Participants

James Jaye; Senior Vice President - Investor Relations and Corporate Communications; Sherwin-Williams Co

Heidi Petz; President, Chief Executive Officer, Director; Sherwin-Williams Co

Allen Mistysyn; Chief Financial Officer, Senior Vice President - Finance; Sherwin-Williams Co

Greg Melich; Analyst; Evercore ISI

Vincent Andrews; Analyst; Morgan Stanley

David Begleiter; Analyst; Deutsche Bank

John McNulty; Analyst; BMO

Chris Parkinson; Analyst; Wolfe Research

John Roberts; Analyst; Mizuho

Josh Spector; Analyst; UBS

Duffy Fischer; Analyst; Goldman Sachs

Ghansham Panjabi; Analyst; Baird

Michael Sison; Analyst; Wells Fargo Securities LLC

Jeff Zekauskas; Analyst; JPMorgan

Chuck Cerankosky; Analyst; Northcoast Research

Mike Harrison; Analyst; Seaport Research Partners

Michael Leithead; Analyst; Barclays

Arun Viswanathan; Analyst; RBC Capital Markets

Aleksey Yefremov; Analyst; KeyBanc Capital Markets

Kevin McCarthy; Analyst; Vertical Research Partners

Adam Baumgarten; Analyst; Zelman

Garik Shmois; Analyst; Loop Capital Markets

Patrick Cunningham; Analyst; Citi

Steve Byrne; Analyst; Bank of America

Aron Ceccarelli; Analyst; Berenberg

Eric Bosshard; Analyst; Cleveland Research Company

Carol Cheung; Analyst; Jefferies

Presentation

Operator

Good morning. Thank you for joining the Sherwin-Williams Company's review of fourth quarter and full-year 2024 results and our outlook for the first quarter and full year of 2025. With us on today's call are Heidi Petz, President and CEO; Al Mistysyn, Chief Financial Officer; Paul Lang, Chief Accounting Officer; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This call is being webcast simultaneously in listen-only mode by Issuer Direct via the internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com, beginning approximately two 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 statements speak only as of the date on 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.

James Jaye

Thank you, and good morning to everyone. Sherwin-Williams delivered strong fourth-quarter results that concluded a record year for the company. In what remained a very choppy demand environment, full-year consolidated sales increased slightly driven by our deliberate and targeted investments to gain share and overcome softness in core accounts.
Our gross profit dollars and margin expanded, EBITDA dollars and margin expanded, and adjusted earnings per share grew by near-double-digit percentage to $11.33 a share. Consolidated sales in the fourth quarter increased by low single-digit percentage and gross margin improved slightly over a very strong level a year ago. As we expected and previously described, year-over-year growth in SG&A moderated to a low single-digit level. Adjusted earnings per share quarter increased by 15.5%.
In terms of our segments in the fourth quarter, paint stores group sales increased in the range we expected led by high single-digit growth in residential repaint and protective and marine. Consumer brands group sales decreased in the range we expected, all related to unfavorable FX as volume and price mix were slightly positive. Within performance coatings group sales were slightly below expectation as strength in packaging and coil was offset by softness in other divisions. Adjusted margin expanded year over year in all three operating segments. The slide deck accompanying our press release this morning provides more detail on fourth-quarter segment performance.
Let me now turn it over to Heidi, who will provide a few full-year 2024 highlights before we move on to our 2025 outlook and your questions.

