Sherwin-Williams Company (The)

Good morning. Thank you for joining the Sherwin-Williams Company's review of fourth quarter and full year 2018 results and the outlook for the full fiscal year of 2019. With us on today's call are John Marikas, President and CEO, Alma Sishen, CFO, Jane Cronin, Senior Vice President, Corporate Controller, and Bob Wells, Senior Vice President, Corporate Communications. This conference call is being webcast simultaneously in listen-only mode by issuer direct via the An archived replay of this webcast will be available at Sherwin.com beginning approximately two hours after this conference call concludes and will be available until Wednesday, February 20, 2019 at 5 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.

Thanks, Jessie. Good morning, everyone. Before discussing our results and outlook, I'd like to call your attention to the accounting change mentioned in our press release this This voluntary inventory accounting change made in the fourth quarter of 2018 was driven by the company's integration activities. As a result of this accounting change and in accordance with generally accepted accounting principles, a retrospective one-time expense adjustment to cost of goods sold of $58.9 million or $0.47 per share has been made resulting in revised GAAP 2017 fourth quarter and full year amounts. This revision increased acquisition-related costs and reduced previously reported segment profit for performance coatings and consumer brands groups by $35.7 million and $23.2 million respectively for both the fourth quarter and full year 2017 compared to what was previously reported. To be clear, there was no impact on fourth quarter or full year 2018 from this revision. We've summarized fourth quarter and full year adjustments to operating segment profit in a slide deck on our website under January 31, 2018 year end and fourth quarter financial results. With that, let me move on to our fourth quarter and full year 2018 results. All comparisons in my remarks are to the revised fourth quarter and full year 2017 unless otherwise stated. Beginning with fourth quarter 2018, consolidated sales increased $84.7 million or .1% to $4.06 billion. For the full year 2018, consolidated sales increased $2.55 billion or 17% to $17.53 billion. As a reminder, the Valspar transaction closed on June 1, 2017. Incremental Valspar sales from January through May of 2018 increased consolidated sales by .4% for the year. Organic growth for full year was 4.7%. Consolidated gross profit dollars in the fourth quarter decreased $56.6 million or .3% to $1.68 billion. Gross profit for the year increased $699.8 or .4% to $7.4 billion. Consolidated gross margin in the fourth quarter decreased to .4% from .7% in the same period last year. Excluding impacts from purchase accounting and one-time items, consolidated gross margin in the quarter was .4% compared to .7% in 2017. Consolidated gross margin in the year decreased to .3% from .8% in the same period last year. Excluding impacts from purchase accounting and one-time items, consolidated gross margin for the full year was .8% compared to .9% in 2017. Selling general and administrative expense decreased $87.2 million or .6% to $1.24 billion in the fourth quarter and also decreased as a percent of sales to .5% from .3% in the same quarter last year. SG&A expense for the year increased $236.1 million or .5% to $5.03 billion but decreased as a percent of sales to .7% from 32% in 2017. Interest expense for the quarter was essentially flat year over year at $89.4 million. For the year, interest expense increased $103.3 million to $366.7 million. The increase was primarily due to a full year of Valspar-related debt compared to seven months last year. Consolidated profits before tax in the fourth quarter decreased $124 million or .9% to $102 million. The fourth quarter of 2018 included non-operating expenses of $135.9 million related to environmental remediation and $37.6 million related to a pension plan settlement as described in our press release. For the full year, consolidated profit before tax decreased $109.7 million or .5% to $1.36 billion. Full year 2018 results included non-operating expenses of $167.2 million, $37.6 million, and $136.3 million related to environmental remediation, pension plan settlement, and California public nuisance litigation respectively. Excluding acquisition and non-operating expenses, our effective tax rate on adjusted income for the quarter was .1% and .5% for the full year. Deluded net income per common share for the fourth quarter 2018 decreased to $1.07 per share from $8.92 per share last year. The $1.07 per share in the fourth quarter includes non-operating expenses of $1.37 per share and acquisition related expenses of $1.10 per share. The $8.92 per share in the fourth quarter of 2017 includes a one-time benefit of $7 per share from deferred income tax reductions and $1.24 per share in acquisition related expenses. Excluding these items, adjusted diluted earnings per common share increased 12% to $3.54 in the fourth quarter 2018 from $3.16 in the fourth quarter 2017. Deluded net income per common share for the full year decreased to $11.67 per share from $18.20 per share in 2017. The $11.67 per share includes non-operating expenses of $2.71 per share and acquisition related expenses of $4.15 per share. The $18.20 per share from last year includes a 44-cent charge related to discontinued operations. Acquisition related expenses of $3.17 per share and a one-time benefit of $7.04 per share from deferred income tax reductions. Excluding these items, adjusted diluted earnings per share increased 23% to $18.53 in full year 2018 compared to $15.07 in full year 2017. We have summarized the fourth quarter and year over year earnings per share comparison in a Regulation G reconciliation table at the end of our fourth quarter 2018 press release. Let me take a few minutes to break down our performance by segment. Sales for the Americas group in the fourth quarter increased $65.4 million or 3% to $2.25 billion. For the year, net sales increased $507.9 million or .6% to $9.63 billion. Currency translation rate changes reduced sales in the quarter and the year by .8% and 1% respectively. Comparable store sales in the U.S., Canada, and the Caribbean, that is sales by stores open more than 12 calendar months, increased .9% in the quarter and .1% in the year. Regionally in the fourth quarter, our Southeast division led all divisions followed by Midwest, Eastern, Southwest, and Canada. Sales were positive in every division in the quarter. Fourth quarter segment profit increased $7.4 million or .8% to $413.4 million. Currency translation rate changes decreased segment profit .7% in the quarter. Full year segment profit increased $128.9 million or .3% to $1.9 billion. Fourth quarter segment operating margin decreased 20 basis points to .3% from .5% last year. Full year segment operating margin increased 30 basis points to .7% from .4% last year. Turning now to the consumer brands group, fourth quarter sales decreased $37.2 million or .5% to $534.4 million. The new revenue recognition standard reduced sales by .8% in the quarter. Full year sales increased $584.3 million or .1% to $2.74 billion. Excluding the incremental five-month sales from Valspar, sales for the group increased .2% in the year. The new revenue recognition standard reduced sales by .8% in the year. Fourth quarter segment profit increased $11.6 million to $12 million. Purchase accounting costs decreased segment profit by $24.5 million compared to $32.8 million in the fourth quarter 2017. In addition, the accounting change decreased segment profit by $23.2 million in the quarter in 2017. Full year segment profit increased $58.3 million or .7% to $261.1 million. Segment profit from the incremental five months of Valspar results was $75.8 million. Purchase costs decreased segment profit by $110.9 million compared to $107.6 million in the year 2017. In addition, the accounting change decreased segment profit by $23.2 million in full year 2017. Fourth quarter segment operating margin increased to .2% from .1% last year. Excluding the purchase accounting expenses in both quarters and the accounting change in the fourth quarter 2017, segment operating margin decreased .8% in the fourth quarter 2018 from .7% in the fourth quarter 2017. Full year consumer group segment operating margin increased to .5% from .4% last year. Excluding the purchase accounting expense in both years and the accounting change in 2017, segment operating margin decreased to .6% in 2018 from .5% in 2017. As a reminder, consumer brand segment also incurred approximately $50 million in expenses this year to support the launch of the exclusive partnership with Lowe's and $20 million in incremental supply chain costs which we described in our third quarter results. For our performance coding group, fourth quarter sales increased $56.5 million or .6% to $1.27 billion. Currency translation rate changes reduced fourth quarter sales by 1.2%. For full year sales increased $1.46 billion or .4% to $5.17 billion. Excluding the incremental five-month sales from Bellspar, sales for the group increased .1% in the year. Fourth quarter segment profit increased $28.6 million or .1% to $112.3 million. Purchase accounting cost decreased segment profit by $55.2 million compared to $42.1 million in the fourth quarter 17. In addition, the accounting change decreased segment profit by $35.7 million in the fourth quarter 2017. Full year segment profit increased $189.3 million or 72% to $452.1 million. Currency translation decreased segment profit by .7% in the year and segment profit from the incremental five months of Bellspar results was $97.6 million. Purchase accounting cost decreased segment profit by $215.8 million compared to $183.1 million in 2017. In addition, the accounting change decreased segment profit by $35.7 million in 2017. Fourth quarter performance group segment operating margin increased to .8% from .9% last year. Excluding the purchase accounting expense in both quarters and the accounting change in the fourth quarter 2017, segment operating margin was flat year over year at .1% in the fourth quarter. Full year segment operating margin increased to .8% from .1% last year. Excluding the purchase accounting expense in both years and the accounting change in 2017, segment operating margin decreased to .9% in the year from 13% in 2017. That concludes our review of our operating results for the fourth quarter. So let me turn the call over to John Marikas who will make some general comments and provide our outlook for fiscal year 2019. John?

