Overview of Financial Performance

The Company reported mixed financial results for the year 2024. While the Company maintained solid profitability, sales declined compared to the prior year. Net sales for 2024 were $2,113 million, a 4% decrease from 2023. Net earnings were $486 million, down 4% from the previous year. Earnings per share decreased from $2.94 in 2023 to $2.82 in 2024.

The decline in sales was seen across all geographic regions, with the Americas, EMEA (Europe, Middle East and Africa), and Asia Pacific all reporting lower revenues. The Contractor, Industrial, and Process segments all experienced sales decreases as well. Management attributed the sales declines to weaker demand in global semiconductor markets, reduced project activity in automotive and electronics end markets, and softness in residential and non-residential construction.

Despite the lower sales, the Company maintained a healthy gross profit margin of 53.1% in 2024, up slightly from 52.9% in 2023. This was due to the favorable impact of pricing actions, which offset higher product costs and unfavorable mix. However, operating expenses increased 7% in 2024, driven by higher litigation costs, investments in new product development, and business reorganization expenses. As a result, operating earnings declined 12% to $570 million.

Segment Performance

The Company’s three reportable segments - Contractor, Industrial, and Process - all experienced sales declines in 2024.

The Contractor segment, which represents the largest portion of the business, saw flat sales compared to 2023. Increased sales of protective coatings equipment and new product offerings were offset by weaker demand in North American construction markets. The operating margin for this segment decreased from 29% to 27% due to higher costs and the impact of acquired operations.

The Industrial segment reported a 7% sales decline, as strong finishing system sales in the Americas were unable to offset reduced project activity in Asia Pacific and weaker industrial activity in EMEA. The operating margin for this segment decreased from 35% to 33%.

The Process segment experienced an 8% sales decline, primarily due to weakening semiconductor end markets. Other end markets like mining, oil and gas, and vehicle services also saw lower demand. The operating margin for this segment decreased from 30% to 28%.

Financial Condition and Cash Flow

The Company’s financial position remained strong in 2024. Working capital increased to $1,092 million, up from $971 million in 2023, driven by higher cash balances. The current ratio improved from 3.5 to 3.7, indicating ample liquidity.

Shareholders’ equity increased by $360 million to $2,584 million, primarily due to current year earnings of $486 million, partially offset by $176 million in dividends and $31 million in share repurchases. The Company had $675 million in cash and cash equivalents at the end of 2024, of which $144 million was held outside the U.S.

Cash flow from operating activities was $622 million in 2024, down from $651 million in 2023, due to lower net earnings. The Company used $343 million in investing activities, including $242 million for business acquisitions and $107 million for capital expenditures. Financing activities used $140 million, mainly for dividends of $172 million and share repurchases of $31 million.

Strengths and Weaknesses

The Company’s key strengths include its diversified business model, strong brand recognition, and healthy financial position. The Company’s products are sold across a variety of end markets, providing some insulation from downturns in any single industry. The Company’s well-known brands and reputation for quality and innovation also contribute to its competitive advantage.

However, the Company’s reliance on cyclical industries, such as construction and automotive, makes it vulnerable to economic fluctuations. The Company also faces increasing competition, both from traditional players and new entrants, which could pressure margins. Additionally, the Company’s international operations expose it to currency fluctuations and geopolitical risks.

Outlook for the Future

Looking ahead to 2025, the Company expects low single-digit revenue growth on an organic, constant currency basis. Demand in China and for semiconductor products appears to have stabilized, and the Company’s recent reorganization is expected to drive incremental profitable growth.

At current exchange rates, the Company estimates that currency movements would have an unfavorable impact of approximately 1 percentage point on net sales and 2 percentage points on net earnings for 2025. The Company remains committed to its core growth strategies, including new product development, distribution expansion, and strategic acquisitions.

However, the Company cautions that its backlog is not a reliable indicator of future long-term business levels, as sales are dependent on many factors, including economic growth, successful new product launches, and stable foreign currency exchange rates.

Conclusion

The Company faced headwinds in 2024, with sales declining across all geographic regions and business segments. While the Company maintained solid profitability, higher operating expenses and the impact of lower sales volumes led to a decline in operating earnings and net income.

Looking ahead, the Company is cautiously optimistic about its prospects for 2025, with expectations of low single-digit organic revenue growth. The Company’s diversified business model, strong financial position, and focus on strategic initiatives provide a solid foundation for future performance. However, the Company remains vigilant to the potential risks posed by economic uncertainty, competitive pressures, and currency fluctuations.