Operator: Your next question is coming from Steve Byrne from Bank of America.
Stephen Byrne: What fraction of your resi repaint volumes would you say the Sherwin-Williams paint was selected by the contractor versus selected by the homeowner. And clearly, you’ve highlighted a multipronged approach going after that contractor for loyalty. What would you say you can, perhaps do more of to drive loyalty with the homeowner selecting Sherwin that could help you also drive share gains.
John Morikis: Yes, Steve, we focus on the residential repaint contractor as the applicator. And that’s a very big influencer in the decision tree. Other decision influencers would include color specification, which we’ve been working very hard at and the homeowner. But typically, what we see is that the homeowner turns to the professional contractor as the expert. And while in some markets with some homeowners, they don’t have a specific brand in mind. But the hard work that our teams do on a daily basis in building relationships with that residential repaint contractor is the largest driver. And it’s exactly why we believe we’ll continue to grow share at an outpaced rate going forward. I’ll finish with this, that we’ve had terrific success with the residential repaint contractor.
We’ve had 7 years of double-digit growth. We’re just getting started here. And there’s a long opportunity and a big opportunity, and that’s why we believe investing in Sherwin-Williams is the right approach.
Stephen Byrne: And how would you rank the resi repaint end market in Paint Stores as an opportunity to share — to gain share as compared to new commercial property managements and new home construction. How would you rank those in terms of potential share gains?
John Morikis: We don’t. They’re all opportunities for us, Steve. And the teams that are focused on residential repaint has the greatest opportunity. Then when they get to the property management, they have the greatest opportunity. Then you will get to the commercial, they have. We need to deliver on each of those segments as that’s how we feed our families. Each one of them offer terrific opportunities. So when you look at share gains, we’ve talked openly about residential repaint offering the greatest amount of share opportunity and our position in these other segments are a little bit stronger, but there’s terrific opportunities there. But our approach, I want to be very clear. If we were boxers, and we’re in the center of the ring, we’re not looking for — to get to the end of the bout and stand up waiting for our hands to be raised.
We want a decisive knockout as it relates to these segments. And so we’re pursuing aggressively each one of these. So I’m not going to parse out which offers great opportunities they all do, and we’re very determined to get after them.
Operator: Your next question is coming from Eric Bosshard from Cleveland Research.
Eric Bosshard: In terms of the investments in ’23 to grow share, I’m curious what the current thinking is about ’24. And I guess, specifically, I’m trying to figure out do you sustain incremental investments, or does SG&A growth go back to normal trend or perhaps below normal trend? How do you think about that?
Allen Mistysyn: Yes, Eric, here’s how I would think. Here’s how we think about it. And as you know, we manage operating margin, not specific to SG&A. And as this year showed, our volumes held up better than what we had planned coming into the year. Our gross margin performance and gross margin expansion was a little bit better than what we had coming into this year. So it allowed us the opportunity to lean in and put more investments in than we normally would. We are certainly going to have growth in investments next year. I would say, back to a more normal level. And then as we see the year unfold with volumes and gross margin and what we see happening going into 2025, that will dictate how much more investments we put into each of those segments.
Heidi Petz: Eric, I would add to that. I think going hand in hand, you asked a question about SG&A, and we talk a lot about managing operating margin. I think just talking about how we’re thinking about a different approach to working capital is an important element here. That’s a very intentional focus on end-to-end supply chain, but also a broad simplification effort that goes across every business unit to make sure we’re as tight as possible. And we talk about our value proposition goes far beyond what’s in the can, and we’re looking at this through the lens of our customers. And our value proposition can’t include idle assets or excessive working capital, and our customers are simply aren’t willing to pay for that. So I think it’s obviously always going to be room for improvement here, but as we’re looking to manage that closely. Allen and I, are locked — relative to SG&A and working capital to drive those operating margins.
Eric Bosshard: Helpful. And then, Al, if I could follow up. In terms of managing the operating margin, is it fair to say as you solve for ’24, you’re managing these different levers for some degree of operating margin expansion. Again, I’m not asking you to comment on ’24. I’m just curious how that thinking can play out.
Allen Mistysyn: Absolutely, Eric. I think just color around 2024. I mean we believe the macro environment is still going to be difficult. We’re going to see choppy performance on different parts of our business, different segments, different regions, but we absolutely believe that we’re going to drive operating margin growth through that whatever environment that we see unfold in 2024.
John Morikis: We’ll outperform the market.
Allen Mistysyn: That’s right.
Operator: Your next question is coming from Michael Sison from Wells Fargo.
Unidentified Analyst: This is Abigail on for Mike. I just wanted to press further into the raw material basket. Can you speak to which materials you’ve seen the most deflation in and where pricing might be holding up more?
John Morikis: Yes, Abigail, Happy to do that. So as we said, the third quarter was likely the biggest benefit for us from a year-over-year perspective. I would say, as we’ve commented, the petrochemical side of the basket is where we’ve seen some relief. TiO2 have been a little bit stickier. But I think Al said it well earlier, as you think about going forward, oil is moving around. And while it hasn’t necessarily made its way into those commodities yet, I think it’s to be determined of where that heads into next year. So right now, it’s again, petrochemical side has been probably the greatest relief. TiO2 a little bit stickier. We feel very good about our ability to hold on to the pricing that we’ve put in the marketplace given the solutions we’re providing our customers. And we’ll have a better update on where it goes as we get into January.
Unidentified Analyst: Okay. And then a quick question about your packaging destocking that you were referencing. Is that still persistent? Or has that started to tail off a little bit?
Heidi Petz: Well, it’s — I would say this as similar to what we talked about before. We won’t get into very specific details here. But I think it really is important that we’re in lockstep with the demand environment, making sure that — John mentioned this earlier, that as our customers are working through some choppiness right now that we’ve got capacity continuing to come online through our brand site. And as soon as we have that capacity, we’re confident not just in our ability to have the capacity to satisfy that demand. But what’s behind that are the technology that the market is looking for. So we’re very confident that we’re going to have that online here shortly.