Heidi Petz

Thank you, Jim, and Happy New Year to all of those that are listening. I hope you had a wonderful holiday season and are geared up for the year ahead. I know you're eager to get to our 2025 outlook. But first, I wanted to take a moment to reflect on what our 64,000 dedicated global employees have achieved over the last year.
I'm proud of what our team has delivered in 2024. We entered the year amidst an extremely choppy demand environment that, quite frankly, never improved meaningfully. We knew this was a possible scenario, and we doubled down on controlling what we could control.
We stayed true to our strategy. We made targeted investments, focused on share gains, and executed on our enterprise priorities. We continue to deliver innovative solutions for our customers and in a disruptive competitive environment certainly stood out by being a consistent, reliable, and dependable partner.
In addition to the strong margin expansion and earnings growth that Jim described a moment ago, it was another very good year of cash generation which was $3.2 billion or 13.7% of sales. We continued to execute our disciplined approach to capital allocation during the year, including $2.5 billion, which we returned to shareholders for share repurchases and dividends. In terms of CapEx, we invested $1.1 billion, including approximately $532 million for our new headquarters and R&D center, which we expect to begin occupying this year. We ended 2024 with a net debt to adjusted EBITDA ratio at 2.2 times.
Looking at our reportable segments on a full-year basis, paint stores grew by a low single-digit percentage. Residential repaint drove this segment growth and increased by a mid single-digit percentage basis. This was strong performance given anemic existing home sale and is the clearest example of a return on our prior investments. New residential and commercial both increased by low single-digit percentages in a challenging rate environment. Flattish year-over-year segment margin reflects our continued growth investments, which we are confident will continue to drive above market sales over the long term.
Consumer brands had a challenging year on the top line with lower sales resulting from soft DIY demand and unfavorable FX. Adjusted segment margin expanded back to our target level due to higher fixed cost absorption in the manufacturing and distribution operations within the segments. At the same time, we maintained our investments to support our customers despite weaker than expected volume in North America. Performance coating sales varied by division and geography. Acquisitions added a low single-digit percentage in the year but was offset by unfavorable price mix and FX. Coil was the strongest performer driven by new account wins.
We're also pleased with packaging which returned to growth as we won new accounts and recaptured the majority of previously lost share just as we indicated we would. Industrial was up mid single digits driven by an acquisition. Accelerated share gains in auto refinish were not enough to overcome softness in core account driven by lower insurance claim. General industrial, our largest division remained under the most pressure during the year with softness in heavy equipment demand. Adjusted segment margin expanded to 18%, the highest level since the Valspar acquisition in 2017.
Throughout 2024, we continued to operate from a position of strength. In fact, our confidence in our strategy along with our team's ability to execute led us to increase several of our midterm financial targets at our Investor Day this past August. I am confident we will achieve those targets over time given a more consistent demand environment. As we begin 2025, I'm also highly confident that nobody is better positioned than Sherwin-Williams.
During our October earnings call, we were among the first to describe the demand environment as softer for longer with an expectation that the first half of 2025 will likely remain choppy. Three months later, we have seen little evidence to change that view, and given the indicators that we do see, several end markets may not improve until 2026.
On the architectural side of the business, residential repaint demand has become slightly more encouraging as existing home sales have begun to show modest signs of recovery and Harvard's LIRA index shows a return to very [ flat ] growth. Residential repaint remains our single largest share gain opportunity, and we significantly outperformed the market in 2024 given our targeted investments in sales reps, training and digital tools, just to name a few. We would expect similar outperformance in 2025.
Looking at new residential, year-over-year growth in single-family starts has been choppy over the last several months. Rate cuts have had little impact and mortgage rates remain well above 6%. We would expect to continue strengthening our homebuilder customer relationships to outperform the market. In commercial, we've been clear that we expect completions to be soft in 2025 as year-over-year multifamily starts have been mostly down by double-digit percentages since the middle of 2023. Even if commercial starts do pick up in 2025, which seems unlikely given a consistently soft architectural billing index, they won't turn into painting and completions until well into 2026.
Property maintenance spending still appears to be idling and neutral. On the DIY side, we do not currently see a macroeconomic catalyst driving meaningful improvement in consumer demand. On the industrial side, the PMI numbers for manufacturing in the US and Europe have been negative for multiple months, with Brazil and China being slightly positive. We expect coil to grow again driven by significant new account wins over the past year and a continued focus on new accounts this year.
We're also confident in packaging growth as we gain share and support customers converting to our industry-leading, non-BPA coating by 2026 to comply with European Commission mandates. In protective and marine, the project pipeline remains solid, though the timing of starts remains variable. We expect auto refinish demand to remain choppy driven by continued softness of insurance claims, so our share gains should become more evident. Industrial wood will likely track with new residential, given the furniture, flooring, and cabinetry end markets it serve. We expect general industrial demand to remain soft throughout the year.
In summary, the market is not going to give us a lot of help this year. We'll continue to remain very aggressive with a focus on helping our existing customers grow as well as focusing on targeted share gains. Against this backdrop, we are providing guidance that we believe is very realistic. Should the market be better than we are currently assuming, we would expect to outperform the guidance we are providing to start the year.
Moving on to our specific outlook, the slide deck issued with this morning's press release includes our expectations for consolidated and segment sales for the first quarter of 2025. The deck also includes our expectations for the full year, where consolidated sales are expected to be up a low single-digit percentage and diluted net income per share is expected to be in the range of $10.70 to $11.10 per share. Excluding acquisition-related amortization expense of approximately $0.80 per share and restructuring expense of approximately $0.15 per share, adjusted diluted net income per share is expected in the range of $11.65 to $12.05. This is a mid-single-digit percent increase at the midpoint compared to 2024 adjusted diluted net income per share of $11.33.
We've provided a GAAP reconciliation in the Reg G table within our press release. Our slide deck contains several additional data points that provide important context that I'd like to touch on here. Any comparisons described are year over year. From a sales perspective, I'll remind you that the paint stores group implemented a 5% price increase effective January 6. We would expect this to ramp up to typical 50% to 60% effectiveness over the next quarter.
We also are implementing very targeted price increases in specific areas within our other two reportable segments. We expect the market asset of raw materials to be up a low single-digit percentage in 2025. We expect to overcome these raw material headwinds and deliver full-year gross margin expansion, driven by incremental 2025 pricing, simplification efforts across our supply chain, as well as our paint stores group, which is our largest and highest gross margin segment growing sales faster than the other two segments. We expect SG&A dollars to grow by a low single-digit percentage in 2025. This is a more typical level for us and less than last year's 5% increase.
This year's increase includes $80 million of operating expenses for our new building, which will be weighted to our second half. We'll also continue to have some operating expense for our current building until we have fully completed our move. As always, we plan to control costs tightly in noncustomer-facing functions, and we have a variety of levers that we can pull depending on the material change to our outlook, up or down. As we've previously described, interest expense will be up this year. This increase includes $40 million related to refinancing of debt at higher rates, including $850 million in 2024 and approximately $1 billion expected to be refinanced in 2025.
It also includes $20 million of interest related to financing activities of our new buildings. We expect to end the year within our current long-term target debt-to-EBITDA leverage ratio of 2 to 2.5 times. Other general expense items are expected to return to more historic levels in 2025 and increase approximately $75 million due to a gain on sale or disposition of assets of approximately $50 million in 2024 that we do not expect to repeat in 2025, and an increase in our environmental provision of $25 million. We expect to open 80 to 100 new stores in the US and Canada in 2025.
We'll also be focused on sales reps, capacity and productivity improvements, systems and product innovation. Next month at our Board of Directors meeting, we will recommend an annual dividend increase of 10.5% to $3.16 per share, up from $2.86 last year. If approved, this will mark the 47th consecutive year that we've increased our dividend. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit into our strategy.
In addition, our slide deck provides guidance on our expectations for currency exchange, effective tax rate, FX, depreciation, and amortization. Finally, I'll remind you that our first quarter is a seasonally smaller one. For that reason, we will not be making any updates to full-year guidance up or down until our second quarter is completed and we have a better view of how the paint and coating season is unfolding.
Our team is operating with great confidence and accountability as we begin 2025. As we have consistently said, it is only a matter of when the demand environment returns to greater strength, not if, and when that shift occurs, we expect to significantly outperform the market. In the meantime, we are not waiting. We often talk about how we operate, success by design.
We have a clear and winning strategy. We have the best team in the industry, and we've made the right investments, targeting specific markets and subsegments. We know how to deliver solutions for our customers that will make them more productive and more profitable. We continue to have significant new accounts and share of wallet opportunities in every business and region. We expect to continue winning more than our fair share of these opportunities.
I also am highly confident that our enterprise-wide efforts related to talent, simplification, digitization, supply chain responsiveness, and sustainability will continue to deliver above-market growth. We get rewarded by overcoming obstacles, finding solutions for our customers and delivering results. We are extremely well positioned to continue delivering shareholder value, and that's exactly what we intend to do in 2025.
This concludes our prepared remarks. With that, I'd like to thank you all for joining us this morning, and we'll be happy to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Gregory Melich, Evercore.

