SHW - Earnings call transcript Q3 2017 | The Sherwin-Williams Company

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Operator

Good morning. Thank you for joining The Sherwin-Williams Company’s Review of Third Quarter Results for 2017. With us on today’s call are John Morikis, Chairman and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; and Bob Wells, Senior Vice President, Corporate Communications. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the 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 Monday, November 13th, at 5:00 p.m. Time. Eastern will statements call U.S. defined certain include conference as forward-looking under This securities sales, to with and federal respect earnings, laws other matters. speaks is Company of new Any which forward-looking statement, update statements only future a the any of forward-looking result as date or such revise statement no events made, undertakes the information, whether and obligation to as on or otherwise. this forward-looking statements company’s transmitted earlier the is earnings in regarding morning. provided declaration full A release After session the Company’s to will remarks, the open prepared we questions. call the turn now to Bob will I over Wells.

Bob Wells

Thanks, increased on the provided to our thanks of under Investor offset in then performance the and segment. overall breakdown XXth slide Jessie. website, sherwin.com, sales impact selected for and Consolidated for joining the press interest third of the a morning quarter to in everyone primarily by paint the on XXXX, highlighting a Good and sheet results other us. by time, some and including October and Coatings begin Caribbean. Group, with In Company sales we Performance Relations, I’ll hurricanes items or Group by XXXX our of to Valspar higher third Texas, sales information, each reportable compared have the billion due new XX.X% volume financial comment Americas deck Florida release. segment balance $X.XX quarter net partially $X.XX billion reportable

third coming or with billion profit quarter gross American Excluding Valspar to from $XXX.X stores. North year, the our the the sales increased quarter. million results, to paint last over dollars consolidated significant X.X% in $X.X sales portion core a increased of XX.X% increase Consolidated

last points sales third XX.X% from in quarter XX.X% consolidated to quarter margin the Our in decreased basis the gross XXX year. of

million XX.X% core Excluding $XXX gross XXX to increased the points year to from general, the Valspar, third in billion. sales. $X.XX XX.X% last Selling, and the or expenses over quarter quarter margins of administrative basis impact declined

points basis third decreased from of year. a this year percent last SG&A to XX.X% quarter the XX.X% As XXX sales, in

the expense. Excluding the sales. XX impact compared from basis points was to to Valspar, last the million quarter increase assets million. core due million related in Interest in interest to from in a to $XX.X third the $XXX.X of acquisition-related $XXX.X year SG&A as expense Consolidated taxes increase increased entirely $XX.X million This Amortization million XX.X% year to profit increased $XX.X or quarter or million last quarter million. $XX.X increased the $X.X to percent to Valspar acquisition. due before decreased intangible

declined negative $XXX.X million Excluding a million, the $XX to in natural includes the from $XX the or PBT quarter. X.X% Valspar, which million impact impact from disasters

tax third XX.X%. effective rate in was quarter Our the

acquisition-related in XX.X% and decreased $X.XX full For effective share per to Diluted per including $X.XX tax per includes the XXXX. mid purchase net XX.X% a The $XXX.X for $X.XX or income XXXX, income per step-up income year $X.XX quarter as common accounting the decreased from operations. share XX% net to expect inventory Valspar and share $X.XX expenses a $XX.X that will in million Consolidated Net was remain the range. million. of percent high to sales our compared last rate year. we in X.X% quarter XX.X% share of share amortization per income to from share in per third

our G press per table release. reconciliation have Regulation third We comparison a XXXX year-over-year the summarized earnings quarter the in of at share end

X.X%. store markets, This billion last Group segment. and most $XXX.X increased the stores the the our region due year. volumes stated division dollars, Midwestern year. months, Sales division, negative storms operating quarter. third last led and in as $X.X the offset X.X% margin the decreased and calendar impact Segment X.X% the Latin the quarter, by the million sales increased of and sales in by divisions. of XX hurricanes Comparable Southeastern Americas paint followed quarter. to material in Regionally, group set by division. Eastern the by in Sales primarily Canada $XXX.X of sales volumes from the by increases XX.X% positive Segment architectural $X.XXX quarter and quarter divisions, our U.S., price billion XX.X% in partially increased partially in is Caribbean, all of the was in Southwestern U.S. the that in Southeastern from price for architectural or for to results and were to primarily to were in profit increases our million every than across sales XXXX third opened higher $X.XX or division. at costs in higher more increase selling the Sales in volumes higher division, raw X.X% Canada Looking and million America third end selling operating Southwestern the quarter paint impact the increased sales

Consumer Turning the to Group. Brands

inclusion million due the by partially of Valspar $XXX.X customers. increased most to volume $XXX.X to million to XX.X% Third offset or group’s retail primarily of sales sales, lower quarter consumer sales

the in efficiencies, and raw Valspar, material million and operating costs, costs selling Brands Excluding the XX.X% and increased improved control totaling partially $XX.X to quarter or increases. expense sales Segment that due higher were profit X.X% $XX.X core for by group $XX.X decreased in million price to offset sales step-up amortization decreased inventory Consumer quarter. good acquisition-related million from the per

acquisition-related higher raw profit addition was the Valspar core X.X% percent profit businesses sales Most margin a the Excluding from to profit of external segment the expenses, balance decreased Segment period the last in in costs. as negative of and was XX.X% of Valspar material flat year. impact from same essentially mix margin year-over-year. from impact, segment

XX.X%. the margin increased XX basis for to Excluding points core group Valspar, operating

or to group, the in and Performance Coatings sales U.S. dollars our core For paint due billion $X.XX sales, volume, sales selling of increased price $XXX.X million in the addition quarter Valspar XXX.X% higher increases. to

due or inventory step-up third U.S. decreased for primarily core million in quarter sales in amortization the costs profit million Valspar, acquisition-related dollars, increased segment million. $XXX Excluding Stated $X.X increased X.X% to $XX.X and totaling a to the group quarter. XX.X%

core in the segment Valspar, Excluding declined profit quarter. XX.X%

from to in period sales, X.X% a year. profit As same percent XX.X% external of decreased the segment last

margin Excluding our Valspar, the points of concludes quarter review of for for core XX.X% to third basis group the XXXX. XXX decreased results sales. operating That

John who and turn over the comments some John? expectations will make quarter I’ll and call year. Morikis to full fourth general So, highlight our for

