Sherwin-Williams Company (The)

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 Marakis, Chairman and CEO, Al Mestician, CFO, Jane Cronin, Senior Vice President, Corporate Controller, Bob Wells, Senior Vice President, Corporate Communications, and Jim Jay, Vice President, Investor Relations. This conference call is being webcast simultaneously in listen-only mode by issue direct via the internet at Sherwin.com. 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 Friday, May 10, 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 summarizing our results for the quarter, I'd like to remind you that our annual financial community presentation is coming up on June 5th here in Cleveland, Ohio. Please contact me or Jim Jay 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 non-operating 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 non-operating 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 non-operating expenses of 27 cents per share and acquisition-related expenses of 71 cents 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 three-tenths of a percent, to $654.5 million, including the divestiture of the guardsman business. Sales from continuing operations excluding approximately $17 million in guardsmen 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 2018. First quarter segment operating margin increased to 13.4% from 11.3% last year. Excluding the purchase counting 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 codings 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 of 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 Marikas, who will make some general comments on the first quarter and provide our outlook for second quarter and full year 2019. John?

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 on to our outlook. First quarter volumes were a bit lighter than anticipated across all three 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 in 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 mid-year 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 a quarter. while the impact of currency translation on all three 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 will continue to maintain appropriate discipline on spending as the year unfolds. Within the Americas group, sales increased 3.6% against a prior year comparison of 6.6%. Sales volume growth in our North America stores fell short of our expectations. Sales to protective and 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 translations. 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 new 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 Guardsmen divestiture. Demand was considerably softer in non-domestic 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 ALSPAR. We are successfully executing our strategy in this business, and we are well-positioned with our retail partners heading into this spring paint selling season. Performance coatings group sales in the quarter grew modestly against a challenging prior year comparison of 9.8% on a Performa basis. Revenue and volume growth in packaging and coil was offset by flat to down sales results in the segments 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 on 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 to 1 by the end of 2019. After prioritizing debt reduction over other uses of cash during the past two 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 of 2019, we expect consolidated net sales to increase two 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 Codings 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 non-operating 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 1853 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 the 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 progressed through the year. We expect incremental synergies of approximately $70 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.

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 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. for participants using speaker equipment and may be necessary to pick up your hands up before pressing the star keys. Our first question is from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.

Great, thank you. As it relates to your intermediate term outlook for U.S. housing, can you just hit on the key ongoing trends by sub-region, just any updated views on rates, affordability, single versus multifamily, and just any preliminary views on SALT would be greatly appreciated. Thank you.

Yeah, 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. You know, household formations are going to continue in the range of, call it 1.2 to 1.3 million annually for the next five plus years. And historically, if you look at the rate of new home starts, they've run at a rate of approximately 1.3 times 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 may be. But over the past four 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 costs, labor costs, 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 home building 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.

Got it. And just a quick follow-up, just with kind of the ongoing multi-year integration performance codings, it seems like you guys are back on the track on the pricing front. Can you just comment on your updated long-term views by sub-segment with just an emphasis on general industrial packaging and wood? Just what have been the biggest surprises, both positive and negative? Thank you.

Hey, Chris, this is Al Mastician. I'm going to talk about the consolidated segment and then I'll let John comment about the individual pieces. But, you know, as we saw in our first quarter, nice year-over-year margin improvement. And that's really the team's doing a great job working with their customers to get the pricing through to offset the persistent raw material inflation that we saw. And, you know, 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 2019 and more to come as the year progresses.

Yeah, 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 two companies came together, we found ourselves in an inflationary period and felt that it was important to work with our customers through the 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.

Thank you.

Thanks, Chris.

Thank you. Our next question is from the line of Jeff Sikowskis with JPMorgan. Please proceed with your question.

Thanks very much. 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?

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, 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.

Great. You said in your press release that your same store sales growth was 3.6% for the quarter in the Americas group. Like order of magnitude, are prices up two and a half and volumes up one for the first quarter?

Yeah, Jeff, that sounds about right. We talked about the realization that coming out of our year-end call about two and a half, and we might be a little bit better than that, but I think you're directionally correct. Okay, great. Thank you so much. Thank you.

