Good morning. Thank you for joining The Sherwin Williams Company's review of the 3rd quarter of 2019 and its outlook for the Q4 and full fiscal year of 2019. With us on today's call are John Moragius, Chairman and CEO Thomas Fishin, CFO Jim Cronin, Senior Vice President, Corporate Controller and Jim Jang, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen only mode by issuing direct to the Internet at www.cherwin.com. An archived replay of the podcast will be available at sherwin.com in approximately 2 hours after this conference call concludes and will be available until Friday, November 8, 2019 at 5:10 Eastern Time.
This conference call will include certain forward looking statements as defined by the U. S. Federal Securities Laws with respect to sales, earnings and other matters. Any forward looking statements speak only as of the date on which such statement is made and the company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. This concludes preparation regarding forward looking statements is provided in the company's earnings release transmitted earlier this morning.
After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Mr. Jay.
Thanks, Jesse, and 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 $136,200,000 or 2.9 percent to $4,870,000,000 Currency translation rate changes decreased sales by 0.9%. Consolidated gross profit dollars in the quarter increased $215,000,000 or 10.7 percent to $2,230,000,000 Consolidated gross margin in the 3rd quarter 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 $72,100,000 or 5.7 percent to $1,350,000,000 in the 3rd quarter 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 $7,000,000 to $85,300,000 Other expense for the quarter increased $29,300,000 to $31,000,000 primarily a result of debt retirement expense and expense associated with Argentina hyper inflation. Consolidated profit before tax in the 3rd quarter increased $293,900,000 to $709,800,000 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 6.1 $6 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 percent 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.
I can now take a few moments to break down our performance by segment. Sales for the Americas Group in the 3rd quarter increased $232,500,000 from 8.7 percent to $2,901,000,000 Comparable Scores 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. 3rd quarter segment profit increased $85,900,000 or 14.9 percent to $653,700,000 3rd quarter segment profit margin increased 120 basis points to 22.9% from 21.7% last year. Turning now to the Consumer Brands Group. 3rd quarter sales decreased $92,100,000 or 11.9 percent to $678,500,000 Sales from continuing operations, excluding the Lowe's load in and the divested Guardsman business, decreased approximately 6% in the quarter. 1st quarter segment profit increased $31,000,000 to $114,900,000 Acquisition related amortization decreased segment profit by $22,600,000 compared to $26,000,000 in the Q3 2018.
3rd quarter 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 of 2018. For our Performance Coatings Group, 3rd quarter sales decreased $4,300,000 or 0.3 percent to $1,290,000,000 Currency translation rate changes reduced 3rd quarter sales by 1.6%. 3rd quarter segment profit increased $32,600,000 to $137,400,000 Acquisition related amortization decreased segment profit by $54,300,000 compared to $55,400,000 in the Q3 of 2018. 3rd quarter 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 of 2018. I'll conclude my remarks with the comments 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 tenured approximately $1,000,000,000 of our 2020 senior notes to $500,000,000 of our 2022 senior notes. We financed this transaction with $800,000,000 of 10 year notes at 2.95 percent, dollars 550,000,000 of 30 year notes at 3.8% and $150,000,000 of commercial paper.
That concludes our review of our operating results for the Q3. Let me turn the call over to John Mauricio, who will make some general comments on the Q3 and provide our outlook for the Q4 and fiscal year 2019. John? Thank you, Jim, and 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 $6.55 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 2018. We remain committed to achieving our long term full year gross margin target of 45% to 48%.
The decrease 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 100 and 2 basis points over the prior year to 18.9%. And for the 2nd consecutive quarter, all three operating segments increased segment profit and margins 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 $415,000,000 Looking at our top line, consolidated sales increased 2.9% in the quarter, in line with our revenue guidance of our low single digit increase.
Our sales vary 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 the 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, 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 $85,000,000 and segment margin expanded by 100 and 20 basis points to 22.9%. We leveraged the strong volume growth to deliver incremental margin of approximately 37%. We ended the quarter with our customers continuing to be very optimistic, 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 to the year.
Similar to prior years, we will have a significant ramp up in the 4th quarter. In Consumer Brands segment, Q3 sales were down mainly related to the comparison to last year's load in of the Loews program and the impact of the Guardsman divestiture. Sales decreased slightly more than we expected due to weakness in international markets, more 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 10.2%, 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 business and our portfolio of hero brands to serve the North American retail market. Performance Coatings Group sales were down 0.3% in the quarter, but chopped industrial demand led to variability by region and business. Geographically, total 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 performers, delivering growth in every region as our customers continue to value our technology and service solutions. Our automotive refinish business delivered modest growth in the quarter, led by solid performance
in the
Americas. Sales in the general industrial and industrial wood 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 the moderating raw material costs and the cost control. Adjusted EBITDA in the quarter was $919,000,000 or 18.9 percent of sales, excluding integration costs and the lower California litigation expense. Adjusted EBITDA year to date is $2,400,000,000 or 17.5 percent of sales.