John Morikis

you, everyone. Thank joining for us. Bob. Good morning, Thanks

all path the quarter in Third for XXXX earthquakes of particularly witnessed. living a was hurricanes those challenging quarter, violent we and the

duty volunteer my fitting and by countless cleanup served and efforts, think relief that in the running disaster and of it’s and the Caribbean I Sherwin-Williams Florida, call the communities back in record of and above of all stores people. ongoing up to get in and on I helping who beyond home are went the their Sherwin-Williams Georgia, our These the this acknowledging evident that efforts remarks time. Texas, facilities thanking associates in and point our our Mexico very in feet, customers is morning and begin work hours got

better in communicated on Our the results slightly September we expectations quarter XXth. third back revised than the were

anticipated our continue the North not about because at Americas have total region stores short-term Even decreased petrochemical material raw lost of double a LIFO territories if to these with increase call sales X,XXX pushed of Performance quarter The million in disproportionate help longer a estimate to as in than expenses. at Although the raw the sales ago. October encouraging. can The the should we derail the store stores hurricane materials terms contractors XXX in store as in to show in in digit storms The basis The well. by nature profitability of of single to quarter, our stores, XX revenue news, end the single expected Caribbean, the our nine digits. was of cannot American The of our by third did price and digits, that, rates material diminish the This higher improvement on $XX the in and profit year openings. be sales the is and as $X.XX to was bringing case, our stronger higher impact year-over-year earnings in moderately reduced were also quarter for some In storms, propylene earthquakes underway range new of higher across natural storm-related the ethylene of storm September. the impact. paint term supply resuming Coatings it net taken a last repaint either effect in store third appears sales disruptions the to charges Others our growth our running in The saw result Group In of Brands to have in interruptions, both of disrupted our quarter, about the the the of and third impact lost offset lines Group the in prior North be low and higher material may our returns grew you events Natural American to raw inflation share third million. mitigate X,XXX $X.XX and grew sales, complex. that to quarter $XX Group, we be they primarily as compared sales end total, most storms and quarter we good stores decreased the of effects was momentum points. In cost offset XXX many industry progress our mid operating gross gross fourth in and and operations lost added first in in than diminish. digits compared to DIY likely business. as high actions paint opened margin Houston high effect Xst temporary expected the residential raw Consumer of combined our businesses costs the of should months, plans high LIFO to per our material consolidated XX by full-year single end as inflation the other spike and Similar North was new expect sales a average normal. raw raw impact, Canada the U.S. in stores impact production quarter. range. that disasters momentum to and sequential quarter, new earnings and the in count Comparable disasters needed quarter materials. American headwind the the a to the will sales are paint this as

acquisition. amortization and Year-to-date, for million total of million. in common our Our we and amortization expenditures step calls added the added plan depreciation Latin through Canada inventory and $XXX $XXX for was XX first XX last XX, XX year. locations products locations been we the compared including of range year XXX on of approximately ended respectively $XXX sell full ago. In expenditures in was store accounting announced America, and and purchasing the and year remain G operate the The year. the a preliminary to to XXth, amortized for million increase as had fund cost guidance an costs, year The anticipate balances of full of to been transaction the net capital table U.S., of months is generated costs, -- facility purchase nine million up on second accounting new continue has new that were includes full September stores of compared Company nine months XX, and made incremental recently acquisition nine long-term per continuing in $XXX billion fund and share newly stores currently Last approximately related locations Net to strengthening stock and purchases and dedicated million adjustments totaled our from pricing September financial the $X.XX up months. reflects presentation. increase and greater we the $X.XX a $X.X XX% integration the dedicated approximately of businesses. Regulation at the second new $XXX both back revised the integration be Caribbean were to the first and focus of accounting months market We and $XXX as Board this XXX, XX progress Purchase which dividend August to The the the from nine as of year. months in approximately at compared all the regions. debt full all June, still quarter release million net appropriate XXX businesses This million openings plans operating our up $XXX Valspar to company $XXX year. per of Valspar our July in in made on dealer the increasing track XXXX nine to sales. focused of expectations our initiatives net share, that October $X.XX debt XXX annual quarter Xrd over XXXX, dealer and used sheet $X.XX to synergy to and nine payments basis. We communicated community implementing first debt on cash, focus Company totaling of hand consolidations week, will near reconciliation quarterly press utilized we accounting inventory open not Directors XXXX. had release. acquired for and September approved reduce the morning’s improvements our material in cash XXXX. net core months of includes ended volume offset businesses of performance billion and purchase in million, operations. In $X.XX last This Depreciation Incremental raw reflects capital million XXXX. of than to of balance $XXX our of an with On no almost

encouraged As the business. I momentum continued our in by ago, moment mentioned we’re a

quarter quarter of quarter. up and lower fourth from from can quarter seasonal some While the third profit revenue strong demand the is fourth lost we us help prospective, believe make a a a

share our midpoint such, per range. outlook Valspar-related the year As $XX of costs share full we’re excluding maintaining the earnings consolidated for of per at

will anticipate core we last compared increase net quarter. single to quarter, mid a high to sales Sherwin-Williams fourth percentage fourth digit the year’s For

per per increase sales Valspar fourth acquisition with costs. in and quarter. the per $X.XX the the be from approximately anticipated income XXXX in associated incremental expense that operations acquisition-related per per were share the of quarter contribution per costs quarter expect $X.XX from operations. acquisition we billion. $X to for an level, common charge $X.XX of range a EPS Valspar we the fourth addition, share acquisition $X.XX including an and from In diluted The Valspar per to charge to in be At of Valspar to financing sales net share share share, $X.XX a $X.XX of includes included $X.XX $X.XX Fourth charge in earnings share XXXX share estimate

mid to core For we net XXXX. to the single increase compared year digit full Sherwin-Williams percentage sales XXXX, by year expect full

$XX.XX share the charge XXXX. be share an financing updating for associated With addition, the In we approximately $X.X expense common $X.XX diluted of with from that Valspar at we includes full $X.XX XXXX we’ll sales to $X.XX acquisition related Valspar charge share per per to acquisition. per year XXXX. EPS $XX.XX this included net to joining operations Valspar from year. to be thank to Valspar to the year year earnings take an expect in share us in includes happy acquisition share Valspar XXXX for charge includes to of from be share incremental acquisition range the income our of and like diluted The of per per Again, per annual level, the billion income sales increase are I’d $X.XX increase guidance per share share your from And morning. operations. an for $X.XX Full you per now, a net full to share per questions. earned compared Full common guidance XXXX in costs the $XX.XX