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

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

No, it shouldn't.

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

We're having very good success in our non-BPA or B70 products. 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.

Thank you.

Thanks, John.

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

Hey, good morning, guys. 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?

Yeah, Truman, you know, as John mentioned in his opening remarks, the first quarter in North America is our smallest quarter, most volatile, and it truly is all about the volume. And it was a little lower than anticipated in our North American 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, You know, 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 the North American architectural market. And we have not slowed our cadence down on the store openings just because of the last two quarters we've had. And we believe this is going to continue to allow us to grow market share at one and a half to two times the market And it's historically allowed us to gain a 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 gonna expand margins this year.

Okay, thank you. And to follow up on that, With the raw material inflation, could you guys just give an update to your prior, I think, low single-digit raw material inflation guidance? I'm just trying to understand your confidence 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 picked up quite a bit here lately.

Yeah, 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 32 cent 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. You know, our outlook for low single-digit inflation for full year presumed 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 baskets 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.

Okay, okay, thank you. 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?

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

Okay. Thank you.

Thank you.

Thank you. The next question is from the line of Gajam Punjabi with Baird. Please proceed with your question.

Hey, guys. Good morning. You know, John, in your prepared comments, you referenced strong backlogs at the customer level for the Americans group. Can you give us some more color on that? Which verticals in particular have a stronger backlog? You know, what feedback specifically are customers giving you on current market conditions, especially as interest rates progress lower throughout the quarter?

Yeah, Gancham, 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 control 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, you know, get into a little bit of a slower start than we would like to have seen, but still feeling really good about where we're headed.

Okay, and then just on consumer brands, you know, you mentioned that you're very well positioned across all North American retail channels. Can you also expand on that? You know, 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 ship that you're particularly excited about? Thanks.

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, that 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, you know, 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.

Thank you.

Thanks, Gajem.

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

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

Yeah, Bob, we're You know, 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 two and continue try to give more color around those as we go forward this year.

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.

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

Sure. It ensures the terrific alignment that I touched on earlier. You know, we are looking at, collaborative view of how do we help our customer reach their goals and so the sharing of information and the tactics that we use are certainly in line with their goals and you know 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 as a 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. Thanks. Thanks, Bob.

Thank you. Our next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.

Yes, thank you. Bob, you were talking about your outlook for second half raw material costs 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?

Yeah, 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.

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 six 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?

Well, labor is 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, you know, we look at this as the opportunity for us to shine to our customers. You know, 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, you know, 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.

Thank you.

Thanks, Steve.

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

Thank you. Thinking about the sales outlook for the year, the 4% to 7%, with two in the first quarter and, you know, between two and five, I understand that obviously there's some comps issue in the later start to the painting season. You mentioned the backlogs, you know, in your comments, obviously, is 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, you know, has the construction season gotten off to a more robust start with the later start, or, you know, perhaps later in March? Just if you could kind of give us a little bit more color, please, on the outlook.

Hey, Nisha, the The start to April, you know, 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 know, you've got to remember, our first half has its toughest comps, performance codings, 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, 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 guardsmen 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 two or a little bit over two in the first quarter. That'll be a little bit below two 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.

Yeah, 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 wallets to start with. Second, the investments that we're making give us a lot of confidence in new stores and 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. We 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, you know, we talk a lot about lows 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 in 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.

Got it. Thanks for all the details. 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, you know, the weakness overseas, it implies just a really nice result in North America there. Are there any one-off factors that might, you know, kind of temper the enthusiasm a little bit about the potential there? You know, was there some reloading, you know, ahead of the spring season? Just anything that might have boosted what looks like a pretty strong result in North America.

For the most part, an issue, no. You know, it's hard to draw that line at the end of the quarter to say which in any one year might fall on 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.

Okay, thank you.

Thanks, Nishu.

Thank you. Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Hi, this is actually Steve Haines on for Vincent. I was wondering if you guys could 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 will maybe need to restock in the back half. Thanks.

