The Sherwin-Williams Company (SHW) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to the 2026 Sherwin-Williams Financial Community Presentation. I'm Jim Jaye, Senior Vice President of Investor Relations and Corporate Communications for the company. On behalf of our leadership team, who is here today, thank you for joining us in Cleveland as well as those who are online. We really appreciate you being with us today. We are especially pleased to host you in our new global headquarters and later today at our new global technology center. These are more than new buildings, they're strategic investments in continued industry leadership and a culture focused on talent, collaboration, innovation and ultimately delivering a world-class customer experience, and they're already beginning to create value for us. This year also marks Sherwin-Williams 160th anniversary. A few companies endure that long and even fewer continue evolving, continue leading and continued compounding value generation after generation. So today, you will hear how we expect to extend that track record for decades to come. As a reminder, today's presentation and remarks are being made within the context of our forward-looking statements disclosure. And as Sherwin-Williams safety is unconditional. So we always begin with what we call a safety grabber. And so should you hear the fire alarm activated, please leave through the marked exits, and our security teams will be out in the hallway to assist you. So let's get started. You know us as the leader in paint and coatings. But today, we're going to show you that we are much more than that. We are a well positioned share gaining compounder that delivers through all cycles. Our company is led by a deep and experienced team with a proven track record of delivering growth, execution and long-term value creation. Today, in a few minutes, I'm excited for you to hear from several members of our team, including our Chair, President and CEO, Heidi Petz, and our Chief Financial Officer, Ben Meisenzahl. Sherwin-Williams is the premier global paint and coatings company in the world. Last year, our sales were about $23.6 billion. And at the midpoint, of our most recent guidance will surpass $25 billion in 2026. We have over 64,000 dedicated employees operating in more than 120 countries. We operate in a global market estimated at just shy of $200 billion. And the competition there is significant. The top suppliers make up approximately 50% of that pie with the remainder being highly fragmented and made up of hundreds of additional suppliers. Over time, that pie is expected to continue to grow. And given the softer for longer environment that we've been speaking of for the last 4 years, we're confident that there's significant pent-up demand to be released ahead of us. So from 2019 through 2025, the global coatings volume grew less than 1% annually with North America and Europe actually down low single digits. That includes both architectural and industrial coatings. Some third-party outlooks are suggesting that volume growth should improve across regions in the years ahead and we expect that recovery to be gradual and uneven rather than a linear progression. But even so, the direction appears more constructive than what the industry has experienced over the last several years. U.S. demographics should continue to provide opportunity over the long run. While there are several variables to consider the pacing may vary, the fact is that Gen X, Millennials and Gen Z are still driving growth in household formations. This should support new single and multifamily housing, remodel and remaintenance over time, not remaintenance, maintenance over time. In addition, aging homeowners have accumulated substantial wealth, including $90 trillion of baby boomer wealth, which drives home spending and second home spending as well. The U.S. has underbuilt homes for more than a decade with estimates of the housing gap commonly in the $2 million to $4 million range with some estimates as high as $6 million. We all know mortgage rates remain high, but activity should gradually normalize as households adjust and the lock-in effect fades. Homebuilders also continue to offer very attractive incentives. Ultimately, the recovery we know is going to be driven by a combination of things, rates, affordability, income growth and consumer confidence. And while single-family new residential is a very important end market for us, I want to remind you that it's less than 10% of our consolidated Sherwin-Williams sales. Existing home sales have been near historic lows for much of the past 3 years, which suggests that the market is more likely to recover than to deteriorate further and existing home sales are actually up slightly year-to-date through August. At the same time, we have record homeowner equity, more than double 2019 levels at roughly $36 trillion and that provides a powerful funding source for repair, remodeling and upgrades. This slide reinforces the pent-up demand story. U.S. architectural gallons are down about 11% from the 2020 peak even as square footage put in place has continued to grow. That square footage eventually needs to be maintained, which will drive res repaint and property maintenance gallons. In sum, housing activity may remain muted in the near term, but home price appreciation homeowner wealth, aging housing stock and stay-in-place behavior continue to support paint and coatings demand. On the industrial side of our business, we compete in a broad range of premium end markets. So as you know, there's no single indicator that tells the full story for us there. But that said, the manufacturing PMI trends have improved in recent months, particularly in the U.S., which represents about half of our industrial business. As I mentioned with architectural coatings, we expect the recovery here to be gradual and choppy. So we're not waiting for a recovery in any of these markets. We're controlling what we can control, and that's catalyzing growth on the top line and the bottom line. We're determined to put even more distance between Sherwin-Williams and our competitors. And with this mindset, that I'm pleased to welcome to the stage our Chair, President and CEO, Heidi Petz.

