U.S. Markets close in 3 hrs 51 mins

Edited Transcript of SHW earnings conference call or presentation 23-Apr-19 3:00pm GMT

Q1 2019 Sherwin-Williams Co Earnings Call

CLEVELAND Apr 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Sherwin-Williams Co earnings conference call or presentation Tuesday, April 23, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Allen J. Mistysyn

The Sherwin-Williams Company - Senior VP of Finance & CFO

* John G. Morikis

The Sherwin-Williams Company - Chairman & CEO

* Robert J. Wells

The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs

================================================================================

Conference Call Participants

================================================================================

* Arun Shankar Viswanathan

RBC Capital Markets, LLC, Research Division - Analyst

* Charles Edward Cerankosky

Northcoast Research Partners, LLC - MD of Research, Equity Research Analyst & Principal

* Christopher S. Parkinson

Crédit Suisse AG, Research Division - Director of Equity Research

* Dmitry Silversteyn

The Buckingham Research Group Incorporated - Director

* Donald David Carson

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* Garik Simha Shmois

Longbow Research LLC - Senior Research Analyst

* Ghansham Panjabi

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Gregory Scott Melich

Evercore ISI Institutional Equities, Research Division - Senior MD

* Jeffrey John Zekauskas

JP Morgan Chase & Co, Research Division - Senior Analyst

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Justin A. Speer

Zelman & Associates LLC - MD of Research

* Kevin William McCarthy

Vertical Research Partners, LLC - Partner

* Michael James Leithead

Barclays Bank PLC, Research Division - Research Analyst

* Michael Joseph Harrison

Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst

* Nishu Sood

Deutsche Bank AG, Research Division - Director

* P.J. Juvekar

Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD

* Robert Andrew Koort

Goldman Sachs Group Inc., Research Division - MD

* Rosemarie Jeanne Pitras-Morbelli

G. Research, LLC - Research Analyst

* Scott Andrew Mushkin

Wolfe Research, LLC - MD and Senior Retail & Staples Analyst

* Steve Byrne

BofA Merrill Lynch, Research Division - Director of Equity Research

* Steven Kyle Haynes

Morgan Stanley, Research Division - Research Associate

* Truman Andrew Patterson

Wells Fargo Securities, LLC, Research Division - Associate Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. Thank you for joining The Sherwin-Williams Company's review of first quarter 2019 and the outlook for the second quarter and full fiscal year of 2019. With us on today's call are John Morikis, Chairman and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; Bob Wells, Senior Vice President, Corporate Communications; and Jim Jaye, Vice President, Investor Relations.

This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at sherwin.com. An archived replay of this webcast will be available at sherwin.com beginning approximately 2 hours after this conference call concludes and will be available until Friday, May 10, 2019, at 5:00 p.m. Eastern Time.

This conference call will include certain forward-looking statements, as defined under U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, 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 Bob Wells.

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [2]

--------------------------------------------------------------------------------

Thanks, Jessie. Good morning, everyone. Before summarizing our results for the quarter, I'd like to remind you that our annual financial community presentation is coming up on June 5 here in Cleveland, Ohio. Please contact me or Jim Jaye to receive the registration link to this event. It's a great opportunity for you to meet and hear from our business unit management team, and we hope to see you all there.

Moving on to our results for the first quarter. All comparisons in my remarks are to the first quarter of fiscal 2018, unless otherwise stated.

Consolidated sales in the first quarter of 2019 increased $75.9 million, or 1.9%, to $4.04 billion. Consolidated gross profit dollars in the quarter increased $48.2 million, or 2.9%, to $1.74 billion. Consolidated gross margin in the first quarter increased to 42.9% from 42.5% in the same period last year. Excluding impacts from purchase accounting, adjusted consolidated gross margin in the quarter was flat year-over-year at 43%.

Selling, general and administrative expense increased $29.5 million, or 2.4%, to $1.24 billion in the first quarter, and also increased as a percent of sales to 30.8% from 30.6% in the same quarter last year. Interest expense for the quarter was essentially flat at $91 million. Consolidated profit before tax in the first quarter decreased $4.7 million or, 1.6%, to $298.9 million. The first quarter of 2019 included nonoperating expenses of $32.4 million, primarily related to a pension plan settlement, as described in our press release and included in our previous guidance.

Excluding acquisition-related costs and nonoperating expenses, our effective tax rate on adjusted income for the quarter was 19.3%. Diluted net income per common share for the first quarter 2019 was flat compared to last year at $2.62 per share. Earnings per share in the first quarter of 2019 includes nonoperating expenses of $0.27 per share and acquisition-related expenses of $0.71 per share. The $2.62 per share reported in the first quarter of 2018 included $0.95 per share in acquisition-related expenses.

Excluding these items from both years, adjusted diluted earnings per share increased to $3.60 in the first quarter of 2019 from $3.57 last year. We have summarized the first quarter earnings per share comparison in a Regulation G reconciliation table at the end of our press release. Let me take a few minutes to break down our performance by segment.

Sales for The Americas Group in the first quarter increased $74.4 million, or 3.6%, to $2.15 billion. Unfavorable currency translation reduced sales in the quarter by 1.5%. Comparable store sales in the U.S. and Canada increased 3.6% in the quarter. Regionally, in the first quarter, our Southeast division led all divisions, followed by Eastern, Canada, Southwest and Midwest. Sales were positive in every division in the quarter.

First quarter segment profit decreased $6.3 million, or 1.9%, to $331.1 million. Currency translation rate changes decreased segment profit $4.5 million in the quarter. First quarter segment operating margin declined 80 basis points to 15.4% from 16.2% last year.

Turning now to the Consumer Brands Group. First quarter sales decreased $1.9 million, or 0.3%, to $654.5 million, including the divestiture of the Guardsman business. Sales from continuing operations, excluding approximately $17 million in Guardsman revenues, increased 2.4% in the quarter. First quarter segment profit increased $13.7 million, or 18.5%, to $87.9 million. Purchase accounting costs decreased segment profit by $22.9 million compared to $31.8 million in the first quarter of 2018. First quarter segment operating margin increased to 13.4% from 11.3% last year. Excluding the purchase accounting expenses in both quarters, adjusted segment operating margin increased to 16.9% in the first quarter 2019 from 16.2% in the first quarter last year.

For our Performance Coatings Group, first quarter sales increased $3 million, or 0.3%, to $1.23 billion. Currency translation rate changes reduced first quarter sales by 3.9%. First quarter segment profit increased $7.9 million, or 8.7%, to $98.7 million. Unfavorable currency translation reduced segment profit $3.5 million in the quarter, and purchase accounting expense decreased segment profit by $54.1 million compared to $57.5 million in the first quarter 2018. First quarter performance group segment operating margin increased to 8% from 7.4% last year. Excluding the purchase accounting expense in both quarters, segment operating margin increased to 12.4% in the first quarter 2019 compared to 12.1% in the first quarter last year.

That concludes our review of operating results for the first quarter, so let me turn the call over to John Morikis, who will make some general comments on the first quarter and provide our outlook for second quarter and full year 2019. John?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [3]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. Thanks for joining us. I'd like to make just a few additional comments on our first quarter before moving onto our outlook.

First quarter volumes were a bit lighter than anticipated across all 3 segments, driving consolidated results to the lower end of our expectations range. We commented in our press release issued this morning that the North American architectural painting season got off to a slow start compared to last year, but it's important to keep this in perspective. It is traditionally the smallest revenue quarter of the year, and it is volatile year-to-year, so it's often not very representative of underlying demand trends. Robust feedback from our professional painting contractor customers has long been our most reliable indicator of North American architectural paint demand. These customers almost universally remain optimistic about 2019 and continue to report unseasonably high project backlogs and a very healthy pipeline of new projects. This consistent feedback underpins our confidence in our full year outlook in spite of the slow start to the season.

Our sales results in the quarter highlighted the geographic variability in demand we have seen since midyear last year. Volume growth in North America ranged from stable to strong, with a few exceptions, while the softness in Asia and Europe was fairly broad-based but also with a few noteworthy exceptions. Pricing was favorable across all of our businesses in the quarter, while the impact of currency translation on all 3 segments was a bit more of a headwind than expected. While we're not satisfied with our top line performance, consolidated gross margin on an adjusted basis improved 60 basis points sequentially and was flat year-over-year at 43%. This is encouraging given our expectation that the rate of raw material inflation year-over-year will be highest in first quarter. We expect to see more gross margin improvement over the balance of the year as volumes pick up, the rate of raw material inflation moderates, and we continue to benefit from pricing actions announced over the past year. SG&A in the quarter came in largely as expected, and we'll continue to maintain appropriate discipline on spending as the year unfolds.