Greg Melich

I wanted to follow up on the raw material expense as part of the guidance, expecting that to rise this year. What commodities or areas are driving that? Are tariffs in any way a factor?

James Jaye

Yeah, good morning, Greg. It's Jim talking. A couple of different things to think about there. Yes, there are some tariffs that are embedded in that. Those are tariffs that are already in place, mainly related to Asian imports of epoxy, which came into effect September and November of last year. We're seeing inflation of low single digits in the raw basket. I would tell you that that is related to industrial resins, TiO2 is up a bit, solvent is up a bit, packaging up a bit.
In addition to that tariff that I described, we have potential for others. Those aren't in the guide right now on the raws. We'll see how that unfolds. I think you have to also think about some other factors. You have suppliers with capacity rationalization and decommissioning of their plants, which puts some pressure on price as well, so we'll see.
Natural gas is up as well and trending upwards which is another pressure point. So I think up low single digits to start the year, fairly spread out across the year evenly and fairly spread out across the different commodities.

Allen Mistysyn

And Greg, this is Al Mistysyn. One thing I would add is the additional tariffs that we're tracking very closely that are not in our guidance. If those were to occur and they're significant, we would need to go and we're prepared to go out with additional price in specific markets and segments as required.

Operator

Vincent Andrews, Morgan Stanley.

Vincent Andrews

Can I ask about a couple of the special items that are in the guidance particularly the $80 million associated with the new headquarters? I know we've talked a lot in the past about the CapEx and the sale leaseback associated with the HQ. But I think this is the first we've talked about there being such a substantial incremental cost to using this new facility. So I'm just curious if you can help us understand what those are. I don't know, in my head, I would think the new facility would be more efficient from an energy and water, all that type of thing.
So what's driving the $80 million? And how much of it is one time in nature versus nonrecurring? And then you also have a step-up in the environmental spending. And I know that can be that can fluctuate year-to-year. So is there something special about the spend this year that may not recur next year? Or is this a new baseline?

Allen Mistysyn

Yeah, Vincent. I'll start with the new building. And the way I think about it is this is a transition year for us as a company as we're not moving into -- we're going to start occupying the building as the year goes on. And as we talked about, this is predominantly second half loaded. I thought I'd be remiss if I didn't include some estimate in our cost base to say that as we get better line of sight on the timing of occupying the building, we can refine that estimate on our July call.
About 20 -- I'd say, a quarter of that $80 million are what I call transition costs, whether that is moving costs or decommissioning costs related to our old buildings. And yes, they are more efficient. However, I've got a headquarters building that I've been in for 90 years that is fully depreciated. We've made -- I'd say we made measured repairs to existing building knowing we were going to get out of this building, but if you look at the ongoing service costs, depreciation, and things like that, we'll get a better line of sight of that when we're completely into the building, new buildings we're operating, and we can figure out what's working, what's not working. So these are estimates that need to be refined.
The other comment I would make on the nonoperating. Our assumption is we're going to get back to a more normal environmental costs. These are going to be more first half of an impact because we had credits last year. We don't expect to repeat those. I don't think it -- I would consider it a step-up in environmental provision. I think we've made good progress on remediation and the further we get with remediation, the environmental provisions will get much clearer.
So I think it's more of a back to normal expense in environmental versus maybe some credits in 2024 that I don't expect to repeat.

Operator

David Begleiter, Deutsche Bank.

David Begleiter

Heidi, on the share gain opportunity, can you help frame how that looks to you in terms of relative to the PPG business? And looking back to last year, how much of the Kelly-Moore business did you end up picking up?

Heidi Petz

Let me start with Kelly-Moore just because sequentially, obviously, that's, I would say, large or significantly behind us. I don't know that we would share a number, and I'm certainly not prepared to share a number today, but I would tell you, given how complementary that business model was to us relative to some of the key segments I'll point to res repaint. We were able to, I think, be very well positioned. The team was very aggressive to make sure that we were focused on customer continuity and that we were the health that they wanted to transition to. So we're in a good position there. We expect that to continue into the run rate.
As I look at the PPG sale, I would first describe that as an opportunity that we just came out of our national sales meeting and was not able to address over 10,000 of our store managers or reps. And I would tell you, ripe with opportunity is the general sentiment. When you think about breaking that down in terms of how we look at the share gain opportunity, I think you have to start by segment and also a little bit by region, the size of contractor. We're largely focused with the crossover between property management, certainly commercial, new residential, so we're going to continue to be very aggressive to make sure that we are best positioned across those segments.
I will also tell you, we are very focused on quality sales and making sure that we're targeting the customers that candidly value what it is that we do and what we bring to bear with our reps, our stores, our delivery, our tools, everything that we can put in front of them to make these contractors even more profitable than they are today is where we're going to focus. But there's a bit of a time lag. If you think about the speed in which we're able to pick up a res repaint contractor, while that's not easy and the team is working very hard to do so. You kind of see that return more quickly versus someone more in the property maintenance, commercial space might be working -- we'll be working on projects that just simply have longer lag periods.
There could be bigger sized projects in play that are already committed to. So we're working really hard to really try to sync up as the market does recover, we'll see how the back half of '25 goes. But as we look into '26, we want to make sure that we are absolutely best positioned to take that share.

Operator

John McNulty, BMO Capital Markets.

