced segment margin by 30 basis points. I would also like to note the continued good work in our administrative function to control costs.

Excluding the corporate portion of restructuring costs and the new building costs, administrative SG&A was down by a low double-digit percentage in the quarter. Before moving on to our outlook, I want to address the topic that some of you have asked about, and that was our very difficult decision to temporarily pause the company matching contributions to our 401(k) benefit plan effective October 1. I want to be very clear, this is not a decision made lightly, nor was it made without deep appreciation for its impact on our people. It was a decision made after implementing a number of cost-saving initiatives, and completing significant restructuring actions, all at a time when we have and continue to face a period of prolonged demand and macroeconomic uncertainty.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Your next question is coming from Jeff Zekauskas from JPMorgan.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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