Good morning. Thanks for joining the Sherwin-Williams Companies review of second quarter 2 thousand 26 and our outlook for the third quarter and full year of 2026. With us on today's call are Heidi G. Petz, chair, president, and chief executive officer Ben E. Meisenzahl, chief financial officer Paul Lang, chief accounting officer, and Jim Jay, senior vice president, investor relations and communications.
This conference call is being webcast simultaneously and only mode by access Newswire via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.suren.com beginning approximately 2 hours after this conference call concludes. This conference call will include certain forward-looking statements as defined under The US federal securities laws with respect to sales, earnings, and other matters.
Any forward-looking statement speaks only as of the date of which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions.
I will now turn the call over to Jim Jaye.
Good morning to everyone, and thank you for joining our call. Sherwin Williams delivered strong top and bottom line growth in the quarter. Amid ongoing global uncertainty and without any meaningful improvement in demand.
Our sales outperformance reflects continued execution of our strategy. New account wins, and a clear return on prior growth investments. As sales exceeded guidance on a consolidated basis and in all 3 reportable segments.
Consolidated sales grew by a high single digit percentage inclusive of a low single digit contribution from the Suvinil acquisition. Reported gross margin decreased slightly but increased excluding the dilutive impact of Suvinil. Targeted pricing actions during the quarter enabled us to offset raw material inflation.
Reported SG&A expense increased by a mid single digit percentage but decreased 90 basis points as a percent of sales. The increase was driven primarily by non annualized Suvinil acquisition costs and higher employee service costs related to the greater than expected year over year sales and profit improvement in the quarter. We expect full year reported SG&A to increase by a mid single digit percentage.
Adjusted diluted net income per share increased [Inaudible] The Adjusted EBITDA grew by 10.5% to $1.5 billion and adjusted EBITDA margin expanded 60 basis points to 21.5% of sales. Net operating cash improved by 21% or $235 million in the quarter. Driven by an increase in net income and working capital being a higher source of cash year over year.
Free cash flow conversion was 86%, Consistent with our disciplined approach to capital allocation, we took advantage of volatility in the market to accelerate share repurchases in the quarter. And combined with dividends returned $1.5 billion to shareholders. We ended the second quarter with a strong balance sheet and a net debt to adjusted EBITDA ratio of 2.4x.
Based on our strong first half performance, as well as our assumptions for the remainder of the year, we are increasing our full year consolidated sales and EPS guidance. Let me now turn it over to Heidi, who will provide some color on second quarter segment performance before moving on to our outlook and your questions.
Heidi G. Petz
President & CEO
Thank you, Jim. I want to begin by thanking our 64 thousand employees for their relentless focus on executing on behalf of our customers. In an environment that remains challenging, our employees continue to work hard and find new ways to deliver the reliability, consistency, and customer focused solutions that set Sherwin Williams apart.
The strength of our strategy is evident in our performance. We are continuing to widen the gap between Sherwin Williams and the competition through meaningful customer engagement robust new account growth, and meaningful share gains across the business. At the same time, we continue to focus on optimizing the enterprise and controlling our costs as evidenced by the restructuring actions taken during the quarter.
We expect these actions will result in approximately $17 million of annual savings with about half realized over the remainder of this year. Looking at our segment results in the second quarter, I will begin with Paint Stores Group, which grew by a mid single digit percentage. Price mix grew at the low end of mid single digits and volume increased by a low single digit percentage.
Our team delivered growth in all pro segments. Protective and Marine continued its momentum as sales increased by a mid teens percentage versus a high single digit comparison. It was the eighth straight quarter of at least high single digit growth in this business.
Data centers, semiconductor infrastructure, and manufacturing onshoring are among several drivers of this growth, where customers continue turning to Sherwin Williams for a suite of solutions that can be delivered quickly and consistently. In the commercial business, the gains we have been targeting over the past 24 months are now evident. As sales increased by high single digits in an underlying market that remained soft.
These efforts have also resulted in the mid single digit increases in residential repaint and property maintenance. New residential remain very challenging as single family starts and completion have been negative for 5 of the last 6 months. But meaningful account wins propelled us to low single digit growth in the quarter.
Segment profit grew by mid single digits and segment margin was 24.6%. As planned, we have opened 45 new stores year to date, and also as planned, closed 57 or about 1% of total PSG stores. As we have done for decades, we continually assess and optimize our store portfolio to drive profitability strengthen operational flexibility, drive improvement in return on net assets and ensure that we maintain the highest level of service for our customers. [Inaudible] are not being negatively impacted by this targeted 80 to 100 new stores for the year, the net number will be approximately 30.
The cost of closing stores year to date is immaterial, and the store optimization initiative is behind us. We fully expect to be at the high end of 80 to 100 net new stores beginning next year given the trimming we have completed this year. We also announced an 8% price increase effective September 1st to offset raw material and other cost inflation.
Because of our strong supplier relationship, and disciplined supply chain execution, we were able to delay this increase for customers and avoid disrupting their business during the height of the paint selling season. We expect effectiveness of this increase to be in our typical range so we will continue to be opportunistic in pursuing additional volume. Consumer Brands Group sales exceeded our expectations, driven by a mid teens contribution from the Suvinil acquisition.
