Sherwin-Williams(SHW) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated sales for Q2 2020 decreased by 5.6% to $4.6 billion, with an estimated negative impact from COVID-19 of approximately 8% [7][11] - Consolidated gross margin increased by 330 basis points to 48% from 44.7% [7] - Profit before tax increased by $71.7 million or 10.6% to $747.4 million [7] - Diluted net income per share increased by 28.8% to $6.48 from $5.03 [7] - Adjusted diluted earnings per share increased by 8.1% to $7.10 from $6.57 [8] - Net operating cash increased by 42% year-to-date to $1.07 billion [8] Business Segment Data and Key Metrics Changes - The Americas Group segment margin improved to 23.8% of sales, driven by favorable customer and product mix, lower input costs, and reduced spending [9] - Consumer Brands Group adjusted segment margin increased to 26.5% of sales, reflecting nearly 22% top line growth and lower input costs [9] - Performance Coatings Group adjusted segment margin decreased to 13.6% of sales, with lower input costs offsetting some sales decline [9] Market Data and Key Metrics Changes - DIY business continued to grow at an unprecedented pace throughout the quarter, with new residential and residential repaint showing positive growth in June [13][16] - Exterior paint sales increased by mid-single-digit percentage, while interior paint sales decreased by low-single-digit percentage but improved throughout the quarter [14] - Asia was the strongest performer in the Performance Coatings Group, down by a low-single-digit percentage, while all other regions were down by double-digit percentages [18] Company Strategy and Development Direction - The company plans to open approximately 50 new stores in 2020 and continues to invest in e-commerce and innovative products [15][22] - Focus on capturing current opportunities and delivering above-market growth as economies shift from containment to recovery [21][29] - Emphasis on maintaining strategic investments for long-term growth despite cost control measures [11][12] Management's Comments on Operating Environment and Future Outlook - Management noted a faster-than-expected recovery in some end markets, with expectations for sequential improvement in demand for Q3 2020 [11][21] - The company anticipates Q3 consolidated net sales to be flat or down by a low-single-digit percentage compared to Q3 2019 [22] - Full-year 2020 sales guidance revised upward to approximately flat with last year, reflecting uncertainties in the operating environment [23] Other Important Information - The company has a strong balance sheet with $188 million in cash and approximately $3 billion of unused capacity under revolving credit facilities [26] - Capital expenditure guidance raised from $180 million to $280 million, primarily for architectural and packaging capacity expansions [27] - A cash dividend of $1.34 per share was approved, an increase of 18.6% over the previous year [27] Q&A Session All Questions and Answers Question: Update on long-term margin targets for Consumer Brands - Management is pleased with progress on operating margin within Consumer Brands and maintains a long-term target of 20% [32][34] Question: Comments on housing views and share gains - Management sees sequential improvement in residential repaint and is focused on driving share gains through customer relationships and solutions [41][42] Question: Impact of COVID-19 on demand in southern states - Management does not anticipate adjustments to sales floors and is prepared to serve customers wherever demand arises [75] Question: Trends in China and recovery prospects - Sales in Asia were down significantly due to COVID-19, with a slower recovery expected in the architectural business [82][83] Question: Outlook for commercial construction activity - Management is actively working to minimize potential impacts on commercial construction and is optimistic about future opportunities [86][87]