Good morning. Thank you for joining The Sherwin Williams Company's review of the Q3 2020 results and our outlook for the Q4 and full fiscal year of 2020. With us on today's call are John Marikis, Chairman and CEO Al Mistisian, CFO Jane Cronin, Senior Vice President, Corporate Controller and Jim Jay, Senior Vice President, Investor Relations. This conference call is being webcast simultaneously in listen only by Issuer Direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www dotsherwin.com beginning approximately 2 hours after this conference call concludes.
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'll now turn the call over to Jim Jay. Thank you, Rob, and good morning, everyone. I hope you and your families are remaining safe and healthy during the pandemic. Let me begin with some high level summary comments on the quarter.
All comparisons are to the Q3 of 2019 unless otherwise stated. Sherwin Williams delivered outstanding results in the Q3. Total company consolidated sales were well above the original guidance we provided on July 28 and also slightly above the increased guidance we provided on September 29. We saw continued unprecedented demand in our DIY business during the quarter, double digit growth in residential repaint, very solid demand in new residential and positive momentum across our industrial end markets. We delivered year over year improvement in gross margin and record profit before tax, EBITDA, diluted net income per share and net operating cash.
3rd quarter 2020 consolidated sales increased 5.2% to $5,120,000,000 inclusive of a negative currency impact of 0.9%. The estimated impact from COVID-nineteen on consolidated sales in the quarter was not material. Consolidated gross margin increased 220 basis points to 47.9%. Consolidated profit before tax increased $165,800,000 or 23.4 percent to $875,600,000 Diluted net income per share increased 24.4 percent to 7 point $6.6 per share. The Q3 of 2020 included acquisition related amortization expense of $0.63 per share.
The Q3 of 2019 included acquisition related amortization expense and other adjustments of $0.49 per share, as described in the Regulation G reconciliation table included in our press release. Excluding these items, 3rd quarter adjusted diluted earnings per share increased 24.7 percent to $8.29 per share. Adjusted EBITDA increased $185,700,000 to $1,110,000,000 or 21.6 percent of sales. Net operating cash increased 54.3 percent year to date to $2,560,000,000 From a segment perspective, sales in the Americas Group and Consumer Brands Group were in line with our updated guidance, while sales in Performance Coatings Group were slightly better than expected. All segments delivered very strong flow through in the quarter.
Segment margin in the Americas Group improved to 25.1 percent of sales, resulting from operating leverage on the top line growth, favorable mix and lower input costs. Adjusted segment margin in Consumer Brands Group increased to 26.4 percent of sales, resulting from operating leverage on the strong double digit top line growth, favorable product mix, lower input costs and actions taken over the past year to improve our international operating margins. Adjusted segment margin in Performance Coatings Group increased to 16% of sales, driven by returning sales growth and lower input costs. Additional details on our segment performance are included in the slide deck provided with our press release and available on our website. Let me now turn the call over to our Chairman and CEO, John Marikas, for some additional commentary on the quarter and our outlook.
John?
Thank you, Jim, and good morning, everyone. Let me begin by expressing my appreciation to the over 61,000 employees of Sherwin Williams for their continued determination and their resilience. I could not be more proud of this incredible team as they delivered record results in a very challenging environment. Our leadership team and their many years of collective experience have been true differentiators throughout this entire year, enabling us to drive significant improvement across many measures, while serving our customers at a very high level. We generated very solid sales growth in the quarter with all three operating segments growing year over year, exceeding the original guidance we provided at the end of July and improving sequentially.
The gross margin expansion in the quarter was driven by sales growth, effective pricing, favorable mix and lower input costs. The industry basket of raw materials was down by a mid single digit percentage in the quarter compared to the prior year, though a bit less than what we saw in the Q2. SG and A as a percent of sales in the quarter decreased slightly year over year to 27.5%. SG and A increased on a dollar basis as we continue to make investments to drive long term growth. Let me talk a bit more about trends we're seeing in each of our segments before moving on to our outlook.
In the Americas Group, we saw significant sequential improvement from the Q2 to the Q3 in all regions and all segments served. Most regions and segments also delivered growth in the quarter on a year over year basis. We are especially encouraged by the return of double digit growth in residential repaint, our largest segment. Interior work has picked up significantly. As a reminder, this segment has been our fastest growing over the last several years and continues to offer us the largest opportunity for share gains.
Sales in new residential also gained momentum in the quarter and were up by mid single digits. Our DIY business delivered the biggest year over year percentage increase in the quarter, with COVID related stay at home projects driving robust consumer demand throughout the quarter. Our commercial business slowly improved, but remained down low single digits in the quarter. Our customers are telling us that job site conditions are stabilizing and the predominant theme remains that projects are being delayed rather than canceled. The property maintenance segment remains under pressure as turnover in multifamily remains slow.
Protective and Marine remains our most challenging segment from a demand perspective. Access to job sites remains an issue on some projects. Demand remains particularly depressed in oil and gas, which is the segment's largest single end market. Other areas such as flooring and water and wastewater treatment are moving in a more positive direction. We believe this business is well positioned to take advantage of future potential infrastructure investments and comps will start to become more favorable heading into next year.
From a product perspective, strength in exterior paint continued as we generated low double digit percentage growth in the quarter. Encouragingly, we also saw a significant pickup in interior paint, where sales were up by a high single digit percentage overall and by double digits in the residential repaint segment. Additionally, spray equipment sales were up strong double digits in the quarter. This is another very encouraging sign of recovery as contractors are unlikely to invest in this type of equipment unless they anticipate significant demand. Pricing came in as we expected and was approximately 2% in the 3rd quarter.
We expect a similar level of effectiveness in the 4th quarter. We opened 24 new stores in the 3rd quarter and 40 year to date in the U. S. And Canada. We anticipate opening a total of approximately 55 new stores for the full year in the U.
S. And Canada. Along with these new stores, we continue to make investments in sales reps, management trainees, innovative new products and productivity enhancing services to drive additional growth. We're also pleased by continuing uptick in the use of our e commerce platform. Moving on to our consumer brands group.
DIY demand remained robust in the quarter, driven by consumers continuing to focus on home improvement projects, while nesting at home during the pandemic. We generated strong double digit growth by working closely with our retail customers to capture this demand, most notably with Lowe's. Our global supply chain organization continued to perform admirably in the quarter, working collaboratively with our customers to help meet unprecedented demand. Internationally, every region generated year over year growth. Sales increased by double digit percentages in Europe and Australia and by a mid single digit percentage in Asia.
Similar to the 2nd quarter, we leveraged the strong sales growth and favorable product mix to drive significant operating margin improvement compared to the prior year. Our margin improvement also reflects the terrific work this team has done over the last 2 years to improve our portfolio, including rationalizing SKUs, exiting the ACE private label business and reducing costs in Europe and Australia. We continue to reinvest in this business to drive long term growth for our partners, especially in the handyman, remodeler or pros who paint category. Lastly, let me comment on the trends in the Performance Coatings Group. We're encouraged by this segment's return to growth in the quarter, inclusive of a 1.4% headwind related to currency translation rate changes.
As in the Americas Group, Performance Coatings Group generated significant sequential improvement from the Q2 to the Q3 in all regions and nearly all divisions. The majority of regions and divisions also delivered growth in the quarter on a year over year basis. From a regional perspective, Asia grew fastest in the quarter, up by a high single digit percentage. Europe and Latin America both grew by low single digit percentages. Our largest region in PCG, North America, was down in the quarter by a low single digit percentage, where a slower recovery in the general industrial division offset growth in the other divisions.