Mid single digit price mix and low single digit FX were partially offset by a low single digit decrease in volume. Group sales, excluding Suvinil, increased by mid single digits and our legacy Latin America business, excluding Suvinil, increased by a low double digit percentage. North America sales increased by high single digits against a soft comparison.
And included low single digit volume growth. The North America growth was driven by new product offerings, favorable mix, and the Pro-Hoop paints as DIY demand remained muted. [Inaudible] decreased in Europe by double digit percentage again against the high teens comparison. Driven by customer inventory management and destocking.
Adjusted segment margin increased 210 basis points to 24.5%. Leverage from mid single digit sales growth and flat SG&A excluding Suvinil, drove half of the improvement. With the other half coming from favorable nonoperating items.
In Performance Coatings Group, sales beat expectations with growth in every division and region. These results reflect the strong new account focus that we continue to drive as demand largely remains unchanged in our underlying core business. Price mix and volume both grew by low single digits in the quarter.
With price mix greater than volume. FX was a low single digit tailwind. Growth was strongest in the general industrial division, led by strength in heavy equipment as sales were up high single digits inclusive of mid single digit volume growth.
Automotive Refinish also grew in the high single digit range, driven by price mix and favorable FX. Packaging continued its strong performance as sales increased by mid single digits against a low teens comparison. Coil and wood also delivered mid single digit growth.
Group sales expanded in all regions, including a strong double digit increase in Asia Pacific. And mid single digit growth in North America. Adjusted segment margin increased 50 basis points with strong incremental margin of 26.4%.
Within the administrative segment, SG&A declined 9.8%. As a reminder, this improvement largely reflects a favorable year over year comparison with the prior year period, including approximately $49 million of severance and other restructuring expenses versus approximately $3 million in the current quarter. The slide deck accompanying our press release this morning provides more detail on second quarter segment results.
Now moving on to our guidance. Our better than expected first half performance gives us increased confidence in our ability to deliver growth through the balance of the year. Importantly, our updated outlook assumes there is not a broad based demand recovery.
Customer feedback and the leading indicators we track continue to show limited signs of meaningful improvement in most end markets. In this environment, we continue to focus on the levers within our control, securing incremental volume while maintaining the products services, and supply solutions which drive productivity and profitability for our customers. Inflation remains a variable we are actively managing.
Our supplier relationships are strong and continue to be a competitive advantage. We do not expect raw material availability to be an issue for us. At the same time, we are not immune from inflation.
We are seeing the impact of higher oil and related cost pressures, and we expect continued volatility throughout the balance of the year. We expect inflation in our raw material basket to be up in the high single digit range in the second half putting our full year outlook to the mid single digit range. We have taken a thoughtful approach to balance the timing and amount of price increases for our customers, and we are taking actions to keep pace with inflation while continuing to deliver the products services and solutions that our customers value.
We expect consolidated price mix for the year to increase to the mid single digit range, and we expect to maintain full year gross margin at last year's level at the midpoint of our guidance. The slide deck issued with this morning's press release includes our expectation for consolidated and segment sales for the third quarter and full-year 2026. Based on our strong first half performance and the momentum that we are carrying into the second half.
We are raising our full year sales and adjusted EPS guidance. Consolidated sales are now expected to increase by a mid to high single digit percentage, and adjusted diluted net income per share is now expected to be in the range of $11.80 to $12.20 per share. Our guidance reflects stronger execution versus our initial January expectations, continued share gains, disciplined price cost management and ongoing productivity actions.
Our slide deck contains other details you may find useful for modeling purposes. We are encouraged by our second quarter performance and proud of what our teams accomplished during the first half of the year. Their execution demonstrates the strength of our business.
The durability of our strategy, and the advantages that continue to differentiate us in the marketplace. Our mindset has not changed. In this environment, we know growth will need to come from what we do, not from what the market gives us.
We remain focused on being our own catalyst for growth. Which means taking share serving customers better than anyone else and creating opportunities regardless of the demand backdrop. that is exactly where Sherwin Williams excels, and we intend to continue leaning into these strengths. At the same time, we are not satisfied as we know there is more business to earn more productivity to unlock and more value to create.
Our employees are the key to our success, and I wanna take a moment to speak directly to them and express my deep respect and appreciation. As we have just demonstrated, we will continue approaching the many opportunities ahead of us with urgency, discipline, and confidence in our ability to deliver. This concludes our prepared remarks.
As a reminder, we will be hosting our financial community presentation at our new global headquarters and global technology center on September 24th. Look forward to seeing many of you there. Please reach out to our investor relations team if you have not registered as space is limited.
With that, I would like to thank you for joining us this morning, and we will be happy to take your questions.
Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time.
We do ask that while posing your question, please pick up your handset if you are listening on speaker to provide optimum sound quality. In the interest of time, we do ask that participants please ask 1 question. And once again, if you have any questions or comments, please press 1 on your phone.
Your first question is coming from John McNulty from BMO Capital Markets. Your line is live.
Yeah. Thanks for taking my question and congrats on some really solid results. Especially in a tough environment.
So I wanted to ask, maybe you can unpack a little bit, mid quarter, and Nippon made a bid Axo and then relatively quickly thereafter, pulled that bid. I guess, you walk us through the rationale for both moves and how we should be thinking about M&A going forward in terms of the opportunities that you may see out there?