Thank you, Bob. Good morning, everyone. Thanks for joining us. I'd like to make just a few additional comments on our fourth quarter and full year 2018 before moving on to our outlook for 2019. Our fourth quarter results that Bob just walked through fell short of our original expectations with the shortfall in revenue growth driving the majority of the weaker than anticipated results. We often view trends in the fourth quarter as indicative of the momentum we will carry into the following year. In this case, the improving cadence of our business late in the quarter was encouraging. In January, it's given us a solid start to the first quarter. In terms of the full year, 2018 was a record year for Sherman Williams by many measures. Sales and adjusted earnings per share were both records. Sales increased 17% to $17.5 billion compared to the prior year or .7% excluding the five-month contribution from Valspar. Adjusted earnings per share increased by approximately 23%. Adjusted EBITDA or earnings before interest, taxes, depreciation, and amortization increased to $2.82 billion. Net operating cash for the year was a record $2.04 billion, an increase of more than $151 million compared to 2017 and .6% of sales. Free cash flow, which we define as net operating cash less capbacks and dividends, was $1.46 billion compared to $1.34 billion last year. All of our operating segments contributed to this record performance. Within the Americas group, full year sales increased .6% against a challenging prior year comparison of 8.8%. Residential repaint remained our strongest customer segment in the year, up by a double-digit percentage. All other segments were positive for the year. Full year segment profit dollars and margin also improved year over year. We continued to invest in innovation and service, introducing 25 new products, our eighth consecutive year of double-digit product introductions. We opened 87 new paint stores in the US and Canada and added 150 new territories. In the consumer segment, full year sales were up mid single digits, excluding the five months incremental sales from Valspar and the impact of the new revenue standard. Adjusted segment margin was down year over year, driven mainly by expenses related to a new customer program and raw material cost increases, not all of which were anticipated. We feel very good about our product reset, merchandising and training efforts with Lowe's this year, as well as our strengthened relationship with other key retailers. Performance Coding Group sales across all product categories were positive, led by general industrial and packaging, which were both up by double-digit percentages. Throughout the year, Performance Coding Group combated persistent raw material inflation with price increases, some of which are still flowing in. This group also made commendable progress on continuing integration efforts. Company-wide, we delivered approximately $180 million in synergy benefit to the P&L in 2018, about $30 million above the midpoint of our expectations at the start of the year. We exited the year at a synergy run rate of approximately $360 million. Finally, we returned approximately $936 million to shareholders during the year, including $323 million paid in cash dividends and $613 million to purchase 1.52 million shares of common stock. And we reduced our debt by $1.1 billion. Let me begin my comments on our outlook for first quarter and full year 2019 by saying that we remain confident in the sustainability of demand across most of our end markets. I'm also confident in our ability to execute on the key initiatives that drive our success in the short and long term, and in our ability to deliver value to our customers. We entered 2019 well positioned and focused on what we can control. I'm less confident about the increasing number of economic, political, and social variables that are beyond our control. These would include government shutdowns, Fed rate hikes, tariffs, trade wars, immigration, and security to name a few, any one of which could disrupt market demand and raw material supply. While it's our job to focus on those things we can control and adapt to those things we cannot, these factors individually and collectively create uncertainty and expand the range of outcomes. For the first quarter of 2019, we anticipate our consolidated net sales will increase 2 to 6% compared to the first quarter of 2018. The first quarter of 2019 will include expenses related to the defined benefit plan annuity purchase of approximately $0.43 per share. As we described in our call two weeks ago, demand in our North American paint stores inflected on the increase in our market demand in the first quarter of 2019. We expect that the sales of our stores will continue to increase and we expect to see the sales increase upward in December and continue to accelerate in January. We're encouraged by this, but remind you that January is a small month with March being the most critical month in the quarter. For the full year 2019, we expect coordinated net sales to increase 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 Balspar acquisition costs and one-time items. On this basis and given our sales outlook, we expect 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. This adjusted 2019 guidance excludes approximately $3.20 per share for acquisition related expenses and $0.43 for other non-operating expenses. We've included a Regulation B 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. One key assumption embedded in this outlook is that raw material inflation for 2019 will be in the low single digits compared to 2018. The rate of -over-year inflation will be highest in the first quarter and assuming stable petrochemical feedstocks and no supply disruptions should diminish as we go through the second half. A few additional data points may be helpful for modeling purposes. We expect incremental synergies of approximately $70 to $80 million in 2019 with a total annual run rate of approximately $415 million at year end. We expect capital expenditures to be approximately $320 million, which is about .7% of anticipated sales as we continue to invest in capacity and productivity improvements, systems, and new stores. Depreciation should be $267 million and amortization will be about $315 million. After focusing largely on debt reduction in the last two years, we'll begin moving back toward our more traditional capital allocation philosophy in 2019. We expect to reduce debt by $600 million by the end of this year, which should reduce our net debt to EBITDA ratio to below three times by the end of 2019. Historically, we've targeted dividends at about 30% of prior year gap earnings. Next month at our board of directors meeting, we will recommend a quarterly dividend increase of 31% to $1.13 per share, up from $0.86 last year. We expect to make open market purchases of company stock in 2019 at a level beyond what is necessary to offset dilution from options exercises. On December 31, we had remaining authorization to acquire approximately 10.13 million shares. We'll also continue to evaluate acquisitions that fit our strategy. Before moving on to your questions, let me wrap up today by to save the date of Wednesday, June 5th on your calendars. That will be the day we'll host our annual financial community presentation at the Westin Hotel in Cleveland. The program will include presentations by several members of our leadership team. We'll host our customary Q&A session followed by a reception and lunch. Again, that date is Wednesday, June 5th. We'll be sending out invitations and related information in a link to our registration site in April. With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