From a divisional perspective, I'll start with our Packaging business, where our team continues to deliver great results. Sales were up high single digits and positive in every region for the quarter. Demand for food and beverage cans remains robust and our non BPA coatings continue to gain traction and both we and our customers are investing in capacity expansion. In coil coatings, the resumption of selected commercial construction projects, albeit slow, along with growth in appliances and strong new business wins across all regions led to mid single digit growth in the quarter. We're very encouraged by the improved performance in industrial wood, where sales were up by mid single digit percentage in the quarter.
We believe the momentum we're seeing in kitchen cabinetry, flooring and furniture correlates to similar positive trends in new residential construction. We also returned to growth in automotive refinish in the quarter, where sales were up a low single digit percentage. This team has done a very nice job driving new account growth by offering better solutions than our competitors. We estimate miles driven are currently at about 75% of pre COVID levels and collision shop volume across the In General Industrial, we were down by a low single digit percentage in the quarter. While we're never pleased with a quarter where the top line is down, this was a very significant improvement from the high double digit decline we saw in the 2nd quarter.
There are several reasons for optimism in this business. Regionally, Asia was up double digits and Europe was up mid single digits quarter. Latin America was positive on a currency neutral basis and while North America remained under pressure, we did see very meaningful sequential improvement. Moving on to our guidance, I'll remind you that our Q4 is a seasonally smaller one. We expect to see our normal sequential seasonal slowdown in U.
S. Architectural demand in the Q4, similar to previous years. We're expecting continued favorable product mix in the quarter with DIY, res repaint and new residential growth, while not expecting material improvement in the other architectural segments or protective and marine. We also expect our interior products to become a bigger part of the mix in the quarter as we return to a more typical interiorexterior ratio for this time of year. On the industrial side of the business, we're encouraged by many of the positive trends I described a few moments ago.
At the same time, dynamics related to customers replenishment of inventory and the true pace of end market demand will likely cause continued choppiness in the pace of recovery in some end markets. Against this backdrop, we anticipate Q4 2020 consolidated net sales will increase by 3% to 7% versus the Q4 of 2019. Looking at our operating segments for the Q4, we anticipate the Americas Group to be up by 4% to 6%, Consumer Brands Group to be up a mid to high teens percentage and Performance Coatings Group to be up or down a low single digit percentage. For the full year 2020, we are revising our sales guidance upward from flat to up slightly to up by a low single digit percentage based on our improved 4th quarter outlook. On an operating segment basis for the full year, we anticipate the Americas Group to be up by a low single digit percentage, Consumer Brands Group to be up by a mid teens percentage and Performance Coatings Group to be down by a lowtomidsingledigit percentage.
We expect to see gross margin expansion in the quarter. On SG and A, we will be making incremental investments in our long term growth opportunities and we do not expect to see as much SG and A leverage as in our Q3. We are again increasing our diluted net income per share guidance for 2020 to be in the range of $21.49 to $21.79 per share compared to our most recent guidance of $20.96 to $21.46 per share and compared to $16.49 per share earned in 2019. Full year 2020 earnings per share guidance includes acquisition related amortization expense of approximately $2.51 per share. On an adjusted basis, we expect full year 2020 earnings per share of $24 to $24.30 an increase of 14.3 percent at the midpoint over the $21.12 we delivered last year.
Embedded within our outlook is the assumption that the raw material basket will be lower for the full year by a mid single digit percentage. Based on our current outlook, we expect the 4th quarter will have less of a benefit than the 1st 3 quarters of the year, given recent sequential inflation in some commodities and comparisons to the deflation we saw in the latter half of twenty nineteen. Let me close with some additional data points and an update to our capital allocation priorities. Our CapEx guidance for the year remains $280,000,000 This CapEx guidance includes a very modest amount of spending related to our new headquarters and R and D facility projects. Earlier this month, the company's Board of Directors approved a dividend of $1.34 per share, an increase of 18.6 percent over the $1.13 per share dividend paid in the Q4 of 2019.
We resumed open market share purchases during the Q3, investing $404,000,000 purchased 600,000 shares of company common stock. Absent significant M and A, we expect to continue purchasing shares in the 4th quarter. As I mentioned in my opening remarks, we have a remarkable team at Sherwin Williams, they delivered outstanding results in the quarter by focusing on meeting customer needs. I'm truly grateful for their passion and their commitment, which has put us on track to deliver sales and earnings growth in this most challenging of years. We believe the long term fundamental strength of our end markets remain intact.
There is tremendous opportunity in front of us in every one of our businesses and in many ways, we're just getting started. We remain very confident about the future and our ability to create shareholder value over the long term. This concludes our prepared remarks. And with that, I'd like to thank you for joining us this morning and we'll be happy to take your questions.
Thank you. We'll now be conducting a question and answer And our first question comes from the line of Ghansham Panjabi with Baird. Please proceed with your questions.
Thank you and good morning everybody.
Good morning Ghansham.
Good morning. I guess first off within TAG, the commercial and property maintenance sub verticals improved significantly relative to what you saw in 2Q. How do you sort of disaggregate that improvement between pent up demand from the 2Q dislocations versus an improvement in underlying growth? And then what time line do you think for each vertical is it reasonable for volumes to inflect higher year over year?
Thank you for that question Ghansham. I think the if you start with commercial as you mentioned, jobs are coming back online. And as we mentioned, sequentially, we've seen some improvement. I think when you look at the ramp up there, I think a lot of that's going to have to do with the progress our contractors make on getting more painters out on projects, social distancing and and the restrictions that go along with those requirements have proven somewhat challenging to our customers. So I'd say that as we go into 2021, we expect more and more progress, if you will, in that segment.
You asked about each of the segments and maybe I'll make one overarching comment regarding all the professional segments. And that is, as I've mentioned before, no one hopes for any experience like this pandemic that we're experiencing. That said, our commercial contractors as well as every other contractor we serve has found this market to be a challenge. It might be getting approval to go into work into one area and getting pulled out of that area and pushed into another, start exterior or have someone say they might be going out of town, can you do an interior project? All of these create conflict for our customers.
And at the same time, it creates the opportunity that we look for, which is to be there with solutions for our customers. And so we're working hard. I mentioned earlier how grateful I am for our teams. Our teams in the field are doing just a wonderful job in responding to each one of these professional segments in a way that very few people can. As it relates to the segments, I might again here begin with the way that I'm looking at these segments and these to me represent favorable comps as we go into next year.
If you start with residential repaint, and I'll give you a little color as to why I feel each of these are favorable comps. We are talking about coming out of a quarter with double digit gains, but we're not hitting on all cylinders yet. The interior, while improving dramatically, offers a terrific opportunity for us as well as the opportunity to continue to grow share. Our TAG team, the leadership team and those terrific employees in the field are actually growing our new accounts year over year, this year, in a year with a pandemic, faster than we have previous years. So our new account growth in this area has just been terrific.
So we see our progress in res repaint as exciting, but we're not complacent here. This offers this is the largest segment we have, but it also offers the greatest opportunity for market share growth. We feel coming into 2021, the fact that we've been running a large part of the year with a much smaller interior market as well as the share gains that we're gaining, we're excited about entering into next year. In new residential, same thing. Comps are favorable going into next year for us.
We finished the year here I'm sorry, the quarter mid single digits up. But again, these are businesses that are just starting to ramp up. Love our position here, exclusive relationships with 18 of the top 20 builders really making progress in the regional and custom homebuilder who's really been hit the least throughout this process. But our position here as we go into 2021 is really a strong one, particularly given the fact that there still remains a shortage of supply of homes in the marketplace. And our new residential customers are excited about the progress as they're making coming out of 2020 going into 2021.
