Allen Mistysyn : Sure, Mike. Let me start and then I’ll let Heidi jump in. We do expect continued strength in Auto Refinish and positive sales in General Industrial in the second quarter, may be a little bit slower than what we saw in our first quarter. We expect the continued softness in Industrial Wood. And then we expect Coil and Packaging to be down low single digit, primarily due to the strong double-digit comps in the second quarter. I think if you look at it by region, North America, our largest region, is expected be up or down low single digits compared to a high single-digit first quarter, both against strong double-digit comps, and we’re not expecting a ton of improvement in Europe or Asia Pacific and even Latin America will moderate a little bit.
Heidi Petz : Yes. And I would just hit a few highlights here on the segments. I think, obviously, a lot of this is based on our strategy of differentiation. I’ll hit on some of the regions. So just a couple of highlights. If you look at where we’ve said based on being recession resilient, Automotive Refinish is a great example where we were up mid-teen percent. We do see strong demand in most regions, and I would also comment on the really good price realization for the value that we’re able to create and demonstrate for our customers. We’ve been a number of calls here in the last few quarters, we’ve been talking more about our installations, and we’re now seeing the momentum really building here. We would expect to continue to build up momentum and think you could expect to see us taking some meaningful share here.
A few challenges. We’re still working through. You’ll probably hear a consistent theme across Performance Coatings Group and some of these segments where we’ve largely recovered our raw material challenges, but it is now a race to convert to finished goods as soon as possible. So you can imagine the Automotive Refinish space that is absolutely a priority and also working closely with our customers where labor does continue to be a challenge for these customers. The shop technicians, parts shortages are impacting some of these customers that are working through backlogs rather the Automotive Refinish. I’d highlight quickly here, too, Mike, is the Protective and Marine where as you know, we’re servicing this segment through our Paint Stores in North America and very strong double-digit sales in the quarter and still a strong — aggressively strong outlook, I would say, through 2023.
Demand is strong in North America and Latin America through most of the segments in protective & marine. Europe, Asia, we’ve talked about these, certainly seeing some pressure there, which is leading to some project delays. And as I mentioned, we’re on the path here making sure that we’re taking every ounce of the resin as it continues to improve to raise the conversion here. So we’d expect to see growth and incremental share gains there as well. I’ll comment just briefly on General Industrial. You mentioned that think this, I would categorize as more of a mixed bag across the segments and the regions. However, globally, heavy equipment remains our strongest. And then you’ve got some areas that are showing early signs of slowing. Appliances will be a good example of that, just adjusting to inventory levels.
So we’re going to continue to ramp up production there. Briefly on Coil and I’ll hit Industrial Wood and certainly come back to any additional comments. Coil, North America is remaining strong with very consistent demand. Our metal buildings business is performing better than expected and seeing some softness in areas like the aluminum trim business. Latin America continues to be very strong with good performance that is built on new business and new accounts. The teams been laser focused there, but we’re still seeing pressure across EMEA and Asia in Coil. And I’ll briefly hit on Industrial Wood. We’ve talked about this segment where we feel the most pressure. And I would say within the actual segment, the most pressure as it is coming from furniture.
The other segments like kitchen cabinets and flooring, we mentioned in our prepared remarks that are tied to new residential continue to be a challenge. So we’re seeing the continued pressure there. But importantly, what the leadership team there is working on is expanding aggressively through market share gains, while our competition, in some cases, it’s reacting to the market softness differently. So we’re working on getting these gains with a focus on introducing new technology. And I’ll give you a quick example here. The example in our furniture category, this technology is going to allow our customers greater service, quicker turnaround and ultimately, smaller batches, which brings benefit to the customer with less working capital, less waste and less obsolescence.
So I’m bringing this to you just as another example of beyond what’s in the can, how we partner with our customers to bring them solutions that are meaningful to their business goals. So quick overall around those segments, but just a little bit of color.
Operator: Your next question is coming from Truman Patterson at Wolfe Research.
Truman Patterson : Just following up on one of Greg’s questions just for a little clarity. Pricing trends during the quarter in each of the segments, were you actually able to realize or capture incremental pricing in each of the three segments? Or was it really just kind of carryover from what was already in place in the fourth quarter?