John McNulty

So I guess you sounded like there was at least a little bit of optimism in some of the paint store group end markets, particularly resi repaint, I guess can you help us to think about what your customers are saying about their backlog. I know it's a seasonally kind of odd time or early time. But where is that optimism coming from? Can you help us to think about that?

Heidi Petz

Yes, John, I'll start here. I think you're right. I mean we did indicate there's moderate optimism, if I could kind of even moderate the word optimism. We're aggressively partnering with these contractors that are in the current environment while the market is still kind of choppy. You've seen, I'm sure, certainly the LIRA indicators that paint's likely going to hold up overall over everything else.
But I would tell you, part of this is making sure that our teams are looking to intercept. As you look at our current res repaint contractors, our existing contractors, helping them growing their business, helping them market their business helping them get more leads, close more leads so that they can become more profitable. And then in terms of pursuing share gains and new customers, there is a lot of disruption out there, and we are going to continue to be consistently in stores, reps, tools, making sure that they're prepared. But I'll hand it over to Al, any additional comments you want to make here relative to some of the indicators?

Allen Mistysyn

Yes, John. I think I just reinforce that we do expect that the demand environment will improve as the year goes on. And I'd highlight that as we talked about on our third quarter call, as we talked about on this call, the first half is going to continue to be choppy and a continuation of what we saw in our second half 2024. Our sales guidance to (inaudible) for the first half would be up or down low single digits. And then up low to mid-single digits in the second half with our Paint Stores Group being at or above the high end of those ranges.
And you're going to -- we do expect some macro improvement as the year goes on. But we also expect to annualize some of the bigger headwinds on our core business that we saw throughout 2024 that we should, with the aggressive new account equity and share of wallet activity that each of the teams to complete, we should start seeing more volume as we go into the second half. And as you would expect, our earnings will flow in a similar fashion. We expect to be up year-over-year in our first half but not nearly as much as we do expect to see in our second half.

Operator

Chris Parkinson, Wolfe Research.

Chris Parkinson

Great. So in addition to some of the gross spend in terms of stores and sales associates, you've also been spending a decent amount on product breadth and some new products and PSG and kind of getting up on some of the price points. And it sounds like you're pretty enthusiastic on some stuff in PC as well. Can I just ask what are the two to three largest growth or opportunities that you see in '25 and '26 when you step back as CEO, just regardless of what the macro environment does, where are you most excited?

Heidi Petz

Yes, great question. I think there's a number of items I would point to where we see continued strength. We would expect to outperform res repaint, again, I'm going to point to that as an example. You mentioned how we're looking at product introduction. It's a really good call out because when you think about not only the mix benefit that we see from a margin standpoint, but our ability to bring solutions to these contractors that value productivity above all the cost of labor being a significant part of the total cost of the job.
We're able to bring technologies. They are more in the premium because they are absolutely helping these crews to save time, ultimately money on these job sites. And so there's mix favorability, certainly which we love because we want to continue to stay kind of cutting edge as leaders and innovating in that space to help these contractors. So that will be the biggest piece. I think if you look on the performance side, similar to what I mentioned in my prepared remarks as well, I would point to coil and packaging as the two, three there.
You've got a lot of focus here. Again, the market is not going to help us, but the team has been relentlessly focusing on new accounts, new business wins, fully expect us to continue to do that in both of those segments.

Operator

John Roberts, Mizuho.

John Roberts

Do you expect non-resi to be down all 2025? Or do we have easy comps in the back end of the year where you might actually have some positive comps?

Allen Mistysyn

Yes. John, it's possible that we could have positive comps. There's obviously a number of macro things that have to improve to help us the biggest being as you get into interest rates, and we've talked about proper maintenance and the CapEx shortfall that we've seen or the lack of investment, I should say that we've seen we're, again, cautiously optimistic as the year goes on, you'll see some of that improve. I think commercial, we've been very clear. We do expect to see that drop in our second half, knowing that, we've been really aggressive at pursuing new opportunities to try to mitigate that.
As the market goes, we're not immune to that macro slowdown, but we certainly are doing everything we can to mitigate it with these other segments, including P&M and trying to accelerate our res repaint to help minimize that.

Operator

Josh Spector, UBS.

Josh Spector

I wanted to ask on the CapEx guidance. So I mean, a few things there. One, I guess, the $200 million of building spend, is that because the cost of the headquarters is higher? Or are you now doing more or something different there? And then ex that, even $700 million guide is a bit higher than probably the $500 million that we're modeling longer term.
Is there more growth investments that you're doing that is worth calling out now, or is there some reason why your sustainable CapEx should be higher looking two, three years out?

Allen Mistysyn

Yes, Josh. Let me -- the new buildings, $200 million is just the combination of finishing up our R&D center in our headquarters. As you know, we will get reimbursed for a portion of the headquarters in financing, but it all sits in CapEx. And I'm happy to say this will be the last year you'll hear us talk about CapEx for our new buildings. On the core CapEx, I -- we've targeted 2% of sales.
I expect to be in that target long term. In 2025, we are investing in additional architectural capacity that we've talked about, about our Statesville factory with our confidence in our long-term growth initiatives within paint stores group, within the consumer brands group, we'll fill that capacity up in a fairly short period of time. And then we're also investing in warehouse automation as we've talked about with labor constrained and manufacturing and distribution, we continue to look for opportunities to automate in those areas to take more weight off the back of our people. So long term, we'll see the benefits of that. But the last thing I'd say is approximately 60% of our CapEx is -- has a return on it.
And we expect to continue to see efficiencies out of our global supply chain related to that.

Operator

Duffy Fischer, Goldman Sachs.

Duffy Fischer

Question on price. So last year, you asked for 5 in February. This year, you asked for five in January. So can you do the after-action review, how much did you get last year? What was the shape of that kind of throughout the year would be one.
And two, how much of that old price still gets anniversaried this year? And then does the shape of this year's price look different because you asked for it earlier, would you guess?

