Arun Viswanathan : Okay. And as a follow-up, I wanted to ask about the EPS outlook here a little bit. So prior to your last earnings report, I think several of us rightly or wrongly were in the $9.50 to $10 range for ’23. Yourselves and us have rebased our expectations to $8.35 or so at the midpoint. So does that $1.50 or so that we had to remove from our outlook, what would it take for that to come back in ’24? Is it mainly lower — a better affordability environment driving higher housing turnover? I know there are several things that you can probably mention, John. But similar — maybe a couple of the top drivers that we get you back into that near $10 range on EPS?
Allen Mistysyn : Yes, Arun, the first and always the biggest is volume growth. I mean there’s been a lot of macro headwinds. There’s a lot of uncertainty and some of the mortgage rates are higher. Existing home turnover is lower. New family — single-family starts are lower. As we keep investing in new stores, in new reps and some of the other long-term growth opportunities, reps across each of the businesses as the market improves because of the added investments we’ve put in over time, we expect to grow much faster than that market. So instead of a headwind with the macro environment becomes a tailwind, and then we grow. I keep going back to ’08 and ’09 because I believe it’s a similar environment and the similar dynamics. So we expect to grow not 1x to 2x the market, but 2x to 2.5x to 3x the market. And that’s how we’re going to drive that operating margin back to where we expect it to be.
John Morikis : Yes, it’s capitalizing. I mean mentioned in the last response, that in every one of these segments, I agree, volume is the key and growing share is important. And even we talk a lot about new residential, and we point to single-family frequently when we’re having that discussion. But the fact that multifamily starts have been more robust since last summer. It’s a terrific opportunity. And our ability to shift resources and attention to those opportunities is what differentiates us and why we believe that we’ll get there. And the opportunity to really see that expansion we’re not just waiting for the market to come back. We’re working every day to take that volume and be in a better position to capitalize on it once the markets improve.
Arun Viswanathan : And just one last quick one. I know you guys have moved the FCP to August. Was that mainly just you had a little bit more visibility into the year? Or I guess, usually, it’s some in May or June. So just if there was anything to that, I just wanted to understand that move.
John Morikis : We wanted to bring you to Cleveland in August. It’s a beautiful time to be here. It’s…
Arun Viswanathan : Great.
John Morikis : Yes. I mean to bring you in and be able to talk a little bit more about our line of sight in August is going to be much better. And quite frankly, we’re proud to put our teams in front of you, and we think we’re going to have a lot of really good things to talk about. So we’re looking forward to hosting you.
Operator: Your next question for today is coming from John Roberts at Credit Suisse.
John Roberts : Your Auto Refinish business has been consistently strong for a long time right now. During the pandemic, I thought it was Dupli-Color, but now we’re out of the pandemic and it’s still strong. Is it controlled distribution? Is it new products? What’s driving that above-market performance?
John Morikis : Yes. It’s controlled distribution. It’s technology. We talked about the combination of the technology system between some technology combining Sherwin and Valspar technology. We have wonderful leadership. We have great products, great distribution that’s controlled. And we’ve been talking, to your point, John, about our position here for some time and expected it to grow. And we think the numbers are proving exactly what we said was going to happen is, in fact, happening.
John Roberts : Okay. And then you’ve got over 300 stores in Latin America. Now that they’re in the Consumer segment, do you run them differently? Are you going to be repositioning those stores?
John Morikis : No. All along, we’ve been sharing talent as well as best practices amongst the Consumer brands and our Paint Stores Group. There is a realization that more and more of that business represents or mirrors business that might most likely be found in our Consumer Brands Group. We’ve got talent in our Consumer Brands Group. Todd Rea and the team has really done a wonderful job, and we think bringing their expertise to that market where we can leverage their experiences will be terrific. And quite frankly, it will work both ways. We have terrific leaders in Latin America as well, and we expect to learn from what it is that they do down there and bring some of that back to North America. So it’s a win-win for both businesses and certainly for customers on both sides.