Thank you. At this time, we will be conducting the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is on the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. One moment please while we pull for questions. Thank you. The first question is from the line of Steve Byrne with Bank of America, Merrill Lynch. Please proceed with your question.

Hi, thank you. This is Ian. I wanted to ask about what's

driving the strength in your view in the residential and retail market of double digits and what that expectation is for?

Ian, for some reason you're not coming through very clearly. Apologies. Sorry about

that. Sorry about that, guys. I wanted to ask about the residential repaint, what's driving the strength in that market of double digits, and what your expectation is for 2019.

Yeah, I think over the last few years we've seen really strong growth in residential repaint, not just company-wide, but industry-wide. We've been growing residential repaint double digits for five consecutive years. We think the industry is probably growing in the high single digits. And a couple things driving that. One is home value appreciation. Although home turnover has been slower than we expected at this point in the cycle, values have inflated and that gives homeowners confidence in reinvesting in renovation and redecorating projects. The second thing is the decision by baby boomers at this stage in the cycle to age in place. They've been investing in a lot of things over the last decade or two, including college educations, etc. And now they're unleashing some capital to renovate the family home, or so it appears. Those are probably the two biggest drivers.

Yeah, I'd say from our perspective, we've been very deliberate in developing products and services that meet that customer's needs. And we take a very, use the word deliberate, approach to this. We want to make sure that our services help those customers make more money. We've got a terrific field organization through our stores to be responsive to these customers. And I think we're executing very well at the store level and rep level.

In terms of outlook, by most measures, I think residential remodeling spend grew in the upper single digits, the 7, .5% range in 2018. We expect a little bit of moderation in number in 2019 back to like the 6 to .5% range, but still a strong year in from a historical perspective.

Thanks very much. And just one follow up, if I may. On John, you mentioned, you know, there's a lot of variables going on here with factors inside assurance control and factors outside assurance control. And the guidance that was established, the 2020 targets of 11% EPS haggard. It seems like the world's gotten a little more uncertain since then. And just wanted to know how you think about that longer term EPS outlook. Thank you.

Yeah. Ian, this is Al. You know, we made a comment on the last call on the 15th about giving you an update on 2020 outlook at our June investor day. And I think we get about six months in under our belt and an outlook for the rest of 2019. We can do that. Thank

you. Thank you.

Thank you. Our next question is from the line of Nishu Sud with Deutsche Bank. Please proceed with your question.

Thank you. First question I wanted to ask was on the sales guidance for 19, the 2 to 6% in 1Q and then the 4 to 7% in 19. I think even if you take into account the slight definitional differences, you know, total net sales versus core net sales implies some acceleration. Given your commentary back, it sounded like, you know, momentum had picked up back to normal. Sales momentum had picked up back to normal in January. So what is driving that, you know, that sequencing of accelerated growth as the year goes on?

Well, Nishu, let me begin by taking the January portion of it. I'd comment that we're off to a very good start. January sales will come in high above our first quarter guidance. So we're feeling good about that momentum. And as far as the year, Al, you want to?

So Nishu, when you look at the year, you know, we always start with our US and Canada paint stores that are still a growth engine of the company, will continue to drive to the higher end of that sales guidance of 4 to 7%. As you recall, we went out with a price increase on October 1st of 4 to 6%, which will give you about effectiveness, a little close to two and a half percent. And then the rest is really price mix. We really expect the consumer to be low single digits. And we're still seeing headwinds outside the US in that group. We see some headwinds, continued headwinds in the retail part of that channel. And as we've discussed, we're very excited about the Lowe's program. Even though we're not going to talk about it in particular, in deference to our customer, we feel very good about where we're positioned and we're at or a little bit ahead of our pro forma coming into 19 and with 19 included. And then say performance coatings. We still feel like even with the short term headwinds related to the tariffs that we had talked about in industrial wood in China, and in our coil business North America, we still feel like mid single digits is a good number for that group. It'll be a little choppy by business by segment. But overall, we got a lot of momentum and a lot of good programs going and we feel very good about that. A couple other data points would be FX is going to be a little over 1% headwind for the year. And I think price, we talk about two and a half in stores, but overall close to 2% on price.

Got it. I know that's very helpful. And then regarding store openings in 2019, what kind of pace would you expect in 2019? Some acceleration from the roughly 75 and 18 or what are you thinking about for 19?

Yeah, I think we're going to continue to run the same pace here and that 80 plus to the 100 range. We feel good about that pace. Okay, thank you. Thank you.

Thank you. The next question is coming from the line of Robert Court with Goldman Sachs. Please proceed with your question.

Thank you. Good morning. Good morning, Bob. I wanted to focus on the performance coatings and the momentum, I guess the underlying momentum starting to develop there from a margin perspective. How do you guys see the cadence of those margins as we go through 2018? I'm sorry, 2019?

You know, Bob, we certainly expect the margin expansion and we saw it coming out of our second quarter, a year over year improvement and then as you know, we took an accelerated increase in raw materials. That team has gone out with price again. We believe that price is effective along with good tight SG&A controls and the synergies they're realizing and to end the year flat on an operating, essentially flat on an operating margin standpoint year over year. We feel very good about that.

And you guys obviously have articulated the cost synergies and I know Wall Street is usually pretty reluctant to embrace revenue synergies, but do you have any updated thoughts or anecdotes on what you might have been able to achieve from a revenue synergy standpoint with the Valspar integration?

Yeah, Bob, we're not going to put a number on it, but I would tell you that, you know, as we've mentioned before, our teams are very excited about the opportunities that we continue to harvest as we're working through this. Getting our teams together around the world dialing through this is creating more and more excitement. So every quarter that we've talked about it, we have felt good and I would tell you every quarter we feel better about what we've accomplished and what's ahead. Thanks. Thank you.