Allen Mistysyn

Yes, Duffy. I think what we talked about on the price last year, let me start with that. It improved as the year went on, and we had talked about coming into our second half that we'd see a more typical effective rate. So I would say, it probably took us longer than we had planned. I would think learning from that, we really led in with a lot of disciplined training in the field making sure we give our customers enough lead time to get ahead of it.
And I would expect that our effectiveness and price will be better earlier this year than it was last year. It still will take over the next quarter to get to the effectiveness we want. But you'll see a much better effectiveness in our first half this year than you saw last year and then the annualization, yes, there's some annualization on the increase last year. And obviously, because we went out earlier this year, we'll see more effectiveness in the first quarter.

Operator

Ghansham Panjabi, Baird.

Ghansham Panjabi

Heidi, as you kind of think about the 6 verticals within PSG, as your 2025 outlook changed in any material way versus your view when you reported 3Q earnings back in October, especially in commercial maybe?

Heidi Petz

No, it hasn't. And I think I'll characterize that really well just a few minutes ago relative to how we're looking at commercial in general. If the market does far better than we're expecting, we expect to outperform the market. But I think this becomes a softer for longer with eyes towards 2026 at this point, Ghansham.

Allen Mistysyn

Yes. Ghansham, I would just add, I think maybe the rate cuts effect -- have been doing have not had the effect on the longer-term rates that we were expecting. Mortgage rates are still up in that high 6% range. All things that you're talking nuances related to where we were in October and today. But I think we're in line, if you will, across each of the different segments to say it's plus or minus a little bit, but we're right in line.

Operator

Mike Sison, Wells Fargo.

Michael Sison

I wanted to get a better feel for maybe some of the headwinds in '25 in the sense that it doesn't sound like demand is going to be much better in '25 versus '24. You -- in '24, you generated pretty good EPS growth of 10%. So if you think about '25, SG&A increase is going to be a little bit less year-over-year. Demand [ does ] get much worse. So just curious what else is sort of impeding better EPS growth?
And maybe hoping your momentum this year would be kind of mirror our guardian so --

Allen Mistysyn

Yes. I don't know we're going to be that good as the [ guardian ] but, yes, Mike, I think we do have some headwinds additional to what we maybe would have saw in '24. We tried to call those out, one with higher interest expense with the higher rates. We refinanced the $850 million in third quarter of '24 at a higher rate. Our expectation is the $1 billion we refinanced in third quarter of '25 will be at a higher rate, plus the financing of our new building is a headwind.
The nonoperating costs getting back to a more normal level is a headwind. And we're not hiding behind those, Mike. We fully -- we saw it coming. We expect that our performance with price volume, managing our SG&A, to your point, getting on top of the low raw material and other cost basket increases, which year-over-year is going to be a little bit of a headwind. But I think the incremental new building costs in our second half, so I'm carrying that plus I'm carrying my existing buildings.
Granted the existing buildings at a lower level, that $0.30 gets you to $12.15 at the midpoint, up about 7%. So I think that's kind of where we were coming into 2024, and then we saw a little bit better improvement in gross margin. We did manage our SG&A tighter in '24 than what we had planned. So we got a little bit more of a lift in '24. And I think coming into '25, we're in a similar place if you could take out the incremental new building costs.

Heidi Petz

And Mike, I would add, just from an operating perspective, I think two of the macro headwinds that certainly weren't immune to single-family housing [ starts ] have been down year over year for three consecutive months and five of that -- the last eight months. So we're managing through that. And then the multifamily housing completes are slowing given some extended periods of soft start. So there are dynamics that we're going to continue to fight through and compete within them. But I think there's certainly no lack of headwinds as we enter the year.

Operator

Jeff Zekauskas, JPMorgan.

Jeff Zekauskas

Thanks very much. Some building products companies have talked about adverse weather. And certainly, it's been cold. When you look at your first quarter, you look at January, is that something that's affected you relative to left year? And then for Al, in the Consumer Brands Group, the margins for the first three quarters year-over-year relative to last year were up about 10 percentage points.
And in the final quarter, they were up maybe 2%. Were there LIFO true-ups or some LIFO dynamic that led to the sort of change in margin differential in the fourth quarter?

Allen Mistysyn

Yes, Jeff, let me start. The cold weather is -- we expect that in January. It's our smallest quarter of the first quarter. I think where we kind of focus our view is more in our Southeast and Southwest and yes, we have more [ cold ] there, but I think there's time as we ramp through the quarter to get that back to the -- we believe we're within guidance, if you will, right now. I think when you look at consumer and that's a very good point, that we saw in the first three quarters and talked about the fixed cost absorption adjustments that we made between GS, our global supply chain, which is embedded in our consumer to stores and our Performance Coatings Group to true up those costs.
No impact on gross margin. But yes, that impact of the first three quarters. We annualized those adjustments in our fourth quarter. And if you look at our fourth quarter, the increase was primarily due to good cost control. I think that team has done a nice job managing their costs as the year has gone on to the tighter volumes.
However, without really sacrificing service and options to our customers and partly offset by lower gross profit dollars related to the lower sales, we did still see some benefit in supply chain efficiencies. But going into 2025, our expectation would be those will be incremental improvements because those onetime adjustments, if you will, are no longer happening.

Operator

Chuck Cerankosky, Northcoast Research.

Chuck Cerankosky

We've got some very favorable demographic indications for future housing demand. And Al, how might you expect it to evolve on the existing home sales and new housing starts without substantial changes in mortgage rates because they just don't seem to suddenly move? And as you indicated, they have a binding of Fed cuts as expected. So how might -- what might be the scenarios you see that the housing markets could improve on the supply side?

