Good morning. Thank you for joining The Sherwin-Williams Company's review of First Quarter 2019 and the outlook for the second quarter and full fiscal year of 2019. With us on today's call are John Morikis, Chairman and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; Bob Wells, Senior Vice President, Corporate Communications, and Jim Jaye, Vice President, Investor Relations. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the internet at www.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 5:00 PM 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 would like to remind you that our annual financial community presentation is coming up on June 5, here in Cleveland, Ohio. Please contact me or Jim Jaye to receive the registration link to this event. It's a great opportunity for you to meet and hear from our business unit, management team, and we hope to see you all there. Moving on to our results for the first quarter, all comparisons in my remarks are to the first quarter of fiscal 2018 unless otherwise stated. Consolidated sales in the first quarter of 2019 increased $75.9 million or 1.9% to $4.04 billion. Consolidated gross profit dollars in the quarter increased $48.2 million or 2.9% to $1.74 billion. Consolidated gross margin in the first quarter increased to 42.9% from 42.5% in the same period last year. Excluding impacts from purchase accounting, adjusted consolidated gross margin in the quarter was flat year-over-year at 43%. Selling, general, and administrative expense increased $29.5 million or 2.4% to $1.24 billion in the first quarter and also increased as a percent of sales to 30.8% from 30.6% in the same quarter last year. Interest expense for the quarter was essentially flat at $91 million. Consolidated profit before tax in the first quarter decreased $4.7 million or 1.6% to $298.9 million. The first quarter of 2019 included 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 expense, 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…

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. It is - probably 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 the 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, but 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…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] 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 multi-family, and just any preliminary views on sales [ph] would be greatly appreciated? Thank you.

Yes, Chris, and we're going to sound a little like a broken record on this subject because we continue to believe that the sharp declines in starts year to-date particularly in single-family is not a reflection of a decline in demand, and in fact March new home sales were pretty strong. So that kind of underpins our view that the rate of new home construction is unsustainably low at the current rate, given continued strength in household formation. Household formations are going to continue in the range of, call it, 1.2 million to 1.3 million annually for the next five-plus years. And historically, if you look at the rate of new home starts, they've run at approximately -- 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 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 pick up in starts as we go through the year. We agree with the outlook that home building should be up over 2018 and 2019, 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 -- kind of the ongoing multi-year integration Performance Coatings, it seems like you guys are back on the track on the pricing fronts, 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 Mistysyn. I'm going to talk about the consolidated segment and then I'll let John comment about the individual pieces, but as we saw in our first quarter nice year-over-year margin improvement and that's really the teams doing a great job, working with their customers to get the pricing to offset the persistent raw material inflation that we saw, and also seeing nice synergy realization and controlling their SG&A. So, we have talked about targeting high-teens to low 20% operating margin, and we feel like we're on that track here in 2019 and more to come as the year progresses.

So, one or two things I'll add to 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 that process of implementing these prices. I don't know we are going to breakdown every segment to tell you the ground that we're gaining in each one, but I will tell you that we are great 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.

Okay. Thank you.

Thanks, Chris.

Thank you. Our next question is from the line of Jeff John Zekauskas 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, you're 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.

Okay. You said in your press release that your same-store sales growth was 3.6%, the quarter in the Americas group, like order of magnitude, are prices up 2.5 and volumes up one for the first quarter?

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

Okay, great. Thank you so much.

Thank you.

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

Thank you. Well, Nippon's deals 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 RV 70 products. In fact, packaging with 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 saw about 80 bips year-over-year. Could you just explain why this was, and how much of it would you say was it due to the lack of volume and leverage versus raw material inflation may be coming in a bit heavier than what you expected?

Yes, Truman, you know as John mentioned in his opening remarks, the first quarter in North America is our smallest quarter and most volatile, and it truly is all about the volume and, it's 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, we continue to invest an 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 one and a half to two times the market, and has historically allowed us to gain a larger share of the market, when the -- when the cycle turns. So, we talked about the price increases and I feel pretty good about those, and with the price increase and the demand outlook that John talked about in his opening comments, I am confident, that our TAG organization is going to expand margins this year.

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

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

Okay, okay. Thank you and just a follow-up real quick. If I'm reading you correctly with propane 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 midyear last year and while we're not back to below the level they were prior to June last year after as we annualize that move up in midyear, there's a chance they'll be down year-over-year in the back half.

Okay. Thank you.

Thank you.

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

Hi, guys, good morning. John, in your prepared comments, you reference strong backlogs at the customer level for the Americas Group. Can you give us some more color on that which verticals in particular had a stronger backlog? What feedback specifically are customers giving you in current market conditions especially as interest rates progressed lower throughout the quarter?

