Good morning. Thank you for joining The Sherwin-Williams Company's review of the Q3 of 2019 and the outlook for the Q4 and full fiscal year of 2019. Present on today's call are John Morikis, Chairman and CEO, Allen J. Mistysyn, CFO, Jane M. Cronin, Senior Vice President, Corporate Controller, and Jim Jaye, Senior Vice President, Investor Relations and Corporate Communications. This conference call is being webcast simultaneously in listen-only mode by issuing a direct link to the internet at www.sherwin.com. An archived replay of this webcast will be available at sherwin.com in approximately two hours after this conference call concludes, and will be available until Friday, November 8th, 2019, at 5:00 P.M. Eastern Time. This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to Sherwin's earnings and other matters.
Any forward-looking statements made only as of the date on which that 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 description 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 floor to questions. I will now turn the call over to Jim Jaye.
Thanks, Jesse. Good morning, everyone. Thank you for joining us on the call today. All comparisons in my remarks are to the Q3 of fiscal 2018, unless otherwise stated. Consolidated sales in the Q3 of 2019 increased by $136.2 million, or 2.9%, to $4.87 billion. Currency translation rate changes decreased sales by 0.9%. Consolidated gross profit dollars in the quarter increased by $215 million, or 10.7%, to $2.23 billion. Consolidated gross margin in the Q3 increased to 45.7% from 42.5% in the same period last year. Excluding impacts from acquisition-related amortization, adjusted consolidated gross margin in the quarter increased to 45.9% from 42.8%. Selling, General, and Administrative Expense increased by $72.1 million, or 5.7%, to $1.35 billion in the Q3, and increased slightly as a percent of sales to 27.6% from 26.9% in the same quarter last year.
Interest expense for the quarter declined $7 million - $85.3 million. Other expense for the quarter increased to $29.3 million - $31 million, primarily a result of debt retirement expense and expense associated with Argentina hyperinflation. Consolidated profit before tax in the Q3 increased to $293.9 million - $709.8 million. Our effective tax rate in the quarter was 18.8%. Excluding acquisition-related costs and the reduction of the California litigation expense, our effective tax rate on adjusted income for the quarter was 19%. Diluted net income per common share for the Q3 2019 increased to $6.16 per share from $3.72 per share in the prior year Q3. Earnings per share in the Q3 of 2019 includes a charge for acquisition-related costs of $0.77 per share, and a reduction of the California litigation expense provision of $0.28 per share.
The $3.72 per share reported in the Q3 of 2018 included charges for acquisition-related costs and the California litigation expense of $0.87 and $1.09 per share, respectively. Excluding these items, adjusted diluted earnings per share increased by 17.1% to $6.65 in the Q3 2019 from $5.68 last year. We have summarized the Q3 earnings per share comparison in a Regulation G reconciliation table in our press release. Let me now take a few moments to break down our performance by segment. Sales for The Americas Group in the Q3 increased $232.5 million, or 8.7%, to $2.90 billion. Comparable store sales in the U.S. and Canada increased 8.1% in the quarter. Regionally in the Q3, our Eastern division led all divisions, followed by Southwest, Southeast, Midwest, and Canada. Sales were positive in every division in the quarter.
Q3 segment profit increased $85.9 million, or 14.9%, to $663.7 million. Q3 segment profit margin increased 120 basis points to 22.9% from 21.7% last year. Turning now to the Consumer Brands Group. Q3 sales decreased $92.1 million, or 11.9%, to $678.5 million. Sales from continuing operations, excluding the Lowe's load-in and the divested Guardsman business, decreased approximately 6% in the quarter. Q3 segment profit increased $31 million - $115.9 million. Acquisition-related amortization decreased segment profit by $22.6 million compared to $26 million in the Q3 2018. Q3 segment profit margin increased to 16.9% from 10.9% last year. Excluding the acquisition-related amortization in both quarters, adjusted segment profit margin increased to 20.3% from 14.2% in the Q3 2018. For our Performance Coatings Group, Q3 sales decreased $4.3 million, or 0.3%, to $1.29 billion. Currency translation rate changes reduced Q3 sales by 1.6%.
Q3 segment profit increased $32.6 million - $137.4 million. Acquisition-related amortization decreased segment profit by $54.3 million compared to $55.4 million in the Q3 2018. Q3 Performance Coatings Group segment profit margin increased to 10.7% from 8.1% last year. Excluding the acquisition-related amortization in both quarters, segment profit margin increased to 14.9% compared to 12.4% in the Q3 2018. I'll conclude my remarks with a comment on our balance sheet. In the Q3, we refinanced and extended the maturity of our debt to improve our liquidity position and to lock in favorable interest rates ahead of expected rate increases. Specifically, we tendered approximately $1 billion of our 2020 senior notes and $500 million of our 2022 senior notes. We financed this transaction with $800 million of 10-year notes at 2.95%, $550 million of 30-year notes at 3.8%, and $150 million of commercial paper.
That concludes our review of our operating results for the Q3. Let me turn the call over to John Morikis, who will make some general comments on the Q3 and provide our outlook for the Q4 and full fiscal year 2019. John?
Thank you, Jim. Good morning, everyone. Thanks for joining us. I'd like to make just a few additional comments on our Q3 before moving on to our outlook. Our team continued to execute at a high level. We delivered another strong quarter as adjusted EPS increased more than 17% to $6.65. Our results were driven by outstanding performance in our North American paint stores, where we grew same-store sales by a high single-digit percentage and generated growth in every customer end market. On a consolidated basis, adjusted gross margin increased over 300 basis points year-over-year to 25.9%. While we still have work to do, this improvement shows that we are making progress towards offsetting the significant raw material inflation we experienced over 2017 and 2018. We remain committed to achieving our long-term full-year growth margin target of 45%-48%.
The increase in gross margin in the quarter was driven by strong North American volume growth, operating efficiencies, and moderating raw material costs. Adjusted EBITDA margin expanded 115 basis points over the prior year to 18.9%. For the second consecutive quarter, all three operating segments increased segment profit and margin compared to the prior year. I'm also pleased with our ongoing integration efforts. We remain on track to exit the year at a synergy run rate of $415 million. Looking at our top line, consolidated sales increased 2.9% in the quarter, in line with our revenue guidance of a low single-digit increase. Our sales varied by region, with North America and Latin America each increasing by mid-single digit percentages in the quarter. We continued to see softness in Asia and Australia and, to a lesser degree, Europe.
Within The Americas Group, sales increased 8.7% against a prior year comparison of 5%. Sales were positive in all North American customer end markets in the quarter, led by residential repaint, which was up low double digits. Sales in commercial and DIY were up high single digits, while protective and marine, new residential, and property management were all up mid-single digits. Looking at total segment profitability, segment profit dollars increased by more than $85 million and segment margin expanded by 120 basis points to 22.9%. We leveraged the strong volume growth to deliver incremental margin of approximately 37%. The end of the quarter with our customers continuing to be very optimistic and reporting solid backlogs for the remainder of the year and a strong sense of confidence heading into 2020.