We talked about commercial. Property Management is another one. Again, terrific comps for us as we go into next year. Clearly, this business has been impacted by turns. And as I mentioned in my prepared remarks, the lack of turns has had an impact on our business here.
If you'll recall, excuse me, if you'll recall during our financial community presentations, I mentioned that our customers are starting to see, sense and hear more from their tenants about more movement. And again, terrific position here with exclusives with 18 of the top 20 here and our customers are starting to feel like this is starting to move. We'll tell you more about this likely at the end of the next quarter, but we're feeling better about the progress here as we enter into 2021. So those are the professional sides. You didn't ask about the DIY side, but maybe, Al, if I could lean on you for a second here.
Why don't we talk about DIY from a company perspective?
Yes. Thanks, John. This is Alistair. We know DIY demand is a question for on everybody's mind moving into next year. Let me try to put some color around it, try to quantify the increase.
If I look at the 2nd and third quarters together, sales this year are just slightly below last year. The combined DIY increase for our consumer brands and our Americas group is up 23% and represents about a quarter of our total sales in those quarters. The remaining 75% of the businesses segments are down approximately 6% and are sequentially trending better in the Q3 versus the Q2. John talked about tag and our expectations for strong res repaint, new res sales, turn to growth in commercial and property maintenance and then PNM being less of a headwind in 2021 versus 2020 due to the easier comps. And our consumer brands group investments and customer programs to drive volume are expected to drive incremental sales growth in the next year, but unlikely able to offset a more normal return to DIY demand.
And then Performance Coatings Group is seeing strong packaging demand, which is expected to continue in the early part of next year, continued improvement in auto refinish industrial wood and coil with general industrial gradually returning to sustainable growth in North America. And Ghansham, it's really the investments we've been making in our programs, our reps, our tools and services to provide solutions to these customers that give us great confidence in our ability to grow those other segments to help offset that DIY potential harder comp next year.
Okay. Thank you. And just for the second question, John, you mentioned that you expect demand to be choppy. That seems reasonable given what we're seeing. You also have higher raw material costs that seem likely higher operating costs with freight, etcetera.
And just cost to serve the customer just given the omni channel shift across your tag store network. In that context, how should we think about pricing as it relates to an early outlook for 2021? Thanks so much.
Thanks Ghansham. I'd say our response here is going to be pretty consistent with past discussions that we've had Ghansham. As we look at all costs, the raw material baskets and everything that you laid out there from healthcare to energy, every aspect of the business. We look at that on a 30 day basis. Every 30 days with our management team, we evaluate where we are.
We make that decision. We immediately then proceed out with any increases that we've decided on with the goal of talking to our customers first. Once we talk to the customers, then we bring it to the financial community. We've not announced any increases now or we're not out with any right now. And should we like I said, we'll be out in front of the customer first and then come to you.
Yes. And Ghansham, we're in the middle of our normal next year operating plan reviews with our divisions. And as you know, we'll push back on our suppliers. We'll try to internalize and offset as much of the raw material and other increases as we can. And then absent that, we'll have to look at a price increase.
Thanks so much, you guys.
Thank you, Ghansham. Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question. Thanks very much.
Good morning, Jeff.
Hi, good morning. Is DIY growth in the stores business very different than the rate of DIY growth in consumer brands in North America?
They're very similar.
But Jeff, as you know, DIY and our tag organization is a much smaller percentage of barrel. And in your performance coatings group, you had very, very good growth in coil, but negative growth in general industrial. What's the difference between those two markets so that coil is growing and general industrial is down some?
So it's the markets that we serve, Jeff. If you look at coil, we've had the benefits of appliances as an example in coil as the commercial projects have picked up extrusion and some of the applications into the commercial space have been positive. And the other thing I'd say about the coil, I'll give this team great credit, they have been winning business across all regions. So we talk a lot about share of wallet in our tag business. But if I were to use that kind of description for our coil business, I'd say they've been doing very well in that space as well.
General industrial, if you look at those applications for coatings in our GI space, again, choppy is a good description here. We did have growth, as we talked about, in a few of the geographies, Asia, Europe, LATAM, I believe, in local in the same currency would have been slightly positive. It's mainly the U. S. And it's a choppy market here in the U.
S. For the GI.
Okay, great. Thank you so much. Thank you, Jeff. Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your questions.
Yes, thank you.
How would you characterize
this COVID DIYer as being different from your legacy DIYer? Are they more inclined to buy higher quality paint? And are you there's a couple of comments in your earnings release about product mix. And I was just curious whether you're seeing that in terms of whether it's at consumer or it's in tag. Are they buying higher quality paint?
I'd say that we are seeing a positive mix shift, Steve. I would say that there is a difference between these customers. If you look at the DIY customer in a Sherwin store, they're typically looking for that specialty store experience. Al just mentioned a small percentage of our business, 10% roughly of our business. The expectations there are just that.
They're looking for that specialty store service and expectations in areas that might include color, selection and so on. If you look at the overall though, what I would say is that our experience this go around is that these are people that are in general home as we've described nesting and in many cases finding themselves looking at a wall that may not have been painted in the next decade. And I think I've mentioned on one call and visiting some of our stores, they've kind of jokingly referred to these as what the heck projects, where they're sitting around kind of bored out of their minds and they're saying what the heck, I might as well go ahead and paint this room. The reason I share that with you is that we've often gotten a question about do we have a concern that we might be leveraging or mortgaging residential repaint customer sales to a DIY customer, we've not seen that. In fact, our residential repaint customers' bidding activity is actually increasing not only sequentially, but year over year.
So our customers on the res repaint side are quoting more now this year than they were last year and they are telling us that the success rate is actually increasing. So we have a DIY customer who's home, they want a good experience, they're typically moving up and we have a res repaint customers backlog that's growing.
Steve, the only thing I would add to that it's really by design in our consumer brand segment. The programs that they're putting in place, the training at store level is really trying to drive to the higher quality products because that as we've talked about customer solutions that helps them drive their top line and bottom line and it also helps us drive our top line and bottom line.
And overall, the customer ends up with the best experience. So it helps our brand position with our customers as well.
And so you had what was it, 3% same store sales in the TAG, was that all price given there might have been a price mix lift from this DIY initiative?
You could price would have been a little bit below 2%. The rest is volume. The one thing I would point out though, Steve, if you look at our North America stores at 3%, if as you know P and M has been a drag, if you backed out P and M, architectural would be up mid single digits. So I put it in perspective to say if price is a little bit below 2%, volume would be more mid single digits on architectural.
Okay. Thank
you. Thank you, Steve. The next question is from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.
Great. Thanks. Good morning. Congrats on the great results. I just wanted to ask about your comment on margins and SG and A.
Could you elaborate on maybe some of the increases in SG and A you're expecting in Q4? And then maybe even the next year. Do you think you've entered a new gross margin level given the volume uplift here and some of the cost reductions you guys have undertaken. Maybe you can just elaborate on some of those issues. Thanks.
Yes, Arun. As you know, since we don't go down item by item on the P and L for our guidance, but let me try to give you some color around our Q4 in general. First off, we believe we have a pretty strong 4th quarter with the adjusted EPS about 10% increase over at the midpoint over a really strong Q4 last year that was up over 20% on top of a 12% increase in the Q4 of 2018. That tells you our flow through is in the mid 20% range at the midpoint while investing back in our business. And let me start by saying what we talked about in the Q2, what we talked about at SCP is that these are the investments in products, services, customer programs that provide solutions to our customers, allow them to grow share and be more successful.