Operator

of question JP Zekauskas Instructions] the Please Morgan. coming [Operator with from you. proceed Thank question. with first your Our is line Jeff

Jeff Zekauskas

the year-over-year and Valspar -- Valspar price you at of your fourth look in the expect did different the months quarter? you that months operations Can volumes the numbers what’s are quarter for and because quarter to their shrink frame is what Did year-over-year months. Valspar? numbers difficult of It’s in the than the Valspar happening

Al Mistysyn

came of would say, we $X.XX, be. in guidance Hey, right Jeff. Valspar EPS $X.XX. where we about in the quarter This is it is Al I We Mistysyn. a really performance had expected the to

also trend continued; that up are continued. the specifically been pressure that which Performance holding the and side, volumes fairly and on well saw margin the we’ve under So, Coatings you

the roll that. see our that of the in. bit pickup but $X.XX more that of some fourth we $X.XX we with and versus our we in our being will quarter. expected in the little quarter, some both activities third we’ll So, a quarter lower in And sales our to that’s first in We’ll pricing quarter. in quarter, the fourth saw in saw our fourth as see quarter guided actions impact In quarter, which in of certainly, you we fourth see EPS see price the why our

Jeff Zekauskas

So, is growing? Valspar

Al Mistysyn

to growing in. we’ll be in is what our XXXX the impact They what Volume are will growing. expect pricing this and guidance and guide the is should we see of

Operator

Thank you.

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

Kevin McCarthy

questions, Good morning. accounting of Yes. Couple may. if I

your in press million so, thirds $XXX June, And would figure August. the and $XX that please? across quarter? inventory how accounting taking or correct Would if two purchase July for adjustment indicated of segments, XX your you in I in First, was release be be million impact that among the a allocated that third the to

Jane Cronin

that correct. Kevin, yes, would be

Brands allocated million $XX Coatings amount two in of quarter take in would and third the for about $XX segments Performance could You the in quarter, across that be the million the in thirds quarter. Consumer about

Kevin McCarthy

incremental I you $XXX you to you think for what related that was are accounting recent you on changed I comment whereas, to that. closer your if wondering $XXX D&A my could were at then correct. purchase investor Thank of noticed weeks? day, is memory now And if second, expecting million I million, in

Al Mistysyn

really of increase goodwill from And in customer saw reviewing the would you is to lists you And what process more valuation, to the switch through that. finalize that values going it we little give a we I an but and are don’t Kevin, trademarks, it that change we really, what if does, increase. see as life finite to the a we of that’s month-to-month on certainly intangibles. materially expect go bit are why forward, update.

Operator

line Viswanathan The next with Arun of Please with question the proceed is from coming question. Capital. your RBC

Arun Viswanathan

you pretty guys was versus curious, the a couple the volume bit paint years performance have quarter your more you little in outlook? the last QX. a discuss of in showing I on Could decent in stores, on just

single digit kind So, mid do of sustainable? you think growth is that

John Morikis

Yes.

that pleased that pretty pro We have look stores made, this the And by business, in our are our at we’ll with have our we grow we mentioned billion performance you progress if the of stores. before, business pro X.X the year. in

If you back out & Protective Marine. DIY and

that storm. we momentum feeling Arun, pretty the have into So, are And in the account organization. about our also that stores does, we good take

we talked we So, had And right take as we a we momentum feel pause mentioned, going did of the about period we running. were into the as storm, where we that those in storm. short the the back up pick then,

Al Mistysyn

And add the Arun, is group will I quarter, high And our single be digits. you high mid what stores as in historically, that to we you paint end of would guided tells it what fourth to know, sales that, range. in the

well. We October and from there price volume will forecast that as you seeing but certainly some are in in have November,

Arun Viswanathan

recovery when of you do your And ultimately, to Performance And segment price these what’s it should increases expectation then, to you can be? expect on you gain get that coating, think there? next on year? the momentum back Do margin on Coatings, where cadence

John Morikis

to we think year. to are the of end don’t have till going wait I Yes. the

the year. it come will largest the of end likely Although of towards the majority

the the that the year. in. some quarter. of to lag we fourth quarter. some beginning -- but our will into we quarter start fourth talked of the recovery start after There the first first benefits determined as before, to in see may in And will the the back see are part here due we we’ve in largest next some that some see even going seeing in agreements be are we second quarter, will of We here largely the here efforts very quarter But, to should

Operator

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

Chris Evans

was was positive I group. for This is in in Chris much third you tell could the third quarter, of And how us shaped the Valspar pricing Evans pricing wondering across portfolio? on if for Bob. stores then, up paint quarter also

John Morikis

Yes.

a year increase that. about December the than to price in the -- this sorry, the from run in effective Chris, slightly X.X% paint price we I’m rate increase for X% X.X% increase realized the a third our X, existed stores price X, X.X% XXXX. stores, higher So, at effective And quarter past quarter

is see It’s timing across And pass customers experiencing, of successful, their to in hard businesses, pass So, the inflate, the cycle, going say, about implementation which basically an And raw margin that obviously our October in the through work is increases. in with between But, that our to going we announced materials months price we’re price fair there raw that least to very the December businesses, day, similar to well. ensure experiencing and in the roughly be in inflationary these we are and isn’t pricing a to here very same. our customers increase we are effectiveness to XX% some expect we progress. with the compression these we’re businesses. of segments in in timing every the some just cases working our but Xst most other unusual realization. When the lines disruptive market discussions difference increase, to like material our is in to of out the the increases really our form philosophy we’re we’re manner costs nine

increase. that allows our a absorb way get but the to them firm We’re in that we are also working with need customers very our price to in

Al Mistysyn

to third we -- price that price quarter Valspar, our saw impact Valspar. year. relates quarter those add, And to we’re call, the as minimal on in lag out with talked knocked just in six it about nine-month businesses. talked half Valspar We occurs John of but price with about would second our mentioned, on as the first in had I on we as typically out Chris, the we’re

Chris Evans

Consumer Brands little just the Great. And touching maybe a bit. on

high How shaping did give You fair the Consumer on up, how mentioned your Brands and maybe in volumes digits. division, any up specifically they DIY that commentary other stores were then the in paint big group, would could single be you box out retailer in division helpful?

