Sherwin-Williams(SHW) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated sales in Q3 2019 increased by $136.2 million, or 2.9%, to $4.87 billion, with currency translation rate changes decreasing sales by 0.9% [8] - Consolidated gross profit dollars increased by $215 million, or 10.7%, to $2.23 billion, with gross margin rising to 45.7% from 42.5% year-over-year [9] - Selling, general and administrative expenses increased by $72.1 million, or 5.7%, to $1.35 billion, with a slight increase in percentage of sales to 27.6% from 26.9% [10] - Diluted net income per share increased to $6.16 from $3.72 year-over-year, with adjusted diluted earnings per share rising by 17.1% to $6.65 [12][14] Business Line Data and Key Metrics Changes - The Americas Group sales increased by $232.5 million, or 8.7%, to $2.90 billion, with comparable store sales in the U.S. and Canada up by 8.1% [15] - Consumer Brands Group sales decreased by $92.1 million, or 11.9%, to $678.5 million, with sales from continuing operations down approximately 6% [17] - Performance Coatings Group sales decreased by $4.3 million, or 0.3%, to $1.29 billion, with currency translation reducing sales by 1.6% [19] Market Data and Key Metrics Changes - Sales in North America and Latin America increased by mid-single digits, while softness was noted in Asia and Australia [26] - Sales were positive in all North American customer end markets, with residential repaint up low double digits and commercial and DIY up high-single digits [27] Company Strategy and Development Direction - The company remains committed to achieving a long-term gross margin target of 45% to 48%, with a focus on integrating operations and leveraging synergies from acquisitions [23] - The company plans to open approximately 80 to 100 new stores for the year, with 31 net new stores opened year-to-date [29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand outlook from North American professional painting contractors, expecting growth in The Americas Group to be in the mid to high single-digit range [37] - The company anticipates consolidated net sales to increase by a low single-digit percentage in Q4 2019, with adjusted full-year diluted net income per share guidance increased to $20.90 to $21.30 [39] Other Important Information - The company returned over $892 million to shareholders through cash dividends and share repurchases, an increase of 46% year-over-year [35] - The company refinanced and extended the maturity of its debt to improve liquidity and lock in favorable interest rates [21] Q&A Session Summary Question: Update on margin expansion opportunities post-Valspar integration - Management indicated that there is still significant work to be done on the Valspar integration, with ongoing efforts to leverage synergies and improve margins [46][47] Question: Insights on Performance Coatings sub-segments - Management highlighted strong growth in the coil business and positive momentum in packaging, while noting softness in the industrial wood business [51][53] Question: Raw material cost trends and pricing strategy - Management expects raw material costs to improve sequentially and year-over-year, with ongoing reviews of pricing strategies [60][62] Question: Same-store sales growth and market dynamics - Management attributed the strong same-store sales growth to a combination of pent-up demand and effective execution, with a focus on maintaining momentum [70][72] Question: Cash flow priorities and capital allocation - Management emphasized a balanced approach to capital allocation, focusing on share buybacks and organic growth opportunities, while remaining open to M&A [119]