Heidi G. Petz
President & CEO
Yes. Good morning, John. I will take that.
We take a very disciplined approach, not only to our capital allocation philosophy that remains unchanged, but as it relates specifically to M and A, as you can imagine, we are constantly looking and assessing assets that would be a fit or an accelerator to our strategy. And so we probably pass well over we pass them well over 90%, I would say, across our desk. But when we look at those specific assets, those were very premium targeted assets that we had long admired, and there was an opportunity at the right price at the right time, if they are, you know, the right value that would have been something that would absolutely have been complementary to our strategy.
Having said that, I think, timing is everything. Value is everything. And when we get to a point where we are, you know, 2 bids in, which I think was a very fair, reasonable, and premium all cash offer with the level of engagements that we wanted.
It was a simple decision that there was absolutely more attractive uses of our shareholders' cash. And so the decision to walk away and put that cash to use was in our and our shareholders' best interest. Thank you, John.
Thank you.
Your next question is coming from Vincent Andrews from Morgan Stanley. Your line is live.
Thank you. Good morning, everyone. Can I ask for a little more color on the consumer brands margins?
Obviously, strong. Improvement. How should we expect those margins to move on a go forward basis?
Also sort of noticed versus the other 2 segments, there was not really a call out here on market share gains or anything. Obviously, some other nice callouts. But nothing on the share gain.
So what drove these margins to be so much better than the other 2 segments?
And what is the sustainability on-- Hey, Vincent. it is Ben E. Meisenzahl. On the margin piece, it really comes from by 2 parts. First, you look about half of it is coming from just the core operating performance You look at the stronger sales that consumer brands had in the quarter.
And if I strip out Souvenil and just look at the core business, which was up about mid single digits, the resulting SG&A was flat. And so you think about the leverage that you get in a situation like that, And then, the other half of the margin expansion was from more favorable nonoperating items. That also impacted the sequential first quarter to second quarter.
So if you back out those non operating items, we are more flattish first quarter to second quarter. So that is what is driving the adjusted segment margin there.
Heidi G. Petz
President & CEO
Vincent, I will add in from a market share standpoint. DIY, obviously, there is not been any meaningful improvement in that particular segment. Pro-Hoop paints however, we are seeing continued share gains there, and that is a testament to the team successfully executing on our strategy.
We have got obviously, our very strategic partnerships, Lowe's and Menards and others but this is a growing segment, still a small base, but the fundamentals are intact there. So a lot of credit to the team for continued focus. Thank you, Vincent.
Thank you.
Your next question is coming from Duffy Fischer from Goldman Sachs. Your line is live.
Yeah. Good morning. Just a question around kind of the implied guidance at the midpoint.
So in the first half, year over year, you guys were up about $0.40 of EPS. And at the midpoint in the second half, you are up a little more than a dime. Even though you have a pretty big price increase rolling through in September.
So 1, just want to see what is it that might slow down, when you are looking at it year over year that would, you know, have a smaller increase And then, second part of that, between Q3 and Q4, should Q4 be seasonally bigger than normal because of that price increase when you look at it versus history?
Hey, Duffy. Yeah. If you look at the year over year, I mean, there is 2 things really that impact the first half versus the second half.
If you look first at the comps, last year, first half were more difficult, than the second half. And so if you look at that phasing and what we are going against, you know, this year here, that does have an impact. But if you do look at the second half of this year and in that slower growth of EPS, as we have talked about, you know, we still expect that ramp up of, raw material costs.
We have taken our guide up a little bit, for the back half or for the full year, and that is coming on the back half. And so even though we have pricing that we are still laying in, and our, commitment to staying in front of that, you know, with balanced management of the price cost environment, it is still an economic headwind that we are facing here. And so that is probably the biggest reason why you would see maybe a little less, you know, of the growth in the second half that you saw in the first half?
Thank you.
Your next question is coming from Ghansham Panjabi from Baird. Your line is live.
Thank you, operator. Good morning, everybody. Heidi, going back to your, you know, comments on the outlook and, you know, just given the steady increase in interest rates, recently, specific to the PSG segment, Are you embedding any sort of volume deterioration sequentially for the back half of this year, which will be offset by share gain initiatives on your end, you know, to sort of sum to that low single digit volume growth.
Is that the right way to think about it? Thank you.
Heidi G. Petz
President & CEO
No. I look at this, Ghansham, we do not expect that to happen. We do not expect any material change, and I will see if Ben's going to give some color commentary to give you a little bit more perspective.
But I will ask him to touch base in a minute. I just wanna take a moment, though, and give you a little bit of segment perspective to reinforce my point. You look broad strokes, and, obviously, we talk a lot about what is going on from a residential standpoint.
New residential I would say the exact opposite. Obviously, very confident in the backlogs are stable, but the team is really standing tall. We continue to take share here.
Our new account activity continues to be very strong as our active accounts where we are growing our current customer share of wallet. And so even though it is a challenging market, we are still continuing to be very aggressive out there. We talk a lot about innovation with this segment, and we talk about innovating in and out of the can.
Something I want to highlight here, this is really exciting. We just launched a product called Emerald Symmetry, and it is the best performing interior product that we have ever produced. So not only the right performance characteristics, but it is going to be a great plant based zero VOC product.