Allen Mistysyn : Well, Truman, for Paint Stores Group, it’s mostly carryover for consumer. There’s pockets where maybe we didn’t have product that now we’re able to better service the customer with improving alkyd resin situation. But in Performance Coatings group, for sure, there was some incremental pricing across specific businesses and specific regions that John even talked about where maybe we haven’t been as effective as we needed to be in the past or there’s other inputs that are causing our cost to go up. I use energy in Europe as one example where we’ve had to be out to offset some of those higher costs. So maybe some incremental, the mass majority of it, though, is the carryover pricing from 2022.
Truman Patterson : Perfect. And then in Performance Coatings, op margin was up like 400 bps year-over-year to 15.7%. That’s highest first quarter in like 8 years, even though volumes were down like low teens. Normally, you see a sequential ramp in those margins in 2Q and 3Q. Were there any onetime items in the first quarter that we shouldn’t think margins will follow normal seasonality in 2Q or 3Q? Or is that kind of a good cadence to think about?
Allen Mistysyn : Yes, I would say it’s probably a good cadence. There wasn’t anything onetime that jumps out, Truman, as you can imagine, across a global business, there’s puts and takes every quarter. But nothing that drove the over increase in our gross — in our operating margin.
John Morikis : Truman, I’d give a lot of credit to our leader there, Karl Jorgenrud and his lieutenants that are out driving every day. To your point, we see the sequential improvement. There’s a lot of hard work. The identification of the right customers, the right segments, the right technologies and really demonstrating the ability to help our customers to improve their profitability. And we’ve said for a long time that we expect this to be in the high teens, low 20s. And Karl was in the room right now. I look him in the eye and tell them I’m expecting them to get there very quickly. So — and he would probably respond that he’s going to. So we’ve got a lot of confidence in that team, a lot of expectations, high expectations, and we are going to deliver.
Allen Mistysyn : Truman, the other — the only other thing I would add to that is acquisitions were slightly dilutive in the quarter as we continue to integrate those acquisitions realized synergies as the year goes on, my expectation that, that will improve as the year progresses and help drive better operating margin in this segment.
Operator: Your next question is coming from David Begleiter at Deutsche Bank.
David Begleiter : John, just on Q2, historically, you see about, say, $0.75 increase sequentially from Q1. Would you expect a similar increase this year or perhaps a little bit less, given the demand weakness that you’ve been talking about here?
Allen Mistysyn : Yes, David, we’re not going to give guidance on our second quarter EPS. I understand the question. What I think you can expect to see in our second quarter is, gross margin, we expect sequential and year-over-year improvement We talked about the price increases and a sequential carrying over and a sequential improvement in raw material costs will have a positive impact, partially offset by higher wages within manufacturing and distribution. I would say with SG&A, I do expect a smaller year-over-year increase in our second quarter as we annualize that merit increase from last year and we start realizing more of the cost reductions from restructuring activity. So we typically see an increase in SG&A, as I talked about, with Paint Stores ramping up to service the increased sales.
But as a percent of sales, I would expect our SG&A as a percent to be lower in our second quarter because of that seasonally higher architectural sales. So you do expect a lift in our second quarter because of the improvement in Paint Stores Group quarter-to-quarter architectural sales, but we’re not going to
John Morikis : We expect to have a good second quarter, and we’re going to update you at the end of the quarter. But what we see right now, we expect a good quarter.
David Begleiter : Understood. And John, just on the Paint Stores Group, are you giving — are you seeing any price erosion or givebacks in that business?
John Morikis : No. Actually, David, normally, what we see is a small percentage, large, perhaps what we might call, marquee jobs that get a lot of attention, and we’re all proud and some of us have egos. We met that that we want to see our pain on specific projects. But for the most part, what you see is a pretty disciplined industry because we all understand that it is competitive and the ability to continue to keep your company healthy and invest in those drivers that will help your customers to be successful requires that health. And so it’s competitive for sure. But for the most part, it’s race to demonstrate the value that you can bring. And we believe that in that race Sherwin-Williams wins.
Operator: Your next question for today is coming from Josh Spector at UBS.
Joshua Spector : I wanted to follow up on the Pro contractor side of things. I think last call, John, you made some comments that to some of your customers, you need to almost educate them about the fact that there are going to be market declines, and they weren’t really seeing declining in backlogs or anything to that extent. Has that changed? Is that conversation changed? And from what you guys have visibility on the backlogs now, has that changed much versus a few months ago?