Good afternoon everyone. Thank you for investing your time to be here with us today. Today, we're going to answer 2 fundamental questions, which is why Sherwin-Williams and why now? The answer is that regardless of the cycle, we continue to invest in a winning strategy. We continue to strengthen our advantage, especially in this softer for longer environment. We have tremendous momentum on our side. We are confident in our strategy, and even more importantly, we've got a proven ability to execute regardless. Today, you're going to see a company with a 160-year track record of delivering through all types of cycles. And you're going to see an enterprise that's becoming smarter, faster and more efficient as we enter what we believe is a new era of productivity and value creation. Our value creation story is crystal clear. We deliver differentiated solutions that help our customers be more productive and, therefore, more profitable. We often talk about success is that our customers are making more money by partnering with Sherwin-Williams. If you believe in your strategy, you do not abandon it when things get tough. You commit to creating long-term value even through a relentless focus on consistent execution and partnerships. That's exactly what Sherwin-Williams has been doing, while others have been pulling back. The result is a wider set of competitive advantages. Through a consistent and disciplined execution, we continue to find new ways to strengthen our competitive advantage across the enterprise. Our controlled distribution. This gives us unmatched proximity to our customers through our stores, our branches and our blending facilities. Pricing effectiveness, this is earned through decades of building trust and providing solutions to our customers. data. This includes the world's largest database of painting contractors. A portfolio of premium assets this is unrivaled in our industry and importantly, world-class talent, including thousands of sales reps and technical reps that are working every day side by side with our customers. Because of our consistent strategy and a very disciplined execution, we have never been better positioned to win. Our advantage is not one asset. It's our unique combination of capabilities that become stronger year-over-year. It's hard for competitors to replicate because its credibility and trust that has been built over decades. And this has been built through people, systems and continued investment. With that, I'm going to invite our operational leaders to join me on stage to share a little bit about what makes their businesses so unique. And to begin, we're going to start with our architectural business. If you join me in welcoming Justin Binns, our President of Global Supply -- or sorry, our President of Global Architectural

Thank you, and thank you, Heidi. Paint Stores Group is built around the professional painter and powered by our unique control distribution, local service, innovative products, pricing discipline, trusted relationships and unmatched customer intimacy. Our model helps Pros save time, win work, manage jobs and most importantly, improve their profitability. That's why this business continues to compound share over time. We have decades of growth ahead of us in Paint Stores Group. There are approximately 12,000 specialty paint distribution points in the U.S.A. and Canada and well over 7,000 of those distribution points today do not sell Sherwin-Williams products. And we expect to open 80 to 100 net new stores annually on the way to our next milestone of 6,000 locations. But it's not just about the number of stores. We continue to purify the mission of every store, resulting in a premium experience for customers in each of the priority segments that we serve. Our aggressive footprint strategy also drives densification in key metro markets. And this drives economy of scale, enhanced service capabilities and speed to profitability. And above all, the number of job sites are extensive. Nobody, and I mean nobody is better equipped to meet the customer where they are and service these sites through both our stores and our delivery service. Our relentless focus on serving our customers has also resulted in increased store productivity. Sales per store, PBT per store and segment margin have all increased from pre-pandemic levels. And as you can see, the investments we are making in our newest stores are generating a return at a faster pace than prior stores investments as we improve on our use of data, better alignment across our real estate resources and a continued focus on the highest returning markets. Now I'd like to welcome to the stage, Todd Rea, President of our Consumer Brands Group.

Thank you, Justin, and good afternoon. The Consumer Brands Group is highly complementary to Paint Stores Group, it serves a DIY customer in the growing Pros Who Paint segment through some of the strongest retail partners in the market. Our value comes from trusted brands, category expertise, channel partnership, field support and innovation that help our partners win at retail. And despite the tough demand environment that we're in, I'm very proud of the progress this team has made to continue optimizing our business and positioning us for upside. We've introduced a steady stream of innovative new products, we've targeted reps, ads in the field to support our retail partners. We've divested noncore businesses in China, Australia and specialty aerosols in the U.S. And we've optimized our legacy store footprint in Latin America. And speaking of Latin America, we're going to celebrate our 1-year anniversary of the Suvinil acquisition on October 1. The talent products and capabilities of this business are a formidable addition to our portfolio and are already providing additional momentum, growth and priority for our business. And with that, I'd like to welcome Karl Jorgenrud, President of Global Industrial.

All right. Thanks, Todd, and good afternoon, everyone. So the Performance Coatings Group is made up of 6 dynamic global businesses, who serve the premium industrial end markets where performance, reliability and total cost of ownership matter. And as you just heard across our architectural end markets, this portfolio operates with the same level of discipline in our strategy and our execution. We are not trying to be everything to everyone, and we have no interest in being in the commodity end markets. These $1 billion businesses are each led by a group of seasoned leaders who are here today, and I hope you guys have some time to connect with them after our presentations. But we differentiate through local service, innovative products and solutions, global reach and more than 1,500 technical service reps in the field around the world working side by side with our customers to provide them with solutions for their most challenging issues. Now there are many organic growth opportunities in front of us in every one of our divisions, and that remains our #1 priority, and this has been evidenced by the strong market share gains that we've experienced. And while we don't need M&A to grow, you should expect us to continue adding to our momentum with targeted bolt-on acquisitions at the right value, that bring differentiated technology or fill a product gap or a geographic gap. So now every day, we serve many of the world's largest global manufacturers, but a key differentiator and potentially one of the most underappreciated parts of our story is our unique asset configuration. In PCG, we've got over 300 strategically located automotive refinish branches and industrial blending facilities, which similar to our storage business provides us with meaningful competitive advantage. So think of it as combining the reach and responsiveness of a local business with the capabilities and scale of a global company. So for example, we're able to deliver small custom batch orders to customers in days versus our competitors that can take weeks. And that network allows us to serve customers large and small in a unique way and gives us access to an attractive profitable opportunities with thousands of medium and small manufacturers that value speed, service and technical support and are willing to pay a premium for it. So the team continues to drive the performance of this business higher. And over an extended period of soft demand in many of our global end markets, we've grown sales in the mid-single-digit range and growing adjusted PBT even further. We've improved adjusted segment margins by several hundred basis points into the high teens, and we are confident that the 20% margins are absolutely attainable for this portfolio. Now for both architectural and Industrial, our success would not be possible without the support and high level of collaboration and execution with our global supply chain organization. So with that, I'm pleased to turn it over to our President of Global Supply Chain, Colin Davis.