So helping to really advance our sustainability agenda. So we are doing a lot of work here in this current macro to certainly favor growth and square footage for these residential repaint contractors. So volume, certainly positive there.
New residential continues to be, you know, under pressure. We are outperforming as monthly single family completions are down an average. High single digits in 2026, while our sales were down a low single digit, so demonstrating that we are taking share there.
It certainly can touch on property maintenance. Our year over year rent remains weak, with some sequential improvement. I would underscore some, but our outperformance, with low single digit growth is also evidence of share gain.
So the market's not going to help us in any regard. But I do wanna take a moment here on protective and marine because it is been a fantastic highlight I said this in the call earlier, but it is our eighth straight quarter of at least high single digit growth. So we are exceptionally and uniquely well positioned, I would say, for some of these tailwinds.
We talk a lot about data center build out infrastructure, the semi-- the semiconductor infrastructure The team is really going to market very effectively. Effectively here with a very unique suite of solutions. And so, again, back to the comments earlier, we know the market's not going to help us.
We are not waiting. We have a lot of time ahead of us this year. We know we can control what we can control, but we are going to expect that we outpace the market.
Yeah. Gotcha.
I mean, I will add to what Heidi said there and going back the original part of your question.
I mean, if you look at the phasing of volume, you know, year over year, half over half in the guidance, it is relatively you know, consistent. And if you go back to our original guidance in January, our assumptions were the same. what is different is you know, the level of volume is higher than what we would have expected, and you see that in our original January guidance, you know, down low single digit to up low single digit. Stores group volume, and now we are guiding to that up low single digit volume.
And so that supports all the things that Heidi talked about there. But, again, the quarter over quarter volume gonna see consistent. And what changes is the pricing as we try to balance that against the inflation.
Thank you.
Gotcha. Thank you.
Your next question is coming from Greg Melich from Evercore ISI. Your line is live.
Greg. Thanks. I guess I would follow-up on that last point.
I think you mentioned in the prepared comments the price increase in September, you expect realization to be in the historic range. Goose? [Inaudible] Is that the range that we have seen this year, I think the more like 40%? Or is it the historic more 60 to 70%?
And then the second part of that question is, would that be enough for gross margins to grow year over year in the back half given the raw material is still accelerating?
Greg, starting with the background of your question there.
I mean, expectation is that you know, we are balanced with pricing and commitment has been to stay in front of that. And so you know, you will continue to see that there. Again, going back to your September price increase question, you know, we normally see, you know, a glide path.
And to Heidi's point, the pricing will be at that same historical trend. And as you know, we have customers that have contracts There are probably some things that go into 2027 as well. But we know, we would expect that over time that, you know, we are really able to capture that the same way.
I will remind you as well, I mean, our the goal here you know, has been to implement pricing, when the market can support it, and we can do it in a way that preserves our customer relationships and manages our ability to get share gains. And so we felt that September provided the best balance between those objectives. And that and that is why you see us going right now.
Thank you.
Your next question is coming from Patrick Cunningham from Citi. Your line is live.
Hi. Good morning. Thanks for taking my question.
I was hoping you could just give a little bit of detail behind the drivers for both the commercial and protective segments. And what sort of multi quarter or multiyear visibility do you have there from some of your share gains, new product wins, anything that we should think about across those 2 strong segments?
Yeah. Good morning, Patrick. it is Jim. I would say on the commercial side, you are seeing this is, you know, a couple quarters in a row where we are outperforming.
We have talked about some of the market share opportunities that we have been targeting over the last 24 months or so. I think you are starting to see those come through in a more prominent way now. A lot of credit to the team that is driving the commercial side there.
The other part of your question, Patrick, just again was which other segment?
Yeah. The PNM piece?
Yeah. So the PNM piece is know, Heidi, I think touched on it. The data center build out, the infrastructure build out, semiconductor fabs.
You know, there is others that maybe are not getting as much of a headline, but water treatment, pharmaceutical, the onshoring, all of that is a treatment opportunity for us. A great suite of solutions, flooring, structural steel, and there is also an architectural element of the office space in all of those applications as well.
Heidi G. Petz
President & CEO
Patrick, 1 other piece to add, and Jim mentioned this, but when we talk about AI data centers and the build out, you think of the race of these hyperscalers and speed matters. And we can provide speed. We can provide a comprehensive 1-shop solution for many of their coatings, needs across the board that Jim just mentioned.
So we are we love the tailwind, and we are ready for it. Thanks, Patrick.
Thank you.
Your next question is coming from John Roberts from Mizuho. Your line is live.
Thank you. Back to the original M&A question. Sherwin did not appear to be interested in the number 1 European deco business.
Why was that?
Heidi G. Petz
President & CEO
Well, we have looked at that, John, for a long time. And 1 of the things that we love about our controlled distribution model certainly is the backdrop that the market dynamics in which we sit here in North America We have absolutely are proud of how the playbook that we have created. Obviously, there is a lot of agility within that playbook.
But the market fundamentals outside of North America simply do not support that level of capital deployment. So we do think there are, again, other very attractive alternatives of shareholders cash, and we are going to put that to good work. Thank you, John.
Thank you.
Your next question is coming from Arun Viswanathan from RBC. Your line is live.
Greg. Thanks for taking my question. I was hoping to ask just on 2 segments, resi repaint and packaging.