Within The Americas Group, sales increased 3.6% against the prior year comparison of 6.6%. Sales volume growth in our North America stores fell short of our expectations. Sales to Protective & Marine and residential repaint contractors were our strongest customer segments in the quarter, both up high single digits over last year. All other customer segments were positive.

Our business in Latin America went from positive double-digit growth last year to a high single-digit decline this year due to high-teens unfavorable currency translation. Segment profit dollars and margins for the group were negatively impacted by lower-than-anticipated volume, which, in North America, was likely the result of projects being postponed. During the quarter, we opened 15 net new stores, finishing the quarter with 4,711 stores in operation compared to 4,624 last year. Our plan calls for this team to add approximately 90 to 100 net new stores in the Americas by the end of this year.

In the consumer segment, first quarter sales were positive in North America even if we include the negative impact of the Guardsman divestiture. Demand was considerably softer in nondomestic regions during the quarter, most notably Asia Pacific. We made pretty good progress on improving the profitability of this business as segment margin, excluding purchase accounting impacts, increased both sequentially and year-over-year. This is the highest quarterly operating margin reported by this segment since the acquisition of Valspar. We are successfully executing our strategy in this business, and we are well positioned with our retail partners heading into the spring paint selling season.

Performance Coatings Group's sales in the quarter grew modestly against a challenging prior-year comparison of 9.8% on a pro forma basis. Revenue and volume growth in packaging and coil was offset by flat to down sales results in the segment's other businesses. Geographically, sales increased in North America, but these gains were offset by declines in Asia Pacific and Europe, where sales were down high single and mid-single digits, respectively. We continue to see some benefit from our pricing actions across these businesses and regions as adjusted segment margin improved by 30 basis points year-over-year to 12.4%.

EBITDA in the quarter was $533 million, or $575 million on an adjusted basis to exclude the pension plan settlement expense and acquisition-related costs. Working capital was a higher use of cash in the quarter as we built additional inventory through our fourth and first quarters to ensure our ability to respond to anticipated strong seasonal order volumes in our stores and retail customers. At the end of the quarter, we had $94 million of cash on hand that will be utilized to fund operations and reduce debt. The balance sheet reflects total debt of approximately $9.8 billion. We intend to reduce our net debt by approximately $600 million during the year, which will result in a net debt-to-EBITDA ratio below 3:1 by the end of 2019. After prioritizing debt reduction over other uses of cash during the past 2 years, we are resuming our historical capital allocation philosophy in 2019. We returned approximately $410 million to shareholders during the quarter, including $105 million in cash dividends and $305 million to purchase 750,000 shares of common stock. During the quarter, we increased our quarterly dividend by 31% to $1.13 per share. At quarter end, our share repurchase authorization stood at 9.38 million shares. Capital expenditures were $51 million in the quarter, depreciation was $65 million, and amortization was $79 million.

As we move into the second quarter 2019, we expect consolidated net sales to increase 2% to 5% compared to the second quarter of 2018, with The Americas Group at or above the high end of that range. As a reminder, second quarter revenue comparisons to 2018 in The Americas Group and the Performance Coatings Group are the most challenging of the year. And Consumer Brands Group faces comparisons to early load-in volume from the Lowe's program and the divested Guardsman business. Our full year 2019 revenue guidance remains unchanged, with net sales increasing 4% to 7% compared to full year 2018. On an earnings per-share basis, we believe the most meaningful way to provide guidance is to exclude Valspar acquisition-related costs and nonoperating items. On this basis, and given our sales outlook, we are confirming our adjusted 2019 full year diluted net income per common share to be in the range of $20.40 to $21.40 per share, an increase of approximately 13% at the midpoint compared to the $18.53 reported last year on a comparable basis. We've included a Regulation G reconciliation table with this morning's press release to better illustrate all the moving parts. We expect our 2019 effective tax rate to be in the low-20% range.

A few additional data points for the full year may be helpful for modeling purposes. These data points have not changed from the guidance we provided in January. We expect raw material inflation for full year 2019 will be in the low single digits compared to 2018. The rate of year-over-year inflation, assuming stable petrochemical feedstocks and no supply disruptions, should diminish from the level we saw in the first quarter as we progress through the year. We expect incremental synergies of approximately $70 million to $80 million in 2019, and a total annual run rate of approximately $415 million at year-end. We expect full year capital expenditures to be approximately $320 million, depreciation to be about $257 million and amortization to be about $315 million.

With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from the line of Christopher Parkinson with Credit Suisse.

--------------------------------------------------------------------------------

Christopher S. Parkinson, Crédit Suisse AG, Research Division - Director of Equity Research [2]

--------------------------------------------------------------------------------

As it relates to your intermediate-term outlook for U.S. housing, can you just hit on the key ongoing trends by subregion? Just any updated views on rates, affordability, single versus multifamily? And just any preliminary views on salts would be greatly appreciated.

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [3]

--------------------------------------------------------------------------------

Yes, Chris. And we're going to sound a little like a broken record on this subject, because we continue to believe that the sharp declines in starts year-to-date, particularly in single family, is not a reflection of a decline in demand. And in fact, March new home sales were pretty strong. So that kind of underpins our view that the rate of new home construction is unsustainably low at the current rate given continued strength in household formation. Household formations are going to continue in the range of, call it, 1.2 million to 1.3 million annually for the next 5-plus years. And historically, if you look at the rate of new home starts, they've run at approximately -- a rate of approximately 1.3x the rate of household formations. And that's just to account for housing units that are taken out of stock over time either by natural disaster or demolition, whatever the case maybe. But over the past 4 years, housing starts have run roughly in line with household formations. And as a result, what we've seen is inhabitable vacancies have largely been absorbed, and single-family rental stock is being converted to owner-occupied stock. And we don't think that, that is going to be able to sustain demand for housing long term. So it's a broader answer to a little more granular question that you asked, but we think the challenge for builders continues to be building affordable, entry-level units given high land cost -- high land development cost, labor cost, et cetera. And while we think that the starts in the first quarter were abnormally low, we expect to see a pickup in starts as we go through the year. We agree with the outlook that homebuilding should be up over 2018 and '19. It's likely going to be up modestly, low single digits. In terms of any regional variation, the Southeast continues to be very strong. Southwest has had some challenges but should pick up as well, and that's where you're going to see most of the activity.

--------------------------------------------------------------------------------

Christopher S. Parkinson, Crédit Suisse AG, Research Division - Director of Equity Research [4]

--------------------------------------------------------------------------------

Got it. And just a quick follow-up. Just within kind of the ongoing multiyear integration of Performance Coatings, it seems like you guys are back on the track on the pricing fronts. Can you just comment on your just your updated long-term views by subsegment, with just an emphasis on general industrial packaging and wood? Just what have been the biggest surprises, both positive and negative?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [5]

--------------------------------------------------------------------------------

Chris, this is Al Mistysyn. I'm going to talk about the consolidated segment, and then I'll let John comment about the individual pieces. But as we saw in our first quarter, nice year-over-year margin improvement. And that's really the teams doing a great job, working with their customers to get the pricing through to offset the persistent raw material inflation that we saw, and also seeing nice synergy realization and controlling their SG&A. So we have talked about targeting high-teens to low-20% operating margin, and we feel like we're on that track here in '19, and more to come as the year progresses.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [6]

--------------------------------------------------------------------------------

Yes. And Chris, the only piece I'd add to that is that this continues to be something that we're very focused on. We believe that as the 2 companies came together, we found ourselves in an inflationary period and felt that it was important to work with our customers through that process of implementing these prices. I don't know if we're going to break down every segment to tell you the ground that we're gaining in each one, but I will tell you that we are gaining ground in each one. And while we've accepted some compression over the elevating raw material basket, we also believe that the solutions that we're bringing our customers and the services that we're providing as part of those solutions are opportunities for us to work with our customers in pushing through those price increases, and we're determined to do just that.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Our next question is from the line of Jeff Zekauskas with JPMorgan.

--------------------------------------------------------------------------------

Jeffrey John Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [8]

--------------------------------------------------------------------------------

Are the raw material trends in the United States different than they are in the offshore markets? And how would you compare raw material price inflation U.S. versus the rest of the world?

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [9]

--------------------------------------------------------------------------------

Jeff, I think there are some differences in certain commodities like titanium dioxide. I don't necessarily believe that the petrochemical side of the basket is vastly different as you look around the world. TiO2 has been stable in the U.S., and I think it's been moving a bit more in Asia Pacific and Europe. The petrochemicals, kind of surprisingly, given the move in crude oil, have been somewhat stable with, as you know, with propylene and ethylene actually trading down year -- trading lower year-over-year. We have not seen much benefit from that in our raw material basket yet, but we expect to as we move through the balance of the year.