Ghansham, I'd say that we're really excited about the balance of the year because of the feedback that we're getting across all the verticals, all the segments. We've obviously have a terrific model in this controlled distribution where we're able to really keep our fingers on the pulse of the customer and the feedback that we're getting has been pretty universal as I mentioned earlier. It's solid across the geographies and the segments, so we're feeling very good about the balance of the year obviously 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 mentioned that you're very well positioned across all the North American retail channels. Can you also expand on that? Do you think that channel itself will improve in 2019 versus the past couple of years or is that your specific positioning post the share shift 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 the 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 each one of those customers offer a unique opportunity growth and we're making sure that we're aligning our people of resources everything that we have to help them reach their goals. So we want to help those customers outpace the market.

Thanks you.

Thanks, Ghansham.

Thank you. Our next question is from the line of Robert Koort 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 tail? So can you give us an update on the progress there and what's left to come?

Yes, Bob. We're still working through it by region as we talked about the longer tail on those is predominantly in the industrial space which are more complicated and take longer to get done. I would say there are amounts in our $415 million run rate that we talked about coming out of this year. But we'll get those fine tuned here in the next quarter or two and 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 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 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. We are looking at a 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 it allows us to have more open dialog with how to best help them reach those goals. And so there's a lot of momentum there, is 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, 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?

Yes, that's part of it, Steve. We have been building inventory with lower cost petrochemical raws. Part of it is the lag that 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 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 backlogs 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, we look at this as the opportunity for us to shine to our customers as they get under more pressure to serve their customers, the model that we have, the products that we have, the service that we provide, the alignment that we can reach with our customers becomes more valuable to those customers. So, our opportunity to help them to be more successful, so while it's a challenge for many of our customers from the volume standpoint they become more dependent on us and we like that, we like to demonstrate what we can do and how we can help them be more successful.

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 2% in the first quarter and between 2% and 5%, I understand obviously there's some comps issue in the later start to the painting season. You mentioned the backlogs obviously in the prior question earlier 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 has the construction season gotten off to a more robust start with the later start, perhaps later in March. Just if you could kind of give us a little bit more color please on the outlook?

Hey, Nishu. The start to April is in line with the sales guidance we gave and we talked about 2% to 5% with our North American stores being not only at the high end but above the high end and we feel good about that guidance. As far as the second half, you got to remember is our first half has its toughest comps, Performance Coatings did 90 in the first quarter 11% in the second quarter, so we're going up against a 10% quarter. Our store comps were 6% to 8% last year and our second quarter and as you know our second half tailed off. So if you look at comparisons of midst almost high single-digits in the first half and low single-digits in the second half. The other thing I would talk about some of the headwinds that we're facing in our first half will start to annualize and it's the exited business in the U.S. that will annualize, it's the Guardsman divestiture and even some of the tariff impacts that we saw on our industrial businesses. And then the final piece of that is our FX year-over-year comparison gets easier in the second half. We are basically neutral in the first half on FX last year and over 1%. And so now we're saying, we're going to be a little bit over 2% or a little bit over 2% in the first quarter. That'll be both a little bit below 2% because of seasonality but then in the second half we have easier comps. So it's a grouping of many things that goes into our confidence in the second half.

Yes, I'd like to add to that if I could, Nishu. I think your question is a good one about the confidence of our customers and I think I'll talk 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 and 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 accounts and share of wallet 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 of proposition. And then finally, if you look at the other pieces of the businesses, consumer benefits we think are strong as we get better alignment with our customers and we believe that we talk a lot about Lowe's and we're excited about that and we believe there's a lot of opportunity but there's a lot of opportunity with our other customers in those segments as well. And on the PCG side, I mean those businesses coming together with terrific synergies 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 loaded in 3Q. It's the strongest quarter you've had there in a while and especially with the late start to the painting season and the weakness overseas it implies just a really nice result in North America there. Are there any one-off factors that might kind of temper the enthusiasm a little bit about the potential there, was there some reloading ahead of the spring season, just anything that might have boosted what looks like a pretty strong result in North America?

For the most part, Nishu, no. It's hard to draw that line at the end of the quarter to say which in any one year might fall on 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 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've 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 Haynes on for Vincent. So 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.

Yes, 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, the pricing in TiO2 has been relatively stable over the last couple of quarters. That's our expectation going forward. It's not to say that we're not going to see pricing announcements but unless you see the supply demand balance tighten meaningfully from here, I'm not sure to what extent any future pricing and announcements are going to get traction. Our outlook is stable, relatively stable pricing over the balance of the year.