These are investments in new stores and reps and our e commerce platform in North American stores. I talked about the consumer brands, investments and expanded customer programs that allow our customers to sell more of the right gallons through the department, which helps drive their profitability. And then also Performance Coatings investments in reps, services and programs that add value to our customers, a lot of them being more productive. And you talk about what that means going forward. And we believe this cycle is very similar to 2,008.
We continue to invest and lean forward into our customer success and these are the right investments and the 3, 5 10 year compounded average growth rate of our North American architectural sales were high single digits coming out of that period. And we believe that was a multiple of our market demand over the same period. So we believe the similar environment, we expect these current investments across all our segments will also grow multiple of end market demand over the mid and long term. The only other comment I would make on gross margin, Arun, is that in the Q4, we do expect to see our typical seasonal architectural slowdown in demand, which does impact our gross margin historically. Historically, our 3rd quarter has a stronger gross margin performance than the 4th quarter.
Part of why we had such a strong performance last year is we did see a sequential improvement in our gross margin last year from Q3 to Q4. And as you know, we get to year end, the small quarter, we get into inventories, LIFO, a number of adjustments that kind of drove that improved margin last year.
Thanks for that detail. And then, also just wanted to ask about your capital allocation. You spent over $400,000,000 on buybacks in the quarter. So nice to see that. Is that generally how you're going to be running the balance sheet now that obviously not building cash?
Maybe you could just also discuss the M and A market, if there's any opportunities that you could take advantage of in the near future? Thanks.
I'll talk about capital first and then I'll talk about M and A.
Yes. Let me just highlight the fact we did have a bigger amount of cash on our balance sheet at the end of the quarter than normal. I would not read anything into this. We have not changed our capital allocation policy. And to your point, we are not going to hold cash.
We'll put that cash to work. And it was really a timing issue at the end of the quarter. We had stronger receipts in the second half of September. The strong teams are generating stronger operating margin and cash flow from outside the U. S.
That we're certainly going to keep bringing back to the U. S. And putting to work, but it's just a timing issue there. I think you're right. You look at the strong cash generation, dollars 2,600,000,000 in the 1st 9 months.
We returned over 1,600,000,000 dollars to our shareholders in the form of dividends and buybacks. That's an increase of 86% to last year. And then we've invested $190,000,000 in form of CapEx. And we also took the opportunity to reduce our debt by just under $400,000,000 that got our really got our debt to EBITDA leverage back to $2,500,000 Going forward and looking out into next year, you're going to see the same type of process from us. And I'll let John talk about M and A.
Yes. I'd say first, Arun, I think it's important to acknowledge that in challenging times, I think you get a sense for how much discipline and conviction you have in your strategy. Things get tough, you can find your way to want to buy a book of business or let's just buy sales or sales at any that's not who we are. I'm really proud of our teams on an organic basis as well as in the M and A space. We've got a very defined strategy that we're working here and we're very much determined to stay on that and I've got great pride in the fact that our teams are doing just that.
Now that said, I'm also very pleased with the progress that we're making in this area. We've got some very good discussions going on and feel good about the targets that we're pursuing. As a reminder, the targets that we pursue largely will be in the industrial space, targets that fill either a technology gap or strength in a region that would help us in accelerating our existing businesses and their goals or in establishing a position in a geography where we're underrepresented. Now that said, our goal is not to be everything to everyone everywhere. So we talk a lot internally about our rights to win and how we'll go about this and bring into the market a unique and differentiated value that would help us to create shareholder value.
So I'm pleased with the progress and I think the discussions have gone pretty well here.
Thanks.
Thank you, Arun. The next question comes from the line of Bob Koort with Goldman Sachs. Please proceed with your question. Thank you. Josh, just curious to that end in terms of, it sounds like mainly you're interested in bolt ons.
In the past, you've talked about maybe optimizing the portfolio. Are there also some assets you might look to vest? Are you pretty comfortable with the portfolio you have today?
Well, comfort is not a good word here at Sherwin Williams. We don't like comfort nor do we like complacency, Bob. I think you know that. So we're constantly reviewing programs, SKUs, brands, businesses, I think we owe that to our shareholders. Understand that and lead that.
It's not something that understand that and lead that. It's not something that Al and I and David are pulling on. I think these are terrific leaders that understand how to make money, how to create shareholder value. So there's a constant review on all levels from businesses all the way down to the SKU, including programs and those programs are sometimes difficult. If you're launching a program that's your baby, you want to stay close to that.
But I think these terrific leaders are demonstrating a willingness to look at every decision and ensure that it's creating value.
And most of your markets we sort of come to expect the performance that you delivered. It's been very strong. I'd say a wide outlier was how well you did in Refinish. So can you contextualize this for that? The $5,000,000,000 sales quarter, how much is auto refinish?
And what markets you're in? And how did you capture that market share, that dramatic market share relative to what the industry was doing? Thanks.
Yes. So thank you, Bob, for that question because it's an opportunity to talk about a wonderful team here that's been working really hard. And it's been unfortunate because they've been gaining a lot of ground in the midst of a COVID experience that's not allowed those numbers to shine through. We don't quantify the size of the business itself, but I will tell you that it's been trending positive. To your question or point, we believe that we're aggressively growing market share here.
We think it's a combination of the technology. Have been asking about synergies with Valspar and Sherwin. This is an excellent example of some of those synergies that come through as we've combined the legacy Sherwin technology along with the legacy Valspar technology to come up with a system that's been well, it'd be an understatement to say that's been well received. It's been terrific. I spent some time with these large customers who have converted many of those shops over to Sherwin.
And I'd say it's a combination of the technology as well as the channel model that we have, our own stores servicing these customers. We have the same mentality through our automotive stores as we do our own architectural stores. And it's working and it's working aggressively and it's a bit of a pun, but we plan on putting a lot of gas in this tank.
And Bob, this is Jim. What I'd add to that is auto, we saw growth in every region. So it wasn't just one niche there. It was every region that we operate. I like
to guess on the Great.
Thanks, Dave.
Thanks, Bob. Your next question comes from the line of P. J. Juvekar with Citi. Please proceed with your question.
Yes, good morning.
Hi, P. J.
Your margins were up almost 600 basis points. Can you roughly break that down between sort of what benefit you got from higher volumes versus lower input costs? And earlier, I think you mentioned the mix effect. Even if it's sort of a rough breakdown, can you just sort of give us some idea how that breaks down?
Yes. P. J, I know you've heard me say this a bunch of times, but it always starts with volume. And I talked about the mid single digit volume growth in architectural and in tag or in North America paint stores, I talk about the high 20% plus growth in our consumer brands group. And we started seeing a return to sales growth with our Performance Coatings group.
So that's always the biggest driver. We did talk about the favorable product mix and it was a little bit less than what we saw in the second quarter. As you know, raw materials moderated some. And again, we talk about our Q3 being less of an impact than the Q2. And then we also have pricing that we had put in earlier this year.
So if you wanted to force rank them, I'd start with volume being over well over half of the increase and then the other 3 kind of bucket the rest of it in fairly similar order or size.
Okay. Thank you. And John, a question for you. I mean, your execution so far during this pandemic has been excellent. But just in case of scenario planning, if we have another wave of COVID and seems like it's already beginning, How do you think about the different businesses?
Do you think DIY consumer will continue to be strong and maybe the contractor recovery is a bit slower? I'm sure you're doing internal planning with all this. So can you just walk us through your how you're thinking and your decision tree?
Sure, P. J. You're right. We do a lot of what we call war gaming out. And again, I'll come back to the point that I made earlier about the leadership teams that we have.