I think both of those are in the mid single digit range, if I am not mistaken. Could you just elaborate? It sounds like, resi repaint you know, obviously, you have been at higher ranges before, but is that you know, kind of plateauing?
Is there anything else that you could do to drive, you know, higher growth there? And then similarly, in packaging, are you still working on some share gains there? And where are we in kind of the European DPA transition?
Thanks.
Heidi G. Petz
President & CEO
Yeah. You bet. Well, let me start with res repaint.
Is it plateauing? Absolutely not. In fact, I would say we are just getting started there.
I will remind you that this is the segment where we have the largest share gains ahead, and we are continuing to be agile and deploy resources and make sure that team is well prepared. there is a lot of share available for grabs right there, and so we are going to continue not only with our dedicated stores, our residential repaint reps, The product launch is the innovation that we are providing in the can, all of the digital suite of tools that we are innovating and continue to innovate for these residential repaint contracts contractors regardless of their size. To help them with their economics, be better planners, make sure that we are helping them leveraging our store the multiple stores and helping them grow and travel. So we are we are in a really good place Also a testament to the team, we have got an organization that, you know, we have long been focused on, not just selling, but shifting to more of a consultative selling approach.
And so our team, I am very proud of what our folks in the stores are doing day in and day out to help our customers succeed here. And it is it is evidence it is evident in our numbers, and we continue to expect that outsized growth. I will touch on packaging.
You mentioned mid single digit volume That certainly was led by strength in beverage cans, We are clearly outgrowing the market. here. I think the EFSA piece you mentioned, the ban on BPA, taking effect in Q2, obviously, of this year, that will continue to drive customer conversion back half of this year and into next year. So we expect that to be goodness heading our way.
Thanks, Arun.
Thank you.
Your next question is coming from Matt Dale from Bank of America. Your line is live.
Morning. Just wanted to ask kind of a clarifying question a little bit on the consumer business. You would mentioned some non operating tailwinds, that things would have been flat quarter over quarter.
Was that a-- was that a would have been flat, or was that a EBITDA would have been flat? Can you just tie that up, Benjamin?
Yeah. Matthew, that would have been the adjusted segment margin, you know, would have been flat. And so, again, roughly half of the improvement that you saw quarter over quarter if you had adjusted that for what we saw in the first quarter, you would have seen more flattish adjusted segment margins in CBG.
Okay. Appreciate that. that is helpful. And then Heidi, to jump back a little bit on John's earlier question and I guess maybe both John's.
But and I do not know if I want to drag this conversation too much, but, like, ultimately, what changed between your first 2 attempts on AkzoNobel and then the release of the slide deck and then your decision to walk away. I appreciate the price discipline comment. But conceptually, you kind of already you had to come up in a more material way.
And then, you know, slide deck comes out and then a few days later, you walk. Is that am I reading too much into-- was a couple days lapse? Or is there something else there?
Because I mean, that deal is not necessarily done, though I think the market expects. But just wondering how it relates to your appetite. And then conceptually, I would assume any spin offs are fair game for sure when to consider.
Or set separations. Right?
Heidi G. Petz
President & CEO
Right. So, Matthew, let me attack your question here. I think there is basically 3 parts of it.
First, I do think you are assigning too much weight to the days, and you look at the discipline in which we think about capital allocation deployment, we have been looking at those assets for years. And so we are not desperate for those assets. I want to be very clear.
And we have said we do not need acquisition to grow. We have a lot of organic scale opportunity. The team is doing a fantastic job, demonstrating that.
Not we are not going fast enough. We will happily take more. But you asked about what is changed kind of between bid 1 and bid 2.
And it was what I stated earlier as we talked about putting a very we thought was not only a fair and reasonable, but superior all cash offer forward at some point without getting the level of engagement that you want. What we are not going to do is negotiate against ourselves if we are not desperate for these assets. We are gonna be laser focused on growing these businesses with or without.
But I think your third point, and it is a very fair point, you know, should these assets fall out of the sky at the completion of the MOE, at the right value, then we would absolutely take a look at those. But it would have to be at the right value at the right time. I will take a moment, Matthew, just to point to the success of Suvinil is a great example of capital being put to great use.
And just a moment on this while you did not ask about it. I think it demonstrates the discipline of how we think about M&A. We have long admired that asset down in Latin America and had looking had been looking at that for over 10 years. We were very thoughtful in our approach, not just in terms of the deal, but in terms of the integration.
Coming from the Valspar side and playing a big role in integration, it is it is extremely important that when we are thinking about success here, it is customer and employee first, and I am very pleased with the success that the team is having. You know, the business continuity continues to be our north star. Making sure that we are providing stability not only in our relationships our customers, but in our service levels.
I think the cultural compatibility is also worth noting You have got 2 great teams coming together. We say 1+1=3 here, and the compatibility of strong teams and what we are able to do to leverage a strong asset of the market leadership and certainly the strong ability to provide innovation from Sherwin Williams we are really just getting started there. And, Matthew, I just wanna build on 1 thing that Heidi said here.
Again, it is you know, we have talked about how our cash generation remains a strategic advantage for us. And you look at the first half, and that is really on display. I mean, we returned know, almost $1 billion more in cash to shareholders.
We did the ASR. You know, in between, you know, the when we walked away from the joint bid to you know, when we were blacked out for the quarter. And so you can see us there taking decisive action in an environment where you know, our share price is on sale.