Year to date, we've opened 31 net new stores, finishing the quarter with 4,727 stores in operation, compared with 4,663 last year. Our plan calls for this team to add approximately 80 to 100 new stores for the year. Similar to prior years, we will have a significant ramp up in the Q4. The Consumer Brands segment. Q1 sales were down mainly related to the comparison to last year's load-in of the Lowe's program and the impact of the Guardsman divestiture. Sales decreased slightly more than we expected due to weakness in international markets, most significantly in Asia and Australia. In North America, we remain very encouraged with our relationships with our larger customers, where we are also committed to helping them accelerate sales to the pros who are shopping in the home center channel.
Segment margin, excluding acquisition-related amortization, increased year-over-year to 17.2%, driven by synergies and moderating raw material costs, along with improving year-over-year supply chain costs. We continue to feel good about our strategy in this segment and our portfolio of hero brands that serve the North American retail market. Performance Coatings Group sales were down 0.3% in the quarter, but shops and customer demand led to variability by region and business. Geographically, coatings segment sales were up in North America and Latin America but were offset by softness in Asia and Europe, where sales decreased by high and low single-digit percentages respectively. From a business perspective, our packaging and coil business has remained our strongest performer, delivering growth in every region as our customers continue to value our technology and service solutions.
Our automotive refinish business delivered modest sales in the quarter, led by solid performance in the Americas. Sales in the general industrial and industrial woods businesses decreased year- over- year, primarily due to softness in Asia and Europe. Despite the sales decline, adjusted segment margin increased 250 basis points to 14.9%, primarily to moderating raw material costs and cost control. Adjusted EBITDA in the quarter was $919 million or 18.9% of sales, excluding integration costs and the lower California litigation expense. Adjusted EBITDA year to date is $2.4 billion or 17.5% of sales. Year to date, we returned over $892 million to shareholders through cash dividends and share repurchases, an increase of 46% year over year. At the end of the quarter, we had approximately $8.9 billion of debt on the balance sheet.
We reduced debt by approximately $435 million year to date and intend to retire a total of approximately $600 million this year, which will result in a net debt to EBITDA ratio below 3:1 by the end of 2019. During the quarter, Moody's raised our rating outlook to positive from stable, noting our strong business profile and meaningful deleveraging since the acquisition of Valspar. We paid $105 million in cash dividends and purchased 250,000 shares of common stock at $127 million in the Q3. At quarter end, our share repurchase authorization stood at 8.8 million shares. Capital expenditures were $97 million in the quarter. Depreciation was $65 million, and average amortization was $78 million. Moving on to our outlook for the Q4 2019. We expect consolidated net sales to increase by a low single-digit percentage compared to the Q4 of 2018.
Given that our North American professional painting contractor customers continue to report solid backlogs and a positive demand outlook, we expect growth in The Americas Group to be in the mid to high single-digit range. We expect Consumer Brands Group sales to be flat to up slightly in the Q4. We expect Performance Coatings Group sales to be down low single digits as industrial demand remains highly variable by region and end market. Against this backdrop and given our strong performance in the Q3, we are increasing our adjusted 2019 full year diluted net income per common share guidance to be in the range of $20.90-$21.30 per share, which excludes Valspar acquisition-related costs and non-operating items. This is an increase of approximately 14% at the midpoint compared to the $18.53 reported last year on a comparable basis.
We've included a Regulation G reconciliation table with this earnings press release to reconcile adjusted and GAAP EPS. A few additional data points for the full year may be helpful for our modeling purposes. As planned, we expect raw material costs in the Q4 to further moderate from the levels we saw in the Q3, assuming stable petrochemical feedstocks and no supply disruptions. We expect our 2019 adjusted effective tax rate to be approximately 19%. We expect full-year capital expenditures to be approximately $320 million, depreciation to be about $257 million, and amortization to be $315 million. With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.
Thank you. At this time, we will conduct a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Christopher Parkinson from Credit Suisse. Please proceed with your question.
Great, thank you. Now that you've closed the Valspar integration, it still appears you have long-term opportunities to expand margins across all three segments, specifically Consumer Brands and Performance Coatings. C ould you just give a quick update on any non-raw material levers you have left to pull to drive margin higher? Thank you.
Yeah, Chris. First, let me just take a bit of exception to your comment about now that we're done with the Valspar acquisition integration. There's still quite a bit of work to be done there, and we're working hard to fully integrate not only the domestic piece here, but we've got quite a bit of work to do on the non-domestic and a whole lot of work to do on the sales side. A lot of opportunity there to leverage going forward.
Chris, this is Allen Mistysyn. Just as a reminder, we talked about the synergy progress that we're making and coming out of this year at a $450 million run rate through the P&L, $316 million. That $100 million is going to be by and large, facilities and manufacturing and other consolidations as well as that formulation adjustment. There are other levers to pull along with our continued focus on market share opportunities and delivering new technologies, innovative solutions, and services for our customers to drive growth organically. That's where we think you're going to see the benefits.
Got it. You did hit on this a little in your prepared remarks, but just kind of walk us through the rest of the PC sub-segments of packaging, general industrial, coil, wood and refinish. Can you kind of hit on the key highlights that you're looking into over the next 12 months or so? Also give us some comment on whether or not you're fully content with your competitive positioning, in each of the sub-segments. Thank you.
Well, we're certainly not satisfied with our competitive position. We want to continue to grow in our competitiveness, and we believe that our teams are doing a terrific job in aligning our services and our technology to help our customers meet the solution and deliver the solutions that they need to be successful. To your first part of your question, as we talk about overall North America and Latin America for the quarter, we're positive. We expect that kind of momentum to continue. I'd say, as I highlighted earlier, that the European and Asian markets, we saw some softness there, and I would expect that trend to be bumpy going forward here for a little while. If I look at it from a business perspective, we're really excited about the momentum in our coil business, as I mentioned. That is our strongest growing business right now.
It's been a race, if you will, between our packaging and our coil business. This quarter, the coil business was the strongest performer. It was double digits in every region. We've got some really good momentum there going forward and feel really good about that business. Our packaging, we talk a lot about our unique technology there. We expect that business to continue to grow. That was up single digits, and it also was up in every region. Again, two terrific teams really hitting on all cylinders, and we're really excited about that and expect continued momentum. We don't talk a lot about our protective and marine business. That business was up mid-single digits and a lot of good momentum there. Another good leadership team, and we're really gaining some ground in some very key focus areas.
In the past, we've talked about our heavier weight in the petrochem and our focus on some of those other adjacent markets. We're getting good penetration there, so we're excited about that. Our automotive business was up in three of their four divisions. Overall, they were up low single digits, and we feel as though they grew some share here in North America. Pleased with that. The GI business was up in The Americas, North America and South America. Again, market leadership here. We are experiencing some softness in Asia and Europe. When you look at our industrial wood business, that's the area of softness we've had really around the world. The industrial wood business has been soft, and we expect that to be bumpy for some time.
Very helpful. Thank you.
Sure.
Thank you. Our next question comes from the line of Jeff Zekauskas of JP Morgan. Please proceed with your question.