Thank you. Our next question is from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.

Thank you. Just sticking with PC, can you give us a brief State of the Union on what you're seeing in terms of top line growth, you know, wood and coil versus, you know, GI packaging P&M. Just how you're thinking about your opportunities there would be appreciated.

Yeah, it might be helpful. I'll break it down a bit by region as well. Chris, the largest that we have obviously North America has been the best performing for all of our segments. The one standout I would point out would be coil. We talked about that last year. The tariff impact on our coil business here in North America has been significant, but overall our performance here in North America has been terrific. Asia, I'd say coil was strong and GI was strong as well and the drag that we're feeling there is in our industrial wood business and that's also tariff related as well and got a lot of customers there that are feeling the impact. We have customers that are moving manufacturing throughout Southeast Asia and our teams, fortunately, we're positioned well to capture it, but our customers are in a state of flux as they're moving manufacturing from one country to another to be responsive to their tariff issues. Latin America, I'd say our GI and our packaging were very strong performers and we have a leading position in our automotive business down there. We had some softness in the fourth quarter, but our team down there is terrific. We've got great leadership down there, great position and they've got confidence about the year 2019 as well. Overall, Europe, I'd say, was the softest and I would say that's across all of our businesses and that's something that's continued here as we've turned the corner in the year as well.

That's great detail. You've obviously been executing well given the choppy macro environment at least recently. How should we just think about your longer-term margin potential? Now that you're realizing most of the VAL synergies or at least the remainder of them in 2019, when we think about your historical margins and consumer, VALS legacy margins and coatings, where do you see your long-term opportunities outside of the whole price-cost equation? Thank you.

Yeah, Chris. We have talked about performance coatings group getting into the high teens to low 20s as we integrate and as you recall, the VALS bar businesses in the high teens to low 20s already and the synergies that would help bring up the legacy Sherwin businesses. The same goes on the other side for consumer and we believe getting those high teens and low 20s is still a reasonable target and we're going to help drive the legacy. Sherwin is going to help drive the legacy VALS bar low teens up to that high teen number and that's our expectation still. Thank you. Thanks, Chris.

Thank you. Our next question is from the line of Gansum, Punjabi with Baird. Please go ahead with your question.

Hey guys, good morning. I guess first off, obviously housing data in the US, construction data in general has been very choppy, very public, very choppy. John, can you just sort of touch on customer backlogs, however you define that for 2019 specific to the pain store subsegment? What are your customers telling you in terms of contracted backlogs, etc.?

Yeah, Gansum, I'd say that when you speak with our customers, it's a very bullish discussion we're having. Our customers remain very confident about the year, the bidding that they're doing, and the backlog that they have had as well as what they see going forward. So we're feeling pretty good about our position and we're excited about continuing to grow market share in this space. You mentioned new residential and we feel as though we've done very well on the national builder level. We're having very good penetration in the regional and local builders. Our position commercial side is strong and getting stronger and we continue to pound away at this residential repaint. The point I'd make though is as you go across the various segments, you're hard pressed to find customers that are anything but excited about the market that we're in right now.

Got it. And then I guess just switching to consumer brands, the margin differential 18 versus 17. Can you just remind us how much of the differential relates to non-recurring investment expense related to the share gains from last year? Just trying to get a sense as to how to think about margins for the segment and then also related to that, what is going to be different in terms of the -to-market strategy for consumer brands as you position in front of the paint season? Thanks so much.

Let me talk first about the -over-year margins. As you recall, we talked about a 40 cent hit that's about 50 million. About 40% of that was one time and we realized those in our third and fourth quarter. You also have the ongoing investment so that other 60% as we've been ramping up the program, adding reps to get our rep coverage down to four stores per rep versus where we were in the other incremental investments. In a small quarter that we have with the seasonal volume adjustments in consumer, it weighed heavily on the margins in the quarter -over-year. Let

me take the backside of that as far as what's going to be different. Gansal, I look at our position in the marketplace and clearly we're very excited about the alignment we have with our reps. I'd also say the alignment starts at the top of the organization. The leadership there has very high expectations and we're excited about helping them grow into number of segments and bringing the simplified branding proposition to them is exciting as well as making sure that we have people to help their sales associates. But it doesn't stop there. We've got a lot of wonderful customers in Menards and Ace and some of these other customers who have very strong desire to grow. Our approach to this is we want to help them in their specific areas of growth and bringing the services, the products and brands that can help them reach their goals. Overall though, when you look at the future and you say, okay, so what's different? It's our continued focus on those differentiators that we think will help each of our customers reach their goals that we think will help separate us from our competition and our customers to win.

Thank you so much,

John. Thanks, country.

Thank you. The next question is in the line of Arun Vaswanathan with RBC Capital Markets. Please proceed with your question.

Great. Thanks. Good morning, guys. Just wanted to understand the sales growth guidance. It looks like you're guiding to 2% to 6% in Q1, 4% to 7% on the year. The 4% to 7% on the year is potentially a little bit higher than what I had thought. Does that also imply that TAG could be at the upper end of that? If that is the case, at say mid-single 5% to 7% let's say, that would potentially imply volume of maybe 3% and price of that 2% to 3%. A, is that right? Is that an acceleration from maybe what you were thinking on January 15th?

Thanks. I think you're right in what you said about the TAG being at the higher end and your breakout between volume and price. I think it's right where we were thinking it would be on the January 15th call. We talked about January starting off a little bit better, but it's a small month as John highlighted. We'll see how the first quarter goes when we get into March, which is the most significant part of the first quarter.

Yeah, I'd say the excitement is consistent. As Al mentioned, the new stores that we're adding, new products that we're introducing, we just had our team together this week at our sales meeting to just share information about the opportunities going forward. It also gives us an opportunity to talk with our teams about what they see. We're feeling good about the momentum that we have.

Then just as a follow-up on, lower down in the P&L maybe on the gross margin line as price cost improves through the year, it appears that you could see some potential gross margin expansion, especially in the back half. Is that right? Any way you can size that opportunity for us? Thanks.

Yeah, I won't size up the opportunity per se, but you're absolutely right. As John mentioned, our first half raw material costs year over year will be higher than our second half. As you know, with a .8% EPS growth at the midpoint, we're going to have to see margin expansion. I think we're going to make good progress on that in 2019, but we have a ways to go to get back to the previous company gross margins that we would expect.

Okay, thanks.

Thank you.

Thank you. The next question is on the line of Vincent Andrews, Morgan Stanley. Please proceed with your question.

Thank you. Could you talk a little bit about where non-raw material inflation is going to be this year versus last year?