Yeah, we'll see to what extent the softness in demand over the last quarter or two 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. Pricing in TIO2 has been relatively stable over the last couple 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 announcements are going to get traction. Our outlook is for relatively stable pricing over the balance of the year. Thank you. Sure. Thank you.

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

Thank you. Bob, just a question on your outlook for the architectural paint market in North America, both what you saw as growth in 2018 and what you think could happen in 2019. And a particular question is, you know, 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, you know, do you agree with that outlook? And if so, what would be the implications for the U.S. architectural paint market and your growth?

Good question, Don. And as a reminder, at where we stand right now from an industry standpoint, more than 80% of of gallon volume in the industry is going into the repaint markets, both residential and non-residential. 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 US remodeling activity, Only one, and 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 non-traditional 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 a third of owner-occupied households, but 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, and we've actually seen a reversal in the rate of home ownership. It's been declining or stagnant for years. Now we're seeing it start to tick back up as those single-family rentals are being absorbed by owners. 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 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 lower ticket, which primarily is painting and decorating.

Don, I'd only had a couple of seconds here. We've had five 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. Thank you. Thanks, Don.

Thank you. The next question is coming from the line of Scott Mushkin with Wolf Research. Please proceed with your question.

Hey, guys. Thanks for taking my questions. I actually had two. 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 wanted to 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 do you think would drive that? So a two-part question. Thanks.

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?

Yes.

Yeah. So coming into the year, on the new residential side, we've now reached 18 of the top 20 new residential builders. So that was up one 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 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 and the Americas Group, and we're uniquely qualified here, as you would expect, with our platforms 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 for property management as they are in new residential.

Scott, I would say 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 codings, it's still by far the largest segment we have or geography we have, and that will dictate where we fall into the range.

Thanks, guys. Appreciate it. Thank you, Scott.

Thank you. Our next question is from the line of Duffy Fisher with Barclays. Please proceed with your question.

Hey, guys, it's Mike Leadhead 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.

Yeah, 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.

Fair enough.

Yeah. 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 that as demand picks up, there may be inflationary pressure on raw mats or Are there other factors that hold raw materials back from that?

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 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. Got it. Thanks, Gus. Thank you.

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

Thanks. Good morning, guys. Good morning, Arun. Just on that point on the volumes, you know, I'm 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 in the 1% to 2% range. Could that accelerate as we go through the year? I'm just curious, given that there's been some changes in Q1 and Q4 seem to be not as weak versus Q2 and Q3 in years past. Thanks.

Yeah, Ren, 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 at 2% to 5%, and our paint stores 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.

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 them.

Thanks. And just as a follow-up, you know, very strong margins in consumer. The other two were a little bit, you know, 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? Thanks.

Yeah, 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. that 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, because 16.9 was a pretty sizable quarter. On performance codings, 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 teams make good progress on pricing. And, again, there's synergy realization in there. And, you know, when you talk about it sequentially, I just want to be clear, you know, 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.

Yeah, I'd say that the performance codings group's efforts in this area of pricing and margin really has been terrific. Those prices continue to roll in through 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 codings margins. We expect those to continue.

Great, thanks. 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. You know, 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? Thanks.

Yeah, I'll take the first piece out of the room. 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.

Yeah, 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 will 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, if absent M&A, we're going to buy back our stock. Thanks. Thanks, Arun.

Thank you. Our next question is from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Yes, good morning. It's 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. And 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?

Well, it's all a matter of which of our business leaders we're talking to. So I would tell you that, you know, 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'd like to see that engine going a little quicker. I mentioned just earlier that, you know, from a painting contractor's perspective, you know, getting to that 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 plan for perfection in the first quarter because of the volatility in 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, we're 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 in the momentum of growing our new accounts, the share 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.

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

Yeah, 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. We've got good momentum, and we feel as though this is something that's only going to continue.

Thank you so much.

Thanks, Kevin.

Thank you. Our next question is from the line of Dimitri Silverstein with Buckingham Research Group. Please proceed with your question.

Dimitri?

