And long-term growth initiatives within PCG and CBG. So that probably is driving some of it. And it is our smallest quarter. So some of these year-end adjustments have a bigger impact on our fourth quarter than they would on our third quarter.
Aleksey Yefremov: And then quick follow up on your stores. Of course, you have a large competitor who is shifting strategy. But besides that, are there any players who are either slowing investments or outright closing stores kind of in response to you gaining share?
Heidi Petz: So I’ll take that. It’s a great question. I think you’re spot on. And I would say that there is — go back to my comment earlier, great amount of confusion out in the marketplace, and this is an opportunity where our consistent strategy, I think, is on full display. And I have a lot of confidence in Justin Binns and his organization and the depth of leadership that we have there. This team is well prepared to not only execute our strategy, but to adapt to market conditions around us, and I think we’ve got a competitive advantage in doing that. And I suppose if we didn’t own 5,000 stores and 4,000 reps and have strong customer relationships and data that can help our customers be more successful. I think we too might try to stitch together a strategy that helps to get products placed on the shelf.
But this is really an opportunity for us to do what we do well and to demonstrate to our customers, a very consistent experience with Sherwin-Williams. We’re working with them closely to help fight through a lot of the complexity out there and make sure that they’re coming out winning. So I do think where we’re seeing competitors make different choices on store closings or channels, we think, again, this uncertainty is our opportunity.
Operator: Your next question is coming from Garik Shmois from Loop Capital.
Garik Shmois: Within Pro architectural, you called out strength in commercial. I’m just wondering what drove that. It sounds a little contrary to some of the commercial data points that emerged over the course of the quarter. So just curious as to the outperformance there.
Heidi Petz: Well, I think the way to characterize that would be more back to a normal cycle where you’re seeing kind of strong backlog front half. And then it would obviously look to soften a bit in the back half. So I would characterize it more as a normal cycle. But I do think that this is an opportunity. We talk about the strength and position in commercial for us is amongst the highest of our segments. So we’re going to be hard at work focusing on share gains, making the right decisions, making the right investments, and our people and our resources are aligned and ready to help these customers to respond through the duration of these projects. I think, regardless of the demand outlook, we will take share in this environment.
And part of our differentiation is, we are with these contractors at every step of these projects. And so as they’re navigating uncertainty and/or changes that come up in every single project. Our team is right there side by side to make sure that they’re getting those completed on time.
John Morikis: Yes. I think if you look at the commercial piece, that’s where we have the longest visibility and the longest lead time. So we feel pretty comfortable about what we’re seeing in terms of completions into first half of ’24, as Heidi said. I think you might be referencing things like the Architectural Billing Index, which are choppier now. That’s why we’re saying the back half of ’24, we might start to see a little softness, but feel very comfortable again about our ability, if that was to occur, our ability to fill those gaps with perhaps, New Res is starting to come back. We’ll put our foot on the gas with the res repaint, property maintenance, et cetera.
Garik Shmois: Great. That’s helpful. I wanted to follow up on Consumer Brands, just the sequential weakness in margins third quarter versus second quarter? Was it really just the decline in volumes quarter-over-quarter. Is there something else that drove the change in the margins?
Allen Mistysyn: No, Garik, it’s primarily — well, it’s primarily 2 things. The sequential decline in volume. But also as we have talked about — and I mentioned on our working capital, we’re targeting a year and inventory level so that when we come out into 2024, our inventory is in great shape, which means we tweak our production volumes to make sure we stay in line with that targeted inventory levels. So with production gallons being down sequentially a low single-digit number, that does have — is a headwind for us in this segment.
Operator: Your next question is coming from Adam Baumgarten from Zelman.
Adam Baumgarten: Just one for me. Just thinking about Europe, it seems like it was a bit better year-over-year across multiple segments. Just curious if that’s just comps or maybe you’re seeing some kind of bottoming or even improvement in demand on the ground there?
Heidi Petz: Well, I’ll start, and I’m sure Al will jump in here. I’ll go back to — especially on the PCG side, where we’re not trying to be all things to all people I think is a really important point. And we are laser-focused on driving increased operating margins. To your point, proud of the work that the team has done in delivering a 19% margin in Q3. We’ll get some benefit from recent acquisitions. But I’ll point to 4 of our 6 businesses are up against very strong comps last year. And the team is doing all the right things to ensure that we are taking a very disciplined approach to decision making, investments pacing, et cetera, as we’re watching the market closely and making sure that our investments are pacing with the demand in the market.
Allen Mistysyn: Yes. I think 4 of the 6 to your point, had some strong comps. But 4 of the 6 had double-digit sales gains in Europe in Q3. And I think putting a bow on what Heidi just said, we’re doing it the right way. We’re focused on the right segments where we can bring value and that our customers appreciate that value and are willing to pay for it. We’re not in this for practice. And so we’re growing and bringing value to our customers, and we’re open about the fact that while we bring value to them, our shareholders need to be rewarded as well. That’s why we work as hard as we do. So it’s a good performance in Europe, and it’s driving both the sales and bottom line as a result.