We don't know exactly how it will unfold. What we are blessed with is a lot of experience, maybe I might refer to it as scar tissue, by teams at all levels that understand and can execute. And if you don't mind, maybe I could just take a second just to talk about why I have so much confidence in our ability to respond to whatever it might be because, yes, you're right, we have thoughts and ideas of different scenarios. All of them come back to execution and all of the execution comes back to the people that we have, the terrific people we have in the field every day. So if I could just take a second to explain why I feel so bullish about that.
I mentioned in our financial community presentation last month about the fact that our MTP program in our stores was reaching 40 years. And this is 40 years of recruiting outstanding talent, training and developing talent and retaining talent. And so when you ask why do we have confidence and why we are able to execute, we're recruiting 1500 college grads annually. That means we've got 10,000 of these college graduates throughout the company right now. When I say throughout the company, I'm not just talking about in TAG.
I literally mean throughout the company. These are people that have maybe entered in through TAG. They understand our culture. They understand our strategy. They understand our expectations.
They understand our aggressiveness, and that helps us so much. In fact, the fact that people come in through that management training program, in fact, 80% of our reps in our Tag business started their career in a store. And that means they understand products, they understand logistics, customer service, everything that we have. And this allows us to promote from within. And so when we look at the leadership team that's responding to what your question is, which is what ifs, well, we've got 70% of our TAG leadership.
They started in these MTP programs. So they've started and they understand everything that we're asking our people in our stores to do, if you can imagine having 70% of your leadership team have had that experience and they know what to do. And that 70% then feeds our leadership, and I mentioned at the financial community presentation that talent pool continues to push up. We've got 6 group and division presidents that were MTPs, 26 vice presidents and senior vice presidents, and I was blessed as CEO to have come through this. And what all that does is it provides a clear line of sight to a career path that others can follow, and that helps our retention.
And I believe, to answer your question, I think how we're able to do this is it's the retention of wonderful, talented people that have the skills, the resources and drive to be able to win. And I think that's the critical component in our strategy. And we've got a long history of it and we've also got a long history of very low turnover. In fact, our turnover, voluntary turnover is around 7% to 8% and that's with nearly 5,000 stores. I don't think there are many companies that could push that out as a statistic, but we're proud of that.
And what that then does is it drives the retention of our overall workforce. 7,000 of our employees have more than 20 years of service, and that's about 15% of our full time employees. We're blessed to have that talent. And I think when you look at then all the way back starting from the beginning, what does this allow us to do? Well, 80% of our reps in TAG, they have 5 years or more service.
They've come through the stores, same with our industrial reps, by the way. But what this all means is we've got wonderful talent that we can retain. They're in a culture where they want to be. And so when this terrific leadership team takes the front and says, follow me, our people follow and they execute better than anyone. And I'm a proud member and a small part of that because we win on the streets and I'm really proud of what our teams are doing.
Great. Fantastic. Thank you.
Thank you, P. J. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you. Good morning. John, just going back to the SG and A investments in Q4, is there any way to quantify what the increase is either versus quantified them because we're just trying to tell you what we've done versus tell you what we've done versus tell you what
we've done versus
just trying to tell you what we've done versus tell you what we're going to do. I would kind of frame it this way. In the Q4, you do see the seasonal reduction in sales related to architectural. Our typical cadence is our SG and A spending tends to be flat from the Q3 to Q4 if you go back and look at it over a period of time. So you delever a little bit on a sequential basis.
It doesn't I said we'll potentially delever a little bit year over year and not see as much benefit in SG and A as we saw in the Q3. That's really dependent on I give you a pretty wide sales range because of some of the uncertainties around different segments, general industrial and some others that we had talked about. So as we see the continued sales momentum into November and this summer, that will tell me the cadence of what we can put in as investments. So we're trying to do the pedal and clutch as one of our group presidents likes to talk about. We don't want to get too far ahead of ourselves, but we're also looking at it from the long term and that will tell you where SG and A comes in as a percent.
Very helpful. And Al, just going back to what you said earlier, are DIY sales up 23% combined in Q2 and Q3 year over year?
That would be pretty close, yes.
Thank you very much.
Thanks, David. Our next question is coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions. Yes, good morning. A couple of questions on the subject of inventory.
If I look at your own balance sheet, inventories declined about 8% year over year in Q3 despite sales growth. And I suspect that many of your customers have been trying to manage for cash and liberate working capital as well. And so in that context, I'm wondering, do you expect to run assets harder than normal over the winter? And would you expect your customers to do the same such that we might see a slightly different seasonal pattern through the Q1 of 2021 relative to normal? Yes, Kevin, to your first point, you're right with the unprecedented DIY demand we've seen.
We've been not building inventory as much as just maintaining our keeping up with the sales out the door. We absolutely are going to run our supply chain harder this Q4 and going into the Q1 to build inventory ahead of the spring selling season. As far as how we work with our customers, we want to make sure we're building the right products and getting to them at the right time. We don't think it's about just loading up inventory at store level, whether it's our stores or our architectural and consumer customers, but we're working with them. And it's going to also depend on what the trend that we see in DIY demand coming out of the coming into the winter here in November, December in the early part of next year and then ramping up to the spring.
So that's going to be a constant. And I would tell you, we are working with our customers on a daily, weekly, monthly basis to make sure we're getting them the right products that they need.
Yes. Kevin, I'd echo the point and I'd like to just emphasize as we look particularly on the consumer side, Heidi Pets and her team are working closely with each of those customers. We're going to drive inventory to support those customers. And if it means putting a little more in working capital, we'll do that, but we're going to serve those customers.
Yes. Kevin, I guess I'd be remiss if I didn't say on the other side where we were we've been under a little bit of pressure on the Performance Coatings side. I think that team has done a really nice job controlling inventory, so we didn't build the wrong inventory. And they've got a lot of different programs in place to try to drive complexity out of that supply chain, whether it's SKU rationalizations, platform consolidations. And I give that team a lot of credit for maintaining a disciplined approach to inventory, whereas on the DIY side, we're just full out.
We're making as much as we can possibly make. That's really helpful. And then as a second question for Jim perhaps, I was curious about raw materials. You referenced some recent cost inflation probably since June is my guess. But just curious, if we flat line raw materials from October, what do you think that would say for the basket in 2021 versus 2020?
Yes. Kevin, what I would tell you in just based on our commentary that we gave in our prepared remarks, I mean, Q3 was down a mid single digit range and Q3 was mainly driven again by lower costs on resins, monomer, solvents. Going into our Q4, we think we're still going to see a benefit year over year, but maybe not as much. We've seen some sequential tick up in some of the feedstocks. Propylene has ticked up here.
Ethylene has ticked up. Even HDPE on the packaging side is ticked up. So we're seeing that. I think we start to think about 2021. It's probably a little bit early to be thinking about 2021.
We'll give you that view in January as we typically do. But again, what I would say from a directional perspective is a couple of things. We're seeing sequential increases. Certainly, we've seen a rise in oil prices, which are putting pressure on some of those feedstocks. They're not always totally connected, but there is some pressure there.
We've seen the upstream capacity from refineries, crackers, PDH units, they're managing tighter through this pandemic. So we're seeing some tighter supply demand scenarios there and demand is picking up. So all of those could be factors that we're looking at. On the TiO2 side, again, we're watching that closely as well heading into next year. And it's all about, I think, what demand is going to do.
To this point, North American chloride had been pretty stable. Chinese TiO2 players have been out with some increases here recently. So a lot of moving parts there, but still a benefit in the Q4 2021. We just don't have a lot of clarity yet. Okay.