Dimitri, your line is live. You may proceed with your questions. Thank you. We'll move on to our next question, which is coming from the line of Justin Spear with Zellman and Associates. Please proceed with your question.

Hi, thanks. I just had a few questions, first starting out with America's Group. Can you walk through the monthly trends in the quarter and then also speak to maybe how things are shaping up into April for that overall business in TAG?

Yeah, 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 two to five with stores being slightly above that range. You know, the first quarter, I would just say January was strong and February and March were softer.

Okay. Okay. And so should we – expect within 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?

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

Okay. And in terms of the segment margins and thinking about Yeah, 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 and margins for TAG, do you expect that that now flips to positive year-over-year as you look to 2Q? And then obviously the back half is going to be probably much better, but 2Q positive on a year-over-year basis?

Yeah, 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.

Yeah, to reach our 13.5% increase EPS, it's baked in there. That's right.

For sure, for sure. Okay, and then flipping, switching gears to the performance codings business, for that, you know, the intermediate term plan, and specifically it's a 2020 margin plan that, high teams below 20%, target by 2020. How much of that is under your control via the pricing levers or the synergies? And how much of market growth are you gonna need? And the reason I ask that is I'm looking at this international market, Maine's 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 the furthest putt. So I just wanted to put that to you and see what your thoughts are there.

Yeah, 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.

understood. Lastly for me, in just terms of the consumer brands, was there any load-in benefit versus the prior year? Because I believe that the announcement was in February last year where you had a sizable win, a notable win at a large customer. Was there any load-in benefit or tailwind year-over-year from that customer win that graduated into the quarter?

Yeah, 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.

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.

No, I'd say that 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.

Okay. Perfect. Perfect. Okay. Well, thank you very much. Appreciate it.

Thanks, Justin.

Thank you. The next question is from the line of Dimitri Silverstein with Buckingham Research Group. Please proceed with your question. Dimitri, your line is live.

Can you hear me now? Yes. All right, perfect. Thank you. I'll just take my call again. I 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 team's declines in foreign exchange. Was that a positive operating performance quarter for the group or not so much?

Both the top line and bottom line would have been diluted.

Okay, so you lost a little bit of money on the EBIT line there as well. Okay, I'm just trying to understand the old paint store group and seeing 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?

Yeah, so you're talking about specifically Europe with this question, Dimitri?

Europe and Asia Pacific, yes.

Okay, sure. Yeah, 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 and our industrial wood businesses, as well as our protective and marine capabilities. So... Our goal there is to really start capitalizing on the combined company and the synergies that result from these two companies coming together. Al mentioned earlier about some of the synergies. Some of that comes in the way of cost savings, but what we're also anxious to do is to begin transferring the technology over there. 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 implications of the trade issues. Again, our packaging business was up. Our coil was up. And both of those were actually up in double digits in Asia. good performance there. Our general industrial offers opportunity there that we're anxious to capitalize on, but we do think the industrial wood is going to be under some pressure for some time, given everything that's going on.

Okay, so it sounds like you're definitely not looking for any kind of a 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, in the second half.

I think in all these markets, with our market share position, I mean, we've got terrific opportunities. Yeah, 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 a 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.

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

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. Okay, perfect. Thank you. Thanks, Dimitri. Thank you.

Thank you. Our next question has come from the line of Garrick Schmoy with Longbow Research. Please proceed with your question.

Hi, thanks, and thanks for taking my question. I 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 wanted to be clear, is this a broad-based comment across businesses, or is this targeting TAG in particular?

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 an 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 wallets. 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.

Okay, thanks. 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?

Yeah, 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.

Third and fourth quarter.

Third and fourth, and there's no lumpiness to the expense that you would expect.

Thank you.

Thanks, Derek.

Thank you. Our next question is from the line of Chuck Sarenkoski with North Coast Research. Please proceed with your question.

Good morning, everyone. Good morning, Chuck. I want to switch subject a little bit. The deferred pension asset dropped more than $200 million year over year. And Al, could you give us the implications of 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.