John Morikis

let’s number made look sales about a there declined you if the up the here, there drivers would different first, down, parts. business So, drivers of third here that as we’ve behind a as And at expect here half expect a talked we down would softness business, are mid you single leading number were through you first and to elements notably that In the that were those of in our this say improved European so, business that say performance I be quarter. teens and high was of and number we the or most the past, to have when mentioned of digits that pieces in would business. that we experienced, would

favorable this clearly first I’d half currency volumes more the of would better the but quarter third were in well. be comparison, Some also order as improvement have than we -- a our that say

have were adjustments national is Our That national other we’ve were home to making while we prevalent through. our these by inventory expect, confidence just suggest have quarter do. less box with in customers flat we some be as quarter. they And of what customers expectations those signs customers the got you segment year-over-year our team. see And the the accounts larger going would are that’s we in focused hardware, where coming we’re business format, trying from encouraging, that successful to higher the that largest team, that would this are was essentially the would here, continue big more in our leadership here, is we’re this on, while momentum, to here are which centers, momentum, and pleased

Operator

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

Ghansham Panjabi

but morning, give I with sense you a basket early, us raw how at you. Thank your cost XXXX, everyone. on theme, is know material I what it’s guess, of current? the based you raw for tracking material Good know can sticking

Bob Wells

give the of reason know, fourth our that here facilitated Ghansham, this and outlook TiOX Hurricane moreover, know as are increase a short-term the tightness and of year-end, lot what that remained but of amount of has captured tight increase. normally XQ all material the this vantage some caused do XXXX raw to XXXX. the in And the XQ, of fair being Harvey better stage, be simply we point supply means. that quarter We against at the We true know some We The that’s things tight short-term year, that availability late early fact chemical because a you is know a know. announcements at Bob. of of are we feed likely market the and the and continues improving global monomers the tight price they and in second at end particularly there lot be the quarter, disrupted third the is and stocks. MMA through amount matter particular to quarter global the sector, a meaningful shortages is and don’t that in is

single of We’re quarter, the second third through basket to know in impact skeptical from put tracking we they mid obviously their quarter, at X.X% digit the capture going to assumed much impact year-over-year quarter, on material would is into are you to -- fourth of somewhat were if yet. the here ability raw capture We that short-term to how this over of But XXXX, and in point but And carry don’t in just range. stable is sector about to the low question whatever X the the storms is, XXXX carry that think into the you the inflation petrochemical that range. big going raw materials the XXXX.

Ghansham Panjabi

what then, And called you for segment basis? out XXXX quarter; just XXXX, Bob. for through pro called analyst at my transaction like on costs the for also, and transaction Thanks, year as helpful. that in year that a fiscal EBITDA $X.XX integration you integration specifically the billion fiscal does out exclude you the question, income very And third $X.X That’s and forma costs. Okay. does if day, number second look flow for the where

Al Mistysyn

expect When flowing take on of the a impact as EBITDA X.X, out, which Brands X I the flow about XXX us through. at a be back the obviously an we’re you the talk XXXX you was year-end amortization which are over about Jane looking costs increases bit million, I think you’d price gets little $XXX synergies years and about to right the Consumer on and for said, the you here that that John we’ll I understand, in now, XXXX pick seven effect up X.X. And partially give billion update And you’re that as billion. look would behind billion, run plus talked Group. synergies you our but so running like to talked rest, an the the looking call. X.X, Sherwin, that on and through has would X The the Performance in the admin, step-up if $XXX combined core million inventory acquisition be historically Coatings about Group of EBITDA entity, and about the Valspar, at X.X that

Operator

Thank you.

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

Don Carson

it’s John, QX from midpoint in hit as you QX guidance and obviously assume that’s $X.XX storms some hit maintained the flat, you’ve of in I your mentioned well. that but $XX, after the

what’s call, offset that on guess expected second where offset So, than gone quarter or versus impact? storm better than were to more I your you

Al Mistysyn

U.S. start the momentum think we and saw I with Canada sales Don, we’d paint our in stores. Yes.

August, August we we stores about -- at As of July out comp in July running talked coming and X.X%. and were

continue quarter that the the Xst; it’s the price seeing are momentum along quarter. with coming stores are margins expecting Don, XX% tells implemented helping And and that to that see improve that As John obviously, that to fourth from about, storms, talked that. we gross third October sequentially effectiveness on out with we you increase we the core; of increase

our strong what’s So, driving that’s it it. -- feel and guidance really about really we why

Don Carson

just Then stores paint Okay. clarify to group. on

unfold price year-to-date that X% that with said X% of increase initiative growth. basis? X.X% October the you that X.X% on same What should how And was store about on Xst? John that it second You to price is a had another sales

John Morikis

Don, -- we that to in increase of price this just X what announced that to closer recently but around rollout we to to maybe very and X, have speaking be probably it’s So, X.X, experienced. similar expect

Operator

line is question. with America of Merrill Please question proceed your Lynch. Steve from coming of with next Bank Byrne the Our

Steve Byrne

what would do Couple that of you to brands questions and to you on push then, Consumer you what Brands offer avoid shelf say can base in combined legacy more segment. Valspar legacy a in price Valspar than to brands? rationalized? And them brands? Would these need Sherwin in potential the have Lowe’s, Does maintain to shift you And sales of competitor? space a it be Sherwin to

John Morikis

ability look meet goals, I our to we constantly customers what help is our their at Steve, earlier. mentioned as

our we it do? more ask, when you might successful. is what so, customers that It’s And be helping to

customers are with not but discussions Lowe’s customer just to making a have. is our successful. We every we that having them success, our basis, That’s path on regular

outside price of about Regarding don’t price, our talk own stores. we

to any our we have I’m with is customers clearly are so any of We the we have that to customer basket in segments push point going about what that we business that talk but going our back we’re need and and fact customer. be material about move we on customers, talking specific business raw to have is seen pricing with to discussed that pricing the as Lowe’s of them the help side of all But any successful. in out the not other do your or that