Thank you, Karl, and good afternoon, everybody. Our global supply chain continues to be a competitive advantage but what truly separates Sheron-Williams apart is that every link in this chain creates competitive advantage on its own. And together, they form a system that drives superior customer service, stronger scale and efficiency and long-term value creation in ways that are exceedingly difficult to replicate. It starts with R&D, a globally connected innovation-driven organization, which I'm excited to -- for you to see later this afternoon. Our global procurement team build strategic relationships with key suppliers that enable us to grow together profitably. Our planning teams use AI tools to respond faster to ships in customer demand, delivering high levels of service at the right cost. Our integrated manufacturing platform gives customers supply assurance and globally available technology. We've also added new capacity, so we are well positioned for the demand we see ahead. Our distribution centers are highly automated. They deliver consistently high service to our paint storage network and our retail partners. Our award-winning company-owned fleet gives us security of supply and helps us manage costs more efficiently. At every step of our supply chain, our team are focused on 4 things: safety, quality, service and cost. What makes this even more powerful is how we leverage our scale as 1 company. We drive operational advantage by leveraging our capabilities across the enterprise. Here are a few examples of how that works for our architectural and industrial portfolios. Our global manufacturing footprint gives us the right capacity in the right locations close to our customers. Our procurement team use enterprise-wide scale and a preferred raw material strategy to reduce complexity and strengthen supply chain resilience. Our R&D teams share technology platforms across architectural and industrial product lines, creating differentiated solutions and getting them to market faster. Our distribution centers allow us to position inventory more strategically across the network, reducing freight costs, improving service and reducing working capital. I'm highly confident about what we're doing today but I'm even more confident about where we're going. Now let me turn it back to Heidi. Thank you.

