Sherwin-Williams(SHW) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sherwin-Williams reported a consolidated sales increase of 2.6% to $4.15 billion for Q1 2020, with a gross margin improvement to 45.6% from 42.9% [15][17] - Profit before tax rose by $93.4 million to $392.3 million, and diluted net income per share increased to $3.46 from $2.62 [15][16] - Adjusted diluted earnings per share increased by 13.3% to $4.08 from $3.60 [16] - Adjusted EBITDA increased by $48 million to $623.1 million, representing 15% of sales [17] Business Line Data and Key Metrics Changes - The Americas group achieved same-store sales growth of 7.4% and improved segment margin by 140 basis points [18] - The Consumer Brands Group and Performance Coatings Group also reported improved segment margin performance [18] Market Data and Key Metrics Changes - The company noted a significant near-term demand pause across most end markets due to the pandemic, with DIY markets being less affected [9][28] - In residential repaint, demand is expected to return gradually as social distancing measures ease [29] - New residential construction starts were strong at the beginning of the year, but cancellations have increased due to the pandemic [30] - The protective and marine segment saw a sharp decline in sales tied to oil and gas, which represents about 40% of its sales [34] Company Strategy and Development Direction - The company plans to continue strategic investments in stores, products, and e-commerce despite the pandemic [12] - Sherwin-Williams anticipates opening approximately 50 new stores in 2020 while focusing on enhancing productivity and innovative products [35] - The company is executing a comprehensive response to the pandemic, including cost reductions and adjustments to operations [11][24] Management's Comments on Operating Environment and Future Outlook - Management believes the current demand situation is a pause rather than a destruction of demand, with confidence in long-term fundamentals [12][26] - The second quarter is expected to be challenging, with a projected sales decrease of low to mid-teens percentage compared to Q2 2019 [45] - Full-year sales guidance has been revised to reflect uncertainties, with expectations of flat to low single-digit percentage decrease if conditions improve in Q3 [46] Other Important Information - The company has a strong balance sheet with $239 million in cash and $2.5 billion of unused capacity under its revolving credit facility [51] - Capital expenditures for 2020 have been reduced from $320 million to $180 million due to the pandemic [55] - The company has committed to maintaining its dividend increase of 18.6% to $1.34 per share [54] Q&A Session Summary Question: Key trends in the Americas group and DIY sustainability - Management noted that the DIY boost is largely due to customers spending more time at home, but expects a gradual shift back to professional services as social distancing measures ease [58][64] Question: Demand pause versus disruption - Management expressed confidence that the current demand situation is a pause, citing fundamental needs in housing and ongoing relationships with major builders [69][70] Question: Raw material costs and trends - Management expects lower year-over-year raw material costs due to declines in crude oil prices, with a focus on the petrochemical side impacting pricing [83] Question: Sales dip during curbside pickup - Management indicated that while sales dipped when transitioning to curbside pickup, there has been a week-to-week improvement in sales as the company adapts to the new environment [85][87] Question: CapEx reduction details - The significant CapEx reduction is primarily due to paring back capacity projects and monitoring demand trends, with plans to reinvest as conditions improve [108]