Steve Byrne

to have there? do out box the big And aspirations penetrate you retailer other

John Morikis

a again, Well, our on discussions with we basis. customers regular have

We goal about We them products, got are. help people rewarded. services. their is terrific we demonstrate and our going hopeful to customer. goal, But one we’re talk clearly can to that help our an expectations And customers’ reach we’re if any to what brands, understand are to not then, them ability

Operator

Parkinson you. next from the Credit Suisse. is with proceed of question. Thank question Please your line coming The Chris with

Chris Parkinson

it housing other Can appears turn seen your Can you in markets home prices you with housing Thanks. of versus then, you’ve the weakness short-term some some own but higher And regions over availability views offset in few Southeast? some trends? especially and as just a lower prices. on trends reconcile little just Texas the you a talk more regional September the PSG, about saw

Bob Wells

at stay by been driven higher at place a been turnover by I this least Yes. existing Chris, been being of repaint has at activity home XX% this driven in fact mentioned say historically home residential lack think don’t would the that Bob. as turnover. think is remodeling despite to has rapidly the and is much as true that’s remodeling We very part our We home owners slow in equity. that the financial strong. this presentation rising done point in has that inventory, I share, due by community cycle. available of

doesn’t remodel more we would activity. we to be rate see see it and of stronger like turn like residential over, While dampening repaint available, seem to inventory to the would

than that family On residential story, it’s pretty starts are at and strong sales year-to-date despite digits availability. builder more least and fact new the really up completions the side, the been single digits. quarter of and homes market X% are there a double up were in are labor as home constraints that, a new the about land orders to little Single into the second up are high

than mid didn’t square So, and we growth share ask substantial in in I have digit residential non-residential been and you is construction under we’ve of but market Even know completions. significant little upper in non-residential, in about the which growth. seeing a to that new single starts, that driving stronger footage

paint firing to seeing. strong of I the business drivers certainly say our all be, cylinders stores the of all group enough that of we’re on appear but pro to growth wouldn’t volume So, drive kind

Chris Parkinson

some, you There some as the say, has little you industrial optimistic? Have Thank portfolio. just still recently just optimism and seen yourselves would been Val or within more improvements actually within quick parallels key follow-up. cautiously let’s characterize a legacy a Great general you.

John Morikis

Are you talking industrial? the about Valspar general

Chris Parkinson

Correct.

John Morikis

Yes. very would we’re say, I positive.

that sales those Our together that been about, our very business exciting. only but team really coming are the business team bullish really core have synergies of two lead not the -- Valspar leaders

we’re bullish. say, feeling I’d yes, So,

Operator

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

Vincent Andrews

your following fast at Thanks. as the on down up looking obviously sales Maybe lot aren’t profit was at Coatings just and growing Valspar. Group, Sherwin they’re as quarter Performance a and just this your that

to about there, raw get what’s the it between synergies assuming business of margins but a take two shape, better talked the and that’s issue you going So, materials? the in some lot to

John Morikis

It raw Yes. is material.

And so, pricing is going to be an issue.

more tell we If you customers, with any call had that out I Jeff is regarding talking our the as while have customers in area moved are they out core our was the talked third at we specific Al our of But much and look our year-to-date about, as this raw respectable. specifics volume pressure an increase. don’t where materials you think would mentioned business. some quarter. We to we’re Valspar And it and to question Zekauskas’ I the get earlier, margins,

Our that. ability it’d need story, a in but offset do feeling if and volume in to had raw volumes we’ve way, just about We the we the be volume. to our price got able this we’re materials be to business different is stream good, very other the to get good

timing largely before have taken I matter discussions As we place; the a mentioned, to it. it’s start receive of

Vincent Andrews

out auto the refinish [ph] some your going pricing business in issues, that set, -- with and the maybe just is then, been related there distributors challenges there for both on it’s and to there’s business business, amongst just noise anything And companies, unusual but competitive small on core?

John Morikis

way out Yes. negative I any at all. in wouldn’t call that

again that that’s successful. decisions help don’t there’s pricing think We’re right there, unique customers out hard about having out now. I business I’d to working anything be we’re call our

Operator

Thank you.

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

Mike Harrison

been your In to what same Is U.S. growth and sales the like you regions, for North overall. August, July looks right then at paint X.X% for stores month look can the look month group, numbers number X% and American It I September? the quarter. through performance store those regions have across take X if walk and the or about overall September sales of same the in like store different may that

John Morikis

focusing heading you’re say of I out storms, those competition And Mike. divisions back been of it program. don’t on coming We give of are are quarter doing But, the two numbers divisions I’d benefit by when at we wallet this that’s see talked together we absolutely know Southeast, been lighting this I’d we’re out them you were race, well. who directionally, the new on that Southwest the direction. of region, that Look this last talked our have were in the the I a And account if of about about really say progress share specific the penetration. really between Canada, all we activity and And and we we when we that right including very making. that our can to second year witnessing really of focus. little all of know lead up that the bit but were

in and and Our our teams good. executing, we’re the feeling leadership teams there field really really are

of division storm impact. out lagging any So, as call I the one outside wouldn’t

Mike Harrison

same to then the Does been that then, mean capacity have for where past double growth you. add quarters? contractors that does right. better the mean business low the mentioned during high the up sales All the of growth or Thank we season repaint over slower QX, years expand in as And of sales the season you season? the able QX store residential kind And digits. seen into same store some get their this have couple labor what and

John Morikis

momentum repaint. that the talked the XXth about, be quarter the double of digit So, in believe I you’ve will gains this residential

And we little than part your lost so, more to of the we capture question our believe share. though... are I continuing last a

Bob Wells

curve. lower On the ends our of sales

of X.X% comp X.X% first comp think our the first top end year. of high in will tell it on guidance our you see a the mid what you’re XXXX. quarter, to comp be saw in last So, a quarter in going on that of our as is that to suggests, you to that paint digits And high of I have we X.X% top had stores U.S. single Mike, range

you will. we higher off So, quarters, our increases seeing definitely in percentage are if

Operator

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

John Roberts

either so target rate look the million couple spending a pro annualizes As maybe basis. like it $XX lower what annual the next was about on in model quarters the next regular and than think low forma I why the much or Could an to year? is we comment was cash quarter you of flow, or capital that only