All right. Thank you, Colin. So clearly, you can see that the combination of our scale and our agility is evident across the enterprise. We can solve harder problems, we can consistently serve customers better, but we're creating advantages that competitors cannot easily create. We're leveraging these advantages consistently and aggressively. We are not waiting for a market recovery. We are acting now controlling what we can control, and catalyzing growth importantly on both the top line and the bottom line. Our enterprise priorities are the framework of this growth. They're part of our success by design operating model. and it helps us to continuously improve but also to adapt and to find new ways to create value. While above-market growth is the ultimate outcome, the other priorities that you see here enable and accelerate our ability to get there. We continue to invest in the pursuit of new accounts and share of wallet. Our share gains are becoming increasingly visible across multiple end markets and we do see significant runway ahead. Part of the strength of our portfolio is also our inherent annuity model. A new single-family home at some point needs to be repainted. New commercial and multifamily construction eventually requires maintenance for up or simply to compete. And Protective & Marine, more than half of the revenue comes from ongoing maintenance. These are a few examples of durable revenue streams. Innovation also plays an important role in catalyzing growth. As we've stated now for nearly a decade, and we've demonstrated for even longer. We innovate both in and out of the can that allows us to provide more comprehensive solutions that improve our customers' productivity and ultimately, their profitability. Our new global technology center in Brexel will only accelerate our ability to innovate and provide that value, and I am very excited for all of you to be able to enjoy that later today. Our digitization priority is building a smarter, faster, more efficient Sherwin-Williams by using data, AI and process discipline, we can generate better insights that lead to better decision-making. We can improve our forecasting, we can increase our sales and service productivity, but ultimately, we want to make Sherwin-Williams an even easier company to do business with. There are many examples of AI in our business today. As Henry is a really great example of AI in action, named after our founder, Henry Sherwin. This tool mines our internal data and our expertise. To enable our sales and our service employees to answer customers' questions faster or consistently, but importantly, more confidently. Another great example, the Color Expert app also uses AI to speed color selection, which helps our painters spend less time getting to color and more time painting. We continue to expand on our digital tools, including our Pro Plus app which really helps our professional painters manage their business better. And we're really pleased that adoption continues to grow here. As Colin said, our supply chain responsiveness is a competitive advantage and we continue to invest in it. Our new manufacturing and distribution center in Statesville, North Carolina is now fully operational. With a 10-year capacity planning a road map, we are confident that we are prepared for the volume that the market recovery will bring. Simplification is another good example of an enterprise priority that helps us to think about how we unlock value. For example, there are still opportunities to optimize our global asset footprint, and we're taking a very thoughtful and disciplined approach to provide premier service, but at the right cost. Next, our customers are increasingly looking for sustainable solutions, and we are in lockstep with their business goals. Today, approximately 30% of our sales come from products from -- with third-party sustainability-related certifications or declarations, and we expect that percentage to grow over time. And finally, the ultimate engine that drives our success is our people. Talent and culture are at the core of everything that we do. So with a clearly defined strategy, along with 64,000 global employees and these key enterprise priorities in action we have never been better positioned for growth. As we're building on this solid foundation, I'm equally excited to talk about what is ahead. As you've just heard, each operating group on its own is powerful in its own right. But the bigger opportunity as we are shaping right now is unlocking value for our customers across the entire enterprise. Only Sherwin-Williams can deliver solutions that combine specification, product, service and digital supply chain capabilities. This is true across our architectural and our industrial portfolio and applications. It allows us to simplify what is complex for our customers. And this really is one Sherwin-Williams. One strategy, one trusted relationship and one corned solution for complex customer needs. We're excited about this capability and all that is ahead, but let me point out to you that the building you're in is a perfect example. More than 90% of the interior and the exterior surfaces in our headquarters are coded with Sherwin-Williams products from multiple divisions throughout our portfolio. The walls, as you would expect, to have our architectural coatings. The metal on the chairs and tables in front of you uses our powder coatings. The middle excursions on the windows uses our coil coatings. The wood and the doors and this podium use our industrial wood Lacker and even the cans of water that are in front of you are using our non-BPA packaging coatings. So from architectural coatings to our industrial coatings, this very building shows you a very good example of these capabilities that are coming together in the real world, but I want to give you some more examples. In Nashville, our solutions are supporting a world-class football stadium. There are many different services that needed to be coated obviously, within the stadium, across architectural, Protective & Marine, general industrial wood and coil applications. This is another example of how the full Sherwin-Williams portfolio can solve complex, high-profile customer needs across multiple substrates and multiple applications. Another great example in Fairfax, Iowa, we're applying the same enterprise approach to data center construction, combining our architectural and our industrial solutions across interiors, exteriors structural steel, floors, roofing, tanks and mechanical systems. Data centers are a strong example of where our breadth our technical expertise and our coordinated execution can create very meaningful value. But data centers are only a portion of the AI infrastructure build-out that we know is coming. The bigger opportunity, if you look at the slide, is what makes up the base of the mountain with markets that require many of the capabilities that you've heard about today, including semiconductor fabs, water infrastructure and the power grid. This is a multiyear build-out and includes another long-term reoccurring revenue stream related to maintenance. Across the entire ecosystem, no one is better positioned for this mega trend. So today, you've heard about the significant market opportunity ahead. You've heard about our relentless focus on execution and our key priorities. You've heard how we're leveraging the enterprise to do what no one else can do in our industry. But most importantly, I hope what you've really heard is that we are strengthening our advantage and that this 160-year-old company has never been better positioned for what's ahead. Our financial strength and our optionality will create shareholder value for years to come. And with that, it's my honor to include and bring Ben Meisenzahl, our Chief Financial Officer, up to the stage.