Year to date, we returned over $892,000,000 to shareholders through cash dividends and share repurchases, an increase of 46% year over year. At the end of the quarter, we had approximately $8,900,000,000 of debt on the balance sheet. We reduced debt by approximately $435,000,000 year to date. We intend to retire a total of approximately $600,000,000 this year, which will result in a net debt to EBITDA ratio below 3:one by the end of 2019. During the quarter, Moody's raised our rating outlook to positive and stable, building our strong business profile and meaningful deleveraging to meet the acquisition of HealthSpire.
We paid $105,000,000 in cash dividends and purchased 250,000 shares of common stock or $127,000,000 in the 3rd quarter. At quarter end, our share repurchase authorization stood at 8,800,000 shares. Capital expenditures were $97,000,000 in the quarter, depreciation was $65,000,000 and average amortization was 78,000,000 dollars 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 customer 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. Consumer Brands Group sales will be flat to up slightly in the 4th quarter.
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 to $21.30 per share, which excludes the 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 morning's press release to reconcile adjusted and GAAP earnings per share. A few additional data points for the full year may be helpful for modeling purposes.
As planned, we expect raw material costs in the 4th quarter 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 $320,000,000 depreciation to be about 257,000,000 dollars and amortization to be $315,000,000 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 any question and answer session. Our first question comes from the line of Christopher Ferguson with Credit Suisse. Please proceed with your question.
Great. Thank you. Now that you've done with the Valspar integration, integration, it still appears you have long term opportunities to expand margins across all three segments, specifically Consumer Brands and Performance Coatings. Can you just give us a quick update on any non raw material levers you have left to pull to drive margin higher? Thank you.
Yes, Chris. First, let me just a bit of a question figure down there about now that we're done with the Valfar 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 and Anand did not take a whole lot of work to do on the sales side. So a lot of opportunity there to leverage going forward. And Chris, this is
Almaty Christian. Just as a reminder, we talked about the synergy progress that we're making. And coming out of this year at $450,000,000 run rate through the P and L, dollars 316,000,000 dollars And that $100,000,000 is going to be by and large facilities and manufacturing and other consolidations as well as that formulation adjustment. So 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. And that's where we think we're going to see benefits.
Got it.
So you did it on this a little in your prepared remarks, but just kind of walk us
through the rest of the PC subsegments packaging, general industrial, coil, wood and refinish. Can you just kind of take on the EQ highlights that you're looking into over the next 12 months or so? And then also just some comment on whether or not you're fully content with your competitive positioning in each business uptrend?
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 have done 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 talked about overall, North America and Latin America for the quarter were 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's going to be going forward here for a little while. But 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 towing 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 talked 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.
So again, 2 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 single digits and mid single digits and a lot of good momentum there. Another 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 3 of their core divisions. Overall, they were up low single digits, and we feel as though they grew some share here in North America.
So pleased with that. 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. And when you look at our industrial wood business, that's the area of softness that we've had really around the world.
Industrial Wood business has been soft, and we expect that to be something for some time.
Very helpful. Thank you. Thank
you. Our next question comes from the line of Jeff Zekauskas from JPMorgan. Please proceed with your question.
Thanks very much. You talked about your raw material comparisons improving in the prior quarter. Is that a year over year phenomenon that is, are raw materials moving sequentially lower from the 3rd to
the 4th quarter?
Or is that that has to do with the year over year comparison? Yes, 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 third quarter 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. So you see a little bit of sequential improvement and we believe the Q4 will be lower year over year.
I would answer that, as Al said, in the broadcast, it was down slightly year over year in Q3, but I
think you have to look at it a little bit by architectural and industrial. So
the decrease was really driven more, Jeff, on the petrochemical side of the basket where certain parts of
the basket were down, not all, certain parts of the year over year. And what I'd remind you is certainly we don't buy or sell propylene or ethylene And each
of those different feedstocks have
their own market dynamics associated with them. But as Al said, we're still expecting the best to be down modestly year over year in Q4, but the highest level of insight was in our Q3 of 'eighteen last year. Okay. And then for my follow-up, are there any signs to increase prices in the stores business in the North American tank market in 2019? Or is that not on your agenda?
Up?
We have work to do, Jeff. We're facing the significant raw material cost inflation we experienced in 2017 'nineteen. And with our consolidated gross margin improvement, we are making progress towards our goal of the 45% to 48%, as I mentioned earlier. But as to the specifics to your question, we're still reviewing our options and our pricing strategy at this time. And I'd say that we do that on a regular basis.
With great frequency working down talking about where we are and where we need to be. And I'd say that as has been our past practice, we'll first communicate that to our customers and then to the financial community.