--------------------------------------------------------------------------------

Jeffrey John Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

--------------------------------------------------------------------------------

Great. You said in your press release that your same-store sales growth was 3.6% a quarter in The Americas Group. Like order of magnitude, are prices up 2.5 and volumes up 1 for the first quarter?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [11]

--------------------------------------------------------------------------------

Yes, Jeff. That sounds about right. We talked about the realization coming out of our year-end call about 2.5. And we might be a little bit better than that, but I think you're directionally correct.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Our next question is from the line of John Roberts with UBS.

--------------------------------------------------------------------------------

John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [13]

--------------------------------------------------------------------------------

Will Nippon's deal for Dulux in Australia change your strategy at all in Australia?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [14]

--------------------------------------------------------------------------------

No, it shouldn't.

--------------------------------------------------------------------------------

John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [15]

--------------------------------------------------------------------------------

Great. And then in the packaging coatings area, are we still seeing penetration from non-BPA, or is that now largely over with?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [16]

--------------------------------------------------------------------------------

We're having very good success in our non-BPA, our V70 product. In fact, packaging was the exception of all our industrial businesses. It was up globally and it was up in all regions. So we continue to see a nice performance in our packaging business.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question is from the line of Truman Patterson with Wells Fargo.

--------------------------------------------------------------------------------

Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [18]

--------------------------------------------------------------------------------

Just wanted to touch on The Americas Group's margins. In the first quarter, they fell about 80 bps year-over-year. Could you just explain why this was? And how much of it would you say was due to the lack of volume and leverage versus raw material inflation maybe coming in a bit heavier than what you expected.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [19]

--------------------------------------------------------------------------------

Yes. Truman, as John mentioned in his opening remark, the first quarter in North America is our smallest quarter and most volatile. And it truly is all about the volume. And it was a little lower than anticipated in our North America Paint Stores Group. And to your point, we also saw higher year-over-year raw material inflation in the quarter. So those are driving that margin. But that being said, we continue to invest in 87 net new stores over the past year, with a corresponding increase in sales reps to support those stores. That's a continuation of our consistent long-term approach to North American architectural market. And we have not slowed our cadence down on the store openings just because of the last 2 quarters we've had. And we believe this is going to continue to allow us to grow market share 1.5 to 2x the market. And it's historically allowed us to gain larger share of the market when the cycle turns. So we talked about the price increases, and I feel pretty good about those. And with the price increase and the demand outlook that John talked about in his opening comments, I am confident that our TAG organization is going to expand margins this year.

--------------------------------------------------------------------------------

Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [20]

--------------------------------------------------------------------------------

Okay. And to follow up on that, with the raw material inflation you guys -- could you guys just give an update to your prior, I think, low single-digit raw material inflation guidance? And I'm just trying to understand your confidence in this -- in your guidance, considering 2018 kind of caught everybody off guard, especially with your guys comment that 1Q is going to be the high watermark for raw material inflation, considering that oil seems like it's ticked up quite a bit here lately.

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [21]

--------------------------------------------------------------------------------

Yes, Truman. At this point, I think our outlook for first quarter being the peak appears to be at least correct so far. Your point on oil moving, it's certainly moved quite a ways, but propylene and ethylene have not. And propylene, in particular, which is the primary feedstock, still is down year-over-year. It's barely moved off a $0.32 bottom. So those being the primary drivers of the petrochemical side of our basket still look very favorable. I'm not saying they couldn't move with crude oil, but they haven't thus far. Our outlook for low single-digit inflation for full year presume that the highest year-over-year increase, as you said, was in the first quarter. And I think it's safe to assume that the market average price for the broad basket of materials we buy was probably up in the low to mid-single digits in the first quarter. We expect to see that moderate as we go into the second quarter. Not to say second quarter couldn't be inflationary, but it will be lower inflation than we saw in the first. By the time we get in the back half, it should be deflationary.

--------------------------------------------------------------------------------

Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [22]

--------------------------------------------------------------------------------

Okay. Okay. And just to follow up real quick, if I'm reading you correctly, with propylene and ethylene still being down year-over-year, are you saying that there might be a chance that your oil-derived resins might be down in the back half of the year?

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [23]

--------------------------------------------------------------------------------

There's a chance. They stepped up sharply midyear last year. And while we're not back to below the level they were prior to June last year, after -- as we annualize that move up in midyear, there's a chance they'll be down year-over-year in the back half.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

The next question is from the line of Ghansham Panjabi with Baird.

--------------------------------------------------------------------------------

Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]

--------------------------------------------------------------------------------

John, in your prepared comments, you referenced strong backlog for the customer level for The Americas Group. Can you give us some more color on that? Which vertical in particular have a stronger backlog? What feedback specifically are customers giving you in current market conditions, especially if interest rates progress lower throughout the quarter?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [26]

--------------------------------------------------------------------------------

Ghansham, I'd say that we're really excited about the balance of the year because of the feedback that we're getting across all the verticals, all the segments. We obviously have a terrific model in this controlled distribution, where we're able to really keep our fingers on the pulse of the customer. And the feedback that we're getting has been pretty universal. As I mentioned earlier, it's solid across the geographies and the segments. So we're feeling very good about the balance of the year. Obviously, getting to a little bit of a slower start than we would like to have seen, but still feeling really good about where we're headed.

--------------------------------------------------------------------------------

Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [27]

--------------------------------------------------------------------------------

Okay. And then just on Consumer Brands. You mentioned that you're very well positioned across all North American retail channels. Can you also expand on that? Do you think that channel itself will improve in 2019 versus the past couple of years? Or is it your specific positioning post the share shift that you're particularly excited about?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [28]

--------------------------------------------------------------------------------

Well, I think our customers should hold us accountable to help them improve their results. We want to work with our customers and help them reach their goals. So we continue to work with those partners, working to drive their success. And we do that by helping to ensure that our products are consistent and high quality. The brands are strong. We have the right relationships in the right channels with the right assortment allows us to bring that value to the customers that we have and the consumers that they serve. And each one of those customers offer a unique opportunity of growth, and we're making sure that we're aligning our people, our resources, everything that we have to help them reach their goals. So we want to help those customers outpace the market.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Our next question is from the line of Robert Koort with Goldman Sachs.

--------------------------------------------------------------------------------

Robert Andrew Koort, Goldman Sachs Group Inc., Research Division - MD [30]

--------------------------------------------------------------------------------

John or Al, you guys talked initially about your synergies from integrating Valspar. You mentioned that some of those manufacturing maybe would be a little longer tail. Can you give us an update on the progress there and what's left to come?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [31]

--------------------------------------------------------------------------------

Yes, Bob. We're still working through it by region. As we talked about, the longer tail on those is predominantly in the industrial space, which are more complicated and take longer to get done. I would say there are amounts in our $415 million run rate that we talked about coming out of this year, but we'll get those fine-tuned here in the next quarter or 2 and try to give more color around those as we go forward this year.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [32]

--------------------------------------------------------------------------------

And Bob, I know you and I have talked about this to some degree. Our goal is certainly to attack those synergies, but we're not going to do it at the cost of a customer. The goal is not to get just the cost out. We want to become more efficient, no question about it. But we're taking our time to make sure that we're taking the right steps. And as these synergies roll in, we want to make sure that it's a more favorable experience for our customers and put our salespeople in a better position to serve those customers.

--------------------------------------------------------------------------------

Robert Andrew Koort, Goldman Sachs Group Inc., Research Division - MD [33]

--------------------------------------------------------------------------------

And can I ask your Lowe's business now, you're the single-line paint supplier there? Can you talk about how that makes you a better supplier at the paint aisle, or better at Lowe's having sort of a uniform or unified supply strategy there?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [34]

--------------------------------------------------------------------------------

Sure. It ensures the terrific alignment that I touched on earlier. We are looking at a collaborative view of how do we help our customer reach their goals. And so sharing of information and the tactics that we use are certainly in line with their goals. And it allows us to have more open dialogue with how to best help them reach those goals. And so there's a lot of momentum there. There's terrific leadership team that is driven to improve those results, and we want to make sure that our resources are in line with the goals that they have.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Our next question is from the line of Steve Byrne with Bank of America.

--------------------------------------------------------------------------------

Steve Byrne, BofA Merrill Lynch, Research Division - Director of Equity Research [36]

--------------------------------------------------------------------------------

Bob, you were talking about your outlook for second half raw material cost potentially being down year-over-year. Does that conviction come from your purchasing costs for raws today being down year-over-year, that will flow through COGS in the next couple of quarters?

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [37]

--------------------------------------------------------------------------------

Yes. That's part of it, Steve, that we have been building inventory with lower-cost petrochemical raws. Part of it is the lag that our suppliers have in passing through lower-cost feedstocks and those feedstocks working their way through the acrylic chain. And I'd say probably the latter point is most of it.