You're going to have, our biggest is probably in the salary increases that we're putting through. We're going to be at market. It's going to be single digits. I think we're still going to see some headwinds on the freight side of our basket. Went up significantly in 2018, and we do believe it's going to be up again in 2019, not near to that magnitude, but certainly some additional headwinds there. I think those would be the two main buckets.

Just a follow-up, the 2% to 6% for the first quarter, and you're obviously a month through, it seems like a wider range than normal. You mentioned earlier that March obviously is the biggest month, and that's ahead of us, but what would get us to 6% versus 2

%? Yes. Yeah, but Vincent, John in his opening comments highlighted the macroeconomic variables and the uncertainty around that. If you think about our first quarter, it's a small volume quarter, so you get some relatively small wings in volume, cause larger percentage swings, as we have talked about in the past, our first quarter and our fourth quarter are more impacted by weather. To get to the high end of that range, it's going to come out of our stores in the US and Canada being better than what we thought. Okay. Thanks very much. Thank

you.

Thank you. The next question is from the line of Kevin McCarthy with Vertical Research Partners. Please, Jesse, with your question.

Good morning. Would you comment on the pace of growth in your protective and marine business in the fourth quarter and the outlook for that business for 2019?

It was a good quarter for us, and we have a lot of momentum in that protective and marine business. We've talked over the last couple of years, we took a little harder hit when the petrochem share, I'm sorry, the market went down because of our share in that market. That's come back, and at the same time, we've been working very hard in the adjacent market. It's a good area of performance for us. Terrific leadership here, a lot of new products coming out as well, and we're unique in that we're able to leverage our store distribution platform when needed, as well as going direct on these larger projects as they're coming in. We really like our position and we have very high expectations for that team here in 2019.

As a follow-up, John, it sounds like your business is trending nicely in January, and the tone seems positive overall. If it turns out that the factors you can't control, such as macro and other factors, don't cooperate, what sort of levers can you pull as the year progresses in terms of opportunities to tighten the belt, productivity actions, etc.?

Yeah, Kevin. One of the things that we would do is we'd look opportunistically at consolidating facilities maybe faster than we thought or planned. We are controlling SG&A tight as we go. I think as we see the year unfold, and we have talked about this in the past, we really need to see how the second quarter unfolds. It's a large quarter and that'll tell us how some of these macroeconomic and environmental things work out. We adjust from there, but certainly leading up to the second quarter, we're going to control our SG&A pretty tight. Kevin,

I'd also add this. Over the past historical view of the company, those choppy areas have also been areas of terrific opportunity for Sherwin-Williams. What you shouldn't expect is that we're going to stop adding stores or investing in innovation. Throughout those choppy years in the past, we were the ones that continued to invest in those areas that helped us kind of almost like a spring back when the market started to return. We're going to continue to invest in our businesses in important areas. To Al's point, he reminds me every morning when I come in with a smile on my face talking about the sales flash that it's January. We're very guarded, but we're optimistic.

I appreciate the color.

Thank you. Our next question is from the line of Scott Mushkin with Wolf Research. Please proceed with your question. Scott, your line is live. You may proceed with your questions.

Hey, guys. Sorry about that. Thanks for taking my question. I feel like I'm beating a little bit of a dead horse, but I'm just trying to understand. Obviously, we've had some very bad data come in on housing and it kind of continues to dribble in that way. You guys seem pretty bullish. Your January is good and clearly, weather was a big, big factor in the fourth quarter. Do you think it's just you're taking share and that's what's driving it? Do you think there's been some fundamental improvement in January as a small month? Is there some fundamental improvement in the market or is it just simply, hey, we're taking some share here?

I do think we're taking share, Scott, based on our growth rates, particularly in residential repaint. But I would also say these are kind of odd times relative to historical cycles. We've seen a decoupling of growth in existing home turnover and growth in residential repaint and remodeling activity. The latter, it continues to go up and up and up while the former has languished for the last year. So I think the short answer is we're seeing a lot more remodeling and redecorating activity done by homeowners who are planning to stay in place. And oftentimes, the decision to stay in place triggers investment in remodeling and redecorating. I'd also say that to your point about uncertainty in the macro housing environment, we view that, a significant portion of that, as somewhat short term, much of which we'd attribute to the lack of affordable supply. And many buyers have been shut out of higher cost markets and the builders are almost unanimously working to develop lower cost product lines. We think they're going to figure this out. And in the short term, we've seen a step up in multifamily activity that's kind of filling the void, the void of the incremental housing demand. But the longer term, we think that the rate of household formation at this 1.3 to 1.4 million level is sustainable. And to us, that translates to incremental demand for housing over the next five years.

Thanks for that, Bob. My second question is regarding, you obviously increased the dividend quite substantially. And you're going to be buying back stock more than just what's being diluted by the shares being issued. So I was wondering if you could kind of update us on where you're comfortable on your leverage and what your goals are for capital return to shareholders. And thank you very much.

Thank you, Scott. Yeah, Scott. You know, as John talked about, we're going to still pay down another $600 million in debt in 2019. That should get our debt to even a leverage below three. And we're still targeting a long term leverage ratio of two to two and a half. You know, as far as being specific about the share buyback, here's what I would say. You know, as we've talked about, we're getting back to our policy of our historic policy. We're going to keep capex below the 2%. We're raising the dividend, 31%, to get back towards the 30% of prior year EPS. We believe that's the right place to be. And then absent M&A, we're going to buy our stock back. So rather than giving you a definitive we'll see how the year plays out.

All right. Perfect. Thanks, guys.

Thank you.

Thank you. The next question is from the line of Stephen East with Wells Fargo. Please proceed with your question.

Hi. Good morning, guys. This is actually Truman Patterson on for Stephen. Hey, thanks for taking my question. So first question I really wanted to focus on is your 2019 raw material outlook. Could you guys just break apart that basket and give me your views or give us your titanium dioxide versus the oil derivatives?

Yeah. And before I get into that, Truman, it's worthwhile pointing out that obviously the majority of the inflation that we anticipate in 2019 is actually from annualizing raw material increases that we incurred in 2018. So you know, you recall that we saw a pretty meaningful step up in raw material costs, particularly in the 2019-2020s before we annualized that. From a kind of a pieces parts standpoint, we think supply and demand in North American TIO2 is kind of at an equilibrium level that should result in fairly stable pricing. The decline in the cost of the petrochemical feedstocks that we've talked about should result in some sequential declines in the cost of resin, latex, plastic packaging, solvents, and some of the additives. But it's difficult to predict when these commodities will show year over year declines. It's also important to keep in mind that downstream from the feedstocks I mentioned to the monomers and the resin intermediaries, there are supply-demand dynamics that will affect price movement. So it's not just a matter of, cheaper propylene translates to cheaper resins. Metal packaging has also been a real inflationary area over the past year due to the spike in steel and tinplate. And as steel prices reset lower, we should see some sequential improvement in the price of those products as well, but the timing is difficult to predict.