Thanks very much. You talked about your raw material comparisons improving this Q3. Is that a year-over-year phenomenon? That is, are raw materials moving sequentially lower from the third to the Q4? That has to do with year-over-year comparison?
Yeah, Jeff. We do expect raws to get sequentially better, not to the magnitude that we saw in our Q3. As you remember, the second and Q3 last year, we really saw a ramp up in our raw material costs, and then it kind of moderated a little bit in the Q4. You see a little bit of sequential improvement, and we believe the Q4 will be lower year-over-year.
I would add to that, as Al said, is broad basket was. It's down slightly year-over-year in the Q3, but I think you have to look at it a little bit by architectural and industrial. The decrease was really driven more, Jeff, on the petrochemical side of the business, where certain parts of the basket were down, not all. Certain parts were down year-over-year. What I'd remind you is, certainly, we don't buy or sell propylene or ethylene, and each of those different piece products have their own market dynamics associated with them. As Al said, we're still expecting the business to be down modestly year-over-year in the Q4. The highest level of insight was in our Q3 of 2018 last year.
All right. For my follow-up, are you planning to increase prices in the stores business in the North American paint market in 2019? Is that not on your agenda?
Well, we have work to do, Jeff. We're still facing the significant raw material cost inflation we experienced in 2017 and 2018. With our consolidated gross margin improvement, we are making progress towards our goal of the 35%-40% increase, as I mentioned earlier. As to the specifics of your question, we're still reviewing our options and our pricing strategy at this time. I'd say that we do that on a regular basis. With great frequency, we're sitting down talking about where we are and where we need to be. I'd say that, as has been our past practice, we'll first communicate that to our customers and then to the financial community.
Jeff, I would just add, we have not announced any price increases at this point. When John's talking about TAG being up mid to high single digits, that implies the vast majority is volume.
Great. Thank you so much.
You bet.
Thank you. Our next question comes from the line of Mike Harrison with Seaport Global Securities. You can proceed with your question.
Hi, good morning.
Hi, Mike.
The same-store sales number in Q3, can you just talk about whether part of what we saw there was some pent-up demand after dealing with some poor weather during Q2, and I think even maybe into July? Can you just talk about whether that was unusually strong, in your opinion, that 8% number?
Well, Mike, I would say there are a few issues here. Certainly, I'd say coming out of the quarter, we did speak to the fact that we felt our customers were going to be in a stance to catch up on some of the work that was out there, and we were really working hard to capture. I'd also say that our customers continue to be very bullish about the pipeline, both in the Q4 and into 2020. We're growing share. We feel good about the execution of this team on their efforts. We've got a lot of plans that they're implementing in growing share of wallet and new account activity that we've been talking about for some time. I want to thank this team because they're executing at a very high level.
You'd have to go back, I think it was the Q3 of 2014, to find this level of performance. I'd say that when we look at this team's drive and execution combined with the outlook that our customers are giving us, we're feeling pretty good, and we're feeling really good about the share that we're gaining right now.
Right. Then I wanted to ask about the independent dealer channel as well. It sounds like your competitors are working to integrate their store network with some of the dealer network. Is that something that Sherwin-Williams does as well? Can you maybe just talk about what you saw this quarter in your sales through independent dealers?
I'd say overall, the independent dealer market has not been a very strong portion of the market. We do not integrate our independent dealers with our stores. We operate those as separate businesses. Our goal as we work with our independent dealer customers is clearly to help them in their approach to growing their business. Through our stores, obviously, we have a direct relationship with those end users as well. Typically, those might be customers with some different expectations. Some of those customers that are going into a dealer might have different expectations than those that are coming into our stores. Our store people are out building those relationships, driving them into our stores with regularity.
Thanks very much.
Thank you, Mike.
Thank you. The next question is from the line of John McNulty with BMO Capital Markets. You can proceed with your question.
Yeah, thanks for taking my question.
Morning, John.
Morning. With regard to the contractors that you have, can you give us some color as to how much visibility they have into your backlog as they look out? I know it's going to vary a little bit from residential to non-resi. Can you give us a little bit of color on that? How much do you see in terms of that mid-single digit type growth that you're seeing in the Q4? How we should think about that rolling into 2020?
Well, you hit on a number of really good points. First is that the residential repaint contractors division versus the non-residential or commercial is on opposite ends of the spectrum. The commercial contractor might be bidding a project that's not even out of the ground yet, where a residential contractor might be bidding something that could be painted in the next couple of weeks. We're blessed. We have a number of stores and a number of territory reps that are out there working with those customers, and we try to capture and understand as much as we can about what's happening in the market through those contacts. A better line of sight and quicker on the residential, a little more distant on the commercial side.
Thanks for the color . I think maybe just one follow-up. On the SG&A, as a % of sales, it ticked up, I guess, marginally. What was driving that? Was that just the rapid pace of what you saw on the same-store sales side and sort of keeping up with it? Was there something else we should be thinking about?
No, John, I think you hit it right on the head. It's keeping up with the increased sales. Also, we have 25 additional stores year-over-year, a commensurate number of reps. We continue to invest in our growth opportunities, specifically in North American stores. We saw a little softness in consumer because of the year-over-year dynamics there. We saw a little bit of softness in industrial. You can be rest assured we continue to invest in these growth opportunities, specifically in North American stores.
Great. Thank you very much, Mr. Morikis.
Thank you.
Thank you. The next question is the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thanks very much, and good morning, everyone. This is the Q2 in a row where you really had what appears to be this outsized same-store sales performance versus the data that's out there and the other comments that are out there. I know we talked about this a bit last quarter, but I want to ask the question a little bit differently this time around and just understand, is there anything you're doing as you're prospecting new business, whether it's a greater part of the wallet, existing wallet or a part of a wallet that you don't have? Is there anything you're doing with data or other technology that's just sort of allowing you to find more leads? We've also in the past talked about how when you open new stores, sometimes other stores close. Has there been an acceleration in that trend?
I'm really just trying to understand sort of what's driving this big, sort of appears to be a step change in share gains and how sustainable we should be looking into next year.
Vincent, the answer is yes. We're trying to use as many tools and improve the tools. As many new tools as valuable, and improve the tools that we've currently or consistently used in the past. I would say that a big part of that also comes down to the execution. We're hiring 1,400 college students a year. We're bringing them in. We're spending more time training them in the different aspects of the business that will help them, and I think we're getting better at that. I think when you're wondering what's happening, I think it's using the tools. It's really good programs. It's really good products. It's a lot of determination. We don't unlock our doors and wait for something to happen. We're out there aggressively trying to grow this business and build relationships. To your point, we talked about it last quarter.
We hope we talk about it again next quarter because our focus is on making that happen. If you look at our residential repaint business, we've had five years of compounded growth, double-digit growth in this business. We expect that there's a lot of momentum there to continue as well as in these other segments in the commercial and property management as well. We're not waiting for it to happen. We're very deliberate in what it is we're trying to execute.