--------------------------------------------------------------------------------

Steve Byrne, BofA Merrill Lynch, Research Division - Director of Equity Research [38]

--------------------------------------------------------------------------------

Okay. And John, you mentioned that some of your contractor customers have what you described as unseasonably high backlog. Other than maybe a break in the last 6 months' worth of weather, is there anything else that you could see holding them back from accelerating the execution of that backlog, such as access to good labor?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [39]

--------------------------------------------------------------------------------

Well, labor's clearly a piece of that, no question about it. And I think the -- first, the projects aren't going to go away. I mean it's a robust bidding market right now. So there's a great deal of confidence on the part of our customers. And I'd say to your point about the labor, we look at this as the opportunity for us to shine to our customers. As they get under more pressure to serve their customers, the model that we have, the products that we have, the service that we provide, the alignment that we can reach with our customers becomes more valuable to those customers. It's our opportunity to help them be more successful. So while it's a challenge for many of our customers from the volume standpoint, they become more dependent on us, and we like that. We like to demonstrate what we can do and how we can help them be more successful.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Our next question is from the line of Nishu Sood with Deutsche Bank.

--------------------------------------------------------------------------------

Nishu Sood, Deutsche Bank AG, Research Division - Director [41]

--------------------------------------------------------------------------------

Thinking about the sales outlook for the year, the 4% to 7%. With 2% in the first quarter and between 2% and 5%, I understand, obviously, there's some comps issue in the later start to the painting season. You mentioned the backlogs. I've seen in the prior question earlier in your comments, obviously, it's giving you confidence. What else can you kind of describe for us in terms of what gives you the confidence to get to that 4% to 7% range for the year? For example, trends in April. Has the construction season gotten off to a more robust start with the later start, perhaps later in March? Just if you could kind of give us a little bit more color please on the outlook?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [42]

--------------------------------------------------------------------------------

Nishu, the start to April is in line with the sales guidance we gave. And we talked about 2% to 5% with our North American stores being not only at the high end but above the high end, and we feel good about that guidance. As far as the second half, you got to remember, our first half has the toughest comps. Performance Coatings did 9.8% in the first quarter, 11% in the second quarter. So we're going up against a 10% quarter. Our store comps were 6.8% last year in our second quarter. And as you know, our second half tailed off. So if you look at comparisons, up mid -- almost high single digits in the first half and low single digits in the second half. The other thing I would talk about, some of the headwinds that we're facing in our first half will start to annualize. And it's the exited business in the U.S. that will annualize. It's the Guardsman divestiture, and even some of the tariff impacts that we saw in our industrial businesses. And then the final piece of that is our FX year-over-year comparison gets easier in the second half. We were basically neutral in the first half on FX last year and over 1%. And so now, we're saying we're going to be a little bit over 2 -- or a little bit over 2 in the first quarter. That will be a little bit below 2 because of seasonality. But then in the second half, we have easier comps. So it's a grouping of many things that goes into our confidence in the second half.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [43]

--------------------------------------------------------------------------------

Yes. I'd like to add to that if I could, Nishu. I think your question is a good one about the confidence of our customers. And I think Al talked about a lot of really good points there. A few others that I'd like to expand on. One is we're not waiting for things to happen here. We don't open our doors and hope people come in. We're very aggressive and active in trying to grow our business. And while our customers are confident with their pipeline, we also hedge our bets in making sure that we have growth. So we've talked over the last couple of years about our share of wallet initiatives as well as our new account activity. We've been very aggressive over the first quarter, really driving those activities inside our stores. So we're excited about not only what will happen from our existing customers, but the opportunity to grow in both new account and share of wallet to start with. Second, the investments that we're making give us a lot of confidence, in new stores, in new reps, new products. I mean, we want to keep pushing that pipeline full of reasons for customers to continue to switch to Sherwin-Williams. I want to make it easier for our employees to be in front of those customers with something to increase the value proposition. And then finally, if you look at the other pieces of the business, consumer benefits, we think, are strong as we get better alignment with our customers. And we believe that -- we talk a lot about Lowe's and we're excited about that, and we believe there's a lot of opportunity. But there's a lot of opportunity with our other customers in those segments as well. And on the PCG side, I mean, those businesses coming together with terrific synergies and products, people, relationships, specifications. It's hard for us to look at any one piece of our business and not be excited about the balance of the year.

--------------------------------------------------------------------------------

Nishu Sood, Deutsche Bank AG, Research Division - Director [44]

--------------------------------------------------------------------------------

Focusing in on the Consumer Brands Group. If you factor out the Guardsman divestiture and currency, the 4%, call it, organic sales growth you saw there, and I'm not including obviously the inventory load in 3Q, it's the strongest quarter you've had there in a while. And especially with the late start to the painting season and the weakness overseas, it implies just a really nice result in North America there. Are there any one-off factors that might kind of temper the enthusiasm a little bit about the potential there? Was there some reloading ahead of the spring season? Just anything that might have boosted what looks like a pretty strong result in North America?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [45]

--------------------------------------------------------------------------------

For the most part, Nishu, no. It's hard to draw that line at the end of the quarter to say which, in any one year, might fall on the one side of the line or the other. But the way you've asked your question is much easier to answer. There's nothing that we can point to, to say this happened this year versus last year. We think, to your point, the team is executing. We're implementing a good strategy. But we still are very excited about what's ahead of us as well.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Our next question is from the line of Vincent Andrews of Morgan Stanley.

--------------------------------------------------------------------------------

Steven Kyle Haynes, Morgan Stanley, Research Division - Research Associate [47]

--------------------------------------------------------------------------------

This is actually Steve Haynes on for Vincent. Just wondering if you guys can maybe just elaborate a little bit more on your titanium dioxide pricing outlook this year. And whether you're thinking that maybe after a sustained period of inventory destocking, whether or not the coatings industry goals maybe need to restock in the back half?

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [48]

--------------------------------------------------------------------------------

Yes. We'll see to what extent the softness in demand over the last quarter or 2 has been destocking versus just a slowdown in demand, particularly outside of North America. We think demand remains pretty robust in North America. It is likely the tightest TiO2 market if you look across the regions, and I think the pricing reflects that. The pricing in TiO2 has been relatively stable over the last couple of quarters. That's our expectation going forward. It's not to say that we're not going to see pricing announcements. But unless you see the supply/demand balance tighten meaningfully from here, I'm not sure to what extent any future pricing in that announcement are going to get traction. Our outlook is for stable -- relatively stable pricing over the balance of the year.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Our next question is from the line of Don Carson with Susquehanna Financial.

--------------------------------------------------------------------------------

Donald David Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [50]

--------------------------------------------------------------------------------

Bob, just a question on your outlook for the architecture paint market in North America, both what you saw as growth in '18 and what you think could happen in '19. A particular question is we've seen a lot of strength in remodeling the last few years. That appears to be slowing. And I know Harvard was out recently calling for much more of a slowing in 2019. So do you agree with that outlook? And if so, what would be the implications for the U.S. architectural paint market and your growth?

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [51]

--------------------------------------------------------------------------------

Good question, Don. As a reminder, where we stand right now from an industry standpoint, more than 80% of gallon volume in the industry is going into the repaint markets, both residential and nonresidential. So it is what will drive industry volume over the foreseeable future. We think it's an oversimplification to assume that turnover is the only driver of remodeling activity. In fact, if you look at all the historical drivers of U.S. remodeling activity, only one, albeit an important one, that is existing home turnover, has stalled over the last 12 to 18 months. The others, including aging housing stock, home value appreciation, strong employment backdrop, consumer confidence, et cetera, remain intact. And I'd argue, a lot of those are getting stronger. The other kind of difference in this cycle is in recent years, there have been some unique nontraditional factors driving demand for remodeling. For example, the baby boomers' decision, at least up to this point, to age in place. Baby boomers represent about 1/3 of owner-occupied households that over the last couple of years have accounted for about 50% of the remodeling spend. And we're not seeing that slow down, at least there's no indication that, that's slowing down. As I mentioned in my previous comments on the housing market in general, the conversion of single-family rentals and vacant homes back to owner-occupied, we've actually seen a reversal in the rate of homeownership. It's been declining or stagnant for years. Now we're seeing it start to tick back up as those rental -- single-family rentals are being absorbed by owners. And it's important to note that the roughly 3 million housing units that went from rental or vacant to owner-occupied over the last couple of years, on average, are in higher disrepair than an existing home transaction would generally be, and therefore require more remodeling and higher spend per unit than a typical existing home transaction. And so our conclusion is absent a recession, these factors are going to continue to drive growth in remodeling spend at higher rates than overall growth in the housing market. And it's true that Harvard has lowered their outlook for 2019, but we're still above 5% remodeling spend. And we also believe that you're likely to see kind of a shift away from high ticket, which has been driving a lot of the remodeling spend over the last few years, to a lower ticket, which primarily is painting and decorating.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [52]

--------------------------------------------------------------------------------

Don, I'd only add a couple of seconds here. We've got 5 years of double-digit compounded growth in our res repaint business. We believe we're uniquely positioned to capitalize on the paint portion of that remodel opportunity. And it's an area of focus for us. It's likely one of the largest opportunities we have as a company. And so, we're very excited about the opportunity in this space.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

The next question is coming from the line of Scott Mushkin with Wolfe Research.