Allen Mistysyn

Yes, Chuck. I think you're absolutely right in the sense that as existing home turnover has been backwards over 36 months in a row, there's pent-up demand that because household formations continue to be strong, there's still over 1 million, 1.1 million. We've started -- life goes on. People get married, people have children, and that just creates more pent-up demand, which may mean, Chuck, which may mean that interest rates don't need to get back to we were thinking [ you'd ] have to get back to 5% before you start seeing some movement. We saw interest rates drop into that -- our 30-year mortgage drop into that 6%, 6.5% range.
And we saw a nice uptick in existing home turnover. So I think we might see a different view of the world a slightly higher interest mortgage rate gets people to move, start moving and turn over homes more, which would really impact res repaint, industrial wood, our coil business on the appliances side of things of that nature. I just think as we see -- as we've put it out in our guidance, more second half kind of impacts. We just -- it just takes even when an exiting home starts to turn or to sell or new residential except it just takes time to filter through to the painting side of that.

Heidi Petz

In the meantime, I think what's really important in terms of kind of what we can control in this environment, I'll take you back to the -- where we started last year with this -- it's when, not if. In the meantime, as we focus on partnering from an existing home sales repaint contractors and they'll take you to our national builders or regional builders on the new res side, making sure that we are partnering with them in new and innovative and creative ways to really help them solve for their biggest pain point, obviously, which is affordability as we all know. But I do think that there's -- it's masked now because the market hasn't moved. But when the market does move, Chuck, I'm very confident that we're going to be able to demonstrate a different level of partnership with these builders as a result of the team's efforts.

Operator

Mike Harrison, Seaport Research Partners.

Mike Harrison

We haven't really talked at all about labor costs yet today. I was wondering if you can comment on how changes in immigration policy could impact your business as well as that of your pain contractor customers to the extent that changes in policies could lead to some impact on labor availability.

Heidi Petz

Yes. I'd tell you that it's not a new topic for us. I think 150-year-old company, we've certainly seen a lot of administrations. And I do think with what we're seeing here we've been looking at solving for helping our contractors work through some of these challenges that might be -- it's too early to tell how this is going to impact the country, let alone our industry and our company. But I would tell you what's most important for us, regardless of where that does go is we're going to continue to stay laser-focused on helping our customers be productive.
And so if I take you to a job site, and you think about a constrained labor, we've got the crew on site. Our number one job is to get these contractors and applicators on and off the job site as quickly as possible. So that impacts everything from application to touch up avoiding having to come back on the job site. And so the controllables, again, what we are already doing and we'll continue to do are focusing on the rate technologies that help these contractors be efficient. We are investing, of course, in our delivery and in our service so that we can be accurate and precise in terms of delivery timing, so we're not putting contractors in a position where their crews are idle and waiting.
Certainly, our field reps that we've laid in. This is really critical in terms of problem solving real time, contractors having access, again, so that they're not [ waiting idly ] and have crews waiting. So there's a whole host of investments that we've been putting behind this. Now if and when and how this impacts us, again, too early to tell. But we're going to make sure that we're best positioned to help our contractors to be prepared and for them to win in this environment.

Operator

Mike Leithead, Barclays.

Michael Leithead

Great. I just wanted to drill into the Paint Stores 2025 sales guidance of up low to mid-single, is it fair to think of price at sort of the higher end of that low single digits and then maybe volume probably at the lower end of the low single digits? And then within that volume, is there a meaningful dispersion in your expectations between, say, the five or six different verticals within the segment?

Allen Mistysyn

Yes, Mike, I think you're correct. I think price will be stronger than volume especially as you ramp up going through the year. I would say res repaint, we'd expect to be at or above the high end of that range, continuing the market share gains and the momentum we experienced in the second half of 2024, which was actually up a high single-digit number. I think Heidi talked about the other verticals. We do think new res maintains a positive momentum -- and throughout the year.
And then I think commercial property maintenance, she touched on both of those. The two -- I would also touch on P&M within our paint stores group, I do think up low to mid. And then DIY, I mean, I think it's going to be flattish in the first half and then to possibly improve as existing home turnover improves.

Operator

Arun Viswanathan, RBC Capital Markets.

Arun Viswanathan

Just curious, if you think about Q1, obviously, impacted by weather, maybe do you expect kind of the Q2 to Q4 kind of sales growth to be above Q1 levels? And if so, would that be the same for all of the segments or mostly for PSG?

Allen Mistysyn

Yes, Arun. I would say it's not -- I wouldn't point to the weather in our first quarter. Our first quarter is a small quarter. I think it's a continuation of the choppiness we saw in our fourth quarter. And then as the year unfolds, you're going to see varying degrees across the segments.
Let's be clear, res repaint, we are very confident you're going to see consistent mid single-digit growth, if not improving. I think between the other Paint Stores Group segments, I think we just touched on those that new res, I think is pretty consistent, and the others will improve except for commercial as the year goes on. I think within our industrial businesses, we're very excited about our packaging group. And the improvements we saw in our fourth quarter and the continuation of that, not to mention the European standard and regulation that goes in the first half of '26. So we were going to see customers converting to our non-BPA epoxy which we believe is first in class.
I think we've talked about auto refinish and our optimism, and we talk about claims being down double digits. I think when you look at North America in our fourth quarter, you're seeing the new account wins that got us into a low single-digit improvement, and we expect that to improve as the year goes on in '25 as you annualize some of this claims data, you'll see improvement in that area. We're also -- we've talked about coil, but new win gains there and that consistency of that team, and that's going to continue in 2025. And then Industrial Wood, we talked -- as new residential improves existing home turnover improves, it really impacts cabinets, flooring, furniture and the expectation is that improves as the year goes on. I think general industrial, and seeing the biggest headwinds, they take longer to come out of that, and I'm not expecting that we'll see improvement throughout 2025.

Operator

Aleksey Yefremov, KeyBanc Capital Markets.

Aleksey Yefremov

Well, hopefully, sales and demand improve in 2026 or perhaps later, can you tell us what kind of demand improvement can you incur into footprint of stores and associates accommodate before you need to ramp up SG&A investments. So would it be 5%, 10% and then you need to ramp SG&A or perhaps a higher number?