Okay, 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, what you think could happen in 2019 and a particular question is we've seen a lot of strength in remodeling the last few years, that appears to be slowing and I know Harvard was out recently calling for much more of a slowing in 2019. So do you agree with that outlook and if so what would be the implications for the U.S. architectural paint market and your growth?

Hey, good question Don and as a reminder at where we stand right now from an industry standpoint more than 80% of gallon volume in the industry is going into the repaint markets both residential and 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 U.S. 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 in vacant homes back to owner occupied and we've actually seen a reversal in the rate of home ownership, it's been declining or it's stagnant for years, now we're seeing it start to tick back up as those rental single-family rentals are being absorbed by owners. And it's important to note that the roughly three million housing units that went from rental or vacant to owner occupied over the last couple years on average are in higher disrepair than 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 and 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 would only add 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 in a scenario 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 Wolfe 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 haven't focused on. So I just want an update there. And then my second question is as we look at the year to get it the high end of your plan or maybe even above what would you think would drive that? So a two-part question, thanks.

So, on your first piece, Scott, we talk about wins and I'm assuming talk about winning businesses what you're referencing there?

Yes.

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 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 in 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 at 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 Coatings it's still by far the largest segment we have or geography we have, and now to 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 Fischer with Barclays. Please proceed with your question.

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

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

Fair enough.

Go ahead.

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?

Well, first, Mike to be clear, our growth outlook for the back half of the year doesn't necessarily we're not necessarily expecting industry volume to inflect at the same rate. We think industry volume was a little subdued in the first quarter but our expectation to accelerate growth in the second quarter and especially in the back half is pertains more to our business than it does to the industry. You're absolutely right, 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, guys.

Thank you.

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

Thanks. Good morning, guys.

Good morning, Arun.

Just on that point on the volumes. I was 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, just curious given that there is been changes in Q1 to Q4, seem to be not as weak versus Q2 and Q3, in years past? Thanks.

Yes. Most 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 that 2% to 5%, and our paint stores at above that range, it tells you that we're going see accelerating volume in the second quarter and we would expect that similar cadence going up against the weaker second half.

Got it, 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 very strong margins in Consumer, the other two were a little bit, I guess later, 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 hair margins in both segments and especially on the gross line as well? Thanks.

Yes. I'd say and in consumer group you know part of the improvement we saw in our operating margin was good tight cost control that team has been exhibiting throughout the past year, and with realizing synergies their gross margin was actually flat year-over-year, so they had -- have had to implement pricing and as we get volume to that group I would expect margin expansion. The level of the sequential margin expansion will depend on volume the 69 was a pretty sizable quarter, on Performance Coatings, I would say we're very happy with the progress we're making on our operating margin, our core operating margin being up 30 basis points we saw the teams make good progress on pricing, and again the synergy realization in there, and you know when you talk about it sequentially I just want to be clear -- that's a volume issue, and if you look at our sequential gross margins they were actually up. So, we're making good progress, we have a lot of confidence in our medium term operating margin targets of high teens to low 20's.

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

Great, thanks and just a quick follow-up if I can on the M&A front, having just discuss your priorities for buybacks versus M&A, have you seen any kind of bolt trans emerged that are attractive to you. And if so, which areas as being and if not what with all the excess cash against going towards buybacks? Thanks.

Yes, I'll take the first piece Arun. We are looking business by business and we often talk about our approach to our M&A is driven by business units. 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 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 our Valspar, and how some of these might be nice bolt-ons to our businesses.

Yes, and as we talked about on our year end call, in 2019 we're getting back to our historical cadence, a capital allocation and we talked about panned out $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 return $410 million to our shareholders. That's a 27%increase year-over-year and you can be assured absent M&A we're going to buyback 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. As 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, we often talk about the store's business, star 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, from a painting contractors perspective, getting that painting phase of many projects in the quarter was a bit of a challenge. It's a smaller quarter for us. Its a smaller quarter for our painting contractors. So I don't think that they planned for perfection in the first quarter because of the volatility 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 important. On the industrial side, when we looked at the comparable there the comps in the first quarter were up 9.8% the second quarter were up a 11%. So, we're in the mid of the toughest comparison for both these businesses from a comp standpoint. Then it breaks down quite a bit down into the 4% range in the back half of the year. Meanwhile, we're continuing with our efforts and the momentum of growing our new accounts, the share wallet in on the industrial side gaining ground as well. So, architectural is important, the industrial 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 coatings business. I think that I heard you say that it grew sales directionally. Any color with regard to volume price and the outlook for the balance of the year there would be helpful?