And so you are gonna continue to see us be, you know, really strategic with know, how we are managing our capital allocation. And just wanted to put an explanation on that. Thanks, Matthew.
Thank you.
Your next question is coming from David Begleiter from Deutsche Bank. Your line is live.
Thank you. Good morning. Heidi, just on DIY, I saw it did tick down versus the prior 3 quarters of it being up.
What changed the DOA market for you guys this quarter?
Heidi G. Petz
President & CEO
I do not think there is really any material shift there, David. I you know, it is it would be more nominal than material. We are still waiting for the catalyst to kick in on the DIY segment.
Think if you look at bifurcating that segment, you have got more of the premium DIY homeowner in our in our stores that prefer a specialty kind of experience, and we are we are faring better there. The recovery there certainly less inflationary sensitive And the more value conscious DIY homeowner that prefers a home center still under pressure. But, again, this is where our strategic partnerships are extremely important that we continue to find new and different ways to look at that volume.
But I want take a moment on this point, we talk a lot about this in our prepared comments. But the fundamental theme here is we do not believe there will be a catalyst in the market anytime soon. And the charge to the team is that we have to be our own catalyst for growth so you are gonna continue to hear us talk about that.
There are a lot of levers that we can pull. They are not infinite. But it is a control what we can control mindset, and that is what gives us confidence.
We can continue to focus on execution discipline. I think we have built strong credibility on that front because we have been able to demonstrate even in a challenging environment. Thank you, David.
Thank you.
Your next question is coming from Josh Spector from UBS. Your line is live.
Yeah. Hi. Good morning.
I wanted to follow-up on the pricing side. Just I mean, I heard your comments around the realization of the 8% increase, but just trying to think about the timing of that relative to kind of your updated pricing guidance I mean, it seems like my interpretation is maybe you are realizing 1% to 2% in fourth quarter and then maybe more of that falls into 2027. So 1, is that kind of the right interpretation?
And then 2, what does that mean for your approach to pricing for what you do around January 1st, 2027? Is that coming up in conversations now, or is that gonna be a separate conversation 3 months from now? Thanks.
Hey, Josh. Yeah. The phasing of this and again, we have done, you know, a lot of pricing throughout the year here, and we are being realistic with, you know, what the approach is.
And I know we keep hammering back on volume, you know, being the premium. There is gonna be a balance there to make sure that, you know, all the work that we have done to keep our customers and to make sure that we are we are we are able to supply them and keep a minimum price increase because we had we did. We have waited long.
I mean, we as I mentioned, waiting till September, that was a strategic decision to make sure that we did not impact our customers the way that, you know, you know, some of our competitors may have by going earlier in the painting season. And so, obviously, the season is rolling over later in the year. I mean, that might have an impact on realization.
I can assure you that, you know, the way that we are approaching this year, is balanced with the inflation that we continue to see. And, obviously, that will go into the first part of next year. And so that is part of the calculation.
But we are, you know, we are not ready to call anything beyond, you know, 2026 right now. We are we are watching this know, quarter by quarter, half by half, and we will continue to watch the market. There are uncertainties out there with what inflation will do, and our teams are constantly assessing what those impacts are.
And what actions we would need to take.
Thank you.
Your next question is coming from Jeff Zekauskas from JPMorgan. Your line is live.
Thanks very much. 2 part question. You talked about 57 store closures. Is there a pattern to the closures?
Are these on unprofitable or in a particular region or too small? And why are they happening this year? And secondly, in terms of pricing, you are lifting your paint stores pricing by 8%.
If you compare that pricing action to what is going on in performance coatings, should Performance Coatings price initiatives be at least that number because the raw material inflation would be a little bit higher, or is there some other dynamic at work? What are you doing in pricing and performance?
Heidi G. Petz
President & CEO
Yeah. Jeff, good morning. I will start the first question on the stores, and then I will hand it over to Ben.
He can comment on the pricing question that you had. You asked if there was a pattern, and there is a pattern. They did not meet the profitability threshold.
And so if you think about with the-- you know, we have built what I would consider 1 of the industries premier distribution platforms over many, many decades, and with that comes the responsibility for us to actively manage that platform. So we are gonna continue to open stores, and you heard in my prepared remarks you know, as we were pruning, we wanted to take advantage of what I would use this downturn being really candid to do that and make sure that we are favoring the best use of shareholder cash in the right places. The expectation going forward is that we get to the higher end of that 80 to 100 net new stores beginning next year and you should expect to see us be aggressive there on that front.
So in this environment, while we have got this great platform, we think that it is in our shareholders' best interest if we are looking at making these increasingly productive our platform increasingly efficient, leveraging AI where it makes sense and where it is helpful. But also making sure that we are increasingly aligned with where our customers are growing. So that is what we are solving for, and I think the result's gonna be a healthier more productive platform that better serves customers and better generates stronger returns, for our shareholders.
So we are excited that this is behind us, and we can move forward. With a more productive platform. And I will hand it to Ben on the pricing question here.
Yeah, Jeff. On pricing, you know, as you know, the way we go to market with pricing is very different between our architectural business and the industrial business. And so with PCG, and we have talked about this you know, going back to April and even in into January where we had announced some pricing It is a little more surgical within PCG.