Al Mistysyn

year bit $XXX run a CapEx What little our million will lower rate. for million. it this think is I see is, be John, about to $XXX you

As facilities doing, we having talked about utilization, are they we their Valspar utilizations, understand sites. what architectural capacity more the about the have get to and in capacity

think say, year-end I us capital we and have our that be said, on XXXX X.X% would are see going spending you few target X% give But, at good I target. the maybe are the give XXXX’s are update quarters. last capacity won’t to an an over you a to call. we is you And will still the working like expansion and on in of we we update. for I plan we plan will still So, we really working

John Roberts

been coating have X.X% now that the segment in in in or then, comparison And slide, got double digit, the in up areas, in coatings was Valspar operating major segment? year-over-year Valspar back double there, the digit reconciling packaging coatings was something coating up you and coil must up

Al Mistysyn

outlook general talked nice the and bullish saw, in our wood in in Asia. John also some business, about industrial, that’s movement industrial we saw some We specifically Yes. nice progress

the way. So, yes, led of we increases those the ones the across board, but kind be saw would that

John Morikis

time team say, to I’d just say of I here, starting business wood we Asia, the nice at would our having certainly only parts strong see not number with progress market some Asia. in but Yes. the of the world, spent was are wood some in

We momentum have there. some good

Operator

Zelman & is of proceed Scott Please Our question coming next your with question. the Rednor with from line Associates.

Scott Rednor

within stores. ask the DIY I wanted about to

five I that’s the turned strongest think single quarters. think four you DIY number or digits, you in I out called John, and high

you curious So, there f could elaborate? or is unique just anything there

John Morikis

the the performance single actually, mid we had you that throughout look actually XXXX, the quarter. in through digits in we -- Scott, throughout if are at DIY

It this we year, you second this then high in here quarter, we as up were flat, mid third single quarter, quarter of quarter single actually mentioned digits. First actually digits. second and year, the the was are

they they that how thought do consumers there, to contractor. smart might talked to but hire are and fingers interesting Those exactly could to I always was are painting parts driving our process to we’re some the enough products the finish exactly pulse know wish consumers that the may on acting the a keep about trying do home as those. the to close the Some same And will paint I work economic services that. the possible, know as be like We high a get to know finish, store specialty to specialty to quality to where into a so but quality reach want and ours, and all where a try to they help want not contractor they of down we to want painting to reach and are store why. they turning why factors there them owners driving and drive way

Bob Wells

we that that difference the we last the saw Scott real was mid that price. was year saw to between digit and all in quarter third pretty digit single growth consistent. Volume growth upper single would growth And just add I the the

Scott Rednor

also on trending P&M through now just flows that positively? is Bob, And the the stores, paint that

Bob Wells

it Yes, is. actually

quarter. the and commented second It we momentum to -- through first quarter. fact, early we’ve year, In that to go show business the in that build continues in the positive third seen

water markets highway, positive in water And it like Our that showing some in third and gas. in third as quarter I decline, point growth particularly We the credit and quarter. we conditions Latin pivoting that our was the have oil and was stronger and & success should others, Marine are both America the called than to in that in key quarter. waste to Protective second also steep business our of out been markets improving end that bridge and

Scott Rednor

across entity. And Al what than quickly, taxing the assume the cost you just tax higher integration and little at? bit a it’s I are then, amortization rate

Al Mistysyn

It’s Yes. about XX%.

Operator

Please Thank your from Research. proceed line you. the Dmitry with Silversteyn The question. with question is coming of next Longbow

Dmitry Silversteyn

your but All the been have my expanded you have U.S. presence guys answered, of outside questions

been shouldn’t change dollars, paint the what much both in in Performance as so the Consumer well the revisiting, it’s the an Latin as much there worth is in Coatings. of group. in American on foreign Canadian revenue, assuming store has not impact in be exchange the this Group the maybe I’m So, impact the Brands and

Al Mistysyn

X.X% it’s Yes. Performance and Coatings. America on tag. had correct. minimal It’s -- Dmitry, It’s in a you’re tailwind flat -- very across Latin basically no or impact not we really

Dmitry Silversteyn

Okay.

the So that’s helpful. in group also it And was consumer flattish?

Al Mistysyn

no impact. really Yes,

Dmitry Silversteyn

business Because know you picked I Chinese Valspar… up and and some Australian with UK

Al Mistysyn

annualized and related impact to on related we’ve was that. devaluation really the The to Yes. pound of the Consumer Brands Brexit,

Brands. there So, been in the Consumer really no impact quarter, has on

Dmitry Silversteyn

Got it.

Okay.

or product quarterly where moves There just Latin much material been has the sort the currency over look you going price the what’s a on volatile forecasting. doesn’t some in been understanding a at and of that performance and either you difficulty or kind wondering inflation how sort margin business American you a has you on exchange in of of just business. the of it foreign all seem your be to been just then outsized business perhaps much in both profitability, of the that profit of to of of raw variability How And on lot I’m for then interest period? was growing reason of that function side the place. -- forward in it’s If

John Morikis

that your has largely from point in than to raw We’ve It’s TiOX impacted material Yes, the Asia spiked by Dmitry. had costs. coming up.

come as material the get a costs products to expect into raw from higher of rising have part most market this all maybe FX coming there impact year. benefit, in coming would you you some standpoint, at when So, price the the in have for

been impact. that’s in So largely the

Dmitry Silversteyn

math’s up a had decline to looking about last positive of second quarter negative of then but or to -- of X% X% which quarter seem margin that the you year, this margin or to so, the I’m the a profit in for business correspond margin X% decline quarter, my negative quarter if second we or big in profitability kind at So, of quarters sort put of year. a most

quarter that you just that a second a is year? within thing negative would good margin So, put up a

Al Mistysyn

don’t… we No,

John Morikis

We don’t allow negative things…

Al Mistysyn

they’ve over that so continue in don’t is to midterm that and will the continues certainly had, business to we But, think to issues our quarter improve consistent business on as quarters. our Dmitry, more basis, expectation to see is a quarter these -- get choppiness as half specifically the you get our economic swings. will and back the over of you profitability we better, definitely Brazil, see No, I which

Dmitry Silversteyn

Got it, got it.

