Michael Leithead: Great. Thanks. Good morning team.
Allen Mistysyn: Hey, Mike.
Michael Leithead: Good morning. I wanted to ask on the 2024 EPS outlook. It looks like you’re guiding for low-to-mid single digit top line growth. You mentioned you expect some degree of gross margin expansion, and you should also have a good amount of cash flow to deploy. So even with SG&A up a bit, I would think that leverage itself through the P&L, maybe greater than 7% EPS year-over-year. So can you maybe just walk through some of the key offsets or other items there that maybe I’m missing?
Allen Mistysyn: Yes, Mike. The biggest variability is on volume. And we talked about the choppiness in demand across different segments, different businesses, and different regions. And if you — an example of paint — well, I’ll use Paint Stores Group and you look at what volume assumptions we kind of have embedded in our guidance. And I mentioned, I think Res Repaint, the market being flat with the investments we make being at the high end of our low single-digit volumes, so low-single to mid-single digits. You’ll get New Residential. You’ve seen the positive new single-family starts for the last six months. That takes time to get through the market. And our expectation is going up against a really strong first quarter last year, our first half will be softer, and then improving in our second half.
And that will be timing more than anything. Conversely, commercial, we expect to be exactly the opposite of that, where we have a line of sight to a stronger first half and then softening in the second half based on the dynamics and the indicators that we see. We just talked about property maintenance and the CapEx side being softer than we have. And as interest rates improve and lending standards get a little more open, we’d expect that to continue to improve. And P&M, we expect growth to continue. When you get into industrial, we feel very good about Auto Refinish, Coil, Industrial Wood returning with new res. But there is choppiness across each of those and including GI, and we talked about packaging in the opening. So I think, as I’ve mentioned in the past, volume is the single biggest driver of operating margin and leverage.
If the volume is better than what we have in our guidance today, we would expect to do better than that EPS.
Michael Leithead: Thanks, Mike.
Operator: Your next question is coming from David Begleiter with Deutsche Bank.
David Begleiter: Thank you. Good morning. Heidi and Al, in terms of your plans, I believe you ran your plans below your volumes in 2023. If so, what was your earnings hit from that under-absorption? And should they all reverse in ’24? Thank you.
Allen Mistysyn: Yes, David. I would say that we saw the bigger impact of that through the first three quarters of 2023. Our expectation is we’re going to see a headwind in the fourth quarter. And even though we had volume down low-single digit, I think the team did a really nice job of controlling their costs. And we actually saw a little bit of a tailwind in our fourth quarter, which allowed us to be a little bit stronger in gross margin in our fourth quarter. For 2024, my expectation is that because we’re getting back to what I would call a more normalized bell curve when you look at inventories and how we build inventory coming into the spring selling season will drop inventory in our second and third quarters, and then build inventory again in our fourth quarter.
It really allows — and I’ll talk specifically about our architectural plants. It really allows us to schedule those plants more efficiently plan our staffing the right way. And I do expect to see an improved performance from our global supply chain and our supply chain in general in 2024. We’re not going to talk specifics on dollars in that, but we certainly expect a better performance as we get into ’24.
James Jaye: Thank you, David.
Operator: Your next question for today is coming from Mike Harrison with Seaport Research Partners.
Michael Harrison: Hi, good morning. Within the Consumer Brands Group, curious if you can talk a little bit about your expectations around customer order patterns into the spring paint season. It sounds like as of Q4, they were maybe still managing their inventory levels lower. But I’m just curious if right now you’re expecting kind of a more normal seasonal improvement or if there’s still going to be some caution on inventory management.
Heidi Petz: Yes, Mike. Normal is exactly how I would characterize that. And I think as we’ve all come through the last few years, I would also say that the alignment and the partnership has never been at a better place.
Allen Mistysyn: Mike, can I just add one thing about that that we’re talking specifically DIY. On the Pros Who Paint side of that, I know it’s not a huge portion of that business. But I think the team has invested in that, working closely with our partners. And we have been taking share and growing faster than the market, and we expect that to continue going into 2024.
James Jaye: Thanks, Mike.
Operator: Your next question for today is coming from Greg Melich with Evercore ISI.
James Jaye: Hey, Greg, might be on mute. Greg.
Operator: Greg, your line is live.
James Jaye: Come back to you, Greg. We’ll come back to you, Greg. Thanks.
Operator: Your next question is coming from Chuck Cerankosky with Northcoast Research.
Charles Cerankosky: Good morning, everyone. Great quarter. When you look at the do-it-yourself business at the Paint Stores and Consumer Brands, you marked that it was weak in both areas. Can you sort of contrast the reasons for that weakness, especially at Consumer Brands, because it’s the bulk of the business, whereas the Paint Stores, it’s a smaller part of the business, but still significant? Thank you.