Thank you, Heidi, and good afternoon, everyone. It's really great to see you here. at our new headquarters. So I appreciate you joining us. So you've heard about the market opportunity. You've heard about the investments that have strengthened our positions and the growth opportunities across both our architectural and industrial portfolios. So what I'm going to do today is show you how our unique and differentiated strategy is connected to our financial outcomes. And I'm going to do that using some of our recent financial trends as proof. But before anyone sharpens our pencil, looking for a guidance change today, I'm going to make it easy for you. We are not going to be updating the guidance that we provided on our July 28 earnings call and our outlook for 2026 remains unchanged. For the last several years, it's tested every company. Yet through each new headwind, Sherwin-Williams has emerged stronger and we grew sales while building a more resilient business. You just heard that from the teams. We've expanded margins, we've generated cash, and we've continued investing in the long term. That track record -- that demonstrates why Sherwin-Williams and the opportunity to apply a stronger business model to improving end markets demonstrates why now. This continues to be our financial model for creating shareholder value. A lot of you have seen this slide in the past. We grow profitable market share. We expand return on sales -- we earn an attractive return on the capital we deploy, and we convert those earnings into cash. These measures also enforce discipline. Together, there are a set of financial framework that helps guide where we invest and where trade-offs are required to ensure the best use of shareholder capital. This is how strategy becomes measurable execution and measurable execution becomes shareholder value. However, our financial model is only as strong as the result of producers from COVID and supply chain disruptions that brought 40% and plus raw material inflation. We've had multiple geopolitical events, higher interest rates. And now we're in a new wave of broad inflation. Together, these external factors have created 1 of the most challenging operating environments our company has ever faced. However, through this period, our results have remained consistent. We've grown sales more than 5% annually. Adjusted EBITDA grew more than 6% annually. Our adjusted EPS has increased an average of 7% per year, and our operating cash reached approximately $3.5 billion last year. So our ability to create value through all types of operating environments, while continuing to invest in our business is proof of the strength and resilience of our differentiated model. If we can deliver these results through years of headwinds and uncertainty, imagine what's possible when our controllables are combined with even a modest end market recovery. So if there's one takeaway from this slide here, Its growth is not dependent on a market recovery. It's driven first by actions we control. Despite the uneven end markets, the periods of high inflation and higher interest rates, we've still grown revenues. In fact, we've grown revenues every year for the last 16 years, and that's because share gain has been our largest and most controllable revenue growth driver. Our management team showed today how we've deliberately strengthened our model through investments in new stores and sales reps, technology, product innovation, acquisitions and customer relationships. Those investments as well as a strong focus on new account wins, are translating into consistent share gains across our end markets. Winning share across end markets is what drives long-term growth. And what gives me confidence in our future growth algo, is that we've been doing this in a flat to down market year after year. We're turning market leadership into sustainable revenue growth through service, innovation, in execution. If market conditions improve, that's an additional tailwind, but we're not relying on it. The headline is simple. We've proven we can grow by taking share -- when the markets recover, we benefit. But while the market stalls, we still expect to win. I talked about our ability to drive growth through our controllable actions, our gross margin expansion demonstrates the quality of that growth. Gross margin is the catalyst that fuels reinvestment in future growth. The stronger our economics become -- so more aggressively, we can continue to invest in winning share. And despite the recent market headwinds, we've expanded gross margin from roughly 42% to nearly 49% over the last 7 years. and that doesn't happen by accident. It's the financial outcome of everything you've heard today. It's the pricing discipline, it's the product innovation, it's supply chain scale, it's simplification -- and as Heidi talked about earlier, it's providing solutions that our customers are willing to pay for, so that they can become more productive and more profitable. And while we're proud of the progress we've made, we know that even more is possible. We've demonstrated our ability to grow in any market. We've demonstrated our ability to improve the economics of the business in any market. And together, that's the foundation of long-term value creation. Since our first full year post the Valspar acquisition, we've expanded our adjusted operating margin over 300 basis points despite the market challenges that I've already talked about. However, we're most proud that we have expanded adjusted operating margins in each of the last 4 years. Some may view margin expansion and growth investment is competing priorities. At Sherwin-Williams, we view them as complementary. This is yet another example of our controllables at work. We don't control interest rates. We don't control inflation. We don't control the geopolitical events, but we do control pricing discipline, premium mix shift, simplification and where we choose to make operating expense bets. And importantly, we have not yet seen the full benefit of operating leverage. We've been expanding margins while industry volumes have remained under pressure. When volumes improve, it's going to be layered on to a structurally stronger business. We've expanded adjusted operating margins while without relying on that market recovery. That outcome speaks to the strength of our model and gives us confidence in the earnings power of the business moving forward. Our margin opportunity is not based on an assumption of moderating input costs or improving macroeconomic conditions, but it is underpinned by structural self-help levers. These are not viewed as temporary spending reductions. They are intended to produce sustainable improvements in unit cost, service, speed and operational efficiency. These internal levers create lasting financial resilience. This is disciplined execution in action. Lower structural cost helps fund growth. Growth creates scale, and scale creates additional productivity, and that is a repeatable model, and it's largely within our control. So this is where growth, margin and productivity reinforce one another. This is what happens when you combine differentiated capabilities in an operating model that is well positioned for long-term growth and disciplined execution. Every investment, every capability, every strategic choice that we have discussed today ultimately converges here. And that's what makes the opportunity ahead so compelling. Over the last several