--------------------------------------------------------------------------------

Scott Andrew Mushkin, Wolfe Research, LLC - MD and Senior Retail & Staples Analyst [54]

--------------------------------------------------------------------------------

I actually had 2. First, I wanted to get your thoughts on wins. I know local and regional builders and property managers are something you guys have been focused on. So I just want an update there. And then my second question is, as we look at the year to get at the high end of your plan or maybe even above, what would you think would drive that? So a 2-part question.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [55]

--------------------------------------------------------------------------------

So on the first piece, Scott, when you talk about wins, I'm assuming you're talking about winning business. Is that what you're referencing there?

--------------------------------------------------------------------------------

Scott Andrew Mushkin, Wolfe Research, LLC - MD and Senior Retail & Staples Analyst [56]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [57]

--------------------------------------------------------------------------------

Yes. So coming into the year, we've -- on the new residential side, we've now reached 18 of the top 20 new residential builders. So that was up 1 of the top 20 in the last -- I think it was in the late third or fourth quarter. We're still pushing very hard on the large builders. But we're also very, very focused on the regional builder. And we're doing quite well there as well. On property management, it's been a terrific focus of our team in The Americas Group. And we're uniquely qualified here, as you would expect, with our platforms just to distribute product and fulfill the needs of these customers on a national basis. So there's good progress there. Our numbers in the property management area are very similar in ratio of wins of the top 20 property management as they are in new residential.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [58]

--------------------------------------------------------------------------------

Scott, I would say the -- to get to the high end of the range, it's really the level of North America Paint Stores volume. But I would also say on North America volume across Consumer and Performance Coatings, it's still by far the largest segment we have or geography we have. And that would have dictate where we fall onto the range.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

Our next question is from the line of Duffy Fischer with Barclays.

--------------------------------------------------------------------------------

Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [60]

--------------------------------------------------------------------------------

It's Mike Leithead on for Duffy this morning. First, in North America, your Paint Stores, I was hoping regionally you could give us some sort of sense of the magnitude of delta between your best and worst region. I guess I'm just trying to get a sense of how hit the Midwest was from a demand standpoint because of some of the weather activities there.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [61]

--------------------------------------------------------------------------------

Yes. Just a second to look at that here. I would say that the -- well, I'll say it this way that the Midwest and the Southwest were hit pretty hard in the year. The delta -- I don't know that we're going to share that information. We're all looking at each other like we don't share that information.

--------------------------------------------------------------------------------

Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [62]

--------------------------------------------------------------------------------

And then...

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [63]

--------------------------------------------------------------------------------

Go ahead.

--------------------------------------------------------------------------------

Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [64]

--------------------------------------------------------------------------------

And then second question just on raw materials versus volumes. It seems like most people anticipate coatings volumes to accelerate in the second half of the year. Yet raw material inflation is expected to stay relatively flat or even I think maybe potentially come down like you were saying earlier, Bob. I guess is there any concern as demand picks up, there may be inflationary pressure on raw mats? Or are there other factors that hold raw materials back from that?

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [65]

--------------------------------------------------------------------------------

Well, first, Mike, to be clear, our growth outlook for the back half of the year doesn't necessarily -- we're not necessarily expecting industry volume to inflect at the same rate. We think industry volume was a little subdued in the first quarter. But our expectation to accelerate growth in the second quarter and especially in the back half is more -- pertains more to our business than it does to the industry. You're absolutely right. If we see a strong pickup in industry volume, it's likely to tighten some markets for raw materials. That's a high-quality problem.

--------------------------------------------------------------------------------

Operator [66]

--------------------------------------------------------------------------------

Our next question is from the line of Arun Viswanathan with RBC Capital Markets.

--------------------------------------------------------------------------------

Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [67]

--------------------------------------------------------------------------------

Just on that point on the volumes. Just curious on your comp performance in Q1 versus your own expectations and how you see that progressing through the year. Assuming that the comp on the volume side was at the 1% to 2% range, could that accelerate as we go through the year? Just curious just given that there has been some changes and Q1 and Q4 seem to be not as weak versus Q2 and Q3 in years past.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [68]

--------------------------------------------------------------------------------

Yes. Arun, the low single-digit gallon growth that we realized in our first quarter was softer than we were expecting. And when you look at our second quarter sales guidance, the 2% to 5%, and our Paint Stores at -- above that range, it tells you that we're going to see accelerating volume in the second quarter. And we would expect that similar cadence going up against the weaker second half.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [69]

--------------------------------------------------------------------------------

Yes. Just in conversations with our customers, I mean, they're very clear about their inability to get to that painting phase on the projects that they're on. So these projects are there. They're eager to get to them. We expect that they will be, and we're looking forward to serving that.

--------------------------------------------------------------------------------

Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [70]

--------------------------------------------------------------------------------

And just as a follow up, very strong margins in consumer. The other 2 were a little bit, I guess, lighter. But from your own kind of vantage point, if you do see this volume kind of improve, do you expect a material improvement in your margins in both segments and especially on the gross line as well?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [71]

--------------------------------------------------------------------------------

Yes. I'd say, in Consumer Group, part of the improvement we saw in our operating margin was good, tight cost control that, that team has been exhibiting throughout the past year and with realizing synergies. Their gross margin was actually flat year-over-year. So they have had to implement pricing. And as we get volume to that group, I would expect margin expansion. The level of the sequential margin expansion will depend on volume. The 16.9% was a pretty excitable quarter. On Performance Coatings, I would say we're very happy with the progress we're making on our operating margin -- our core operating margin being up 30 basis points. We saw the team has made good progress on pricing and again there's synergy realization in there. And when you talk about it sequentially, I just want to be clear. That's a volume issue. And if you look at our sequential gross margins, they were actually up. So we're making good progress. We have a lot of confidence in our medium-term operating margin targets of high teens to low 20s.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [72]

--------------------------------------------------------------------------------

Yes. I'd say that the Performance Coatings Group's efforts in this area of pricing and margin really has been terrific. Those prices continue to roll into the first quarter. Our efforts are going to continue throughout the year. So to Al's point, we're pleased with the consumer side, but we're really excited about the Performance Coatings margins. We expect those to continue.

--------------------------------------------------------------------------------

Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [73]

--------------------------------------------------------------------------------

Great. And just a quick follow-up, if I can, on the M&A front. Maybe you can just discuss your priorities for buybacks versus M&A. Have you seen any kind of bolt-ons emerge that are attractive to you? And if so, which areas would those be in? And if not, would all the excess cash, I guess, go towards buybacks?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [74]

--------------------------------------------------------------------------------

Yes. I'll take the first piece, Arun. We are looking business by business, and we often talk about our approach to our M&A is driven by business unit. So we look by business, then by geography to understand if there are voids that we should be pursuing. And to us, we're not trying to be everything to everyone, everywhere. We're really determined on executing our strategy and taking a very disciplined approach to that. We have an increased amount of activity. We're engaged in a number of potential targets. And we're excited about the stage that we are in given the integration of Valspar and how some of these might be nice bolt-ons to our businesses.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [75]

--------------------------------------------------------------------------------

Yes. And as we talked about on our year-end call, in 2019, we're getting back to our historical cadence of capital allocation. And we talked about paying down $600 million of debt. $300 million of that is long term that comes due in June. The rest will be short term. Our CapEx we'll manage below 2%. As you know, we raised our dividend over 31% in the first quarter and expect that for the year. And then in the first quarter, we also bought back 750,000 shares of our stock for $305 million. So you look at for the first quarter, we returned $410 million to our shareholders. That's a 27% increase year-over-year. And you can be assured. Absent M&A, we're going to buy back our stock.

--------------------------------------------------------------------------------

Operator [76]

--------------------------------------------------------------------------------

Our next question is from the line of Kevin McCarthy with Vertical Research Partners.

--------------------------------------------------------------------------------

Kevin William McCarthy, Vertical Research Partners, LLC - Partner [77]

--------------------------------------------------------------------------------

It is a high-level question for you regarding your first quarter sales variance. You reported 1.9%. I think the prior expectation was 2% to 6%. And so in explaining that variance, I think you called out the slower start in the States and challenging conditions overseas. I'm just wondering which one of those was more important. Or whether they were equally important in terms of explaining the variance versus your prior expectation?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [78]

--------------------------------------------------------------------------------

Well, it's all a matter of which of our business leaders we're talking to. So I would tell you that we often talk about the stores business, our TAG, as the engine of the company. And so we always point to that model as a terrific model, but it truly is the engine of the company. And we like to see that engine going a little quicker. I mentioned just earlier that from a painting contractor's perspective, getting the painting phase of many projects in the quarter was a bit of a challenge. It's a smaller quarter for us. It's a smaller quarter for our painting contractors. So I don't think that they planned for perfection in the first quarter because of the volatility and the weather. And so they still remain very confident. That gives us great confidence.