Okay, just kind of following up on that, with Europe and China slowing and TIO2 being a bit more of a global marketplace, have you guys seen any change in behavior from the TIO2 suppliers? And jumping over if I could just play out a hypothetical on oil, if it remains down 15 to 20% throughout the year for the remainder of 2019, how would that change your expectations of your oil-derived raw material basket? Would you guys expect that low single digit to actually drop fairly significantly?

Well, the longer oil and oil derivatives remain where they are, the more easing of inflation we should see. It's more of a timing issue than a matter of if. Assuming, of course, that the supply of the intermediaries remains sufficient. On TIO2, we have not yet seen softness in demand in Europe and probably less so in Asia Pacific translate to declining pricing in North America. And to the extent that that does not create flak in the chloride market, that it really affects more sulfate product, you won't see a big move in North American chloride product. So, right now, our outlook for TIO2 is stable and our outlook for the petrochemical side of the basket it will decline slowly as these feedstocks remain down.

Thanks for that. If I could sneak one more in on synergies, I appreciate you guys breaking out 2018 versus 2019 expectations, but could you just remind us where the synergies are really hitting consumer performance coatings, GNA? I know you guys probably won't, it'll be difficult to quantify, but maybe could you just give us some qualitative analysis on it?

Truman, we've been reluctant to break out synergies by segment, but what I will tell you is in 2018, approximately 40% of the $180 million was in cost of goods sold, the remaining in SG&A. In 2019, at the midpoint $75 million, about 55% of that will be in cost of goods sold versus SG&A. Then, just as a cadence for 2019, about two-thirds of that $75 million will be in our first half compared to a third in our second half. Okay, thanks guys. Thanks Truman.

Thank you. Our next question is from the line of Don Carson with Susquehanna Financial. Please proceed with your question.

Yes, thank you. A couple questions on Payne Stores Group. Just about .9% same-store sales growth in Q4. How much was price versus volume and how would you expect that to break out in 2019? I'm just wondering, I assume that volumes were weak. Was it all weather-related? That is, was it hitting just exterior or was something off in interior as well?

Yeah, Don, so a few questions there. First, price was approximately .5% in our North American stores. Same-store sales in North America were up about 3%. When you talk about the interior and exterior, I would describe it this way. They were both up mid-single digits, but both were below our expectations.

In terms of your question about weather impact, as we said on the 15th, when you see a decline kind of mid-quarter with a rebound at the end of the quarter, that indicates to us that it's something other than fundamental demand that is affecting our business in the middle of the 4th quarter. One only need to look at weather data, particularly for the eastern half of the United States, to know that a good portion of the country was underwater during the 4th quarter. It feels like it was some, at least, partial impact from weather.

Then as you look out to 2019, what do you expect for the overall growth in the market on U.S. architectural pains compared to 2018? I know, Bob, you've talked in the past about how you see a nice commercial outlook this year due to a high rate of completions. Would that plus a weather rebound lead to significantly higher growth in the market this year?

Probably not significantly. As a reminder, if you're breaking down the market, the industry, only about 6% or 7% of industry gallons go into commercial new construction. So a pick-up in completions will help our business because it's a high share segment for us, but it doesn't drive market growth to a meaningful degree overall. It looks like kind of a mixed bag in U.S. architectural. Housing starts have been weak, but there was a jump up in housing in new home sales in November. If that drives a little more order growth going forward, that would be a good thing. Residential repaint activity, which is the largest segment in the pro market, has been very strong for the last five years. Based on very early indications, it continues to be strong. DIY, on the other hand, has been lagging over the last couple quarters. Whether that is continued migration of business away from DIY for me or whether the DIYers just taking a pause don't know, all of that, it's a little early to call rate of industry growth in 2019. But based on the macro drivers that we're looking at, it feels like .5% is a reasonable estimate. We're not going to be off by too much at that rate of industry growth. Thank you.

Thank you. The next question is from the line of John Roberts with UBS. Please proceed with your question.

Thank you. You don't break out Latin American earnings anymore, but the FX effect that you disclosed on the America segment seems like they took a pretty big hit to margins probably because of the translation. I don't know if you could comment on results qualitatively down there.

Yeah, John, you're absolutely right. We took a close to 20% or a little over 20% FX hit that really impacted both their sales. But that being said, that team has done a very good job of raising price. As you know, the significant portion of the raw material basket is US dollar denominated. As far as the value costs go up, and we've been chasing that with price and with controlling our SGA. I would say their profit was positive year over year. Or I should say positive.

We're making progress down there. The teams are working hard. To your point, we've had a currency issue that we've had to deal with. But progress on the ground is moving in the right direction. Thank you. Thank you.

Thank you. Our next question is from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.

Hi, good morning. Wanted to go back to the comments on DIY activity. Just wondering with the government shutdown and a lot of folks not working, do you have any indications that some of those people grabbed a paintbrush and got to work on some home repainting projects during that time?

Not really, but we strongly suggest that they do. Now I'd say it's hard to really pin that down, Mike. We do feel very comfortable, as we've described, a lot of things going in the right direction. But I don't think we can point to that as a driver or a speed bump. We haven't

seen a change in buying patterns across the segments in January. A significant change from fourth quarter to January.

Maybe that's an idea for your next marketing campaign. Then wanted to ask about the waroon business within China. You mentioned the outlook for consumer, kind of low to mid single digit, but outside the US would be softer. Can you just comment on kind of the trends you're seeing within the China consumer business? Any sense that the little new year downtime is going to be worse or better than last year?

I'd say our business in China, Mike, is going through a little bit of a transition that relates to the waroon brand on the architectural side. They've been predominantly a brand that's focused on a lot of the wood, interior wood, that's been applied in home. Much of that is shifting to a factory applied product. The benefit of Sherwin and Valspar coming together includes our ability to bring technology to them to help them differentiate. We don't want to just go over there and try to be the lowest supplier by any stretch. We want to have different features that we can help that team separate themselves from the competition as well. We're going through that transition right now. The strategy development is well underway. We're executing pieces of it, but there's a long way to go.

All right. Thanks very much. Thank you. Thank you.

Our next question is from the line of Mike Sison with KeyBank Capital Markets. Pleased to see you with your question.

Hey, guys. When you think about your outlook for 19 in terms of the range, any thoughts on which variables are most impactful in terms of getting to the high end to low end? Meaning, is it will sales get you there, raw materials or synergy?

Yeah, it's always volume, Mike. That's always the lead. As we see US stores grow and some of these short-term headwinds get annualized, we'll have a better feel for that. But demand is always the lead driver. For all materials, turnover certainly helps, but volume always drives the bottom line faster than anything else.

