AIlen Mistysyn : Yes, Mike, we have purchased store chains before. The last one I want to say was PPI, which was a part of COMEX, and that was back in 2010. I think as Heidi mentioned, we’re confident in our strategy in opening 80 to 100 stores is like acquiring a small store chain in the U.S. as it is. So we’re happy with that strategy, and we’ll continue executing against that.
Operator: Your next question is coming from Patrick Cunningham from Citi Investment Research.
Patrick Cunningham : There still seems to be quite a bit of choppiness in general industrial and packaging. What are your expectations for volumes for the year? And how much do you expect to outperform from share gains? And then maybe just across Performance Coatings broadly, what are your expectations for pricing for the year, given there might be some indices rolling off, but maybe some targeted price increases as well.
Heidi Petz : Yes. I’ll take the first piece of that relative to the segments and some of the outlook, and then I’ll hand over to Allen on some of the pricing. I think if you look across the board, packaging, auto refinish, industrial wood, coil and P&M. I would say there’s upside to all of that there’s absolutely choppiness. If you look at this a bit more by geography, I would say that that’s true. GI certainly continues to be, as we said last quarter, the most under pressure segment. But if I just start with packaging, we said this in our prepared remarks, while the sales were down in the quarter as we expected. There were some customers, some of our customers out there that were required to make a short-term commitment proud and we’re really proud and excited that our plant in Texas is back up and running.
As Allen mentioned earlier, plant in Europe is now to regain these customers through the use of our non-BPA coating, which is a superior technology allows our customers not only to be faster and more efficient more profitable, but also to be more sustainable as a result of this advanced technology that we have in the market. So there’s a lot of excitement in terms of what we can do to take this technology and a more global basis to support our customers and their sustainability agendas. Automotive refinish, we’ve talked about this our installed continued to be up double-digits in North America. We are taking share. There’s a unique technology and service that we’re offering together. So it’s the package along with our ability to leverage our automotive branches, much like our Paint Stores Group to provide that consistent and reliable service.
So another point of differentiation is something that we’re really proud of. And I don’t think everyone can say that they’re taking share here. We know the customers that we’re winning. We know the competitors we’re taking business from. And we certainly know the volume we’re gaining. So these numbers will clearly evident as the year unfolds. We’ve got a lot more work ahead but we’re winning with small customers. We’re winning with medium-sized customers, and we’re finally winning with large customers here. Just briefly on Coil, mentioned this earlier but North America is holding up a bit better than other regions. We have had some significant new business wins in North America. There’s some positive tailwind as it relates to nearshoring. Mexico is helping to create some demand here.
Industrial wood, another positive story here for us. We believe that the market has bottomed out in all regions to your point demand does continue to be choppy going into the second quarter. Some of the recent acquisitions, Sika and Oskar Nolte, EBITDA dollars and percent continue to be ahead of plan. So we’re seen this is very accretive to the industrial wood program and we’re chasing new accounts pretty aggressively and we expect a lot more as, again, as the year unfolds. And I won’t go into much detail on general industrial that that’s choppy and down in all regions, and we’re continuing to fight hard to make sure that we best position ourselves as we recover there.
Allen Mistysyn : Yes, Patrick, on the volumes with our second quarter guidance to be upper down low-single-digits. That would tell you our first half volumes will be down low-single-digits. Full year guidance is flat to up low-single-digits. There was no change to that which tells you that our volume in the second half has to be up — flat to up low-single-digits.
Operator: Your next question is coming from Aleksey Yefremov from KeyBanc Capital Markets.
Aleksey Yefremov : You mentioned momentum in homebuilding as homebuilding customers and new residential. To what extent have you sensed any the change among this set of customers was latest volatility in rates. Has the optimism basically maintained the same level or has it moderated perhaps?