Heidi Petz

I'll start and I'll ask Al to comment. I would tell you we have the capacity. I think the fact that, again, the market is not going to help us -- we're aggressively focused on taking share. We've got the capacity relative to stores. Having said that, we're going to continue as part of our capital allocation that Al laid out, laying in 80 to 100 new stores throughout the year, and that will be largely focused on geographies where we know we have opportunity to grow and win.
But by and large, I don't know that there's a magic number per se. I mean we've -- our ability to help these contractors to grow is within our capacity, our ability to help our contractors travel from store to store as well within our capacity.

Allen Mistysyn

Yes, thing I would add to that, Aleksey, think of it as from a rep standpoint, it's a really variable kind of cost that we can ramp up as we see volume improving one, two quarters out with our forecasting models. I think Heidi said that we're adding 80 to 100 stores a year, that gives us great capacity to handle any res repaint or other segment increases.

Operator

Kevin McCarthy, Vertical Research Partners.

Kevin McCarthy

I have two questions, one for Heidi and one for Al. Maybe to start off with Heidi. On the subject to pricing, I think you mentioned in your prepared remarks, you're pursuing increases in consumer and performance coatings in addition to the Paint Store hikes that we already talked about. How would you -- can you elaborate on that? How would you characterize prospects for positive pricing contributions from those two segments in 2025?
And then for Al, what is the level of foreign exchange drag that you're baking into your guide in light of the recent dollar strength?

Heidi Petz

Yes. Thanks, Kevin. I'll start. The comment that I shared relative to pricing for the segment is that it would be very targeted within this segment. And so you look at that through the lens of regions and geography.
Obviously, we're not going to announce here today what those specific actions are, but where we know we need to get price, we're going to be very aggressive and make sure that we do it well.

Allen Mistysyn

Yes, Kevin, I think on a consolidated basis, FX, we expect to be a headwind of about 1%. But when you really break that out, it's more pronounced in our Latin America teams and in which case, you'll see maybe mid-teens impact on Latin America, which translates to about a mid-single-digit impact on consumer and then roughly a 2% impact on our Performance Coatings Group.

James Jaye

Kevin, I would just add, you asked about the specific pricing. I'd point out in the slide deck, there's a slide that may be very helpful in there that the year breaks out volume price, FX by segment. So you might want to use that as a guide.

Operator

Adam Baumgarten, Zelman & Associates.

Adam Baumgarten

You talked about gross margin expansion in '25. Can you maybe put a finer point on the magnitude you're anticipating and that's embedded in your guidance? And also, should we think about that as relatively even across the quarters or more second half weighted?

Allen Mistysyn

Yes, Adam, we'll not give you an exact number, but you would expect our gross margin expansion to be -- let me put it this way. It will be less than it was than we saw in 2024 on a year-over-year basis. As the year progresses, I would expect to see our gross margin gets stronger in our second half versus our first half because of the expectation that volume improves. The price increases are meant to offset raw material cost inflation of the low single digits. Other cost basket increases of low single digits.
And I view that as probably about 75% of the increase. We're also continuing, as we've talked about, self-help initiatives with simplification. We expect acquisition synergies to continue to progress both sales synergies, but also on cost synergies. And then we do expect low single-digit production volume increases that with the cost controls that our supply chain teams have put in place that we get some efficiencies out of that and get some small improvements and a tailwind on supply chain efficiencies in '25. Those wrapped together, probably about 1/4 of the improvement.

Operator

Garik Shmois, Loop Capital Markets.

Garik Shmois

In Consumer Brands, just wondering if you could speak to how DIY and PRO paint volumes were in the fourth quarter? And any color on how you expect them to trend in 2025 would be great.

Heidi Petz

So I'll start with DIY. I think we've covered this earlier, certainly weaker than expected. I will share given from a CBG standpoint, the importance of these customers' strategic partnership that we have, continuing to invest in making sure that we are taking their success and our success. And this is really important that we're laser-focused on ensuring that as the market does recover, that we and they are best positioned on that rep. In terms of PRO paints, I'm going to jump -- leave it over to Al here.

Allen Mistysyn

Yes. I think the PRO paints, we are under pressure in our fourth quarter. I think that being said, we've maintained our investments in the PRO paint understanding that we don't react to a short-term headwind. We stay focused on the longer term and fully expect as, think about it as the paint stores or -- sorry, as the existing home turnover improved, we ought to see pro paint improvements in that segment and also DIY improvements in that segment as your design. And that's kind of how we laid out the plan from a top line standpoint for consumer brands.
really similar to how we're looking at Paint Stores Group first half, second half.

Operator

Patrick Cunningham, Citi Investment Research.

Patrick Cunningham

I'm curious on the latest thoughts on the M&A pipeline. Should we maybe expect less of a focus on M&A this year, given some elevated capital spend, end markets relatively challenging. Any update to your thinking on some of the more sizable coatings businesses that are coming to market?

Heidi Petz

This is a really consistent approach that we take here. We're always going to be looking. I don't know that I would characterize this as more or less within the year. I think it would be a very steady hand at understand where our portfolios are, where we want to drive growth within the portfolio by segment. And if there is opportunity to accelerate our strategy, whether it's a technology, a brand or a region, we're always looking, but we will go back to our capital allocation policy in general, absent all the items that I'll walk through, we'll look at that, but we absolutely do not need M&A to grow.
We're going to continue to focus on putting our foot on the gas where we know we have a right to win today. But should something attractive come along, you can assume that we're going to take a look at that.

Operator

Steve Byrne, Bank of America.

Steve Byrne

I had a follow-up on the labor pool. Just curious whether you're hearing from your paint store customers anywhere in the country in particular, where they're already seeing an impact of the deportation initiative on their labor pool, and if this is a realistic impact this year, do you think that it might be more impactful on the pros that paints and maybe shift more to the paint stores business? Or might it shift more to DIY? Any thoughts on that and/or regional impacts in your view?