Thank you very much. You bet, Kevin. Our next question is coming from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Thanks very much. A quick one on interior paint. Are you noticing any regional trends, whether it's a state level or just a section of the country level as it relates to interior? Just thinking in terms of COVID virus trends or is there any sort of differences between how fast interior is coming back depending on which part of the country you look at?
Not really, Vincent. I'd say it was a bit slower in some of the more urban areas, but we are starting to see some pickup in those areas as well. So not I can't explain it if people are just getting tired enough to the point where they're saying just come on in or they're leaving or what's happening, but we're it's pretty well even across the country.
Okay. And then just one last question on your cost side of the equation. In the stores, now that we're a few quarters into this, has it become apparent that you have higher costs associated with servicing customers because of COVID that you might need to recover next year or is that not
the case?
Not the case.
Thank you very much.
Yes. Thanks Vincent. The next question comes from the line of Rosemarie Morbelli with G. Research. Please proceed with your question.
Thank you and good morning everyone. If we could go back to the consumer brands and in particular for the DIY business, can you talk about the margins and growth expectations when DIY slows down to a more normal environment post COVID? And can you give us an idea as to how much you lowered the breakeven point when you look at what you did this year, 1st 9 months versus last year?
Yes, Rosemarie. I would say our expectations don't get any easier. We're expecting that the investments we're making in the programs across each of the customers are going to drive across each of the customers are going to drive continued volume and that could be on DIY, it could be on the pro. We expect that like we've done over this past year is really focused on where we're not performing as well as we could be. And we talked about the improvements we've made in our international businesses.
And just to kind of put that in perspective, I mean our international sales for the quarter were up 26%, our flow through was over 65%. So we're seeing the benefits of those actions as well as we had talked about the favorable product mix and part of that was exiting the ACE private label business, looking at our cost structure on how we support that field organization and making those changes as we need to. So I wouldn't say just because DIY slows, we should automatically expect to see our margins contract back to prior year levels. I think the high teens to low 20s that we talked about, as you know, when we set a new high watermark, that is the new target and we'll talk about what we expect on those operating margins going forward in the future here.
And following up on that, is there a difference and I know you cannot talk about customers specifically, but nevertheless, is there a difference between the profitability level at the Lowe's versus all of the other smaller type of retail?
You're exactly right, Rosemarie. We're not going to talk about that.
Well, I thought I would try. And then looking at the interest expense level just quickly, is that $83,300,000 a new level or should we expect it to go down because of the timing of your debt repayment?
I'm sorry, Rosemarie, I lost the first half of that question.
Interest expense declined to $83,300,000 in the Q3. Is that a new level Or is it going to decline some more depending on when you paid $400,000,000 in this quarter?
Yes. It's probably a good estimate going forward. We're looking at some things with next year and even into the 2022 tranches to do something with. But I think that's a good level right now.
And at 2.5 times net leverage, it sounded based on previous comments that debt reduction is no longer a priority?
I would assure you with that. We talked about not really looking to reduce debt coming into this year, but based on the circumstances and what was happening, I thought it was prudent to take it down. So but yes, you are absolutely correct.
All right. Thank you.
Thank you. The next question is coming from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.
Hi, good morning.
Good morning, Mike.
I was wondering if you can talk about what you're seeing in the independent paint dealer channel within consumer. Are they seeing as robust of a DIY pickup as you guys have? I guess the question I'm trying to get to is, are they maintaining share or are they continuing to see migration toward maybe your stores or other company owned stores as well as big box retailers?
Mike, as you know, we don't get POS data from those independents. We do believe though that the Q3 was strong across most of the independent dealers. It's an environment where they're probably doing pretty well. Hard to say that they are gaining or losing share right now real time, but I would say that they are likely benefiting to some degree from the same nesting issue that most people in the paint business are experiencing right now as it relates to DIY.
I think, Mike, on the long term though, I think this channel will likely continue to lose share if the pro DIY shift continues because we do believe it will go back. I know it's shifted a little bit to do it yourself in this cycle, but longer term, we expect the shift to go back to do it for me and the continued market share gains that we see in the home centers.
All right. And then in terms of the packaging business, your results there, that seems to be another area where you're doing quite a bit better than the underlying market or where some of your competitors are. It sounds like beverage can demand is really strong. Is that an area where you have relatively higher share? Can you maybe talk about differences in your mix that might be contributing to the strength in that packaging business?
Yes, Mike, I would tell you, it is an area of strength for us. But I would tell you, as it relates to packaging, we've got a terrific team there that's doing a wonderful job as well as wonderful technology. I think we're growing share pretty aggressively in both food and beverage and we expect that to continue.
All right. Thanks very much.
Thank you. Thank you.
Next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.
Yes, thanks for taking my question. So you made some compelling comments earlier in the Q and A around, I guess, you kind of call them easy comps. And so it kind of sets the stage for what should be volume growth next year. I guess with that in mind and the fact that volumes tend to be the biggest drivers of your margins, should we be assuming that there's room for updraft in the margins as we look to 2021? Or are there some offtakes that we need to be considering, whether it's raw materials or temporary cost rollbacks or mix or what have you that maybe hampers that a little bit?
How should we be thinking about that?
Yes, John, I'm going to have Al answer that, but I want to make sure that I correct it. We never said easy comps, we said favorable comps.
Fair point, fair point.
And that entire tag leadership team down there grabbing their chest suggesting that nothing's easy down there. They're doing want to acknowledge that and say that they're favorable, not easy. Now Al, you could answer that.
Yes. John, we do expect to see a more normal demand environment as we go into next year. Some of the favorableness we saw in the 2 quarters that I talked about on favorable customer and product mix, on some of the strength in DIY and volumes that we're starting to see on Performance Coatings. So as a company, our mix of businesses is going to get to a more normal level as some of these businesses where we have opportunities start coming back. That being said, I mean, we're going through our planning process.
We're going to continue to look at driving our operating margin leverage. And that's going to come from continued expansion of the gross margin and continued leverage on SG and A. And depending on what we see from a raw material environment, from a pricing environment, from a that will kind of tell me what we can continue to invest in or where we have to get more leverage on SG and A. But we're not that far along in that process yet. And as we have typically done, we'll come back to you at the end of the year with our 2021 guidance and give you more color around that.
Got it. Fair enough. And I appreciate the color. And then the other question would just be on the capital deployment side. When you look at the M and A pipeline that you see right now, would you say the bid asks have started to narrow at this point or are they still relatively wide and you kind of need to see things kind of further shrink down on that before pulling the trigger.
How should we be thinking about that?
John, I'd say they're beginning to narrow down. We're feeling as though some of what's happening in the marketplace right now has people looking hard in the mirror and asking how much further and how much harder they want to run and others that are saying, I want to be a little more realistic. So I'd say that the gap is narrowed.
Great. Thanks very much for the color.
Thank you, John. Thank you. And our next question is from the line of Greg Melich with Evercore ISI. Please proceed with your question. Hi, thanks.
I've got two questions. Just on the pricing. Has there been any pricing in Performance Coatings, especially considered doing that there's a capacity increase that's now coming? And then I have a follow-up.
On a targeted basis there has been, Greg.
Okay. Could we say that overall that there was some help to the top line in Performance Coatings year over year? Yes. Yes. Greg, I think the way I would look at that is because Performance Coatings businesses are so diverse and product quantities and the like, I mean, if you take FX out of it and currency neutral, they'd be up 2 6%.
You probably could split that evenly between price and mix because mix plays a part there and volume. Got it. Thanks for that. And then on capital allocation, I just want to make sure I'm getting the pieces right here. Thanks for reminding us of how you're doing it with the dividends and the buybacks.