And so as you can expect, with raw material inflation continuing to climb here in the second half that, you know, that PCG has been out with, you know, pricing a little more surgically by business unit or by region. And, again, that our decision to wait on the architectural side to preserve to make sure we preserve volume in our share and made sure that we did not put those pressures on our customers. it is just it is a different approach that we have between the 2 different businesses. But your thought is right.
There are there is pricing out in all of our segments right now as we are trying to balance the price cost dynamics that are there. Thank you, Jefferies.
Thank you.
Your next question is coming from Chuck Cerankosky from Northcoast Research. Your line is live.
Good morning, everyone. I would like to talk a little bit about Suvenal, how the integration is going, where you are at in the process, and to what degree it contributed or dent to EPS dollars.
Hey, Chuck. Yeah. Suvinil continues to, you know, really be a great addition to Sherwin Williams for us.
And as we have talked about on the last couple calls, you know, really encouraged by what we are seeing down there as we are bringing, you know, Suvinil into the existing, you know, Sherwin Williams business, that is been there for 80 years. I think some of the highlights, you know, that I call out here because our teams have gotten their, you know, their hands more on, you know, what that Suvinil business brings. We have we have identified additional synergies, even things that maybe we did not appreciate through the industrial lens.
When we were initially looking at opportunities. On the customer front, there is been a lot of really great, growth opportunities as the 2 brands come together, and so we are we are really encouraged about that. In April, I talked a lot about we are going to continue to be doing integrating activities, you know, the rest of this year.
Into early part of next year. And so we still think it is an immaterial tailwind to our EPS, you know, for the year as we continue to merge the companies. Thank you, Chuck.
Thank you.
Your next question is coming from Abigail Ebert from Wells Fargo. Your line is live.
Hi, there. Thanks for taking my question and congrats on the quarter. You have talked in the past about your strategy for driving new business wins in paint stores with your rep network, your app launches, and things like that.
Can you speak to how you are driving new business wins in PCG given the different customers?
Heidi G. Petz
President & CEO
Yeah. Abigail, good morning. I think it is a-- Ben kind of alluded to this a little bit on the last question.
These are very different models, different customers, end markets, regions. And so you are right. When you think about our ability to kind of standardize within paint stores group, it is a little bit different on the performance coatings side.
This is really a team with incredible tenure and expertise in these end markets. And regions, and it really is about making sure that we are best serving these customers. And so if you think about some of the assets that we have on our performance coatings side that are fairly unappreciated would be our blending facilities.
And so our ability to have these assets that are close to industrial wood, coil, large customers we are able to better serve oftentimes in, you know, at days and weeks versus, you know, even longer versus our competitors. And these customers are willing to pay a premium for that. So the speed, the consistency of color, our ability to demonstrate value every day affords us a position to create these new business opportunities and new business wins.
Thank you, Abigail.
Thank you.
Your next question is coming from Kevin McCarthy from VRP. Your line is live.
Yes. Thank you, and good morning. Heidi, have a broad question for you on the subject of market share gains.
You are doing a nice job with broad based gains for a while now. But wanted to ask, are there certain businesses where you have been pleasantly surprised by the magnitude of share gains where you wound up winning more than you had expected. And then in contrast, are there any businesses that come to mind where share gains have proven to be more challenging than you would have thought, maybe due to competitive behavior or otherwise.
Where you see room for improvement moving forward.
Heidi G. Petz
President & CEO
Well, Mike, I have to start or Kevin, rather, I have to start with there is never enough share gains. Right? So let's agree with that.
I am not surprised by the magnitude anywhere. In fact, the team has been really, really hard at work, and I will point to commercial as a really I think, good example. We have talked a lot about res repaint, and I and I do continue to see heightened growth there.
This-- the commercial segment talked a lot about this for the last few years. Putting additional focus on, you know, what it is that only Sherwin Williams can provide to some of these contractors, even some of these larger contractors. And so the team has been really focused and hard at work in a very data-driven, very disciplined approach.
By looking for customers that maybe had-- we had some share of wallet in the past. Is there opportunity to earn and demonstrate the value that Sherwin Williams can bring with our delivery, with our ability to know, as we talked about the ProPlus, our app, you know, our ability to help these contractors to plan to bid to grow, to travel, to better leverage our stores and delivery. So we are hard at work out demonstrating our value every day.
Some of these projects are multiyear in nature. And so the timing in which we are seeing these conversions that you are seeing in our in our share gains now are a realization of some of those projects coming to completion and new projects beginning. But I am I am very pleased about that.
I think your question on where it is more challenging, new residential, I would have to point to new residential. Industrial wood is-- it is really tied mostly to new residential just based on cabinets and furniture. Those are the areas that are still under pressure the most.
I am pleased, though, that even despite new residential is down low single digits in the first half of 26, it is flat, I think, full year in 2025. And we are outperforming given the soft single family completions. They have been very choppy to start the year with a lot of economic uncertainty, but we are continuing to take share in a really challenged environment.
The expectation across the board is we are not waiting for the market, and we need to be at a minimum of 1.5x to 2x the market. So as the market starts to move, we expect to continue to have outsized growth there. Thank you, Kevin.
Thank you.
Your next question is coming from Mike Harrison from Seaport Research. Your line is live.