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

Thank you so much.

Thanks, Kevin.

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

Dmitry?

Dmitry, your line is live. You may proceed with your questions. Thank you. We'll move onto our next question which is coming from line of Justin Speer with Zelman & Associates. Please proceed with your question.

Thanks. I just had a few questions. First starting out with the Americas Group, can you walk through the monthly trends in the quarter and then also to speak to maybe how things are shaping up in April 4 for that overall business and TAG?

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

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

I think you know 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.

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

Yes, it's just that way. 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.

To reach our 13.5% increase EPS, it's baked in there. That's for sure. Sure. Okay.

Flipping switching gears to the Performance Coatings business for the intermediate term plan and specific, it's a 2020 margin plan that high teens below 20% target by 2020. Yes. How much of that is under your control the pricing levers or the synergies and how much of market growth you're going to need and the reason I ask that is just I'm looking at this international market means 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 part. So I just wanted to put that to you and see what you your thoughts are there.

Yes. Justin, first, we're going to give you an update on our 2020 guidance at our Investor Day in June. But we believe, we have a number of factors that are in our control that help drive you to that target one. One is volume and new account growth, the product innovation that John talked about the movement and b70 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, and lastly for me in just terms of the consumer brands was there any load in benefit versus the prior year, I believe that the announcement was in February last year, we 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 they graduated into the quarter?

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

Let's fully annualized, I guess the energy you've anniversary at 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 we from an annualized Asian standpoint, we had a little bit coming and 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.

Did you hear me now?

Yes, Dimitri.

All right, perfect. Thank you. Stick 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 teens declines in foreign exchange, was that - was that a positive operating performance quarter for the group or not so much?

But the top line and bottom line would have been diliutive.

So you lost all the money on the EBIT line there as well. Okay. I'm just trying to understand that the old paint store group and seeing how well it thought 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 it 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?

Yes. You're talking about specifically Europe with this question to me Dimitri?

Europe and Asia Pacific.

Yes. Okay sure. Yes. 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 and 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. I have mentioned earlier about some of the synergies, some of that comes in the way of cost savings but we're also anxious to do is to begin transferring the technology over there and that's beginning now, but it certainly offers a terrific opportunity going forward. In Asia, again overall a soft market, some of that was the result of the implications of trade where we saw our industrial wood business under tremendous pressure as more and more companies grappled with the impacts of the implications of the trade issues. Again our packaging business was up our coil were up it was up in both of those were actually up in double digit in Asia. So, good performance there. Our general industrial offers opportunity there. We're anxious to capitalize on but we do think the industrial was going to be under some pressure for some time given everything that's going on.

Okay. So it sounds like in you're definitely not looking for any kind of a macro pick up. It's basically entirely sort of self-help and in terms of Asia Pacific that the macro environment you're not optimistic at all it sounds like.

I think, in all these markets, with our market share position, I mean we've got terrific opportunities. Yes. We'd like to see the markets improve. But in an odd way those grinding markets should position us to do even better and we like 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. The last question, just the North American market given the little bit of a slow start weather or otherwise in the paint business, I noticed particularly in Asia there seems to be a little bit more promotional activity, as you look across here your distribution channels are you having to be a little bit more promotional this year or is it basically, business as usual and there's no incremental promotions that are needed to get the volume up.

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

Thanks, and thanks for taking my question. I just want to clarify on the volume ramp, the rest of the year. There's a comment that was made that you expect to outpace the industry. Just want to be clear. Is this a broad based comment across businesses or is this targeting TAG in particular.

Well, we certainly believe that our TAG business is positioned to outpace the market. We've talked about that for many years and you know 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 a investment and resource standpoint but the activity that our teams have demonstrated in this additional area that we've talked about and I think may not be valued as much as we value by some of our investors which is the new account activity and share of wallet. So, we absolutely see a terrific ramp to outpace the market in our stores business outside of that. When you say you know 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 were on the verge on the line trials that were 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 and 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 can be lumpy that we should be aware of?

Yes. For the many years, we've been opening stores that at 90 to 100. We opened 15 in the first quarter and then we'll open 35ish in the fourth quarter and the rest time that we are in the second and third quarters - third and fourth and there's no lumpiness to that to the expense that you would expect.

Thank you.

Thanks, Garik.

Thank you. Our next question is from the line of Chuck Cerankosky with Northcoast 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 year over year. And Al could you give us the implications what that means to earnings per share and cash flows going forward and even what happened in cash flows in the first quarter as well as the annuities were purchased and how it impacted the financial statements please.