CapEx, once you start working on the new headquarters and the R and D center and everything, should we expect that to go up to sort of $400,000,000 I'm just trying to figure out if the cash from ops are $2,500,000,000 plus where does it go now that the balance sheet is delevered? Yes, Craig. We're going to have probably a couple 2 years here where the facility projects are going to take us up over certainly over 400,000,000 dollars Depending on timing and where we're at in that construction process, it could approach $500,000,000 for a year. So it will be up above 2% for a couple of years, but long term we'll still trend it back below 2. Got it.
And then it sounds like this $400,000,000 run rate for the buyback then could become a run rate not just a quarter? Yes. Craig, you look at $600,000,000 we had sitting on our balance sheet in the 3rd quarter, I do expect to have again strong cash generation here in the Q4 and we'll use that excess cash to buy back stock. That's great. Good luck everyone.
Thanks, Greg.
Next question is from the line of Duffy Fischer with Barclays. Please proceed with your question.
Yes, good morning. Just a question on China because it's recovered so much faster than other geographies, it's not a huge business for you. But can you go through kind of the end markets in coatings there and how you see those coming out of this dip? And then second follow on to that would be, is China a fruitful area to look for M and A for you guys now that you've got more expertise there with the Valspar acquisition?
Yes. Duffy, I'd say that if you look at our Performance Coatings business, 5 of the actually all 6 of the industrial businesses 5 of the businesses were positive in the Q3 in Asia. We feel there's some good momentum there, and our ability to bring solutions to those customers, we think, helps to differentiate us. So yes, we expect that to continue to grow. I'll add in the architectural piece as well, although I don't know that you were asking that as much as maybe the industrial side, but we've got, I think, a terrific opportunity long term there.
So we're doing some work there and some, we believe, good groundwork that will help generations down the road, not next quarter, as we establish brand and channel for the architectural side. But if you look at our industrial businesses there, they're all pretty strong. And as far as M and A in that market, yes, we're interested in the right businesses there that could help to accelerate our strategy. Again, I'll go back to the very disciplined approach that we take here, which is not just buying a book of business, but something that brings value to our shareholders. If we find the right targets in there that can help us, yes, we'd be interested.
Terrific. Thank you, guys.
Thanks, Duffy. Our next question is from the line of Chris Parkinson with Credit Suisse. Please proceed with your question.
Good morning, guys. So just taking a step back from COVID factors, how should investors think about the key long term growth pillars in PUC? I assume packaging is just one area of growth enthusiasm given your consistent outperformance already. But how should we think about the other substrates and your positioning in order to outgrow the respective end market? So just trying to get a sense of your normalized PC growth algorithm.
Thank you.
Yes, Chris, we do believe that we're growing faster than market right now. And you're right, packaging from a technical standpoint, approval process standpoint, nearly every aspect of packaging is pointing our direction. So we're feeling really good about that. We talked about coil and the process that we've been going through in new wins or share of wallet, as we like to say, and we expect that to continue to grow. And so our expectations of that team are very high as well.
I'd say, we didn't really talk about it in great depth, but we're really proud of the industrial wood business and the performance. It wasn't long ago that business was something that made your head hurt, but I'd say it's moving in the right direction here pretty aggressively and that team is really demonstrating the fact that they've got their hands around this business moving in the right direction. And I've got a lot of confidence, particularly when you look, as I mentioned in the prepared remarks about the new residential business and the linkage between that industrial wood business and the growth there in industrial wood. Auto, we talked about the positioning that we've had and how we're growing there already. And it's just not been as visible as we would like because of we're only about 75% back on the road.
So we often say we don't want to be ambulance chasers, but the more roads on the more cars on the boat, the more refinished business there's going to be. And so we're feeling really good about this. Next then come to areas of GI that we've talked about. We love our position here. And to your point or the question earlier, I believe I think Greg or Duffy asked about our Asia position with leadership.
And we look at that Valspar leadership that came with that acquisition and we've often referred to that as the greatest infusion of talent in the company's history. And so when we look at the auto business and GI, we look at terrific technology and talent that has come here and we expect to help that to help our business in this GI business. Aaron Erder, our Group President of this business is really doing a wonderful job in a very challenging market and we've got confidence that each one of these are going to drive. We talked earlier in the life cycle of this acquisition about our goal to drive GAAP operating margins here into the high teens, low 20s, and we have every bit of expectation and confidence that we're going to do that.
Yes. Chris, I'd just add to that point. I mean, you look at our Q3, a small sales increase of 1.2 percent and 110 point operating margin improvement. That just goes and I got to highlight the team and give them credit. That goes to all the hard work they've been putting in even the second half of last year as we saw things starting to slow outside of the U.
S, they've done a really nice job of working on reducing complexity, reducing SKUs, improving their operations so that when they do get volume, they'll get more leverage on that volume coming out of this pandemic than when we went into it.
Very helpful. And just the follow-up would be when we're sitting back and thinking about DIY trends, just drilling down a little bit more,
can you just comment on
the end market demand for stains and sealants versus interior paints? It seems the former on the demand front was very strong and you had to rise to the challenge in terms of reduction. But if we're parsing that out next year, are there any major considerations on the best way to think about that as we head into 2021? Thank you.
I think, Chris, it goes back to the DIY comment that I talked about and the stain and sealants are in there and it's part of that 25% that's up 25% of our company that's up over 20%. I still think we have such great opportunities in the other 75% of our company to offset any declines in DIY that we see next year.
We do. And we also have the most powerful brands in those areas to build on as well and a wonderful team that understands that, that will execute on that. So I think we're going to be approaching this from both sides aggressively.
Thank you very much.
Thanks, Chris. Our next question is from the line of David Bellinger with Wolfe Research. Please proceed with your question.
Hi, everyone. Thanks for taking the question. So first on the consumer brand segment, you characterized DIY demand as elevated throughout the entire quarter. Can you walk us through what you were seeing towards the end of Q3? Was that business strengthening further even as you move into a typically lower volume Q4 period from a seasonality standpoint?
Yes, David, it was pretty flat. I mean, if you look at it on a same day basis, it's pretty flat throughout the quarter.
Got it. Okay. And then just a follow-up on an earlier comment around the contractor?
About what? About what, I'm sorry?
The pro business and the pro contractor business. Just give us an update there in terms of project backlog and bids. Is there any way to quantify that trend? And you also mentioned an uptick in the sales of spray equipment. What has that told you about the business historically?
And how long do the sales typically track higher after those type of purchases?
Yes. I would say that we have seen and heard from our customers that the backlog has grown on the part of our contractors. That's evidenced by the fact that they are bidding more and have more customers now allowing them in their homes, but still a long list of people that are hopeful that their projects would be coming in soon. I think some pace of that is going to increase with more allowing people in as they're going to be spending more time perhaps in their homes, preparing for the holidays, whatever it might be. So I'd say that the
backlog is
good, strong and growing on the part of residential repaint customers. So it relates to the spray equipment, I'd rather not give you any specifics on how long or what that means from a timing perspective. I will tell you that we see a direct correlation between the confidence of the spray equipment sales and the mentality the contractor has before making that purchase. So when they're plucking out a couple of $1,000 or so on a piece of equipment, they're betting that these projects that they have coming up will allow them to pay for them. So it's a good precursor for what's down the road.
That's fair. I appreciate the color here. Thanks guys.
Thank you, David. Our next thing is next question, excuse me, is from the line of Garik Shmois with Loop Capital. Please proceed with your question.
Hi, thanks. Just a follow-up on the discussion of favorable comps and certain parts of tag. Thinking about commercial and property management in particular, can these verticals be positive next year just given some of the green shoots you're seeing right now?