Thanks. As a follow-up, Al, if I could ask you about the Q4 guidance. I mean, by our estimate, you aged about $0.31 of what I'd call non-recurring costs, hopefully the FX hit and the debt extinguishment. If you take those out, you really had phenomenal leverage all the way through the income statement. It just seemed to me that maybe the Q4 looks a little conservative. Is that a fair statement or not?
Vincent, we try to be as realistic as we can when we put our guidance together. I look at FX as just part of our ongoing business. It's hard to say, "Hey, we're going to back out if I take a hit in one country or another." We choose to be there. We choose to operate our businesses there because we think there's opportunity. We also did have the benefit in the quarter on supply chain improvements in our Consumer Brands, things that helped the operating margin growth. As you recall, last year, we talked about the load-in to the new customer program that caused some challenges in that quarter. That benefit will be there continuing going forward. If you look at our Q4, at the midpoint, our full-year guidance this year up almost 14%, like John talked about.
That tells you we got to be up almost 21% in the Q4 on top of the 12% increase a year ago. I think those are pretty strong results for a Q4, and we feel pretty good about that.
Fair enough. Appreciate it the color .
Yeah.
Thank you.
Thank you. The next question is from Steve Byrne with Bank of America Merrill Lynch. Please proceed with your question.
Yes. I'd like to just continue with Vincent's question about your aggressiveness going after new projects that seem to be driving your market share gains. Just one question for you with respect to your dedicated sales force. What fraction of their compensation is variable, and has that changed?
It's not changed. I want to say it's about 60/40, 50/40 variable, Steve. It might vary just slightly, but it's about 50/40.
John, you mentioned this $85 million year-over-year profit gain in The Americas Group. If we take this split in same-store sales between volume and price, and you mentioned 37% incremental operating margin on that volume, and you had lower raws. There was something that was a drag. Was it LatAm, and can you quantify that?
Well, our LatAm business was up low single digits in sales. We did have a profit improvement in the quarter.
Yeah.
I'm trying to frame it in the way that you've asked the question there, Steve.
That's good. I'd say, you're looking at the flow-through. As Jim was alluding to, we're not seeing as much of a benefit on the raw material moderation in our architectural part of the business. The stores, when you get up into the mid-30s on flow-through, we feel very good about that. We continue to add the stores that I talked about. We have 75 additional year-over-year. We continue to add some deserved number of reps. I think we feel good about that flow-through incremental operating margin. If the stores could do that all the time, we'd be happy with that.
Very good. Thank you.
Thanks, Steve.
Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Yes, good morning. With regard to your same-store sales growth of 8.1%, how would you characterize the relative contributions from volume versus price in the quarter?
Yeah, I would say that the price had an impact of about 2.5%, and then the remainder was volume.
Excellent. I wanted to ask about your non-raw material costs. What we sometimes hear from other companies is that, yes, raw material costs are ebbing, but companies are experiencing inflation in the categories like labor, freight, warehousing, et cetera. Is that the case at Sherwin-Williams? If so, how does that enter into your thinking about potential optionality for seeking additional price in the future?
Yeah, Kevin, clearly, we're seeing wage inflation. If you look at it year-over-year, it has ticked up a little bit as unemployment has continued to climb. We have seen freight increases and distribution increases as well as healthcare. When we look at our costs, look at a total cost basket and try to determine how best to edit what the impacts are, we obviously try to push back on that and hit efficiency offsets that, absent getting those offsets, we have to go to the market with price.
Thank you.
Thank you, Kevin.
Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.
Great. Thanks. Good morning.
Good morning, Arun.
I'll just beat the dead horse here. Just going back to the same-store sales number. Presumably, you did that with new construction also relatively weak. Just trying to understand the shift change from, say, Q2, which was maybe 2% or so volume going up to 6% now. Would you attribute all of that to share gains or were just certain regions that were weak in the prior quarter doing a little bit better? What are your thoughts on the new side going from here? It seems like you've seen some improvement in affordability. Does that give you a little bit more optimism for that margin actually returning into your business in 2023?
Yeah, Arun. Let me just start with the last piece that you just spoke about as far as the new residential. We do enjoy a wonderful position with our largest percentage of the larger home builders in the country, and we work really hard every day at trying to help those important customers deliver on time and homes that their homeowners really enjoy. That includes the services and products that help them deliver. As that business picks up, you're right, we will be working hard to grow those relationships. I believe this is either 17 or 18 of the top 20 national home builders we have an exclusive relationship with. We're working really hard on the regional and the smaller home builders to leverage those existing services and products that are within our company already.
As it relates back to the growth that we've had in the core stores and the momentum that we have there, a good portion of it is share change. You're right. Our teams are, as I mentioned, again, I don't want to sound like a broken record here, this is a team that's executing very well on the programs that they have and the services that they provide. We don't know what's going to happen going forward with weather or labor, we can tell you that we're working really hard to position our company favorably with these customers. We've got leadership came in about two weeks ago, walking through segment by segment and across the country. There's a lot of optimism about not only where we are, but where we're going. We're feeling really good about this, there's no complacency here.
There's a lot of work to be done, a lot of customers out there that we're working on and focusing on to continue to grow. That's what we're going to be doing this afternoon and moving forward.
Just wanted to get your thoughts on the priority for your cash flow going forward. You've talked about buybacks in the past. I guess, if we went back 10 years, bolt-on M&A wasn't a huge part of your strategy. Maybe it was in the storage business, but not so much in building. If you can just reiterate what you're looking at as far as opportunities to deploy that cash flow and maybe your rank order, your preferences between buybacks, debt reduction, and M&A. Thanks.
Yeah, let me start with M&A. Then I'll talk to Al to talk about the remaining capital deployment opportunities. I would say this, Arun, we're really pleased with the progress that we're making. We're actively involved in a number of projects. We do feel we're blessed, but we're not desperate for growth. We don't feel as though we have to have acquisitions for growth. Although we have a number of opportunities that we're pursuing, we have a number of organic growth opportunities as well. We look across all of the businesses, and we're identifying those areas as geographic or from a technology standpoint that will allow us to further create shareholder value. Those are the discussions that we're pursuing and still, quite frankly, have quite a pipeline to get to. We're working it.
You'll see the progress we're making on a couple of really good projects. There's more to cash deployment. I'll let Al touch on that.
Yes. Arun, we are generating a lot of cash. Those nine months, it's over a billion seven almost, at 12.1% of sales. We manage our CapEx below 2%, as you know, and we've gotten back to our historical capital allocation policy. We've raised the dividend over 31%, and with dividend and share buybacks, we returned over $893 million to our shareholders, a 42% increase. We're going to be very consistent on that going forward. As you know, we prefer to hold cash and absent a more robust M&A pipeline, we're going to buy back our stock.
Thanks.
Thank you, Arun.
Thank you. The next question comes from Duffy Fischer with Barclays. Please proceed with your question.
Yes, good morning.
Morning, Duffy.
A question just around kind of the new strategy in the home center for you. This is your first full year going through the paint season, going to that more people, salespeople in the stores. When you look back, how would you grade yourself with the new project? Again, should we expect a bigger step forward next year again?