James Jaye : Yes, I’ll take that, Aleksey. I think the sentiment among our homebuilder customers continues to be very positive. Matter of fact, I was in Texas traveling with our national accounts team earlier in the quarter and spoke to several of our customers down there. And they remain optimistic about where things are heading. The rate environment, we’ll see how that plays out. It seems to change month-to-month of what’s going to happen there. But I think Al started to hit some of the demographics that are there driving people to need a place to live are intact. And I think also what you’re seeing a little bit is people may be adjusting some of their expectations around what type of a home they might be able to afford or buy and the homebuilders are working to drive affordability and we’re part of that as well.
Operator: Your next question is coming from Ghansham Panjabi from Baird.
Ghansham Panjabi : Heidi just follow-up on the last question. You gave us a fair amount of color on how Sherwin is positioned based on your various internal initiatives, but has your outlook for any of the various PSG verticals changed in any meaningful way versus your initial view coming into the year? And then just a second question, maybe for Al in terms of free cash flow allocation in context of a fair amount of debt coming due between this year and next year and how are you kind of balancing buybacks versus debt pay down?
Heidi Petz : No, I don’t think anything has materially changed. Again, as you look segment by segment, I’d point to Protective & Marine was a segment certainly that we see upside. And I think I’ll use them as an example because there continues to be demand strength in all markets. Some of the projects have been delayed, so there’s been some timing issues here. But think when you look at the visibility that we’re gaining relative to some of these mega projects, we’re launching some pretty significant new technology into the market this year in fire and flooring and protective coatings, which is an indicator not just of our incremental investment, but I think some good upside. Having said that, I want to go back to where I started which is there’s nothing that’s materially different from where we came in last quarter. But again, as rates fluctuate as some of these jobs pick back up, then we’ll be back out in July if there’s any more upside than what we’re at today.
Allen Mistysyn : Yes, Ghansham, I would say that I feel very good about our strong net operating cash flow generation for the year. You saw us return a big increase in shareholder cash and dividends and buybacks in our first quarter. I think when you look at our debt, I do expect our total debt to remain flat in 2024, and we’ll refinance to your point the $1.1 billion of debt maturing, albeit they’ll be at higher rates, likely will take out short-term debt and then mature it out as we see fit. But just to reiterate, I mean, we’re going to stick to our capital allocation philosophy. We’ve been very disciplined about that. We invest in CapEx. We paid the dividend, which was a nice increase of over 18% our first quarter. We expect that to continue. And then absent acquisitions, we’re going to buy our stock back. And I do expect to be in that 2 to 2.5 debt-to-EBITDA target range by end of the year.
Operator: Your next question is coming from Michael Leithead from Barclays.
Michael Leithead : On SG&A, I think first quarter was up about 6% year-on-year. Is that roughly in line with the rate of wage inflation you’re incurring? Or how should we think about wage inflation relative to other growth investment drivers in that year-over-year increase?
Allen Mistysyn : Yes, Mike, I think about it this way. The wage inflation is for 2024 is more typical to prior years. So think about a low-single-digit impact. I think what you’re seeing in our first quarter, the start of the annualization of the accelerated long-term growth investments we made in the second half of last year. As you recall, on our year-end call, I said I thought SG&A would be up a mid-single-digit percentage for the full year with the first half being above that range because we’re annualizing the investments that we made in the second half and then that will level out in the second half of this year.
Operator: Your next question is coming from Adam Baumgarten from Zelman.
Adam Baumgarten : I just say I don’t know if you mentioned this, but could you give us an update on how the Pros Who Paint business did in the quarter? I know you mentioned DIY was soft, but maybe some color on Pros Who Paint.
Heidi Petz : Yes. I think certainly, there’s bit of a challenged quarter, I would say, is maybe the best way to characterize Pro Who Paints in the first quarter, which was below our expectations. But we have a lot of confidence in our investments and I would also say a lot of confidence in our strong alignment with our retail partners. I don’t know that the alignment has never been in a better place, gives us a lot of confidence that we are going to continue to grow share in this space for the balance of the year. But no doubt, we’ve got some work to do here.