years, we've deliberately strengthened the business by expanding our store network, modernizing our digital capabilities, investing in AI, increasing supply chain capacity. And as Heidi just talked about, building enterprise solutions. We have invested in these capabilities, capacity and competitive advantages ahead of the demand recovery we believe is coming. And as Jim shared earlier, we see multiple long-term demand drivers emerging across U.S. housing, maintenance in AI infrastructure end markets. We don't need all of these demand drivers to materialize to create value, but when they do, they will be layered on to a company that is significantly stronger than the one that entered this cycle. Growth and margin expansion only create value, if we earn strong returns on the capital required to produce them. Return on net assets employed has improved from 13% in 2018 to more than 20% in each of the last 3 years shown here, even with our continued investment in the new stores, supply chain capacity technology and strategic acquisitions, and we are confident that we can move returns into the mid-20s range. This reinforces an important point. We are not pursuing growth at any cost. We expect profitable growth, disciplined working capital and attractive returns on both new and existing investments, and we have the accountability framework to ensure that. High returns reflect the quality of the operating model, sustained high returns or what allow value to compound over time. Our capital allocation priorities remain consistent. Strong returns and cash generation give us choices. Our philosophy is straightforward. We do not hold cash. We deploy it where we believe we can create the greatest long-term value. First, we reinvest in the business to support growth, service, innovation and productivity. Over time, we target capital expenditures below 2% of sales, although individual years may be higher when attractive capacity for automation investments warranted. We'll continue to return excess cash through a dividend that targets approximately 30% of our prior year GAAP EPS. Then we pursue strategic acquisitions that accelerate our long-term strategy. We do not need acquisitions to grow, so our criteria remains very disciplined. Absent strategic M&A, we will aggressively buy back our shares which is the scenario you've seen play out this year. Cash generation is what connects operating performance to strategic flexibility. An underappreciated strength of Sherwin-Williams is our ability to convert earnings into cash. Our mid-teens net operating cash as a percent of sales demonstrates the efficiency in which we turn revenue into deployable cash. Over time, cash generation gives us options, it funds growth, it funds acquisitions, it funds share repurchases and allows us to continue investing back through all cycles, while others go back on defense and pull back. Cash is not the end of our financial algorithm though, it is what allows us to reinvest where we have an advantage and then we begin the cycle again. We've consistently translated strong cash generation into shareholder returns. We've increased our dividend annually for nearly 5 decades, while repurchasing approximately 18% of outstanding shares since 2017. The most important message here is our consistency. We returned cash across cycles, without compromising our ability to invest in long-term growth. That's not opportunistic, that's systematic. And it's another example of the differentiated strength of our company's financial model. Over the last 8 years, we've returned roughly $17 billion to shareholders, while continuing to strategically reinvest in the business. We've never viewed reinvestment and shareholder returns as competing priorities. Our disciplined execution enables both. Our balance sheet has been tested alongside the operating model, and it has also proven itself -- we've managed through big headwinds, while maintaining the flexibility to continue to make strategic investments. That's why we view our balance sheet not just as a financing tool, but as a strategic asset. And this is what financial optionality looks like in practical terms. We continue to maintain a strong profile. Our financial strength creates optionality. We have liquidity, investment-grade ratings and substantial borrowing capacity. This allows us to continue executing our strategy regardless of where the macro environment goes next. When opportunities emerge, we have the financial capacity to act. Our financial strength allows us to stay on offense. Despite the continued uncertainty of the macroeconomic environment, we are reaffirming the midterm financial targets we established at our 2024 Investor Day. These targets continue to reflect our confidence in the strength of our strategy the resilience of our differentiated operating model and our ability to execute over time. While we are not changing those targets today, we continue to view them as important milestones on our journey, not the finish line of what Sherwin-Williams can achieve. And as I talked about earlier, adjusted operating margin expansion is the clearest scoreboard for our strategy. It reflects the combined impact of growth, pricing discipline, productivity, cost management and operating leverage. If we continue to expand margins consistently, I'm confident the other elements of our financial algorithm will follow. So looking back on our presentation today, it boils down to these 4 drivers of shareholder value. the sales enablement investments that we presented, they drive above market share growth. Our simplification efforts, the supply chain investments and productivity initiatives, they improve our return on sales. The disciplined way we allocate capital across stores, supply chain, digital, M&A and working capital improves our return on net assets employed. And all of that translates into strong cash generation, giving us financial optionality. These aren't 4 independent metrics. They all reinforce each other. The strength of our differentiated operating model drives share gains. Share gains drives margins, margins drive returns, returns drive cash generation, and cash allows us to invest back into our business so that we can continue the cycle of making our models stronger. The question is no longer whether the model works. The question is what happens when a stronger Sherwin-Williams is matched with improving market conditions, and that's exactly why we believe the opportunity ahead is so compelling. So let me close where Heidi started. Why Sherwin-Williams? Because we've demonstrated the ability to grow our top line, expand margins and generate cash through one of the most volatile operating environments in our recent history and why now? Because the company leaving this cycle is fundamentally stronger than the one that entered it. We have more growth platforms, we have better capabilities and a balance sheet that provides optionality. We've proven what this business can do under pressure. The opportunity ahead is not just improving market conditions. It's what's possible when those tailwinds are amplified by the exceptional execution on the things we can control. After 160 years, Sherwin-Williams continues to be a growth company, and that is success by design, and we believe that the best chapters of our story are still ahead. So I thank you for the time here this afternoon. And I'd like to call back up Heidi, Jim and our Group President for our Q&A session.