Yeah, I'd say, Duffy, that we're pleased but not anywhere near satisfied. Next year will be better than we were this year. There's a lot of elements to this program that rolled out this year for the first time in our largest customer, and we're determined to get better there. There's a lot of opportunity on both the do-it-yourself side. As I mentioned earlier, there's a professional side here that enjoys the home center experience, that's purchasing a number of different products that are available through the home center channel that we want to help our customers in that home center space to be better in pursuing. This first year as the program rolled out, we were learning and improving. We're not happy with where we are. We want to continue to grow.
We've spoken that overall for the entire business on a global basis, we expect it to be a low single-digit growth business, so there's going to be some work ahead. We also know there'll be some bumps and some choppiness, if you will. I mean, it's not as smooth as some of our other businesses. I don't want to at all give the impression that we're satisfied or complacent here. I mean, there's a lot of learning that we've done, and we're going to try to learn and apply and to better us here going forward.
Okay. One for Al. Al, on the California settlement, what's the size of the cash outflow and what's the timing of that relative to the book numbers you gave us in the release?
Yeah. Duffy, the Santa Clara, California case was resolved for $305 million, with each co-defendant paying $101.7 million over six years. We made the initial payment of approximately $25 million on September 23rd of this year. We'll make annual payments of approximately $12 million on or about September 23rd next year and all the way through 2024. We'll make the final payment of approximately $16.7 million in September of 2025.
Great. Thanks, guys.
Thank you, Duffy.
Thank you. The next question is from Don Carson with Susquehanna Financial. Please proceed with your question.
Thank you. A question on consumer. Your revenues were down 12% year-over-year. You said half that was due to low load-in in Guardsman in the year to November. What was driving the other half? Was that all international softness? Can you comment on how you see that unfolding as you get into Q4. Can you talk about being down slightly in that business in the Q4? Is that all due to international or is it still a tough comp against the Lowe's comparisons?
Yeah, Don, I'd say the sales missed you're right by a point or two from our forecast, and the misses, as you mentioned, largely attributed to our international business. There's some work here to be done. We are certainly focused on this largest piece of our business here in North America. We do think longer term, there are some opportunities as we reposition our brand in China to be a better competitor there. We do have a very small business in a smaller market in Australia that we didn't perform very well in. There's no hiding about that. Overall, if you look at the international business, it was a drag, and we have a goal of driving those better, and we think we can.
Don, I would just add to your last statement. Guardsman is behind us with the customer in September of last year, and we are not going to be going up against any significant Lowe's in the Q4.
Okay. Al, a follow-up on plant consolidation. I know you had kept a couple of U.S. plants going for longer than you originally planned in order to service the Lowe's business. What's the status of those plants? Have they been closed yet, or what is the current plan?
We're continuing to put in capacity and other sites to make sure we're going to service, first, our core strong volume growth that we had in the Q3 and the outlook, plus the Lowe's volume growth that we've seen. We haven't made those calls yet, but as you know, our normal practice, we'll tell our employees first, and then we'll talk about it going forward.
Okay. Thank you.
Thank you, Don.
Thank you. Our next question is from P.J. Juvekar with Citi. Please proceed with your question.
Yeah, hi, good morning.
Morning, P.J.
Can you talk about the DIY paint growth versus contractor of late paint growth? The reason I'm asking is we're getting different signals from you and your competitor. I think your competitors are declining same-store sales growth in their own stores. What is the split between the two? Is it 60/40 contractor DIY? How fast are these markets growing?
Our business through our stores is about 85% professional, painting contractor or property management. That's the piece that is obviously growing the fastest. We did have some growth in our DIY business. The DIY business is a relatively small piece, and it's really focused on a specialty high-end consumer that's looking for a specialty store experience. We clearly are really focused on the professional side.
What is the overall industry in terms of DIY and contractor, not just your own stores, but overall industry?
The DIY piece would be the largest piece overall.
Yeah. If you look at the overall industry, DIY is about 38% in gallons. It's a bigger slice in the industry, obviously, than it is in our stores.
Right. Yeah, 38 overall. The segment is larger than any one particular professional segment. Right.
PJ, what I would add to that, though, is we still continue to see the trend from demographics to a formula of population ages. That bleeds into the residential repaint that we talked about being high single digits in the quarter. We grew high single digits compounded for the previous five years. As the demographic trends continue, and we are probably skewed more heavily to new construction, as John mentioned earlier, than the overall market. We'll continue to grow faster in the market with those trends.
Okay. A quick question for Al. Al, your goal was to get the leverage below three times by the end of this year. Once you get there, would you be willing to look at a bigger acquisition? Is Europe still an attractive market for you given that recent slowdown in the European overall economies?
Yeah. I think, P.J., you're right. We are going to be below three to one by the end of this year. Our target is two to 2.5. As John talked about earlier about M&A, we're going to be very disciplined about our approach to M&A. We look at it for the long term. I understand Europe's a little bit slower, Asia is probably slower than what we had expected, specifically on the industrial side, but we look at it for the long term. If the right opportunity were to present itself at the right price, we absolutely would go after it.
Thank you.
Thank you, P.J.
Thank you. Our next question comes from the line of Greg Melich with Evercore ISI. Please proceed with your question.
Hey, thanks. I'd love to follow up on the Performance Coatings Group. I think, John, you mentioned a few times still chasing some of the cost increases from a few years ago. Could you put that in context of where we are now? I guess if you back out the effect, Performance Coatings is up 1.3%. Is that all price? What do we think we can still get there, now that raw materials appear to be moderating?
Hi, Greg. A good portion of that was price. Volume was down. We talked about softness in certain markets and in certain regions of the globe. I would say, we're not done. Our year-to-date operating margin is 14%, just over 14%. We've talked about targeting the high teens to low 20s. You look at the significant ramp up in raw materials that we saw in 2017 and 2018. We talked about Valspar, particularly on industrial, not getting a price early in 2017. We're still chasing that. I'm happy with the progress we're making. The team has done a great job at cost control and the synergies that I talked about are to come. We got more work to do.
Yeah. I'd add to that, Greg, that as we've been going through this process, we've made a conscious decision of trying to work with our customers. While the raws increased rapidly, we tried to work with our customers in allowing them to work through the pricing to their customers, ultimately. We experienced some compression there as the new owners of a business that hadn't had the price increases in the market that it really needed and had, quite frankly, demonstrated over the last few decades, because of the cost of COGS and the overall cost of raw materials and the overall cost of goods. You need to get the pricing through when it rises. Here, we made a decision that we'd work with our customers. To Al's point, we're working with them in a way to pass those through because we need to recover that as well.
Just to make sure, in this quarter, the 1.3% sales growth ex FX, that was volume, not price, or it was price, not volume?
It'd be more price than volume.
It'd be more price. There was one thing, John, I just wanted to, you had an announcement through the quarter, about looking at a new R&D facility and headquarters. I know it'll take a few years. Can you just take us through the thought process of why now and what you're really looking at, when you think about that?