question -- say materials I’m assuming try little about Okay. they’re row. positive partners just explicitly, And the same guys start not now the -- their PPG box initiative final perhaps we thinking on a to to you but Company-owned That’s that can’t big year in the for price Is going it and of something in the helpful. call their know you a on should about talk that raw then, with channel, given did you pricing, on DIY working I move have bit a that with second stores? what’s

John Morikis

stay tried we’ve to open to be that clear we Dmitry, across very possible. this it’s that a it try broadened as be I’ve I’ve And Company. that as question the very that entire our all customers, good tried one and with is material to and day every moved of to customers has, whole our value that’s bring the need And when we’re across has talking customers. it front raw basket to the like that, all in segments. about in

Operator

Thank Markets. you. with proceed Mike question. is The Please Sison question the next KeyBanc line of from with coming your Capital

Mike Sison

us [indiscernible] gave and whole core with EPS your a in what does $XX.XX, for XXXX, that guidance with XXXX? terms In EPS Valspar to midpoint for XX, on imply Valspar you of

Al Mistysyn

Mike, up with our then the about full $XX.XX, and understood, contribute and will question year’s $XX talking that year Valspar. if EPS $XX.XX I that or answered If our you’re your Valspar that last to Sherwin you at would correctly. I guidance be to guidance, at core legacy compared XX.X% tells about $X.XX

Mike Sison

at for to to relative $XX gave the full analyst day, year, annualizing which for that XXXX, the does Valspar on equate your guidance? Just $XX.XX, you based the which is what number

Al Mistysyn

the It’s the raw to the material and all when based impact you Valspar and and that very number inflation. that on you’re pricing puts about guidance has hard on takes give talking

you tell the full on year and expense update Mike that the would we’ll impact. give can an we what impact the So, with debt of you XXXX kind I interest an for certainly, give is new you Valspar

So, XXXX a it’s versus hard comparable XXXX. to get

Mike Sison

then, price in And that cover on increases. see Does a question October XXXX? just inflation that you potential Okay. quick may

John Morikis

don’t through don’t it I XXXX as to Well, the can believe determined as would get necessarily protect but based it’s certainly on we are right, what always us we but know we we future. price you similar a increases XXXX feel experienced what through XXXX recall, XX we’re in say were that we with as in in six out if to market where months. we we

in shareholders. going are think we practices with we cover I protect past believe we But, us. will our have determination So, to our demonstrated convection what through and

Bob Wells

it’s Hurricane think we our landfall. increase also communicating point were that to Harvey made Xst do I about with price important October out our customers before out

we September we increases have the to So, as be not indicated in just of will and of price that hurricanes the earlier, nature -- short-term sector a see that lot end But, increase. early result that the XXXX cost the August petrochemical hit how as impact on think in the contemplated at I and a were will of unfolds.

Operator

proceed line question. coming question with from next your with Wolfe is Research. Mushkin of Scott the Our Please

Scott Mushkin

the really been little of just obviously have to wanted [indiscernible] a want I or long month still I But out wanted analyst the bring and a actually it’s two I we later both, business also outlook biggest a took things answered to were you going and as about again but And questions my to feeling broaden up. at the kind just then, look gauge guys of pretty and I you bullish day, or lot maybe internally place temperature you see and bullish about trip and A is At the it ago. bit. your what’s about companies in concern the a macro yes. your year suspect perspective as together, And general over then two outlook forward. these to answer from next

here. So, two-part question

John Morikis

we way say, changed -- would ever than our feel Any And I a continues bullish I and bullishness that nothing we view world. are the more on felt this value-creating you so, are. transaction we Scott, with say this the about has would where that is from are of thrilled standpoint. strategic levels. from standpoint synergy we both on deal many This and

are people. the thrilled with We

we importantly, And customers. the We are thrilled with with are the most products. thrilled

are excited are we very we we about and are So, going. where where

was of concerns second The your might… part question what and

Scott Mushkin

the specific to deal, looks on bullish even outlook deal. Not really the

just both As guess, you guys worry? in look -- inflation worry your you mind it also in but cost Valspar out, to that’s I’m what about trying biggest though? Is I general. do

John Morikis

we larger I us And of what the But, right gives with But deal now, is to don’t put speak that impact do going, demonstrated to would that of that to any that to I would with. to sort be company, win. have lot we if our on you a really call are would strong last leader we Cost shock economy focused I be future have we something got deal we an the some we determination We confidence to. macro the in some our or to economy like price think where as a to to on are mentioned able and a it. just control say, do our scale. disruption inside on have executing it. trying we and line able are where to of we ability that

Operator

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

PJ Juvekar

more for U.S. is in in stores to address shortage contractors side? seeing about anything We years. proactively trying Are competition you getting last And the to that then, guys DIY doing the of talked you market and are know the Are from issue? that more weak. that you boxes of big the couple contractors the

John Morikis

no the been on centers home respect. I activity the always and one I about of of customers want they your that sub-segment first, to to would can help grow typically are that help do say the that pro that’s determined I business, say if in help and that So, business remodelers those are we would have with stores that would the we to and we say, that. them. pro where them, we many our that an cases, that try to are help we question to can business, our market them element focus our and In customers

Bob Wells

labor the On shortage.

John Morikis

residential, feels and percentage the shortage, industrial of business labor interesting, the largest the labor that the the On it’s in new restriction is business. commercial

residential with double-digit that XX many of is, repaint find we’ve our I while Some but if areas the other again labor supply quarters working generate customers to they number that are the labor, to been of a is given need. in would to gains, our reality say of those try In more the way finding areas, a that could finish, that painting finish, the help macro our many we fact painting be In the find to themselves, much more would in contactors just it’s they I contractors electrical, job issue waiting labors drywallers much cases, on could a than the successful for or contractors. the larger waiting, roofers issue. the to we and painting mean were of still

a so, in than just contractors. way, issue the we’re And a trying bigger painting meaningful help it’s to while

Bob Wells

that faster; do labor are jobs where been I by time, them products can a we’ve and more the it more contractors labor for Using in formulas also is creating decades, off And has focus cycles more our issues effort for that productive. help time. of productive been to would helps and long get helping constrained. they them make that products with in that on job to R&D the contractors add less

John Morikis

more touch in quicker as to trying to back, be to what up job as they are off come less help of a As consistent the well do or get requirement better well. them

So efficiency job. off the and stay

So, Bob. it’s good point,

PJ Juvekar

markets? Puerto with could are just place how and all much your Thank lastly, take the from XXXX, which would Texas, see in benefit you reconstruction that And core that. all Rico, Florida possibly in you

John Morikis

go substantial and this there the some affected we we different that. It’s in really types affected of were In storms areas, to number Different at areas took while some different to minimize quantify hit closed, really hard don’t want those In ways. Florida, to that was were hearts that a all; of our in by stores storm. are the flooding. out

and were And horrifically damage that want then going and back could there smaller enough term were a It’s and damage. help A areas themselves relatively get our will Rico, damaged. and be Fortunately, In those not with impacted be and more move to cycles some to Texas live to that fixed build employees area. there be were many longer quickly more in the needle. that in to Puerto significant while will those others communities, significantly the water that of those areas those we market, up was back up.