Heidi Petz

Steve, I think it's too early to tell. We're not hearing -- by and large, we're not hearing, frankly, a lot of commentary about this impacting contractors on the store side or the Pros Who Paint side relative to their labor pools. It does certainly reinforce, I think, our position in the market to be able to get ahead of these issues and focus on productivity. I think this just continues to put us in a leadership position there. In fact, I can tell you, I've been out with over a dozen customers since the start of the year.
And if there's one theme that's consistent, it's an acknowledgment that you guys are -- you're there when you say you're going to be there. Who would have thought simply doing what you say you would do would be a differentiator. But the fact that we're staying true to our focus on solving for their profitability and their productivity. I think that positions us very nicely to be able to help when -- if and when and how this does impact them. In terms of any kind of toggling or switch between stores and consumer and Pros Who Paint, I don't see that happening or in any material way.
I think that, that's going to be a dynamic that will impact everybody kind of equally.

Allen Mistysyn

Yes. Steve, the only thing I would add to that, to think that there'd be a shift back to DIY, it's just hard to see that when you look at over a long period of time, the trend from do-it-yourself to do-it-for-me because of some of the macroeconomic situation we have in the US with an aging demographic, the average age of a home in the US is 40 years old, which makes for a more complex type of renovations or projects, there's a lot of equity in homes that allow people to view it as an investment to improve their homes for future value and there's this trend of baby boomers staying in place longer and doing upgrades to their home because they know they're going to be there longer and typically there -- got more equity that they can hire out a contractor. So it's hard to be a flip from back to do-it-yourself over the longer term.

Operator

Aron Ceccarelli, Berenberg.

Aron Ceccarelli

Perhaps can you elaborate a little bit on the level of profitability of your market share gains? Would it be fair to assume that these new accounts come at least at the beginning at the lower level of margins?

Allen Mistysyn

Yes, Aron, I wouldn't classify -- I wouldn't make a broad statement like that. I think there's a lot of different activities around new account activation and depending on where that account is in their maturity level. And they may come in from a competitor and want a similar price point until they understand all the benefits, services, quality, delivery, that ecosystem that we talk about, our PRO PLUS app, and then those are the accounts that we're able to move up because they begin to sense and value what we have to offer. But I would not make a blanket statement, say all new accounts for that way.

Heidi Petz

In fact, I would go so far as to say, Al made a great point on the maturity of the contractor. Residential repaint being a great example where oftentimes coming in new, trying to learn and our teams are able to intercept them early in that maturity curve even all the way through to helping them present themselves a professional bid. Making sure they've got the yard signed, they're marketing their business and they see the value of everything that Al talked about. Our focus on selling them and putting them into better product and technology that they're going to make them even more efficient certainly benefits everybody as well.

Operator

Eric Bosshard, Cleveland Research Company.

Eric Bosshard

Two things. First of all, I'm curious in terms of price mix, if you're seeing any sensitivity across the architectural business on the pro side or on the consumer side, trading down or anything you're doing in an environment where there's greater price sensitivity. I know that people pay for value and productivity, that's a given with Sherwin. Anything different you're observing or planning for in that area?

Heidi Petz

No, Eric, I would tell you, if anything, it's the opposite. And you said it really well, the value and productivity as we continue to launch new products as we continue to focus on getting our contractors on and off job sites. I think it works candidly, the other way. And I would say that's true certainly on the PRO side, Pro Who Paints and the consumer side.

Eric Bosshard

And then the second. In terms of the incremental spend on reps and on the selling effort, helpful to see that, that's moderating a bit in '25. In terms of the payback, any sense or guidance you can give us in terms of the payback curve as you've added and invested in them. Are they up full impact in '24 effort, which (inaudible) shows up in '25? Any thoughts about how you think about the return dynamic from that investment?

Allen Mistysyn

Yes, Eric, you kind of broke up, but I think what you're asking is the timeliness of getting a return on our reps. And as you know, they're predominantly res repaint reps. And I think we get a return on those in one to two quarters as -- and I think about a density within a market because what we're able to do in our densest markets is take an existing res repaint territory that gets up to a high number of accounts, high level of sales, terrifically successful. We're able to split that territory seed some of those accounts that maybe weren't getting the attention that, quite honestly, they deserved. We put a new rep in there and they both go quickly back to where they were at a higher level.
So the return on our rep, especially res repaint rep is really short. And we are getting a return, and we expect to see those returns continue into 2025.

Operator

Laurence Alexander, Jefferies.

Carol Cheung

This is [Carol Cheung] on for Laurence Alexander. Maybe just come back to a more general question for the full year '25. What has to go right for you to hit the high end of the guidance and what might go wrong, given the softer for longer environment. So we look at the lower end of the guidance.

Allen Mistysyn

Yes. I think where we're going to be within the guidance is going to be dependent on where Paint Stores Group volume is within our high and low end of the range. And I could say that also about the other segments, but really Paint Stores Group is our fastest-growing segment, our most profitable segment and where they are in that volume range will dictate where we are from an EPS standpoint.

Operator

That concludes our Q&A session. I will now hand the conference back to Jim Jaye for closing remarks. Please go ahead.

James Jaye

Yes. Thank you, Matthew. As we outlined today, we expect the macroeconomic environment to remain choppy in 2025. No surprise there. But at the same time, and I think Heidi said it very well at the beginning, we're not waiting.
We're relentlessly pursuing those opportunities that we do see. It's all about success by design. And we have a very proven track record here. We got a clear and winning strategy, the best team. We've made the right investments, and we know how to deliver the solutions for our customers that are going to make them more productive, more profitable, which is really important in this environment.
Nobody is better positioned than Sherwin-Williams to win in the marketplace and deliver that consistent shareholder value, and that's exactly what we plan to do here in 2025. As always, we'll be available for your follow-up calls, and thank you again for your interest in Sherwin-Williams. Have a great day.

Operator

Thank you. Everyone, this concludes today's event. You disconnect at this time, and have a wonderful day. Thank you for your participation.