Sure. Well, as you mentioned, we're going through a pretty robust process, and it's to find a solution to meet our needs. Greg, I know you've been here and many on the call have been to our building here to know that we operate in a building that's nearly 100 years old. As we look at our ability to recruit and retain the highest caliber people in a productive and efficient environment, the technology and innovation that we need to drive to continue to drive results that we know we can continue to drive on top of factoring in the maintenance costs and just overall issues that we face in this building. We feel it's necessary to move towards a solution. We're in the midst of that process. We hope to make an announcement on the location by year-end or early 2020.
Realistically, Greg, I would say that this is not something that we prefer to do, quite frankly. It's not something that we think is any type of we deserve or reward. This is out of necessity to be able to hire and retain the best people in this industry. We owe it to our employees, quite frankly, to put them in a better environment than they're working in right now. When you look at the retention of these terrific people, we need to make this move.
Got it. Bringing facilities together, given you still have in Minneapolis and in Cleveland, different areas, is it important to get those people together or does it actually make sense to have sort of two towers of power?
I'd say that we're really looking at this, to your point of where does it make sense? I'm not a believer. You can talk about the people in Minneapolis, and then you could say, "Well, what about the people in Shanghai or in the U.K.?" Where we believe that there are opportunities and synergies, we'll bring those together. We don't believe that every technical team needs to be here in Cleveland. That said, we like the idea, if possible, of getting our marketing people and our R&D people closer together and more consistently where there are synergies and efficiencies amongst the R&D teams. That's what we're working towards.
That's great. Well, good luck, guys.
Yeah. Thank you.
Thank you.
Thank you. The next question is from David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you. John, you mentioned strength this quarter in coil and refinish, maybe gaining some share. What's driving that share gain and is there more going forward in both those strong markets?
I think what's nice about the growth that's coming is in every region, double digits in every region. There's a lot of growth in a number of different segments, and quite frankly, there's still some drag, some pressure that we're feeling in the ag business where it's been more influenced by team dynamics impacted by tariffs. The sales of their farming, the products that are on farms or the equipment that they're storing, some of those delays are impacting Coil. We see upside there. Overall, I'd say that this is a team that's really executing very well and bringing the products and technologies to customers in a very efficient way. We've long talked about the efficiencies to be gained by the combined Sherwin-Williams and Valspar teams coming together and the assets and technologies, and we're just starting to see some of that.
We think there's a lot of really good opportunities ahead for this business, despite where it's performing right now.
Very good. I'll just comment that refi, what's the benefit to interest expense going forward?
Yeah. Obviously, it was the low interest rates that we refinanced to in the quarter, 67.5, 2022. On the call in the Q3, we did the $400 million U.S. Euro currency swap. Net, it's pretty neutral going forward, maybe down a little bit, depending on what we do next year.
Thank you.
Thank you, David.
Thank you. The next question is from John Roberts with UBS. Please proceed with your question.
Good afternoon.
Good afternoon, John.
Back on that, the project, will that be cost neutral to your operating costs, the new headquarters and the new R&D facility?
Yeah, John. We're still crunching those numbers. It's hard to fully get a feel for that and to determine location and design and things like that. We're in multiple buildings around Cleveland, Ohio, all pretty old. My expectation is we're going to see some benefits to our ongoing operating costs.
Okay. On the next earnings call, you're going to give 2020 guidance. Will that still continue to be on an adjusted EPS basis excluding amortization?
Yeah. We're going to certainly call out amortization. We'll see what we do with this integration, but we're working through the plan, John, and how best to communicate. The goal here is to make sure our shareholders have a clean line of sight to our ongoing operating controls.
Thank you.
Thank you, John.
Thank you. The next question is from the line of Jared Woodard with Global Research. Please proceed with your question.
Hi, thanks. I was wondering if you can comment on inventories and Performance Coatings, if you saw some of the volume decline related to additional drawdowns.
Performance Coatings, I'd say there's probably not too much of that. I'd say what we might see is maybe few more orders of lesser size, a greater frequency of smaller orders. I don't know if we'd point to a significant reduction in inventory as having much impact on our numbers.
Okay. My follow-up is just listening to The Americas Group. I was wondering if you can maybe break out interior versus exterior paint store sales.
Exterior was up double digits, and that would include paints, stains, and primers. Interior sales were up high single digits.
Great. Thanks a lot.
Yeah.
Thank you. Our next question comes from Justin Speer with Zelman &Associates . Please proceed with your question.
Good morning. Thanks for having me. Just in regards to the Performance Coatings business, the addition that you're driving towards, I guess the primary reason for being behind trends was tied to price and cost. Now that looks to be on a little bit better footing. You have that counterbalance against the underlying emerging market or international markets are a little slower or weaker than maybe you were expecting maybe a year plus ago. I guess my question is, what are the incremental steps you need to take to drive towards that optimized scale in this business? When do you think you get there?
To comment about slowing in some of the regions we're in and macroeconomic discussions that are had, we still have great market share opportunities across each of these businesses and in each of these regions. You see that in Coil and Packaging as examples where the teams have done a great job tying together technology and services to provide those solutions to those specific customers in those regions and making progress there. There's no shortage of other opportunities across each of the other businesses. Specifically on the synergies, the $415 million run rate versus the $315 million we'll have from the Valspar acquisition to date, that doesn't depend large on performance coatings. It's just by design, the industrial integration was coming after the architectural integration. We're on path. We have a plan, and rest assured, as we implement those synergies, we'll see those.
That being said, coming out of this year, and we've talked about this, we're not going to be talking about synergies any longer. It's just going to be part of our normal culture of continuous improvement.
That makes sense. One of the follow-up questions I actually have on that subject, on the synergies. I just want to make sure I understand the mechanics of this. You have $315 in the P&L. Are you saying that you've already done the work to drive that incremental $100 million of synergy such that that's going to be realized in 2020, or is that something that carries into beyond 2020?
If you recall at our investor day, we talked about that $100 million being spread out over the next few years. I would say the $100 million has projects in the pipeline to support it, we've got to get to execution and really dial into what we think we're going to say. There might be a little bit of variability in there, we definitely have the projects identified. Now it's all about execution.
Perfect. The last question is more near term focused. It came out today inside margins for Q4. Given that right now it's tough for us to draw a relevant read on typical seasonality, either just kind of same to particular Consumer Brands or Performance Coatings. Just give some indications of where the margin destination is going heading towards your Q4 implied guidance.
Yeah. As you would expect with our stores, our North America paint stores TAG is going to be up mid to high single digits. That's higher gross margin. That's going to help. You definitely see a seasonal tick down, so I would expect our sequential gross margin to be lower. Certainly, and this is a low bar, but certainly a lot better year-over-year.
I guess in terms of like Consumer Brands in particular, over the last year you saw a sequential degradation that was almost 800 basis points. Is that the typical sequential degradation you should think about in Consumer Brands?
You're going to see a little Think about it, because we had the load-in in the Q3 and then didn't have any in the Q4. It should be less than that for sure.
Perfect. Thank you very much, guys.