All right. Well, thank you, everybody, for listening to our prepared remarks, and we're going to begin our Q&A session right now. So please raise your hand if you have a question. and a microphone will be brought to you. Please state your name and your company. So we all can hear where you're from. So we'll start off, Heidi?

A lot of hands in the air. I like it. Okay. Patrick, we'll start over here with you.

Patrick Cunningham with Citi. So Heidi, you've talked about in the past couple of years, this jump ball opportunity with disruption in the industry. We're in this period of heightened volatility. I think you've seen good evidence that some of the share gains have played out. But -- can you maybe talk about the success or pipeline of some of the large enterprise account initiatives? What market segments are you seeing the most traction? Where do you still feel like the contracting cycle needs to play out?

Yes. Great. So I'm going to -- I'll start that, and then I'll hand it to the operational leaders here, maybe Justin and Karl, if you want to maybe highlight some of the end markets. I have characterized it as a jump ball environment, and it's interesting because as we came through the Kelly more bankruptcy a few years ago, as you'll remember, it was a $300 million that's now in our run rate, put that aside. And then the PPG now PPC really truly presented a unique environment competitively because there were a lot of contractors that were being told business as usual. And I think the execution was anything but that. And so it was the right competitive environment, and it still is -- these contractors are highly habitual. They're looking for routine and dependable service. And what we say is more predictability as a supplier. And so we've been out of the team. I'm very proud of the organization. Maybe, Justin, if you want to talk about some of the approaches we're taking here to be very data-driven and very surgical in our approach.

Yes. I think where I would start with is we don't wait for the jump ball. We create the jump ball. So there's a lot of activity that's going on prior to that even coming to fruition, right? So do we utilize the data as Heidi just touched on, to really truly dig deep and recognize where we have the opportunities and where we need to go. And -- this is a great example, too, where technology comes into play from an AI perspective because really, we can take that data, we can utilize that. We can create next best actions for our team so we can direct them exactly where they need to go and what opportunities they need to pursue. We're seeing that play out. We're still -- there's a ways to go in our journey, but we feel comfortable about where we are and we know that we're focused on the right things and the right offer.

Karl, anything from your?

Yes. I mean from the industrial side in our portfolio, we talked about share gains have been a big part of our success here in the last couple of quarters and really the last couple of years. And every 1 of our businesses, all 6 of them have tremendous runway and opportunities in front of them. And I think we've seen that in our numbers. If you look at even last quarter, all 6 divisions up year-over-year in sales in a really tough industrial market. So really proud of what those guys are doing. And like I said, the value propositions that we're bringing are working. The areas that we're focused on in these premium segments within the 6 portfolios is coming to life, and we're starting to really see the benefit of that work coming together. So...

One final comment, and then we'll go to the next question here is there's -- we're out with customers on the customers very often, and I hear this. You guys are -- you just do what you say you're going to do. And especially in a volatile environment, you have a supplier that is a safe harbor and a flight to safety. I mean I hear you guys are so dependable, you are so predictable. And so I share that because the backdrop of the software for longer, our customers are feeling that volatility. They're living it every day. So we often say, we don't want us to be the issue. You've got a lot on your plate, but we don't -- we want paint to not be the issue. We want to make sure that we're adding that value every day. So good question. Okay. David? We're kind of Serpenti, We'll alternate side, right?

Dave Begleiter, Deutsche Bank. On the operating margin expansion, do you expect more to come from gross margin expansion or SG&A leverage? And on the gross margin, as you push above maybe 50% -- any concern that either you risk pushback from customers or invite further competition.

There's 2 questions. Ben, why don't you start with the operating margin of...

Yes. I think if you're going to come from a combination of both. I mean, this is why we talk about adjusted operating margin. And so each of the different businesses. One of the reasons we try to talk about an adjusted operating margin and not gross margin so much is that the cost to serve in each of our segments is very different. We have some businesses that might have lower gross margin than the average, but they're cost to serve that business, that SG&A could be single digits in some cases. And so that's why we like looking at the operating margin. And so if you see some businesses that are growing that fit a profile like that, it could put pressure on the gross margin, but we can still grow that adjusted operating margin. If I point you back to the midterm targets and you look at Paint Stores Group growing mid-single digit to high single digit, that's our biggest segment. It's got the biggest growth opportunity. It does have the biggest -- the highest gross margin. And so even just mix between the businesses as you see the U.S. architectural improve. That's also going to help lift our gross margin up to that target and beyond. But this is why, again, we want to continue to come back to -- and we've talked about openly with you guys before that adjusted operating margin is that's going to be a true barometer, if growth is happening and a different vertical, different part of the business than maybe where the average of adjusted SG&A or just gross margin is, we can still grow that adjusted operating margin.

But your second question on gross margin and elasticity is kind of what sense you're getting to. First, I'll remind you, as we think about gross margin, we're not -- nothing has changed in terms of our short midterm targets, but we don't believe that's a ceiling. It's also a core belief of what drives our potential margin expansion over time has to start with volume, right? So I wouldn't start with price has to start with volume and then has to come in next with volume and then has to have -- I mean we need volume. Obviously, price plays a role, but mix shift, even in an inflationary environment because 85% of our contractors' cost is labor. We continue to drive premium mix shift up and so our ASP is continuing to grow even in this environment. So it's a combination of a lot of things, self-help will also be an important unlock in addition to price. So I would think of them in that order. It would be volume first, certainly mix, I would look at price and the self-help. So that's not a ceiling for us. Okay. We did 2 on the site. We'll do 2 over here. Okay. Let's start here -- that's all right. You can go. We're going to get to you, too. Mike you'll be now.

Mike Rehard, Melius Research. Thanks for the presentation today. I wanted to 0 in on the growth targets, mid-single digits over the cycle. And how do you think about that number relative to above-market growth? I'm trying to understand if the market grows 2%, you expect to go 4 or 5. What's that delta -- and specifically in Paint Stores Group, how would that translate to the mid- to high single digit? And I guess just as a subset of that, are we talking about new accounts versus deeper wallet penetration or a combination?