Operator: Your next question is coming from Duffy Fischer from Goldman Sachs.
Duffy Fischer: Can we drill down our margins in PSG I would assume you got a little price, raw material was a meaningful benefit. So I have a hard time attributing to decline from those increases to the negative margin wholly to your growth investments. So were there other things besides the growth investments that were negative in that segment, maybe the transfer from segment to segment on the paint, which was basically the benefit you saw in consumer? Or anything else that’s pulling down the margin other than the growth investments?
Allen Mistysyn : Yes, Duffy, it’s primarily volume. As we have talked about in the past, volume is the single biggest driver of operating margin leverage in, I’d say, all of our segments, but for sure, in our Paint Stores Group. So that’s going to be the majority of it. And then yes, we also have an impact from the investments we made but we do expect to continue to get a return for those investments as the year progresses.
Operator: Your next question is coming from Michael Sison from Wells Fargo.
Michael Sison : I guess sort of a follow-up on that is as you get into 2Q, 3Q, 4Q for PSG, do you expect segment profit to turn positive? And for the full year, will segment profit growth?
Allen Mistysyn : Yes, on all of that.
Operator: Your next question is coming from Kevin McCarthy from Vertical Research Partners.
Kevin McCarthy : Maybe a two-part question, if I may, on Paint Stores Group. First, with a few more months in the rearview mirror, would you comment on where you think U.S. architectural industry gallonage came in for 2023 and where you think it might track for this year? And then the second part would be to do with Protective & Marine coatings. Crafting your segment guidance for PSG, do you think Protective & Marine is likely to grow faster than your paint stores sales or slower or on par? How would you characterize that given the commentary around timing and slower start and so forth?
Heidi Petz : Yes. I’ll start with the P&M piece, and then I’ll hand it over to Al. We look at some of the gallons year-over-year. I think you said it in your question, it is timing. And I think with some of these project delays we don’t believe in any regard that they have gone away, it’s simply timing. And as I mentioned earlier, what gives us confidence is our increased visibility into some of this project work. So again, the team is working hard to make sure that with some of these launches, we are best positioned in the industry. So when the timing does recover, we’re at the front of that line. And then I’ll hand it over to Al to talk about your question relative to.
Allen Mistysyn : Yes. Kevin, I think the P&M, we do expect to grow faster than architectural just because as we talked about new res, we expect it to be softer in the first half and stronger in the second half. We commented that commercial. We had a better line of sight to the first half being strong and then likely softening, I think that maybe has changed a little bit with the first quarter project delays that we’re experiencing. So some of that will probably find its way into our third quarter this year. So — but we have a lot of confidence in P&M and the strength in that. I think that when you talk about industry volume, I think 2023 is likely down maybe low-single. And I think ‘24, we talked about because the new res was down so much. But I think in ‘24, with bettering coming into the year, we talked about it probably being flattish.
Operator: Your next question is coming from John Roberts from Mizuho.
John Roberts: Is the delayed property maintenance activity delayed into the June quarter, so that’s in your guidance for the June quarter? Or are there more significant delays going on because of the mortgage issues with some apartment buildings and commercial properties?
Allen Mistysyn : Yes. I think from project delay relative to what we saw from weather in the first quarter, we’ll see those pick up in the second quarter and into the third quarter. As far as CapEx projects, we talked about this on our first quarter call. As rates moderate, we do expect to start seeing CapEx projects improve both rates and lending gets easier at lending standards ease up a little bit. John, we don’t have material growth impact in our forecast for property maintenance CapEx growing a significant amount in our second half. So turns are going to continue to improve. And then as CapEx returns will benefit with that as a slight tailwind.
Operator: Your next question is coming from Garik Shmois from Loop Capital.
Garik Shmois : You mentioned there was some impact in Consumer Brands in the quarter due to limited inventory build. Is there any way to size if that was material to the quarter or would you expect any restocking in 2Q and maybe speak broadly to any opportunities for restocking across your network?