Thank you, Jeff.
Thank you. Our next question comes from Truman Patterson with Wells Fargo. Please proceed with your question.
Hi. Good afternoon, guys. Nice quarter.
Thank you.
Yeah, hoping we can touch on the raw material outlook a little bit more. Just scrape out between your resins and titanium dioxide. It looks like propylene's down pretty significantly here. You're starting to see that flow through to your resins. How should we think about that going forward over the next few quarters? On the titanium dioxide part, it seems like there's some moving parts there. You have year-old U.S. capacity that seems fairly robust, but some of your competitors don't seem quite as healthy. At the same time you have some slowing international markets, China in particular.
Sure, Truman. Yeah. I'll parse that out maybe in a couple different pieces. Maybe I'll start with the TiO2 piece. What we're seeing the industry pricing for high-grade chloride TiO2 has been pretty stable over the past year. We're not seeing anything necessarily overly favorable or unfavorable that's going to change that in the Q4. I think as one of the earlier questions said, we will talk about our view on TiO2 for next year when we give our outlook in 2020. I think on the petrochemical side of the basket, that's where we're seeing some of the benefit right now in certain parts of the basket. Again, we don't sell propylene or ethylene direct. Those are key parts of what we make, and there's other market dynamics there as well.
I think that if things were to stay flat where they are right now heading into 2020, we did say that the Q4 of 2019 was the highest inflation that we had this year. If things were to stay flat from here, it's probably reasonable to think that 2020 we could see some tailwind there, but beyond that, pretty hard to tell what's going to happen.
Okay. Thanks for that. Just wanted to dig into your gross margin a little bit more. Nice performance up over 300 basis or so. Is there any way you all could just rank order the buckets, the major buckets of what's really driving this? Pricing, raw material, volume, leverage, synergies, et cetera. Piggybacking off of the prior question, going forward, is there anything near term why we wouldn't expect this to reoccur over the next quarter or two quarters?
Yes, Truman. I always start with volume, and especially when it's our North America paint store volume. That's always going to be the best leverage we have. It is the highest margin business, and as growth engine, a big portion of our business to drive our margins. Excuse me. We did have the year-over-year comparison with the run-up in raw materials that we saw in the second and Q3s of last year. Probably a little easier comp than what you'll see going forward. We did have synergies in the quarter, and we did have the benefit of the year-over-year supply chain improvements. Just moderating raw material costs. I think you talked about the teams have done a nice job with pricing discipline, but again, there's more to go there.
We have been chasing that significant increase in raw materials through the past three years now. Year to date, our gross margin is just at 24.7%. We can talk about the progress we're making, we got a ways to go to get to the long-term targets of 25%-48%.
Okay, thanks, guys.
Thanks, Truman.
Thank you. Our next question comes from Bob Koort with Goldman Sachs. Please proceed with your question.
Thanks, guys. Appreciate your patience. Two quick ones I want to ask you about North America architectural. First, I'm wondering if you've seen the interest rate reductions we've seen from your customers in the residential housing market, certainly from their stock prices, kind of pulled higher. Are you starting to see some visibility there from order trends that gives you some confidence there is going to be some improvement in that market?
What I would say, our Q3, we felt good about the Q3. It was up mid-single digits in our new res space. If you look at some of the reports that are out there, Bob, homebuilder confidence is at the highest level in about two years right now, and mortgage rates are certainly helping drive that. The solid job growth, this lower new home inventory out there. If you look at the H2 of 2019, there's some pretty steady gains in the single-family construction. It's a regular litany that we always talk about, though, that's on the other side, the higher cost for land, labor, materials, and the regulatory piece too. Those are some of the headwinds. I'd say overall, what our customers are telling us, which is pretty good about the most recent data, talks about is a little bit mixed.
Single-family permits and starts are positive sequentially in year-over-year. Multifamily was a little bit more mixed. Overall, though, I think we feel pretty good about where new res is heading right now.
Jim, maybe staying in that vein and looking at some of these indicators. I noticed the Harvard LIRA numbers look awfully darn ominous for next year and certainly contradicted by your results in the stores group. Do you have any sense of what might be driving that or any views on the correlation of their perspective forecast versus your business to certain comfort that maybe it's not as dire as they're suggesting?
I would say there's a number of things we looked at there, Bob. LIRA, the Leading Indicator of Remodeling Activity, certainly they are forecasting sort of a modest decline in the back half of next year. What I'd remind you is you measure that in dollar. A lot of it is driven by big ticket, big remodeling projects. Some of the smaller projects like a painting of your kitchen or a painting of a bathroom, those tend to hold up maybe a little bit better in an environment like that. I'd say existing home sales are another driver. Those have been pretty choppy over the last year. Today there was some new data out that said they were down sequentially, but that followed two months where they were up. Year-over-year, existing home sales are still up low single digits.
That'll be a driver. I think when you look at all of that, you look at the aging housing stock that's out there, home value appreciation is still continuing. The employment backdrop is good. To John's earlier point about share of wallet and new account acquisition, I think we still feel pretty good about the repaint opportunity for us.
Great. Thanks for the help.
You bet.
Thank you. The next question comes from the line of Dmitry Silversteyn with The Water Tower Research . Please proceed with your question.
Morning, Dmitry.
Good afternoon.
Dmitry, your line is live. You can hit mute.
Good morning. Good afternoon. Thanks for the presentation and taking my call. Really quick, on the DIY or I guess on the consumer side of your business, was the price realization in North America similar to sort of the 2.5% level that you saw in your company-owned stores? What was the pricing like in Australia and China and Europe for you in that business?
Yeah. Dmitry, I'd say it was a little bit less than what you would see in the stores. I would say, Dmitry, outside the U.S. in those smaller consumer segments, it's not material.
Okay. It was less than 2.5% for the division overall, but if the international was flat-ish, let's say, then North America was less than 2.5% is what you're telling me?
Yeah.
International was flat, right? Okay. Got you. Secondly, just to follow up on the strength that you guys are seeing in coil. I know business has changed a lot, especially since you guys bought it from Valspar or bought what you bought Valspar. Historically, it's been a business with a large North American exposure to the commercial construction market. Is there anything that we can sort of extrapolate from your strength in that business to what it implies about the commercial construction market in North America? Was the share gain really the main driver more so than the market performance?
I'd say it was a little bit of both, Dmitry. There clearly were some share gains, and we also are the benefactor of some of the commercial business. I'd also mention that, as I mentioned earlier, we did experience some pressure on the ag side that drew that back down a little bit. You're right. We benefited from some of the commercial. We grew share, and we're determined to continue to drive it.
Okay. Thank you. That's all I have. Thank you very much for taking my call.
Thank you, Dmitry.
Thank you. Our next question is from Rosemarie Morbelli with G.research. Please proceed with your question.
Thank you. Good afternoon, everyone. I will join my thanks as well for hanging in there.
Good afternoon.
I was wondering if you have a better idea as to the sales increases you are anticipating. I think that you did not really give us any specific numbers when you got SuperPaint , and we're waiting to see how this is going to unfold. Do you have a better feel as to how much growth we could see from that?