And as I mentioned, I think we're uniquely positioned to serve those customers. So on the architectural side, it's very, very important. On the industrial side, when we looked at the comparables there, the comps in the first quarter were up 9.8%. The second quarter were up 11%. So we're in the midst of the toughest comparison for both these businesses from a comp standpoint. Then it breaks down quite a bit down into the 4% range in the back half of the year. Meanwhile, we're continuing with our efforts and the momentum of growing our new accounts, the share of wallet and on the industrial side gaining ground as well. So architectural is important, the industrial is right behind it, but all of them important in our future growth.

--------------------------------------------------------------------------------

Kevin William McCarthy, Vertical Research Partners, LLC - Partner [79]

--------------------------------------------------------------------------------

Okay. That's helpful. And then second, I want to ask you about the packaging coatings business. I think that I heard you say that it grew sales directionally. Any color with regard to volume, price and the outlook for the balance of the year there would be helpful.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [80]

--------------------------------------------------------------------------------

Yes. We have a terrific team in our packaging business, terrific technology, unique technology. I would tell you that, globally, our packaging was up in the mid-single digits. And they were up in every region that we participate in. So we've got good momentum. And we feel as though this is something that's only going to continue.

--------------------------------------------------------------------------------

Operator [81]

--------------------------------------------------------------------------------

Our next question is from the line of Dmitry Silversteyn with Buckingham Research Group.

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [82]

--------------------------------------------------------------------------------

Dmitry?

--------------------------------------------------------------------------------

Operator [83]

--------------------------------------------------------------------------------

We'll move on to our next question, which is coming from the line of Justin Speer with Zelman & Associates.

--------------------------------------------------------------------------------

Justin A. Speer, Zelman & Associates LLC - MD of Research [84]

--------------------------------------------------------------------------------

First starting out with The Americas Group. Can you walk through the monthly trends in the quarter? And then also speak to maybe how things are shaping up in the April for that overall business in TAG?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [85]

--------------------------------------------------------------------------------

Yes. I think if you look at the -- let's start with April. As I said earlier, it's in line with our guidance of the 2% to 5% with stores being at slightly above that range. The first quarter, I would just say, January was strong and February and March were softer.

--------------------------------------------------------------------------------

Justin A. Speer, Zelman & Associates LLC - MD of Research [86]

--------------------------------------------------------------------------------

Okay. Okay. So should we expect -- within the kind of the mapping of your guidance, should we expect pricing power within this business to change from that 2.5% cadence as we look to the balance of the year? Or is that 2.5% a good one to think about?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [87]

--------------------------------------------------------------------------------

I think it gets a little bit better as we go forward. I mean we talked about the effectiveness improving over a 9-month period, and that still holds today.

--------------------------------------------------------------------------------

Justin A. Speer, Zelman & Associates LLC - MD of Research [88]

--------------------------------------------------------------------------------

Okay. And in terms of the segment margins say and thinking about looking to the second quarter, the idea of you being maybe at or above the high end of that 2% to 5% growth ambition. The implications for the second quarter in margins for TAG, do you expect that now flips to positive year-over-year as you look to 2Q? And then, obviously, in the back half is it going to be probably much better, but 2Q positive on a year-over-year basis?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [89]

--------------------------------------------------------------------------------

Yes, Justin. I'm not going to start giving guidance by segment. But as my earlier comments, with the demand outlook and the pricing that we just talked about, we expect to see margin expansion in the year.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [90]

--------------------------------------------------------------------------------

Yes. To reach our 13.5% increased EPS, it's baked in there.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [91]

--------------------------------------------------------------------------------

That's it.

--------------------------------------------------------------------------------

Justin A. Speer, Zelman & Associates LLC - MD of Research [92]

--------------------------------------------------------------------------------

Sure. Sure. Okay. And then flipping -- switching gears to the Performance Coatings business. For that -- the intermediate-term plan and specific to 2020 margin plan, that high teens, the low-20% target by 2020, how much of that is under your control be it the pricing levers or the synergies? And how much of market growth are you going to need? And the reason I ask that is, is I'm looking at this international market remains fairly sluggish. Can you still get to that destination by 2020 from here? Because I think when I look at all the different businesses, this is the one that's deferred as put. So I just want to put that to you and see what your thoughts are there.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [93]

--------------------------------------------------------------------------------

Yes. Justin, first, we're going to give you an update on our 2020 guidance at our Investor Day in June. But we believe we have a number of factors that are in our control that help drive you to that target. One is volume and new account growth, the product innovation that John talked about, the movement in V70 on the packaging side. We still have opportunities for synergies within that group and both Consumer Brands with the majority of them being more focused towards Performance Coatings as we get into product reformulations and raw material changes and then we get into the facilities that we talked about earlier. So I think there's a number of things that are in our control that allow us to move towards that target. How quickly we get there is to be determined.

--------------------------------------------------------------------------------

Justin A. Speer, Zelman & Associates LLC - MD of Research [94]

--------------------------------------------------------------------------------

Understood. And lastly, for me, in just terms of the Consumer Brands. Was there any load-in benefit versus the prior year? Because I believe the announcement was in February last year, where you had a sizable win, a notable win and a large customer. Was there any load-in benefit or tailwind year-over-year from that customer win that graduated into the quarter?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [95]

--------------------------------------------------------------------------------

Yes. I think just the normal ramping up for the season. I don't think there was anything dramatic or different for the most part, Justin.

--------------------------------------------------------------------------------

Justin A. Speer, Zelman & Associates LLC - MD of Research [96]

--------------------------------------------------------------------------------

That's fully annualized. I guess you've anniversaried all of that tailwind. There's no more to come going forward in terms of just the apples-and-oranges benefit from that customer win.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [97]

--------------------------------------------------------------------------------

No. I'd say that we -- from an annualization standpoint, we had a little bit coming in, in Q2. The lion's share of it will be in Q3 from a comparison standpoint.

--------------------------------------------------------------------------------

Operator [98]

--------------------------------------------------------------------------------

The next question is from the line of Dmitry Silversteyn with Buckingham Research Group.

--------------------------------------------------------------------------------

Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [99]

--------------------------------------------------------------------------------

Just wanted to follow up on a couple of sort of items outstanding. First of all, in your Americas business, your Latin American group, given the high teens declines in foreign exchange, was that a positive operating performance quarter for the group or not so much?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [100]

--------------------------------------------------------------------------------

Both the top line and bottom line would have been dilutive year-over-year.

--------------------------------------------------------------------------------

Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [101]

--------------------------------------------------------------------------------

So you lost a little bit money on the EBIT line there as well. Okay. I'm just trying to understand kind of the old Paint Stores Group and see how well it did. Secondly, in terms of European and Asia Pacific demand environment, particularly for the industrial part of the business. Short of comps getting easier in the back end of the year, is there anything that you can see or are seeing or can point to? In other words, what would it take for the results there to get better at a macro level? And what is it that you're doing in addition to that to make sure you deliver the growth that you expect to deliver in the back end of the year?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [102]

--------------------------------------------------------------------------------

Yes. So you're talking about specifically Europe with this question, Dmitry?

--------------------------------------------------------------------------------

Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [103]

--------------------------------------------------------------------------------

Europe and Asia Pacific.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [104]

--------------------------------------------------------------------------------

Okay. Sure. So in Europe, you're right. Overall, there was some softness there. As I mentioned, we did see packaging up in every region, so they were up in Europe. And we believe -- in Europe, we have some really terrific teams that are coming together in our general industrial, in our industrial wood businesses as well as our Protective & Marine capabilities. So our goal there is to really start capitalizing on the combined company and the synergies that result from these 2 companies coming together. Al mentioned earlier about some of the synergies. Some of that comes in a way of cost savings, but what we're also anxious to do is to begin transferring the technology over there. And that's beginning now, but it certainly offers a terrific opportunity going forward.

In Asia, again overall, a soft market. Some of that was the result of the implications of trade, where we saw our industrial wood business under tremendous pressure as more and more companies grappled with the impacts of the -- implications of the trade issues. Again, our packaging business was up. Our coil were up -- was up, and both of those were actually up in double digit in Asia. So good performance there. Our general industrial offers opportunity there that we're anxious to capitalize on. But we do think the industrial woods is going to be under some pressure for some time given everything that's going on.