Sure. The annuity purchase came out of the defined benefit plan, so 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 in other 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, in which we used $65 million in February to fund that contribution. So going forward, that will last us another good three or four years, where instead of the company having to outlay cash, we'll use that money that came out of that DB plan.

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

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.

All right, thank you. Best of luck over the rest of 2019. Thank you. Thanks, Chuck.

Thank you. Our next question is from the line of PJ Juvicar with Citi. Please proceed with your question.

Yeah, hi. Thank you for taking my question. You know, 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, you know, online purchases of paint?

Yeah, I'd say it's a relatively small percentage of our purchases, and it's nearly all professional contractors that are using that. We do have, PJ, 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 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.

Okay, thank you. Would you say it's less than 5% today?

Yes.

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

I'm sorry, the question is- The ag. 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've 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.

Thank you. Thank you, PJ.

Thank you. Our next question is coming from the line of Gregory Malich with Evercore ISI. Please proceed with your question.

Hi, thanks. I'll try and keep it brief. I just want to make sure I got the pricing dynamic right. It's 2.5% was the pricing mix in the Americas Group comp. If we looked at performance codings, Should we assume that the price realized was something north of that, maybe 3.5% or 4% if my back-out math is correct? And I had to follow up Braille.

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.

Okay, but 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 codings than in America's group?

I'd say it's a similar amount, and our volume was up low single digits in performance coding.

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 were more opportunistic if you think about the full year?

Yeah, the tax rate, and I'll talk of 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, and we have some vesting of RSUs. 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 You know, I think you had 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 to a 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.

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

That's fair.

Okay. Thanks a lot. Good luck, guys. Thanks.

Thanks, Greg.

Thank you. Our next question is from the line of Eric Bossard with Cleveland Research Company. Please proceed with your question. Eric, your line is live. You may proceed with your question. Thank you. We'll move on to our next question, which is coming from the line of Mike Harrison with Seaport Global. Pleased to see with your question.

Hi, good morning. 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?

Yeah, 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 one time. So that remaining $30 million, if you will, spread pretty evenly out through the four quarters of 2019.

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?

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 align them with their customers. I will say that during that process, you know, 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 you know, 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.

All right, and last question I had, 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 codings and consumer. Is this just moving people up the ladder, or does it suggest some more significant changes going on strategically at the top of those two segments?

No, I think if you look historically, Mike, at the company, I think it's 27 of the last 32 years we've had a chief operating officer. You know, the company is, you know, we have strong expectations, and we want to grow. We want to grow fast, and, you know, I believe David Sewell is a wonderful, talented leader that can help us accomplish our goals, air and order, and to into our performance codings is, I think, a tribute to the commitment that we have in identifying talent and making sure that they have the experiences to continue to develop. Rob Lynch, backfilling Aaron Erder. 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.

All right. Thanks very much.

Thanks, Mike.

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

Good afternoon, everyone, and thank you for taking my question. I was wondering if you could give us an update on the refinishings. could you give us some details on the trends, whether it is in North America and in international markets?

Yeah, I'd say refinishing in North America, Rosemary, 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, you know, the efforts that we have. It's oddly enough another opportunity of the synergies of the two companies come together. We have an Ultra 9K technology that's a waterborne technology that we believe is a wonderful solution 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.

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

Well, we don't like when you frame it exactly that way. But there are distracted drivers that certainly have some impact on it. I'd say that there's There's a general softness in the market, and, you know, we believe that there are opportunities for this business. I'd say overall, I think collisions industry-wide were down in the low single digits. But, you know, 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.

So even with AI, you know, causing costs to stop, by itself, even if someone is distracted at the wheel, you still think that with the market decline, you can still gain shares and grow.

Yeah, and part of that comes to what I talked about earlier as far as the technology. All of this 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've 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.

Okay, 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?

Well, you know, part of that has to do with the focus of our businesses. I would say that we're looking more into that domestic business, Rosemary, but it's not been the 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 to always 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 export of products than we have been the domestic market. And so that gives us a terrific opportunity to grow forward in the future.

All right. Thank you very much.

Thanks, Rosemary.

Thank you. 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.

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 Jay. 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 5th 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.

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.