Yes. Very much so. We're excited about this. Yes. I mean these are I've used the term I was thoughtful in using that term favorable comps.
Yes, you got commercial down loans low single digits, property maintenance mid single digits here in the quarter and we have a wonderful position here, great people, great products, great relationships. Yes, we're going to yes, the answer is yes.
Okay, thanks. Follow-up question is just going back to your comment in the prepared remarks. If there's an infrastructure bill, say in the first half of next year, how quickly could your wastewater business within Protective and Marine see the benefit? Well,
so you're talking about how long before a bill is passed and paint is applied. I mean, that would vary obviously by project. But I'd say you could see that in a quarter or so likely, that's a guess on my part. I'd say our position there is very strong, particularly on water and wastewater. It's been a good position and growing for us.
But I'd say when you look at general and or I'm sorry, the protective and marine and the contractors that typically do that type of work, those are typically areas that we do very well with. So as soon as it hits the street, we would be right on top of that.
Great. Thank you very much.
Thanks, Gary.
Your next question comes from the line of John Roberts with UBS. Please proceed with your question.
Thank you. Is there an opportunity to further optimize your stores' footprint given all the changes going on in the commercial real estate market? Yes,
John,
we look at that on a regular basis. And Yes, John, we look at that on a regular basis. And the opportunity for us as markets turns, change and develop. And so the beauty of our approach is how we structure those decisions are as close to the customer as possible with support. So those decisions and opportunities are something that we leverage regularly.
Yes, John. And I would just say, we have taken the opportunity to do that. We've closed and when I say closed, it's a lease expiration that we then moved to a different location, about 16 stores in the U. S. And Canada.
We did about 6 last year. So a little bit stronger pace this year than last year, but like John said, it's a regular process for us. Great. Thank you.
Thanks, John.
Your next question comes from the line of Eric Bossard with Cleveland Research. Please proceed with your question.
Can you break out at all within the Pro business the difference between interior and exterior growth on the res repaint side? I know that 4Q and 1Q are bigger interior quarters. Just trying to see what the momentum and the growth profile looks like between interior relative to exterior?
Eric, I would tell you that we've spoken about the double digit growth that we've seen in exterior, the very strong high single digit growth in interior. Obviously, the interior paint market is much larger than the exterior, but we're not going to provide any more detail on our sales of those products and help you understand that.
Yes. Eric, I think what I talked about in the Q2 or at FCP was the fact that in the out quarters, our interior to exterior ratio is 4:one. On the interior on the 2 biggest quarters, it's 3 to 1. And so it was a little bit less than that in our Q3 just because of the strength in exterior.
The and then the momentum within interior, is that stable or is that month to month improving? And it can even be anecdotal, John, I understand sort
of the detail
of this, but just trying to get a sense on the comfort of consumers and pros of getting more active interior.
Eric, I'd say that it is an area of comfort and confidence that we have. It's moving. And as I mentioned earlier, it's for the most part across the country and for the most part, nearly all of our residential repaying customers. You'll hear some pockets of concern, but for the most part, I'd say there's a strong excitement inside our building about the interior growth.
Okay. Thank you.
Yes. Thank you.
Thanks, Eric. Thank you. Our next question comes from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question.
Hey, everybody.
On the looking at Consumer Brands business, the Australia business in particular, if we were on the clock about a year ago, this was an area of disappointment. But here we are, sales are growing strong double digits. I think you guys said total international up 26%. Don't know exactly what Australia is in there, but you guys said double digits. So curious, it seems things have turned around.
I'm curious how much of this is the product of the environment that everything is doing well versus the actions that you guys have taken to really improve this business? Curious of the progress that we've seen there.
I'd say it's a little bit of both, Kevin. I'd say we've got a terrific leader, Brian Patten, done a very nice job of running all of those industrial I'm sorry, the international architectural businesses for us. This business, as you mentioned, delivered double digit growth and it improved its profitability. And we think that we've definitely seen an increased effort to develop the right platform, channels for distribution through our team. They've done a nice job of taking out costs and the actions associated with that are not always easy or fun, but this team did a really, really nice job of taking the right steps and right actions and a double digit growth with reduced expenses and you start to see an improved bottom line.
And then in terms
of the guidance for the Performance segment in the Q4 of sales being flat plus or minus low single digits, it seems like it seems to imply that we kind of stalled from what we saw in the Q3, but it seems like momentum is building in all the different subsegments within the segment. It looks like the comps are a little bit easier in the Q4. And I would think that FX would be better sequentially. So that all seems to me to add up to some acceleration. But it seems like the guidance implies kind of similar results in 4Q versus 3Q.
So curious your thoughts there.
Yes. Kevin, I think one of the comments we made on GI is this an inventory build or and are we going to be able to see sell through on that inventory? And so and there is momentum, but outside some of these markets and some of these businesses, still choppiness that we're accounting for.
I think, yes, and sequentially, we've seen improvement. And the other thing that I like to build on Al's point, even in these challenging times of the 5 global business units that sit in PCG, 4 grew in all regions. So I mean there's some pretty good momentum that we have coming along here.
Okay. Thank you very much.
Thanks, Kevin. Thank you. Our final question today comes from the line of Justin Speer with Zelman and Associates. Please proceed with your questions.
Hi, good afternoon. Thanks guys. I just had a couple of questions, one being the SG and A side of the ledger. And I apologize if this has already been addressed. But on the Analyst Day, you mentioned you're making incremental growth investments in the 4th quarter
and you weren't going
to see as much leverage there. Maybe can you articulate maybe how much margin headwind is expected from that investment? Maybe again speak to the nature of those growth investments and maybe how we should think about that going forward as you make those important growth continue to invest in your business?
Yes, Justin. What I try to say is that we haven't laid out the amounts that we're investing. Some of them get into very specific customers, others we'd rather tell you what we've done versus what we're going to do. But part of the leverage will depend on the cadence of how we put in new stores and reps across each of our segments on how much in the e commerce platform we're investing relative to what our volume looks like in the Q4. If we're at the higher end of the volume, we may be able to get more investments in and still see an improvement and get SG and A leverage year over year.
If we're at the lower end of that volume range, we're probably not going to see leverage on SG and A because I think it's important that we stay the course. We're taking a disciplined approach to it. We know it's the right thing to do long term. I'm not trying to get to a perfect quarter in the Q4, but we're managing it as we go through the quarter.
Yes. And Justin, sounds like you mentioned that you missed may have missed the earlier response. I think it's important to build on the point Al made earlier, which is this is very similar to the 2,008 run that we experienced. We had a long tenured leadership here at Sherwin that's been through many of these movies here before and we know how to invest. While it hits the SG and A line, I would tell you, Al and the other control the group controllers that work with Al, there's a very disciplined approach in this.
So this is not money that we look at spending. These are investments and a very high level of discipline and expectations come along with those investments.
Makes a lot of sense. I'll just leave it there and appreciate your time and attention. Thank you guys.
Thanks, Justin. Thank you. At this time, we've reached the end of our question and answer session. I'll now turn the call back to Jim Jay for closing remarks. Thank you, Rob, and thanks to everyone for joining us today.
Really appreciate your interest. Our entire leadership team, I hope you feel came through. We're very confident, very optimistic about our Q4 prospects and where we're heading into 2021. I will be available along with my colleague, Eric Swanson, for your follow ups today and the rest of the week. And please contact Natalie Darr to get in the queue.
So thanks again for your interest. Have a great rest of your day. Thank you. You, everyone. This will conclude today's conference.
You may now disconnect your lines at this time. Thank you for your participation.