Yes. So just really quickly, and then Ben is going to take this question. If you look at our leaders in the back of the room here, they would all know when we talk about above market growth, -- the expectation is that we are at a minimum 1.5 to 2x the market. So that is the -- those are the marching orders when we talk about, it's not this loose esoteric ambition. It's got to be that. But with your -- we'll then walk you through the assumptions in the mid-single digits.

Yes. I mean if you look at the combination, again, going back to the midterm target with Stores Group to grow that mid-single digit to high single digits, you talk about industrial growing mid-single digit. That's going to include bolt-on acquisitions. And so even though we talk about not needing acquisitions to grow, we do still look to the geographic and technology acquisitions that Karl talked about. So that will be part of helping that algorithm as well. We've talked about Consumer Brands Group be in that low single digit with DIY being a little more challenging right now here in North America. And it's going to come from is how you talked about its volume. It's our ability to get price and we generally price with -- when you see inflation, but you're also getting price because of all the value that we're bringing. And you see it in our -- some of the investments that we made, some of you have talked in maybe even challenge us on our SG&A, but I think what you see in the cycle and the trend and the results is that those investments allow us to have that ability to grow sales, to keep that high margin and turn that back into investments that, again, our customers are willing to pay for because it helps them be more productive and profitable. But I think you can see, again, in each of the different areas, we did do the acquisition of Suvinil last year. I wouldn't take that as a signal that we're looking for more international architectural, but in the right moments in the right places with assets that we've looked at for a while. M&A will play into that algorithm as well.

But we can't discount share wallet to your point. I mean certainly, new accounts continue to chase share gains. But when you think about in this environment because there's such a volatile backdrop, if we can continue to be at that point of stability, our ability to gain incremental share of wallet where typically, these customers are looking for more diversification. I hear often, we can't afford not to be all in with you in this environment. You have an asset base -- you have a willingness to listen and partner differently. It's a unique environment. It goes back to the original jump ball question. So we're going to take share, we're going to earn that share of wallet. Okay. Hands straight up.

So I think it was Justin made a comment that you guys have about 5,000 stores now going to 6%, and there's 7,000 other stores in the One, you gave us your revenue per store. What would you estimate the revenue per store of that other 7,000. And then as you go to 6%, what does that 7,000 number do? Does it come down commensurate with your thousand? Or does it come down even more than that? How does the market play out as you're growing into it?

Do you want to start?

Yes, I can start. I mean on the average per store as far as competitive set, it's tough to say, right? Because you have different competitors it's a pretty wide range across just depending upon the specialty side, right? What we do know is we feel really, really confident with the number that we put in front of you today. we're really confident in where we're headed. And one of the things that I touched on there, specifically, was what we're doing from a segmentation standpoint. And when you look at that, that's really going to be a differentiator for us because we know that if we can get stores more pure we can grow faster. So there's plenty out there for us to get I think you and I both talked last night about some of that segmentation on how we're looking at our industrial businesses differently. So as an example, we have industrial stores now that we've started to stand up across the U.S., which has made us more hyper focused on that segment. we don't only just see lift in those stores. We see lift in the stores that are surrounding those stores in that pod or in that area, that general area.

So I'm going to get it to Ben here in a second. Justin mentioned this store mission. So we talked about segment purification. And so the more focused we are on following our data and getting more kind of customized, if you will by segment. We see not just like within a store, but within a territory. So then comment on your kind of store level question.

Yes. I mean I'll just add maybe a different angle to that and things we've talked about too, when we do acquisitions, and Kelly-Moore is a good example. Even though we're dense, even though we have reps and stores in their market, they're still upwards of 30%, 35% of those accounts that we didn't know existed there. And so I think that speaks to the opportunity that's in the 7,000 stores. And the other thing I would tell you as well, we have our own data. We talk about the opportunity to get the next decades of growth. We're using benchmark data externally, even some of you in here have written about opportunities where we have white space that we're not playing in yet. And so I can tell you we're triangulating all of that, and that's a good foundation of the thesis and the opportunity that's forward as well. But it's a lot of POSs that still don't have Sherwin. And some of them may not be the same size of our stores, but Justin and his team are out there trying to get that -- make that number a lot smaller.

I would add that, that 12,000 that we referenced is specialty paint distribution points. That does not include home centers where we don't participate today. So that's opportunity on top of that. .

Okay. Let's go right here. Greg, you'll be there we'll try to get to everybody. We'll talk back. How about that?

Kevin McCarthy with Vertical Research Partners. You've talked a few times about the Kelly-Moore experience as well as the PPG transition to PPC One of the things that I think is interesting about the global coatings market today is you have 2 very large competitors that are preparing to merge -- so I'd welcome your thoughts on what you're seeing out there in today's marketplace in the areas where you overlap with those companies. Often there are some combination of understandable distractions or concerned customers another way of phrasing it is, should we view this as an opportunity to accelerate share gains in any areas where you compete?

Yes, and I'll hand this to Karl to give you a little bit of perspective on why we're so confident of that. I think distraction and disruption is real. And we want to take full advantage of that.