And Jeff, I would just add, since we have not announced any price increases at this point, when John talked about PAG being up mid to high single digits, that implies it's a vast majority of volume. Great. Thank you very much.
Thank you. Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.
Hi, good morning.
Good morning, 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 state to catch up on some of the work that was out there and that we're really working hard to capture. But I'd also say that our customers continue to be very bullish about this pipeline, both in the Q4 and into 2020. We're growing share. So what about the execution of this team on their efforts?
Is that a lot of plans that they're implementing and growing share of wallet and new account activity that we've been talking about for some time. And I want to thank this team because they're executing at a very high level. You have to go back, I think it was the Q3 of 2014 to find this level of performance. But 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 pretty feeling really good about the scale that we're gaining right now.
Right. And then I wanted to ask about the independent dealer channel as well. It sounds like your competitors are working to kind of integrate their store network with some of the dealer network. Is that something that Sherwin does as well? And 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. And our goal as we work with our independent dealer customers is clearly to help them in their approach to growing their business and 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. But our store people are outbuilding 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 Patrick Rolfe with BMO Capital Markets. Please proceed with your question.
Thanks for taking my question.
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, but can
you give us a little bit color on that?
And how much you see in terms
of that mid single digit footprint that you're seeing in the Q4? How we should be thinking about that rolling into 2020? Well, you hit on a number of really good points. First is that the residential repaint contractors' vision versus the nonresidential or commercial be on opposite ends of the spectrum. So commercial contractor might be bidding a project that's not even out of the ground yet, where a residential contractor might be getting something that could be painted in the next couple of weeks.
We're blessed. So we have a number of tours and a number of 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. So a better line of sight and quicker on the residential, a little more distant on the commercial side. And then maybe just one follow-up. On the SG and A as a percent of sales, we ticked up,
I guess, marginally. What's driving that? Was that the rapid pace
of what you saw in the same store sales with
it or 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. But also, we have 25 additional stores year over year, a commensurate number of reps who continue to invest in our growth opportunity, specifically in North America stores. Regardless of we saw a little softness in consumer because of the year over year dynamics there.
We saw a little bit of softness in industrial. Be rest assured, we continue to invest in these growth opportunities specifically in North America stores.
Thank you. The next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thanks very much and good morning everyone. This is the 2nd quarter in a row where you really had what appears to be just outsized sales performance versus the cadence that's out there and any other comments that are out there. And I know we talked about this a bit last quarter, but I want to ask a 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 the wallet that you don't have. Is there anything you're doing with data or technology that's just sort of allowing you to find more leads? And we've also, in 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 it appears to be a step change in share gains and how sustainable we should look into next year?
Yes. So 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. And I would say that a big part of that also comes down to the execution, always trying to we're hiring 1400 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 going to be better at that. And 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, And 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.
And 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, this is we've had 5 years of compounded growth, double digit growth in this business. And we expect that there's a lot of momentum there to continue as well as in these other segments in the commercial and the management as well. But we're not waiting for it to happen.
We're very deliberate in what it is we're trying to execute.
Thanks. And as a follow-up, Alex, if I could ask about the 4 quarter 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 extinguishment. And if you take those out, you really had phenomenal leverage all the way through the income statement. So it just seemed to me that maybe the Q4 looks a little conservative. Is that a fair statement or not? We try to be as realistic as we
can when we put guidance
together. I look at that 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 see opportunities.
We also did have the benefit in the quarter on supply chain improvements in our consumer brands to help 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. And that's not a fair to be there and going forward. If you look at our Q4, at the midpoint, our full year guidance is to be 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.
So I think those are pretty strong results for our Q4 and we still maintain Fair enough. Appreciate the color. Thank you.
Thank you. Your 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. And I want to say it's about 60, 40, 60, 40 variable, Steve. It might vary just slightly, but it's about $50,000,000
John, you mentioned the $85,000,000 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, 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. Our we did have a profit improvement in the quarter. I'm trying to frame it in the way that you've asked the
question there, Steve. I'd say, you're looking at the flow through. And as Jim was alluding to, we're not seeing as much of a benefit on material moderation in our architectural side of the business. The stores, when you get up into the mid-30s on flow through, we feel very good about that. So we continue to add the spurs that I talked about and we have 75% of this year over year and we continue to add a number of reps.
So I think we feel good about that flow through incremental operating margin. And if the stores can do that all the time, we'd be happy with that.
Our next question comes from Kevin McCarthy with Vertical Research Partners.
With regards to your same store sales growth of 8.1%, how would you characterize relative contributions from volume versus price in the quarter? Yes.
I would say that the price has an impact of about 2.5%, and then the remainder would be volume.
Excellent. And then 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 experiencing inflation in new categories with labor, freight, warehousing, etcetera. Is that the case at Sherwin? And if so, how does that enter into your thinking about potential optionality for seeking additional price in the future?