Sure, the annuity purchase came out, the defined benefit plans. It did not impact the net operating cash that were reported. That really was the net operating cash impact was really an increase in our working capital and primarily architectural inventory to get ready for the spring selling season to make sure, we're servicing our customers at a very, very high level. The impact of the pension settlement and the annuity, we took $32.4 million over hit, that's in other income and expense if it allowed us to monetize the over-funded 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 use $65 million in the February to fund that contribution. So going forward, that are losses 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 VB plan.

All right. Great, thank. If any way to put Al an annual EPS number on that, would it benefits?

Yes, 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.

Thank you, best of luck with the rest of 2019.

Thank you.

Thanks, Chuck.

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

Yes, thank you for taking my question. When you look at your business, how much of your paint is order online and who is ordering online? Is it mostly contractors or DIY customers? Can you just talk about sort of online purchases of paint?

I think that's a relatively small percentage of our purchases and it's nearly all professional contractors that are using that. We do have P.J. a program that's continuing to ramp up in the area this e-commerce to allow customers to do more business with us. You see areas that we're testing in different parts of the country and we would expect over the not too distant future to conduct more business over the Internet but we don't want to - we want to enhance. We don't 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 the vast postindustrial 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.

Inside the questions -- 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 we're 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 is 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.

Thanks, P.J.

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

Hi, thanks, some try and keep it brief. 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 Coatings, 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 a follow-up for Al.

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.

Yes, but it wouldn't be - it would be higher than I'm just looking at the math, if I had back the FX for North America to grown 4%, there must have been more price in Performance Coatings than in America's Group?

I would say it's similar amount and our volume was up low single-digits in Performance Coatings.

Yes, I feel that I was looking for. And then second on the guidance for the full-year, could you remind us what the tax rates 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 have more buyback than we had at least in the first quarter? Do you look at that 300 million this first quarter sort of a new higher level of run rate or just given where the share price was more opportunistic, if you think about the full-year?

Yes. The tax rate, tucker 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 Scott comp is heavier in the first quarter, just historically there's been more options exercised than you, we have some vesting of our issues. As far as the share buyback, I think, you know we are going to be opportunistic and we were in the first quarter with where we saw our stock price. I think you had done the math free cash flow in our last call and got a little bit higher, directionally than I would have been. I think your number was 800 to 1 billion. So I might be a little bit lower than that but it's going to depend on the M&A activity and how that unfolds throughout the year that will determine how much we ultimately buy.

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

That's fair. Okay.

Thanks a lot. Good luck guys. Thanks.

Thanks, Greg.

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

Hi, good morning. Wanted to ask a couple of 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 in are the costs related to that Lowe's business where you want them at this point?

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

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 they mentioned earlier you know 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, we always are making sure that we have the right relationships and that we're in the right channels and with the right assortments, with the right customers. So that review is something that's ongoing and something that we work very hard on. Once those decisions are made and we work really hard to align ourselves and put our customers in the best position to win.

All right. And last question I had, I was just wondering John if you can comment on the recent personnel changes. I know you promoted David Sewell to COO and then made some changes at the top of Performance Coatings and consumer. Is this just moving people up the ladder or does it suggest 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 over the last 32 years we've had a Chief Operating Officer. The company is we have strong expectations and we want to grow, we want to grow fast and I believe David Sewell is a wonderful, talented leader that can help us accomplish our goals. Aaron Erter into our Performance Coatings is I think a tribute to the commitment that we have in identifying talent and making sure that they have the experiences to continue to develop. Rob Lynch backfilling Aaron Erter I mean I 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 Rosemarie Morbelli with G Research. Please proceed with your question.

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

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

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 a general softness in the market and we're we believe that there are opportunities for this business. So overall I think collisions industry wide were down in the low single-digits but again when I look at our market share opportunities, there are growth opportunities for us and that's what we're working with our teams to capture.

So even with AI 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 share and growth?

No, and part of that comes back 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 their what they want to do more profitably. We think we can help our customers accomplish that goal by bringing in 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 now growing?

Well, part of that has to do with the focus of our business as I would say that we're looking more into that domestic business Rosemarie, 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 opportunities to grow that we need to always be looking for those opportunities regardless of what's happened 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.

Thank you very much.

Thanks, Rosemarie.

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 Jaye. As usual, Jim and I will be available to take any follow-up questions over the balance of the week. We also hope you will join us in Cleveland on June 5 for our annual financial community presentation. Again just contact us if you need the registration link. Thanks again for joining us and thanks for your continued interest in Sherwin-Williams.

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.