Christopher Parkinson : Understood. And just as a quick follow-up on the raw material basket, just to keep this simple, you’ve got a few things that are sticky, but broadly, it seems like we’re moving in the right direction. Can you just hit on the two most pleasant surprises in terms of the basket and perhaps the two most frustrating substrates as we are if you’re saying here today?
James Jaye : Yes, Chris, I would say that raw materials are really trending as we expected. And not sure that I’d say there’s a lot of surprises there. They were down slightly in the first quarter. The moderation was led by monomers, solvents and resins. To your point, TiO2 and pigments may be a little stickier near term, but we expect to see some moderation there as the year goes on. I would remind everyone, as a reminder, our cost of goods also includes higher inflation in wages and other employee-related costs. For the second quarter, we’re expecting to see some further moderation as we move towards our guide for the full year, which, as we said in our opening, is unchanged. Raws down low to mid-single digits.
Operator: Your next question is coming from Mike Harrison at Seaport Research Partners.
Michael Harrison : Was hoping that you could talk a little bit about the additional architectural capacity that you brought on probably a little over a year ago? As you look at these housing challenges that seem to be ahead, is that additional capacity is something that we should think about as weighing on utilization or fixed cost absorption as we’re going forward? And I guess in hindsight, should you maybe have pulled back or wait a little bit longer to expand some of that capacity?
John Morikis : Absolutely not. We expect and are filling that capacity, Mike. And when you believe like we do and what’s happening in the market and where we’re going, if you were sitting in my chair, you would have invested exactly as we did. I would not have pulled back one penny of it.
Allen Mistysyn : Yes. Mike, I’d just add to that. As you remember on the January call, I talked about a potential headwind with just lower architectural volume because everybody in the industry had to build architectural inventory back up. So that’s short term. Long term, we have a lot of confidence in the growth across each of the segments, Architectural Pro segments that John talked about, and we’ll fill up that capacity very quickly. So even though it might be a short-term headwind, as we’ve lived through some of these cycles before, the bounce back and the strong growth, I’ll go back to 2008 and ’09, and we grew high single digit for the 3-, 5- and 10-year compounded average growth rate, and we’re a much bigger architectural business today than we were back then, we’ll fill that capacity. So — and I would argue or add to that, we’re going forward on Statesville because of the confidence we have in the future outlook and the growth in architectural.
Michael Harrison : All right. Great. And then on the Performance Coatings business, it was a little bit surprising to me that Asia was the weakest region for you. Can you comment on how you expect demand to play out in the rest of the year across the different regions? And I guess with particular emphasis on, are you going to be seeing some recovery in China and in that Asia business?
John Morikis : Well, Mike, we’re positioned well to do just that. It’s yet to be seen as the market or the the market tries to kind of resume back to some normalcy in Asia. We’re positioned very well. Our technology, our assets, our people, I think a lot of that has to do with what happens in the market and our expectations as in any situation is to grow faster than the market. I think we’re in a very good position from a technology, but also a relationship perspective. So yes, I’d say that there is some uncertainty with the market in general as it opens up, and our customers are back producing product, we expect to capitalize more than our share there.
Operator: Your next question for today is coming from John McNulty of BMO Capital Markets.
John McNulty : Can you — it sounded like in the Consumer Brand side, business was maybe a little bit better than you expected. Can you speak to the stocking patterns that are going on there? Are we seeing kind of a normal stock? It seems like the expectation was it was going to be a little bit below normal, but again, you’re kind of coming in better than you thought. So maybe a little bit of color there would be helpful.
Allen Mistysyn : Yes, John, I would say that you’re absolutely right. We have obviously saw a better performance in North America and in Europe. And if you remember on our January call, I said we had not seen the destocking in our fourth quarter that maybe some had seen. So we anticipate it may be a slower build in inventory at the retail channel. We actually saw a slight increase in the retail channel inventory. And I think — thinking back, if I look at across the chain from the retail channel back through our DSCs, we’re back to more I would call, historic levels of inventory. So we’re well positioned to service the spring and summer selling season that’s coming up. And I’d just highlight also, Latin America was a mid-single-digit tailwind in the quarter. Latin America had a very strong double-digit quarter and that helped when you brought them into the Consumer Brands Group.