--------------------------------------------------------------------------------

Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [105]

--------------------------------------------------------------------------------

Okay. So it sounds like in -- you're definitely not looking for any kind of macro pickup. It's basically entirely sort of self-help. And in terms of Asia Pacific, the macro environment you're not optimistic at all it sounds like as we go in the second half.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [106]

--------------------------------------------------------------------------------

Well, I think in all these markets with our market share position, I mean, we've got terrific opportunities. Yes, we'd like to see the markets improve. But in an odd way, those grinding markets should position us to do even better. And we like to grind. We like the opportunity to get in and show that what we bring in solutions and products and services are differentiated. So if the market comes, that's great. If not, our teams know our expectations of them. We want to grow.

--------------------------------------------------------------------------------

Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [107]

--------------------------------------------------------------------------------

Great. That's a very good answer. And last question, just in North American market given the little bit of a slow start, weather or otherwise, in the paint business. I noticed, particularly in Asia, there seems to be a little bit more promotional activity. Would -- as you look across your distribution channels, are you having to be a little bit more promotional this year? Or is it basically business as usual, and there's no incremental promotions that are needed to get the volume up?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [108]

--------------------------------------------------------------------------------

No. I don't think that there's any significant difference in the promotional activity that's taking place right now. We're certainly -- we don't feel as though that's necessary.

--------------------------------------------------------------------------------

Operator [109]

--------------------------------------------------------------------------------

Our next question comes from the line of Garik Shmois with Longbow Research.

--------------------------------------------------------------------------------

Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [110]

--------------------------------------------------------------------------------

Just want to clarify. On the volume ramp the rest of the year, I think there's a comment that was made that you expect to outpace the industry. Just want to be clear. Is this a broad-based comment across businesses? Or is this targeting TAG in particular?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [111]

--------------------------------------------------------------------------------

Well, we certainly believe that our TAG business is positioned to outpace the market. We've talked about that for many years. And the fact this year that we've got the new stores, new products, everything that we have going, we're really excited about this year's season. In fact, not only just everything from investment and resource standpoint but the activity that our teams have demonstrated in this additional area that we've talked about and I think may not be valued as much as we value by some of our investors, which is the new account activity and share of wallet. So we absolutely see a terrific ramp to outpace the market in our stores business.

Outside of that, when you say is it just limited to our stores, I jokingly made the comment earlier. It depends on who inside our company we're talking to. But I say that tongue in cheek because the reality is when we sit and talk with every one of our businesses and we review the opportunities, it really is very exciting to talk about some of the things that we're on the verge on, the line trials that we're on, the promotional or the programs that we're working on with our customers. So we think we have a foot in the right direction in every one of these businesses. And that's not to say there won't be challenges, but we feel really good about where we are and where we're headed.

--------------------------------------------------------------------------------

Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [112]

--------------------------------------------------------------------------------

Okay. And my follow-up question is just as you think of the new store openings going from 15 in Q1 to the 90 to 100 for the full year, how should that track the rest of the way? And are there any support costs or staffing costs that could be lumpy that we should be aware of?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [113]

--------------------------------------------------------------------------------

Yes. For the many, many years, we've been opening stores at 90 to 100. We'll open 15 in the first quarter, and then we'll open 35-ish in the fourth quarter. And the rest find their way in the second and third quarters and...

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [114]

--------------------------------------------------------------------------------

Third and fourth quarter.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [115]

--------------------------------------------------------------------------------

Third and fourth. And there's no lumpiness to the expense that you'd expect.

--------------------------------------------------------------------------------

Operator [116]

--------------------------------------------------------------------------------

Our next question is from the line of Chuck Ceranskosky with Northcoast Research.

--------------------------------------------------------------------------------

Charles Edward Cerankosky, Northcoast Research Partners, LLC - MD of Research, Equity Research Analyst & Principal [117]

--------------------------------------------------------------------------------

I want to switch subject a little bit. The deferred pension asset dropped more than [$200,000] year-over-year. And Al, could you give us the implications what that means to earnings per share and cash flows going forward? And even what happened to cash flows in the first quarter as the annuities were purchased and how it impacted the financial statements, please?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [118]

--------------------------------------------------------------------------------

Sure. The annuity purchase came out of the defined benefit plans. It did not impact the net operating cash that were reported. That really was -- the net operating cash impact was really an increase in our working capital and primarily architectural inventory to get ready for the spring selling season to make sure we're servicing our customers at a very, very high level. The impact of the pension settlement and annuity, we took a $32.4 million hit. That's another income and expense. It allowed us to monetize the overfunded pension plan that we had, and it's a little over the $200 million in cash that we now have available to us to fund our defined contribution pension plan, and which we used $65 million in February to fund that contribution. So going forward, that allows us another good 3 or 4 years, where instead of the company having to outlay cash, we'll use that money that came out of that DB plan.

--------------------------------------------------------------------------------

Charles Edward Cerankosky, Northcoast Research Partners, LLC - MD of Research, Equity Research Analyst & Principal [119]

--------------------------------------------------------------------------------

All right, great. Any way to put, Al, an annual EPS number on that, what it benefits?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [120]

--------------------------------------------------------------------------------

You know what, we haven't, Chuck. I mean it's not material -- it's baked into our guidance and not material year-over-year to call out, so we didn't.

--------------------------------------------------------------------------------

Operator [121]

--------------------------------------------------------------------------------

Our next question is from the line of P.J. Juvekar with Citi.

--------------------------------------------------------------------------------

P.J. Juvekar, Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD [122]

--------------------------------------------------------------------------------

When you look at your business, how much of your paint is ordered online? And who's ordering online? Is it mostly contractors or DIY customers? Can you just talk about sort of online purchases of paint?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [123]

--------------------------------------------------------------------------------

It's a relatively small percentage of our purchases, and it's nearly all professional contractors that are using that. We do have, P.J., a program that's continuing to ramp up in the area of this e-commerce to allow customers to do more business with us. You'll see areas that we're testing in different parts of the country. And we would expect over the not-too-distant future to conduct more business over the Internet, but we don't want to -- we want to enhance. We don't want to replace our stores. We want to enhance the service and the capabilities of our stores and our reps through e-commerce. And we believe this is going to be a terrific tool to allow our customers to get the most out of the resources that we bring to the table.

--------------------------------------------------------------------------------

P.J. Juvekar, Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD [124]

--------------------------------------------------------------------------------

Would you say it's less than 5% of this?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [125]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [126]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

P.J. Juvekar, Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD [127]

--------------------------------------------------------------------------------

Okay. And then one last question. You didn't talk much about Valspar's industrial business, particularly the big machinery business with Cat and Deere. I was wondering what's going on in that business and what trends you are seeing.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [128]

--------------------------------------------------------------------------------

I'm sorry. The question was...

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [129]

--------------------------------------------------------------------------------

The John Deere.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [130]

--------------------------------------------------------------------------------

I'd say, overall, our business there is doing well. We, again, have a lot of respect for these customers. We're working hard to bring more solutions to them. I'd say this was an area that when you look at the combination of our companies, both technical organizations were working on opportunities to enhance features of the product to help our customers. One company had solved one area of an issue, and the other one had supplied another. And when we got our technical teams together, we really found an opportunity to enhance what we believe to be as a terrific solution for those customers, but also that might be expandable into other areas as well. So it's an exciting part of our business, one that we expect to continue to grow.

--------------------------------------------------------------------------------

Operator [131]

--------------------------------------------------------------------------------

Our next question is coming from the line of Gregory Melich with Evercore ISI.

--------------------------------------------------------------------------------

Gregory Scott Melich, Evercore ISI Institutional Equities, Research Division - Senior MD [132]

--------------------------------------------------------------------------------

I'll try and keep it brief. I just want to make sure I got the pricing dynamic right. 2.5% was the pricing mix in The Americas Group comp. If we looked at Performance Coatings, should we assume that the price realized was something north of that, maybe 3.5% or 4%, if my backup math is correct? Then I had a follow up for Al.

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [133]

--------------------------------------------------------------------------------

You know what, Greg, I would say the way that pricing rolls in is more choppy than our stores that I talked about. And I would say it's not quite that high.

--------------------------------------------------------------------------------

Gregory Scott Melich, Evercore ISI Institutional Equities, Research Division - Senior MD [134]

--------------------------------------------------------------------------------

But it would have been just -- it would be higher than -- I'm just looking at the math. If I add back the FX for North America to have grown 4%, there must have been more price in Performance Coatings than in Americas Group? Or...

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [135]

--------------------------------------------------------------------------------

No, I'd say a similar amount, and our volume was up low single digits in Performance Coatings.