And in drive to to going don’t to so, can that’s think that help something way results. we’re really there going but we be that’s to going our any be we

Operator

question Company. with coming of Please from your you. is line the Eric Research Thank The next proceed Bosshard with Cleveland question.

Eric Bosshard

you. Thank

in progress I On appreciate about results growth efforts relative the the out on consumer thinking be the path and But the that and business? on price what growth that piece QX. of some segment, what forward should doing to in to in the thinking comment I about and but the for business regards you heard we are XQ growth of

John Morikis

Yes.

with help would something to from you We’ve we we’re today. a terrific should people expect, assortment that’s typically you What technologies, we want as that this. and Eric, of to standpoint, those lay discussions that out in strategic lay expect our a So, believe not here customers engaged take service those regularly. win got customers; our don’t we but is like out call place

Eric Bosshard

is a the In there terms of with growth, or… destination is goal

John Morikis

you. sorry. I I’m can’t Eric, hear

Eric Bosshard

sorry. Yes,

basis? the In of a but understand a little with business, destination it, I that get you of terms of growth sustainable you more in are the back what can of in that business out to like looking terms give on bit strategic piece growth us there?

John Morikis

lot and brands. the company we’re about can accomplish going of business say, run can together And feel coming we quite our single there’s try institutional combined feel I’d on assets, a could excited that. be though But really that. higher for that leverage. knowledge going that we that a to be can capture think. lot the expectations that as we’ve bring growth are our to our and we us to And talking we digit of low lot both we sides There’s to than Yes. a a we there. we’re now spoken teams frankly, that company There’s

Eric Bosshard

level But bit Performance make time, but know level XXXX, where a you’ve piece to stand pricing. improving Coating and but a of that? we the as on through you of business happen the of for able just of that margin talked secondly conviction confidence period do the on the into being about Valspar that I then you Again, go only had

John Morikis

-- higher get how going the or not convey confidence I’m to any sure we’re to that than conviction Eric.

right We’re those don’t that discussions out just have deserve. having We there don’t we something expect now. ever to

hard. working We’re

some but But, of resolved. those as discussions quarter. place come the been the of turn we of quality, fourth have part, there. year. lion’s as discussions people, some the many our timing. see mentioned, largest to And taken that of There dialogue start it those every matter service, the cases in in improve to that are I availability, in element hard discussions the it’s job in you working and should have continue And We’re the share the and

Operator

you. Thank

Our and the from line next Morbelli question your coming Please Company. is proceed question. Gabelli with Rosemarie with of

Rosemarie Morbelli

meeting you businesses of country. in you have a other China if by as about big trend the could wondering the five-year the paint architectural following was heads in talk and I

John Morikis

technology technology, in in mentioned and that to even about where opportunity the better around discussion we as brand bring we I to perhaps American participate just of knowledge we there a markets the think market. we though lot grow institutional can as to China, we We and when in may of want we company only and a at the that though discussion. be taken consumer terrific well But, have feel are and do all continue exist So, that feel platform as to you at leveraged, market excited the leverage. exists our supplying looking that as combined believe so not that focused that business but we the to talk world take look better in we’re as now, the this about that is market a have the advantage when North that more I

share opportunities there of market Our us. say, are for there, just plenty I’ll

the are Company exist that market. team the can inside our assets to we them help with identify So, those that working in perform better

Rosemarie Morbelli

will you at it arms one think facilities And until the the investor at XXXX what day, before Valspar increased likelihood And do synergy or looking will could more see getting bump you particular then you look can closely, take more of as it in what we level. that year projection? we that manufacturing And is the are end of the do your you all end? you or and around see actually that

Al Mistysyn

year, million start going forecast. off -- P&L about For through that we haven’t our the let we full me $XX about talked come seeing and that just

talked is the until to won’t our synergies had result XXXX. of quarter. end million XXX you benefit we synergies talked late in We forecast to John this XXXX, least would you rate But facility $XXX announced increase it in about of second closings his what which annual saw the our at we in for going tell comments to at some next see achieve versus expected increase year run for in our cost the that However, was our or quarter. we as are I those year of third early really to

million about at that have year-end rate to until we are going our Your get financial presentation. community on probably wait update to to talked run synergy call an the $XXX the

Rosemarie Morbelli

as of me if lastly, an help then, between And and allocate cost charges going you goods into or SG&A Could I basis? may. the different [indiscernible] the a segments EPS

Al Mistysyn

in to rest gross step-up. was the about the related it look profit, acquisition amortization related the see you in And you the saw SG&A or $XXX if you about that of would the cost million, to million $XXX So, $XX third the then, on primarily cost, expense quarter and million intangibles. the at or of in inventory achieve purchase accounting to primarily

Operator

at Thank you. questions It appears we further time. this have no

additional the So, I comments. over Mr. like would pass Wells for concluding to floor to back any

Bob Wells

Thank you, Jessie.

call. additional answer you as the questions any be to next few that days available this will I always, arise digest morning’s As over

like Johnson queue. I’d in us the to you thank add today If will to is please follow-up your at Kristy you’d for joining call number she and you XXX-XXX-XXXX, like a the for callback again thanks that to be for Sherwin-Williams. queue placed XXX-XXX-XXXX. in and call, continued Again interest

Operator

Thank conclude you. today’s gentlemen, this teleconference. does Ladies and

your this at thank lines your you we time. disconnect may for participation. And You

The Sherwin-Williams Company (SHW) 24 Oct 172017 Q3 Earnings call transcript