We do, but we're not going to share it today. We've talked a bit about it, Rosemarie. There are a lot of efforts and a lot of projects that have been identified that we feel really comfortable about pursuing. Those are going to be things we think we're going to talk about as we are implementing them, not before.
Okay, that's fair enough. Looking at packaging, I'm assuming that at this point, most of the non-BPA coating has been replaced, I think, or rather the BPA has been replaced. What kind of a growth rate are you looking at going forward? Is the fact that some beverage companies are going from plastic to BPA-free, or saying they will, going from plastic containers to aluminum cans, is that going to help?
It is going to help. Again, I might take a bit of exception to your assumption that we have moved through the BPA to non-BPA. There's quite a bit of road ahead there. I'd say we're in the very early innings of that conversion. We're excited about this opportunity going forward, as there's a lot of runway ahead in that conversion.
Okay. That's good to hear. Then lastly, if I may, on the automotive, is that mostly refinish? Can you talk about the trend there?
It's all refinish. The trends for us, particularly in North America, we're gaining some traction. Over the last couple of quarters, we've spoken about the fact that the combined technologies, the legacy Valspar and Sherwin technologies coming together, provided an overall better system with greater speed for the body shops to push vehicles through with greater efficiency. We're out demonstrating that to customers right now with some very good traction. We feel really good about the team's efforts there, and we have some expectations for them as we go forward.
Are you seeing this new technology and share gain offsetting or more than offsetting the decline in the level of collisions?
That's a good point, because if you look at the overall market, it was a relatively flat market due to the decline in collisions. It's a very good observation on your part. That's what leads us to believe that the low single-digit gain that we achieved here in North America gives us some modest share gains.
All right. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Christopher Perrella with Bloomberg Intelligence. Please proceed with your question.
Good afternoon, everybody. Two quick ones. You touched on it for the Americas, but for Performance Coatings and for the Consumer segment, what is your visibility into your order book? How far out can you see into your customers' order patterns?
It varies by segment. We take great pride in that, though, Chris. When you talk about, as we do, solution selling and consultative selling, it really takes a very good understanding of what your customers are trying to accomplish, that you can be there when they need you, if it's with product or service. Again, varying degrees. When you look at a body shop's vision might be a little bit shorter. If you look at Protective and Marine as an example, where they're pricing and quoting projects that could be out a year in advance. There's a wide spectrum of projects. When you look at various OEM customers, there's, depending on the industry, varying degrees of line of sight. I think the important point is, though, that we work closely with our customers to understand that.
We want to be the ones that are helping them avoid excess inventory, avoid obsolescence, avoid having products that are the wrong product. You do that by getting close to their needs and understanding what they're working on. We've got a pretty good line of sight in most of the segments. We're always working to make that better.
All right. Thank you very much. Appreciate the time.
Thank you, Chris.
The next question comes from Ghansham Panjabi with Baird. Please proceed with your question.
Hey, guys. Sorry to interrupt your lunch break, just want to pull back to the share gain question for the fourth group. John, just from a high-level standpoint, is this what you would consider to be a normal evolution given where we are in price cost curve for the industry, using the market leader, having led through price increases initially at the top and allowing to keep some share and some substance, and now you're partnering on share, or is it broader than that?
I'd say our approach, Ghansham, is pretty consistent, and I know you've been following us for some time. Our view, and Al touched on this a bit earlier, as it relates to price locks. Our first effort is always to try to offset, not just in our stores business, but in all our businesses, try to drive efficiency into the equation to offset the raw material costs. We don't feel as though that's a share question, because when we don't have to go out with a price increase, our customers reward us with their loyalty. It's the simple fact that we're open and honest with them about what's happening. That said, as costs go up, and I use cost not to just point to raw material costs, if it's labor or freight or others that we are unable to offset, then we're in front of our customers talking about that.
The key part of the equation there is we're helping them to be successful. As we're having these discussions and helping them to be successful, we're then introducing whatever it is that we're facing. Hopefully, we're able to offset raw material costs with efficiency. If the costs are going up, we have to be open with them, and we have those discussions.
Okay, that's helpful. Just finally, your 2020 financials, I just want to confirm roughly you're estimating an increase of raw material costs and IT effects as well. Just to be obvious, you mentioned you're now turning the Stores Group, which is a very profitable segment for you. How does that timeline change at this point?
Yeah. Gotcha. I'm still looking a couple years out. We're in the middle of putting together our 2020 plans. Obviously, we'll share those with you at our year-end call. You look at some of those metrics. We're making progress, whether it's on EBITDA with an 86 point growth year to date with net operating cash at over 12% of sales. We're making progress on different fronts. The pricing there with raw material costs, it's also top-line growth. If you go back two years, I think we were expecting a little bit better top-line growth than what we're seeing across the different segments.
Thanks so much, Al.
Thank you. Our next question comes from Kevin Hocevar with Northcoast Research. Please proceed with your question.
There.
Go ahead, Kevin.
You're guiding the mid to high single digits range for sales growth in the Q4 in your paint stores. Sounds like most of that'll come from volume. How big of a factor can weather play here and where that ultimately shakes out? It sounds like the backlogs are there, but obviously weather starts to get a little funky here as we head into the winter. If the winter turns out to be harsh, do your customers have enough flexibility to do indoor jobs on bad weather days and outdoor jobs on sunny days, or does a harsh winter make it difficult to hit that type of growth?
Kevin, there's a number of points to that. The first one I'd say is it's a smaller quarter, so it can be influenced a bit easier than the larger second and Q3. Oftentimes what it might impact is the progress on a project. Yeah, if the types of weather there might be outdoor painting taking place. There might be issues if it's really a harsh winter, as we saw last year with all trades and their ability to get on a project and move a project through the cycle. It's all dependent upon what kind of weather and to what extent we deal with it. We really don't know. Each one of these can be different and unique on their own, and we're going to just respond the best way we know how given whatever we face.
Okay, great. In the Performance Coatings, you talked about your team being focused on controlling selling expenses given the softer end market. Could you elaborate on that? What levers are you pulling to dial back costs there and if things get worse, deteriorate from here, are there more levers that can be pulled?
Kevin, there's always more levers to be pulled. You try to, as I say, we're controlling our costs. Industrial wood is an example where John talked about it's been soft and it'll be soft going forward. There's other areas that we're still investing in for growth opportunities. I thank the teams that have responded to the slower sales and we'll continue to manage that.
Okay, great. Thank you very much.
Thank you, Kevin.
Thank you. It appears we have no further questions at this time. I'd like to pass the floor back over to Mr. Jaye for any additional concluding comments.
Thank you, Jesse. Thanks everybody for joining us on the call today. Appreciate your interest in everything we're doing and your support. I will be around. Eric Swanson will be around for some questions over the remainder of the week. We look forward to talking with you. Thanks so much. Have a great afternoon and rest of the week.
Thank you. Ladies and gentlemen, this does conclude today's conference call. Again, we thank you for your participation, and you may disconnect your lines at this time.