Hi. Good morning. Within, the PCG segment, you said that your general industrial sales were up high single digits.
Just was looking to see if you could break down how much of that was pricing versus volume what end markets are showing strengths, in industrial? And do you think that strength is gonna be sustainable into the second half?
Heidi G. Petz
President & CEO
Yeah. Mike, the volume was up mid single digits, and price mix up low single digits. We had some FX tailwind low single digits there.
But like I mentioned in my prepared comments, the growth is really coming from general finishing and heavy equipment construction. So we are we are continuing to see transportation and energy have some headwinds, but a lot of, you know, compliment to the team. That despite that backdrop, they are out focusing very heavily on new business to offset some of that core erosion.
Thank you, Mike.
Thank you.
Your next question is coming from Laurence Alexander from Jefferies. Your line is live.
Hi. This is Dan Rizzo for Laurence. Thanks for fitting me in here.
Just getting back to the store closures. I understand this is kind of an unusual situation, but just historically speaking, how I mean, how many stores do you close kind of on an annual basis prior to this kind of period we have been in? And, also, is franchising something that is ever been considered?
For the paint stores group?
Yeah. I mean, in a normal year, know, you are you are talking a small handful, you know, 2, 3, 4. A lot of times, again, you may see those because of prior acquisitions and you got duplication.
And so the generally, the focus is getting those new stores in. And so as Heidi talked about earlier, you know, strategically finding the stores where maybe they are not getting the return profile that you want and getting those out now, it allows to go faster later, and we have that we are looking for the you know, the opportunity to be at the higher end of that 80 to a 100 stores. And then franchising is not something that, you know, we have considered.
It does not fit the long term strategy value model and so would be something that you would see us talk about.
Heidi G. Petz
President & CEO
Laurence, 1 of the things that we talk a lot about with our stores is this idea of ownership. And, you know, we our store managers own the P and L. They own the culture of the store. They own the hiring of that store.
Obviously, they own bringing business into the store. But I think Ben said it well, and it really is making sure that at the core, we are really-- we are grooming that ownership mindset. The store closures piece, we have our 6 enterprise priorities Simplification is a very, very important priority I wanna take a moment and talk about.
The reason that we are taking this approach to really pruning stores is so we can go faster, but it is by design. We do not expect to annualize that level year over year. that is why intentionally said it is behind us so that we could continue to put the new stores in when and where they make sense to support our customers. Thank you, Dan.
Thank you.
Your next question is coming from Christopher Parkinson from Wolfe Research. Your line is live.
Just on the back of that, when you take a step back as CEO, is there anything else in terms of major initiatives that you feel the Sherwin team should be even more aggressive on? I mean, you have gone through store count. You have been increasing the average price point by attacking some of the lower volume, higher price point paints.
Going after kind of the top end of the market over time? You have increased your Salesforce. Is there any 1 or 2 initiatives where you said, you know what?
We can double-down on X, Y, and Z. Even further improve our trajectory and really go after that 1.5 times market growth. Is there anything that comes to mind?
Heidi G. Petz
President & CEO
Well, a whole lot. How long do we have? So, okay.
Christopher, it is a great question. there is a couple things here, and I think when you when you look at the moat and you look at what we are trying to do especially in a downturn to put more space between us and our competitors, There are absolutely not only levers, but we talk about growth vectors, top line growth, bottom line growth, And I said this earlier, we need to be our own catalyst in this in this market that is that is not gonna simply provide 1. And so yeah, there is a lot there is a lot here. What gets me really excited, not just our stores, our employees, our the data that we own.
We have assembled the world's largest database of painting contractors. there is so much we can be doing with that. To be better partners to our customers. We have got a distribution platform that I am very proud that we can do 2 things very well at the same time, which is provide scale and agility.
Again, which our contractors, our customers value. This is an opportunity, especially in a downturn with so much volatility and inflationary pressure. This is an opportunity for Sherwin Williams to really stand tall and demonstrate our differentiation to our customers and to elevate our partnerships with our customers that is where the team's focused. that is why we are taking share, and that is why I am confident we are gonna have a strong back half.
Christopher, I will add to what Heidi said there. I think digital is another opportunity. I think the industry is under digitized, and this supports all the things all the investments that we have been making in digital.
And, really, I mean, whoever gets demand signals the quickest, they are gonna be the ones that get the disproportionate amount of share. And so our teams are actively, you know, working through that through ERP modernizations, you know, CRM work. We have talked a lot about, you know, data and how we get, insights to our businesses faster.
So I think that is that remains a really big opportunity for us that our teams are actively on. You will see us continue to talk about. Thank you, Christopher.
Thank you.
That concludes our Q&A session. I will now hand the conference back to Jim Jaye for closing remarks. Please go ahead.
Thank you, Matthew, and thank you everybody, for joining our call. And I want to reiterate Heidi's comments thanking our employees for their hard work and delivering a really strong quarter in this really difficult environment. Strategy is clear. it is working. it is unchanged.
And you can expect us to continue executing at this high level I wanna close out, as Heidi mentioned, also, again, another commercial for our financial community presentation. Cleveland, September 24. You will have the chance to see our new HQ and our global technology center.
So hope that you will many of you will be able to join us for that. Thanks again for your interest in Sherwin, and we are available as always for your follow ups. Have a great day.
Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day.
Thank you for your participation.
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