--------------------------------------------------------------------------------

Gregory Scott Melich, Evercore ISI Institutional Equities, Research Division - Senior MD [136]

--------------------------------------------------------------------------------

All right, fair. That's what I was looking for. And then second, on the guidance for the full year, could you remind us what the tax rate you guys are using for that at the midpoint or in a range? And then link that to the buyback as well. I mean you had more buyback than we had, at least in the first quarter. Do you look at that $300 million this first quarter as sort of a new higher level of run rate? Or just given where the share price was, you're more opportunistic if you think about the full year?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [137]

--------------------------------------------------------------------------------

Yes. The tax rate -- and I'll talk to the core tax rate. We expect to be in the low 20%. Obviously, we're a little bit lower than that in the first quarter, but comparable with last year because of the favorable impact you get on stock comp is heavier in the first quarter. Just historically, there's been more options exercised. Then we have some vesting of our issues. As far as the share buybacks, I think we are going to be opportunistic and we were in the first quarter with where we saw our stock price. I think you have done the math on free cash flow on our last call and got a little bit higher directionally than I would have been. I think your number was $800 million to $1 billion. So I might be a little bit lower than that, but it's going to depend on the M&A activity and how that unfolds throughout the year. That will determine how much we ultimately buy.

--------------------------------------------------------------------------------

Gregory Scott Melich, Evercore ISI Institutional Equities, Research Division - Senior MD [138]

--------------------------------------------------------------------------------

So it sounds like for purposes of guidance, you're still assuming maybe a couple million shares for the year, not 3 million or 4 million?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [139]

--------------------------------------------------------------------------------

That's fair.

--------------------------------------------------------------------------------

Operator [140]

--------------------------------------------------------------------------------

Our next question is from the line of Eric Bosshard with Cleveland Research Company. We'll move on to our next question which is coming from the line of Mike Harrison with Seaport Global.

--------------------------------------------------------------------------------

Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [141]

--------------------------------------------------------------------------------

Wanted to ask a couple questions on the Lowe's business. Specifically about the bottom line contribution that you saw in Q1 and what you're expecting in Q2. Can you just talk about how that played out compared to your expectations? And are the costs related to that Lowe's business where you want them at this point?

--------------------------------------------------------------------------------

Allen J. Mistysyn, The Sherwin-Williams Company - Senior VP of Finance & CFO [142]

--------------------------------------------------------------------------------

Yes, Mike. Out of respect for all our customers, we don't want to comment on any individual customer impact on our results. Now as far as the costs go, we did lay out the fact that we were going to take a $50 million charge, and about 40% of that was onetime. So that remaining $30 million, if you will, is spread pretty evenly out through the 4 quarters of '19.

--------------------------------------------------------------------------------

Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [143]

--------------------------------------------------------------------------------

All right. And then one of your competitors that serves the DIY market sounded a little bit more optimistic about trends in DIY. Wondering if you share that view. And if so, what do you think is generating some of that improvement?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [144]

--------------------------------------------------------------------------------

Well, we're certainly positive about the space. We think that, as I mentioned earlier, working with our partners to drive their success is important. Our view is that we're providing customers the brands and the quality of product that can help separate them from our -- or alignment with their customers. I will say that during that process, we always are making sure that we have the right relationships and that we're in the right channels and with the right assortments with the right customers. So that review is something that's ongoing and something that we work very hard on. Once those decisions are made, then we work really hard to align ourselves and put our customers in the best position to win.

--------------------------------------------------------------------------------

Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [145]

--------------------------------------------------------------------------------

All right. And last question I had. I was just wondering, John, if you can comment on the recent personnel changes. I know you promoted David Sewell to COO and then made some changes at the top of Performance Coatings and Consumer. Is this just moving people up the ladder? Or does it suggest a more significant changes going on strategically at the top of those 2 segments?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [146]

--------------------------------------------------------------------------------

No. I think if you look, historically, Mike, at the company, I think it's 27 over the last 32 years we've had a Chief Operating Officer. The company is -- we have strong expectations. And we want to grow. We want to grow fast. And I believe David Sewell is a wonderful, talented leader that can help us accomplish our goals. Aaron Erter into our Performance Coatings is, I think, a tribute to the commitments that we have in identifying talent and making sure that they have the experiences to continue to develop. Rob Lynch backfilling Aaron Erter, I mean I can go down the list. I mean we work really hard at developing a strong depth of talent to be able to execute what it is that we're trying to do. But what we're trying to do is grow. And my belief in having a COO is specifically targeted at helping us to drive our business with more speed.

--------------------------------------------------------------------------------

Operator [147]

--------------------------------------------------------------------------------

Our next question is from the line of Rosemarie Morbelli with G. Research.

--------------------------------------------------------------------------------

Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [148]

--------------------------------------------------------------------------------

I was wondering if you could give us an update on the refinishing. Could you give us some details on the trends, whether it is in North America and in international markets?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [149]

--------------------------------------------------------------------------------

Yes. I'd say refinishing in North America, Rosemarie, was a relatively soft market. And I'd say that we are kind of floating right with the market, and that doesn't bode well for us as you would expect. Our expectations for our teams are not to run with the market. So we feel as though we're positioned well. We've got some new technology that we think can help to expedite the efforts that we have. We've got -- it's oddly enough another opportunity of the synergies of the 2 companies come together. We have an Ultra K -- Ultra 9k technology that's a waterborne technology that we believe is a wonderful quality product, great color, helps in productivity, all the levers that you would look at for vehicle refinish. And so while our performance in the first quarter reflected kind of what we see in the market, not only in North America, I would say around the world for the most part, our expectations for this team going forward will be to outperform the market. We feel we're holding our own, I guess, would be the answer.

--------------------------------------------------------------------------------

Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [150]

--------------------------------------------------------------------------------

So with everyone texting and teenagers doing all of that at the wheel of a truck, why do you think the demand is so slow? I am assuming you are counting on accidents in order to grow that particular business.

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [151]

--------------------------------------------------------------------------------

Well, we don't like when you frame it exactly that way. But there are drivers that certainly have some impact on it. I'd say that there's a general softness in the market. And we believe that there are opportunities for this business. And so, overall, I think collisions industry-wide were down in the low single digits. But again, when I look at our market share opportunities, there are growth opportunities for us, and that's what we're working with our teams to capture.

--------------------------------------------------------------------------------

Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [152]

--------------------------------------------------------------------------------

So even with AI causing cars to stop by itself even if someone is just trying to do the wheel, you still think that with the market decline you can still gain share and grow?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [153]

--------------------------------------------------------------------------------

Yes. And part of that comes to what I talked about earlier as far as the technology. All of these creates pressure in a segment, and that pressure forces people to find better solutions to what it is that they're trying to do. There are going to be some accidents out there. And so if you look at the opportunity to help those customers whose business might be under pressure because of everything that you just described, those customers are going to be looking for solutions that help them do what they want to do more profitably. We think we can help our customers accomplish that goal by bringing them the solutions to win.

--------------------------------------------------------------------------------

Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [154]

--------------------------------------------------------------------------------

That is very helpful. And if I could just have one last question in terms of China and the demand, which obviously had slowed down because of tariffs, but seems to be picking up in terms of domestic demand. Would that be helping? Are you seeing it, first of all? And is it mostly in your wood business that you would see it if it is occurring?

--------------------------------------------------------------------------------

John G. Morikis, The Sherwin-Williams Company - Chairman & CEO [155]

--------------------------------------------------------------------------------

Well, part of that has to do with the focus of our businesses. I would say that we're looking more into that domestic business, Rosemarie, but it's not been a primary area of our focus. So while we're looking to grow in those areas, that speaks more to the point I made earlier about the fact that given our market share and the opportunity to grow, that we need always to be looking for those opportunities regardless of what's happening in the market. We've not been traditionally solely focused on one area, but we've been more focused on the exported products than we have been the domestic market. And so that gives us a terrific opportunity to grow forward in the future.

--------------------------------------------------------------------------------

Operator [156]

--------------------------------------------------------------------------------

It appears we have no further questions at this time. So I'd like to pass the floor back over to Mr. Wells for any additional concluding comments.

--------------------------------------------------------------------------------

Robert J. Wells, The Sherwin-Williams Company - SVP of Corporate Communications & Public Affairs [157]

--------------------------------------------------------------------------------

Thank you, Jessie. I'd like to thank you all for joining us on this, my last quarterly earnings call. It's been my pleasure working with you all over the last 17 years, and I'm confident I'm leaving you in very capable hands with Jim Jaye. As usual, Jim and I will be available to take any follow-up questions over the balance of the week. We also hope you will join us in Cleveland on June 5 for our annual Financial Community Presentation. Again, just contact us if you need the registration link. Thanks again for joining us, and thanks for your continued interest in Sherwin-Williams.

--------------------------------------------------------------------------------

Operator [158]

--------------------------------------------------------------------------------

Ladies and gentlemen, this does conclude today's conference. Again, we thank you for your participation, and you may disconnect your lines at this time.