Got it. Then if you get the pricing that's embedded in your guidance for this year, sounds like stores certainly will have closed the gap. But just curious in terms of performance coatings and consumer group, whether they will be able to close the gap in raw materials this year?

You know, we have work to do in performance coatings for sure. When you say close the gap, I look back to 2017 and the increases we took throughout 17 and the fact that the VALSE bar businesses did not get the price increases that were needed. So we're still chasing that and we need to get it as we continue to offer the services that we do to these customers. I

think that last piece is a really important component. The services, the products, and technology. As we continue to introduce more, as these companies come together and we're able to leverage the benefits of both companies and bring those to our supplier or our customers in a way that positions us as a stronger supplier, a better partner, helping them reach their goals. That's an important component in our ability to get the pricing as well. So it's all coming together very well, but to Al's point, it's going to just take a little bit of time. We don't want to work with our customers. We want to keep the customer, but also work with them in a way that allows us to get the price as well. Got it. Thank you. Thank you.

Thank you. Our next question is from the line of Garak Shmoy with Longbow. Please proceed with your question.

Hi, thank you. Thanks for my question. Just to follow up on the pricing outlook, the 2%, how much of that is already secured from 2018 actions versus how much new incremental pricing do you need to secure to hit guidance?

Yeah, we've talked about the US stores. The effectiveness improves over time, and we'll get to about the 75% over the nine months. So we're still working through that. And the effectiveness is on track with where we expected and with similar price increases. When you move to our other businesses, and we don't talk about those in detail as much just because they're more choppy in the timing and amounts. And as you can imagine, the different businesses and different geographies have different load-in rates. So we believe we're getting the effectiveness we need. We see that in our performance coatings, performance in our fourth quarter in particular. And we'll see continued effectiveness as we go through 2019.

Okay, thanks. And my follow-up is just on some of the questions that you asked about the cost and how much cost and supply chain adjustments that you saw 2018 linger into Q4 or any of those expected to continue into 2019?

Now, the program costs that we will talk about in the first quarter is just your ongoing costs. And I'll just take the opportunity to as a reminder, our first quarter in consumers is a small quarter still. So we're going to see the impact of the margin on those program costs that are, I don't want to say 100% fixed, but are pretty fixed. So in a small quarter on volume, we're going to take a hit on operating margin year over year.

Okay,

thank

you very much.

Thank you.

Thank you. Our next question is from the line of Greg Maylitch with Moffitt Nathanson. Pleased to see with your question.

Hi, thanks. Got through a lot. So I just want to make sure I got the cash flow sort of targets and leverage right. If I look at your guidance and take the midpoint, it seems like free cash flow this year should be maybe a touch under 2 billion. And even if the dividend went up a lot, you know, say to 550 million and you pay down 600 million of debt, does that mean buybacks would probably be 800 or a billion? Or is there another moving piece in there that we're missing, like the accounting change on leases or something else?

No, there's not another moving piece. It'll depend, you know, like I said, the share buyback will depend on M&A activity, but I think you're directionally accurate with the pieces.

And I think you mentioned before that the accounting change on leases was maybe half a turn of leverage. Any update on that and when you're going to adopt the new standard?

Yeah, we'll adopt the new standard in 2019 and we'll see an increase in assets and liabilities of about 1.7 to 1.8 billion. 7 to 1.8

and the impact on the leverage ratio?

You know what, the leverage ratio when you look at it from the rating agency standpoint, they're already factoring in a portion of that. So, but yeah, you think about a 3 billion plus EBITDA, you know, it's 0.5 or 0.7, somewhere in that range. Got it.

All right, that's really helpful. Thanks a lot. Thanks,

Greg.

Thank you. The next question is from the line of Dmitri Silverstein with Buckingham Research Group. Pleased to sit with your question.

Good afternoon. Thanks for staying around to take my call. Just wanted to sort of go back to your outlook for the year. And I know you guys aren't big in construction exposure in Europe, but if there was one sort of theme that's come through the discerning stall season is that European construction and building construction market is probably as bad as anybody has seen that. Outside of your, you know, UK and, you know, maybe some other regions presence in terms of paint, are you exposed to the construction market in Europe in any meaningful way through either general industrial or a coil or industrial wood type of businesses in performance coatings?

Yeah, a coil would be a component, Dmitri, to your point, that if it remains down significantly that it could have an impact. But, you know, there we've got a pretty diversified business. And to be truthful with you, the market share that we have versus the opportunity, I'm not too worried about that right now. We've got a lot of, a lot ahead of us to accomplish there. So we're, we're, we're, we're pedal to the metal here on, we

also have some industrial wood exposure in Europe that's been soft as well. And when, when we acquired those businesses back in 2010, they made a point about the fact that they have a pretty solid joinery business, which would go into primarily residential construction.

Okay. Okay. So there's a little bit of exposure, but certainly not, not anything that is on toward in terms of impacting your ability to grow. No,

but, but in the spirit of transparency, we, we, I did mention earlier that the European market for our performance coatings business was the softest and in, in, in 2018. And, and that's continued as we've, you know, the first lap here with January.

Gotcha. Gotcha. Thanks. And then just staying with performance coatings, you know, you put up a flat U over your margin in terms of operating profit line in the fourth quarter. It sounds like you expect a little bit of maybe negative margin Delta for the first, maybe even the first two quarters next year. So can you explain or can you provide some visibility on sort of what drove the margin parity and year over year? Was it sort of getting the last chunk of Valspar synergies for the year hitting the fourth quarter? Was it, you know, some raw material movements or pre-buying or the price increase that you put in? I'm just trying to understand why I shouldn't be modeling continuing progression in margins in terms of year over year improvement for this business, given how strongly you finished in the fourth quarter.

Yeah. Demetri, the, you know, as I said, the, you know, there, there, the pricing comes in differently than it does in our stores. It's not as uniform. So certainly we saw some price impact our fourth quarter sequentially from the third quarter. And certainly year over year. I think the team has done a very good job at managing their expenses. They have done a very good job of integrating and getting synergies faster than what was planned. And there's more work to do, but as we get in further into the integration, we start getting into formulation changes, facility consolidations and the like, and, and the savings are harder to predict on timing. I would say just sequentially, you're right. Our first half from a raw material standpoint is going to be higher year over year. And we're continuing to put price in to offset that. How well we, and effectively we can implement that. I'll tell you if we could start seeing margin expansion in our first half versus, I agree with you for sure, in our second half.

Okay. Okay. Thanks a lot. That's all.

Thank you. The next question is from the line of Rosemary Morbelli with G Research. Please proceed with your question.

