John McNulty: Just one kind of cleanup question on pricing. So in the deck that you showed on Slide 8 where it showed consolidated pricing carryover and there was a range, low single digits to mid-single digits. I guess what drives the range there? Because it sounds like it’s just a carryover from kind of where you ended 4Q. So I guess what would make it go to the low end versus the mid-single-digit side? I guess, how should we think about that?
Allen Mistysyn: Yes, John, I think it’s somewhat similar, I would think, as when we talk about a range on raw material costs, there’s a lot of different market dynamics from demand and other things that might cause that range to move. The point I would TAG 5 different price increases over two years. We fully expect to maintain the majority of that price. So even a slight decrease, increase or movement within that range doesn’t impact the overall fact that we’re going to maintain the majority of that price as we’ve done in similar environments in the past, and I think that’s similar across the industrial businesses and consumer because we are looking at the total input cost basket that’s affecting what price increases we’ve gone out with and what continued investments we’ve been able to make as we bring our gross margin back towards that long-term rate of 45% to 48%.
So just to be clear, we kept investing when we’re taking margin contraction through the cycle and now that margins start improving again. We can continue those investments to drive growth, both through our retail partners, through our own stores and help our industrial partners drive growth as well.
Heidi Petz: Yes. I’d add to pricing isn’t just a quick 30-minute discussion with our customers. It’s the result of adding value everyday that’s allowing us to be effective with them. So when you think of the value that we’re bringing. It goes well beyond the product, but you talked earlier about services, project health, digital convenience. So we’re really confident we’re going to be able to hold on to this. We’re not just talking about price of kind of a stand-alone discussion, so confident we’re going to be able to hold on to that.
John McNulty: Got it. And then maybe just a follow-up. So your stores tend to have a higher service component to it than maybe some of the competitors out there, and that’s helped you on the share front. But I guess our concern would be with labor inflation as big as it is and labor being a bigger component of your cost, I guess do you have enough levers that you can pull to offset that beyond price because your competitors may not actually have to raise price as much to deal with kind of wage inflation. So I guess, how should we think about that?
Allen Mistysyn: Yes, John, it’s about driving higher quality products that make our companion contractors more efficient, allows them to get more jobs done with the same number of painters and it drives their bottom line. And I think when you look at it in an inflationary environment, and we’ve talked about this in the past, you tend to see more — and I’ll use as res repainters move up to a higher quality product because they’re going to pay more for that gallon of paint. The gallon of paint is small relative proportion to the overall cost of a project. So as we get those higher quality products in their hands and show the efficiencies they can get, it drives higher — as you imagine, higher quality products, higher margins.
And that’s how our strategy is when we innovate new products, and I’ve said this many times before, you always innovate the high end of the good, better, best continuum and over time, that good gets replaced. So I think that’s a big lever for us and a big driver of how we can continue to expand our margins.
John McNulty: Got it. Thanks so much for the color.
Operator: Your next question is coming from John Roberts from Credit Suisse. Your line is live.
John Roberts: Great. Thank you. the DIY paint historically is not price elastic, but do you think that some of the demand weakness here is that prices just got too high?
John Morikis: Well, I’d say that our residential repaint business is strong, and it’s as even more in times to have a contractor apply to paint, John.
John Roberts: I was asking DIY consumer, sorry.
John Morikis: I know I understand that, but I’m saying that in the market, we are having customers that are continuing to invest in their homes as prices have gone up and in the breadth of product that we offer, while there’s a wide platform of price points, we continue, as I mentioned, to see stickiness in the higher quality products. So I don’t know that it’s — we’ve reached a point of demand destruction. If that’s your question. I think the consumers are very well aware of inflation in the market, and I think that they’re making decisions right now. No question that building up your tank has been more expensive than it has been in the past. But I’ll go back to the point that we made earlier, which is that it’s a — amongst all the opportunities to influence the environment, which is most important to most of us, where you live, relative — still a relatively inexpensive but highly impactful investment in your home.
Allen Mistysyn: John, the only thing I would add to that is — and we saw this in our second quarter, and I think it segment our DIY customers between what we see in the retail channels versus what we see in our stores, certainly, with the inflation of energy and food, and we saw a bigger impact on demand in our retail channel versus our stores channel. So there may be that nuance that you’re seeing.
Heidi Petz: One piece I would add to that, too, in terms of just elasticity, I think there’s also the dynamic with the consumer DIY segment to Al’s point, where they’re purchasing less frequency, you’re going to have some that are more value conscious. But we have introduced and innovated so many different products that have brought trading up to be more attractive, whether it’s increased durability. And so that consumer that’s paying every five to seven years has demonstrated a willingness to pay for that as well.
John Roberts: Okay. And then, Heidi, I think you mentioned that coil was one of the stronger end markets. Isn’t that appliances and sheet metal for construction? What’s going on there that, that outperformed?
John Morikis: John, you might have misunderstood my voice versus Heidi so it was my voice that talked to coil. We have a nice business in our coil business that is impacted by our appliance business. And as I mentioned in my remarks, we do see some settling, if you will, in the appliance business as there’s kind of a reset to inventory level. So it has impacted our coil business.
Operator: Your next question is coming from Josh Spector from UBS. Your line is live.
Josh Spector: A question on the China and the aerosol restructuring. I guess it’s a pretty significant amount of sales you maybe walking away from or rationalizing. I guess, are we past the point of having any ability to monetize that?
Allen Mistysyn: I’m sorry, Josh, when you say we past the point of ability to monetize it. No. I think we have consistently taken a review of our portfolio of businesses, brands, customer programs. And I think we look at it both midterm on their ability to get significant market share growth and return on sales and cash flow. But we also take a longer-term view of it to say, if there are opportunities to monetize the business. We’ll work to reorg to get it in position and pursue that option, among other options. You can run it for cash, you can run it as a growth business or you can monetize it like you’re talking about. So each of those options are being evaluated and we’ll update the Street as we get to that. The short-term reality though is that market, in particular, China, architectural is under heavy pressure, and we have to and we did take appropriate significant actions to adjust to that market conditions.
Josh Spector: Okay. Appreciate that. If I could ask 1 just to follow up on Res. I mean it’s obviously down low to mid-single, put a small dent in the 30% plus you guys have absorbed in terms of increases. I guess is this where raw materials stabilize in your view? And I guess if you have a weaker view on volume in the second half, do you have any visibility to either longer-term contracts or anything else becoming a relief point for raw materials into the next year?