Operator: Your next question for today is coming from Kevin McCarthy at Vertical Research Partners.
Kevin McCarthy : With regard to your Performance Coatings Group, is it your sense that customer destocking is done as we sit here in April? Or is it still playing out among certain businesses within the segment?
John Morikis : I would say it’s likely played out, although I would say there might be some differences in region by region, Kevin. But if you look at what’s happening in Europe as an example, there’s a lot of concern in the market. So we might have some customers that might still be in unique position. But for the most part, particularly here in North America, I don’t think there’s a great deal of inventory in the segments that we play in.
Kevin McCarthy : Good to hear. And then secondly, if I may, what percentage of your Performance Coatings Group sales are linked to contracts that would feature some sort of indexed pricing mechanism as it relates to raw materials?
John Morikis : A very small percentage.
Kevin McCarthy : Okay. So when you say in your prepared remarks, John, that you hang on to the majority of your price increases, it sounds like that would be a vast majority indeed, if index pricing is quite small.
John Morikis : That’s correct.
Operator: Your next question is coming from Duffy Fischer at Goldman Sachs.
Duffy Fischer : Just first question on structural raw materials. A year ago, you guys were shorted and couldn’t supply your customers what you wanted. Obviously, now things are slacked in the system. We’re seeing prices roll over. If we get back to a normal demand level, let’s say, next year, are raw materials structurally short again? Or have you guys taken steps and what steps have you taken to increase the availability of raw materials if we get back to a normal demand level?
James Jaye : Duffy, I would say they will not be structurally short. The availability has recovered very nicely for us. We’ve taken a number of steps over the past couple of years in response to what we’ve seen. One of those was certainly our purchase of specialty polymers, which has increased our internal resin production. We work closely with many of our suppliers. We’ve simplified the portfolio as well. So there are maybe not as many raw materials that we would have to procure as we would have in the past. I don’t know…
John Morikis : I’d say from an assurance of supply, it’s very important to understand, Duffy, we’re not trying to return to a supply chain of the past. Our goal has been to improve our position and our ability to supply our customers, and we’ve taken appropriate steps. For competitive reasons, we’re not going to lay out what those steps are, but Heidi and her team — Heidi is leaning on the edge of receipt, wanting to answer this question. We’re not going to get into those details right here right now. I would tell you that we have been very forward-thinking in how we’re going to work through future issues, and we learned a lot during this process. And I’d say we’re coming out better and smarter as a result.
Duffy Fischer : Fair. And then a decade ago, the Glidden brand bumped you guys out of Walmart once before. And I think if my notes are right, it was like a $250 million opportunity back then. This time, does it move the needle? It’s no longer Dutch Boy, but it’s Valspar, but does it move the needle for you guys or that’s kind of a non-event in what we’ll see in your printed numbers?
Heidi Petz : Yes. We don’t think this will really have any impact to be really candid with you. And I think if you look at the business in general, Walmart is still a very important customer to us. We sell them a lot of our key brands such as Minwax, Thompson’s, Krylon. And while we have, to your point, enjoyed the private label in the past, I think this is an exciting opportunity for us as we move forward because we’re going to continue to service the existing brands that we have, and we will look forward to an opportunity in the future. If there comes to be something where we can both create value on both sides or both companies will absolutely be interested in looking at that.
Operator: Your next question for today is coming from Adam Baumgarten at Zelman & Associates.
Adam Baumgarten : Just one for me. Are there any other businesses at this point in the portfolio that are under strategic review? Or are you kind of through that process?
John Morikis : Adam, we look at every business, every brand, every program, everything constantly. We have that discipline.
Operator: Your next question is coming from Chuck Cerankosky at Northcoast Research.
Charles Cerankosky : When you look at the Paint Stores Group, DIY was up double digits in the quarter. And I think you touched on some of that. But in the Consumer Group in North America, DIY was soft. Was there more to talk about there than just short supplies a year ago at Paint Stores?