Thank you. And good afternoon, everyone. I was wondering one area we didn't really talk about is packaging. And if you could give us a little more details in terms of the non-BPA and then businesses which are not non-BPA related.

We're very pleased with the performance of our packaging business. One of the strongest that we have. We have a very unique technology in our product. It's a V70 product that is leading application and coverage product. So we're excited about the growth that we're gaining here because of the ability for this product to run smoother and more efficiently in the plants of customers. And so we're out. We're getting more and more approvals from the various influencers and owners. And we've had tremendous success getting the product online and demonstrating the value that can be generated even though the product might be slightly more expensive. That overall the applied cost of this product is a savings and efficiency enhancement to our customers. So we're really excited about where this team is going.

So if we look at Europe and the slowdown and the decline in almost every category, packaging still grew beyond what the market did.

It's fair to say better than the market. But in Europe last year, they had some dynamics in in packaging that affected the overall market that we were impacted by as well. What

was that?

Well, if you look at things like the harvest of product or food and the impact that it's had on our customers, that has a direct impact on us.

Okay. So we are talking about vegetables and we are also talking about fishing,

I presume? Yeah, I'd say as a group overall. We try to avoid having discussions about weather and vegetables on our earnings calls. Sorry.

If I understood properly, the level of buyback is going to depend on whether or not you are going to have any M&A. So I'm sure you have a long pipeline. But when you look at it, is there something that you could say could be imminent or pre-year end 2019 that you could close or announce?

I would just say that we are in discussions, some stronger and we are more optimistic than others. But there is a long way to go and a lot of I's to dot and T's to cross. So I don't want to get ahead of ourselves here. We are having good discussions though. I'd leave it at that.

Okay, thanks. And if I may just sneak one in. If we are looking at the same store comps 2019 over 2018, are we looking at a similar 5% growth?

I'm sorry. Could you repeat that question?

Sure. Same store growth, 2019 versus 2018, similar growth at the 5% level more or less?

More

or less,

yes.

Okay, thank

you.

Thank

you.

Thank you. Our next question is from the line of Justin Spear with Zellman and Associates. Please proceed with your question.

Yes, thanks. A couple of questions. One, for housekeeping, can you tell us what the pre-tax dollars are associated with that 48 cent transaction integration cost? Where those reside in the P&L and what that is on a pre-tax basis would be helpful.

On the transaction and integration cost, about 40 million of it is cost of goods and 20, I'm sorry, 36 million is cost of goods and 21 million of SG&A.

Okay. And then a couple of questions on the fundamentals. Just looking at your, as it pertains to the first quarter and thinking, mapping that out, can you remind us what the last year, January, February, March, in the core America's business?

We won't break it up by quarter, but we had a pretty strong first quarter last year.

I want to say the

comp was 5-2. 5-2 was the comp.

But that's stepped down from 8-2 in the fourth quarter of 2017 down to, I recall that the weather was pretty cold last year in the first quarter, which I don't know how that affects your comparisons this year, we'll see. But I recall that growth stepped down in the first quarter last year versus the fourth quarter.

That's correct. But you also had the effect of two price increases essentially in our fourth quarter of 2017 because we went out October 1st in 2017 versus December 1st in 2016. So that moved in a little bit as well.

Okay. And then on that price cost front, in terms of the price cost dynamics that you're thinking through, particularly as you're kind of baking in assumptions for implied margin for 2019, thinking about price cost for raws and non-raw cost inflation, if you were to snap the line today, how much margin tailwind are you achieving from what you already have in hand in relation to that cost bucket in terms of margin accretion for 2019?

We're just not going to break out what we think our margin growth is going to be. But as I mentioned, at the .8% increase EPS at the midpoint, it tells you we're going to have margin expansion from the year. Excellent.

Thank you guys.

Appreciate it. Thanks, Justin.

Thank you. The next question is from the line of Eric Bossert with Cleveland Research Company. Pleased to see with your question.

Thank you. The 4% to 7% total sales growth guidance for 19 seems to imply an acceleration relative to the 2018, which I think was 4.7 that you said. And I know the 4 to 7 is a range, but in the midpoint of that range, what businesses grow faster in 19 than they grew in 18?

Well, our stores will have to grow. They'll carry it, Eric, as you know. They're the engine of the company, so we have high expectations there. But if you go across the industrial businesses, we feel as though the performance coatings business would be, as a group, probably the second fastest growing and then our consumer group in the lower single digits.

And the improved growth in 19 relative to 18 from, it sounds like, stores and performance coatings, is that market growth, is that price, is that market share? Which one would stand out the most within that for both of those?

They would all be key levers that we're using. We do believe that market share growth is an important lever, but we certainly see opportunities across all of those that you've mentioned. Thank

you.

Thank you.

Thank you. Our next question is on the line of Christopher Perala with Bloomberg. Please proceed with your question.

Hi, guys. Quick question on the debt this year. Is the plan to retire the outstanding debt that's due in 2019?

Yes, the $300 million that's due in June, we'll retire that. Plus, we'll retire another $300 million in short term that we had outstanding.

All right, great. And then a technical question. In terms of the weather and in terms of actual application of paint, is there anything that precludes indoor painting at a certain temperature threshold? If it's below 50, have you seen slowdown in interior application in the past?

No, the only impact, Chris, would be that if the projects themselves are pushed back, right, due to weather, temperature, rain, whatever it might be. But the application indoor, if it's a protected environment, the ambient conditions are typically such that they can apply what they need to apply.

All right. Thank you, guys. Have a good week out. Thank you, Chris.

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

Thank you, Jessie. I'd like to close this morning by taking a moment to acknowledge the contributions of a valued member of our management team over the past 17 years. Since 2002, Bob Wells has been the voice of Sherwin-Williams to the investment community. Over the years, Bob has built a stellar reputation on Wall Street for industry expertise, candor, integrity that has served both the company and our shareholders well. What you may not know is that Bob has also been a tireless public policy champion for our company, a community ambassador, and a trusted advisor to me and the members of our management team. For the past year and a half, Bob has been grooming Jim Jay to assume responsibility for investor relations for the company. I know many of you have met Jim, spoken to him by phone, or perhaps knew him before he joined Sherwin-Williams. He's a seasoned and talented executive, and I have the utmost confidence in his abilities. On June 1st this year, Jim will take over the lead investor relations role, and Bob will shift his focus to some important organizational development projects. Between now and June 1st, Bob will continue to serve in his current role, attending conferences, participating in road shows, and along with Jim, returning your calls over the next few days. I wanted to make this announcement today to give you the opportunity to wish Bob well when you see him. With that, I'd like to thank you for joining us today, and thank you for your continued interest in Sherwin-Williams.

Thank you, ladies and gentlemen. This does conclude today's SELDA Conference. Again, we thank you for your participation, and you may disconnect your lines at this time.