John McNulty : Got it. Okay. Okay. And then when you — I know you guys don’t tend to do much around the weather or blame a lot or take much credit for things on the weather front. But was a much wetter start to the season, particularly in regions where you can’t paint in the first quarter out West and what have you and it looks like the Midwest also maybe started a little bit more slowly. Do you have pent-up demand? Is that why maybe some of the — it looks like some of the data that we’ve at least been seeing from the contractors is maybe a little better than expected? I guess, how would you characterize that?
John Morikis : I’d characterize it as we don’t like to talk about weather, you’re right. I think there are areas that are going to be under pressure with whether, John, and there are going to be other areas that are a little better in weather and does it have some impact in some of those areas, sure. But short of significant impact on our businesses, we try to stay away from that. Our expectations from our team includes the opportunity to go out and grow business. And so appreciate the question, but we’re not going to follow the weather as a means for what’s driving our results right now. We’re proud of what we’ve accomplished. We’re determined to accomplish more, and we’re not going to let weather stand in our way.
Operator: Your next question is coming from Ghansham Panjabi at Baird.
Ghansham Panjabi : John, you’ve given us parameters as to how to think about new residential for 2023, which was a reiteration of your previous view three months ago. Has your view changed on Commercial for the year in context of the credit issues that the U.S. banking system and also Europe went through starting in March? Or is it still pretty consistent with before?
John Morikis : Ghansham, I’d say this year, we see a pretty solid year. These buildings are reaching the painting stage now. They started 12 to 18 months ago. So we’ll have to see if there is, in fact, an impact on Construction and Commercial 12 to 18 months from now. But the long line of sight that we have in this space, we are growing share, and there’s a lot of projects coming on, which we expect to paint.
Ghansham Panjabi : Got you. And then in terms of packaging, I know very tough comps for the first quarter, but how are you thinking about the rest of the year for that specific business?
John Morikis : That’s an interesting one because I think when you look at Packaging, we never accept from any of our businesses softness. But this is a very unique situation with our Packaging business on top of the 30% comps. This team is continuing to expand the commercialization of what we consider a very unique technology. So we continue to see the lines that our product is on. They grow. They’re growing. We’re growing share. What’s happened right now is there’s a level of destocking that’s taking place within many brands impacting our customers as they work through high inventory levels. It’s not often that I’m accepting to a team that’s brought in softness. But in this case, given the line of sight that we have and the share that we’re gaining and the incremental production lines that were going on every day, we’re giving them a break.
So I think the first quarter was a little tough. We’ll probably have a little choppiness here in the second quarter. And as the year progresses, our expectations will resume for this team to continue to grow or to be able to demonstrate the share that they’re growing. It’s a short-term issue for this team. We’ve got a lot of confidence in the technology, the team and what we’re doing. We’ll be fine here.
Operator: Your next question is coming from Mike Sison at Wells Fargo.
Michael Sison : Nice start to the year. John, I know you mentioned that you need to see how trends for 2Q on the folds to have a better idea for the second half. So just curious if unfold as you expect today, and I think it means — I think your outlook suggests that PSG volumes are going to flatten out versus a pretty strong first quarter. What does that mean for your second half outlook? And if 2Q comes in better or worse, what does that sort of mean?
Allen Mistysyn : Yes, Mike, I would say, as John talked about, I mean, our first quarter is the smallest quarter. We expected a strong quarter. We delivered on that. We’re closely monitoring the demand trends and expect, as you mentioned, and we said it on our year-end call that new residential demand would start slowing in our mid-second quarter. We’ve experienced a lot of market uncertainty before. I just look at the last three years, I think it’s better to get a better view of demand after our seasonally higher second quarter. This gives us the best opportunity and more certainty for our second half. And we’ll continue to manage our SG&A, particularly G&A tightly, continued investments in other discretionary items will be managed with the demand outlook.
I think we believe these long-term growth investments allow us to grow market share in any environment and especially as we come out of this slower macro environment. But that is how we’re going to manage the company going forward. I mean, we believe our second half outlook is realistic. But we also believe we’ll outperform the market. And if the market demand is better than our expectations, we’ll perform better than what we currently have here. And we’ll all those variables together and give you our best outlook after the second quarter for the year.