Yes. Kevin, clearly, we're seeing wage inflation. And if you look at it year over year, it has picked up a little bit as unemployment has continued to decline. And we have seen freight increases and distribution increases. When we look at as well as healthcare.
And when we look at our costs and get as a total cost back and try to determine how best at it, what the impacts are, we obviously try to push back on that and get efficiencies offset at the absence of getting those offsets. We have to go to the market with price.
Our next question comes from the line of Arun Jay Panathan with RBC Capital Markets.
Great. Thanks. Good morning.
Hi, Rick.
I just want to ask the same store sales number. Presumably, you did that with new construction also relatively weak. So just trying to understand the same change from, say, Q2, which is maybe 2% of the volume going up to 6%
now. Would you attribute all of
that to share gains? Or was it certain reasons that were reaching that in the prior quarter doing a little bit better? And then what are your thoughts on the new side going from here? It seems like there's been some improvement in affordability.
Does that give
you a little bit more optimism for that market actually returning into your business in 2020?
Arun, so we 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 a largest percentage of the larger homebuilders 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, and that includes services and products that help them deliver. And so if that business kicks up, you're right. We will be working hard to grow those relationships. I believe this is either 17 or 18.
17 or 18 of the top 20 national homebuilders we have an exclusive relationship with. And we're working really hard on the regional and the smaller homebuilders 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, the portion of it is share gain. You're right. Our teams are, as I mentioned, and again, I don't want to sound like a broken record here, but this is a team that's executing very well on the programs that they have and the services that they provide.
And we don't know what's going to happen going forward with weather or labor, but we can tell you that we're working really hard to position our company favorably with these customers. That leadership came in about 2 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. So we're trying to really get about this, but 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.
And that's what we're going to be doing this afternoon and moving forward.
And just wanted to get your thoughts on priorities for your cash flow going forward. You've talked about buybacks in the past. I guess if we're going back 10 years, bolt on M and A wasn't a huge part of your strategy, maybe it wasn't a storage business and not so much in bookings. So maybe you can just reiterate what you're looking at as far as opportunity to deploy that cash flow and maybe your rank order or your preference is between buybacks and reduction in M and A?
Yes. Let me start with M and A and then I'll talk to Al to talk about the remaining capital deployment opportunities. But I would say this, Erwin, 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. And so we look across all of the businesses, and we're identifying those areas, geographic or a technology standpoint that will allow us to further create shareholder value. And those are the discussions that we're pursuing and still quite frankly have quite a pipeline to get to. So we're working it.
We feel good about the progress we're making on a couple of really good projects. But there's more cash deployment, and I'll let Al just touch on that.
Yes, Arun. We are generating a lot of cash. We had a 2, 9 months of over 1,700,000,000 almost 12.1 percent of sales. And 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 dividend and share buyback has returned over $893,000,000 to our shareholders, a 42% increase. And we're going to be very consistent on that going forward. So as you know, we're not going to hold cash. And absent more robust M and A pipeline, we're going to buy back our stock.
The next question comes from Duffy Fischer with Barclays.
Question just around kind
of the new strategy in the home center for you. This is your 1st full year going through the paint season, going to that fewer or more people, salespeople in the stores.
When you look back this year, how would you grade yourself
with the new project? And again, should we expect a bigger step forward next year again?
Yes. I'd say, Duffy, that we're pleased, but not anywhere near satisfied. Next year, we'll 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. And there's a lot of opportunity in the do it yourself side.
And 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. And so this 1st year, as the program rolled out, we were learning and improving. But 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 covenants, if you will. I mean, it's not as smooth as some of our other businesses. But 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 at this going forward.
Okay. And then 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? Yes. Duffy, the Santa Clara California case was resolved for $305,000,000 each co defendant paying $101,700,000 over 6 years. We made the initial payment of about $25,000,000 on September 23rd this year.
We'll make annual payments of approximately $12,000,000 on or about September 23 next year and all the way to 2024. And then we'll make a final payment of approximately $16,700,000 in September of 2025.
The next question is from John Carson with Susquehanna Financial.
A question on consumer. Your revenues were down 12% year over year. You said half of that was due to load loading in Guardsmen in the year ago number. What was driving the other half? Was that all international softness?
And can you comment on how you see that unfolding as you get into 4th quarter? You talked about being down slightly in that business in the 4th quarter. Is that all the international or is it still a comp against the low comps and cars?
Yes. And I'd say the sales miss, you're right. So I have a point or 2 from our forecast. And the miss is, 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 give
a better competitor there.
We do have a very small business, a small in a smaller market in Australia that we didn't perform very well in. There's no hiding about that. But 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. And John, I
would just add to that. Your last statement, Guardsman is behind us. It was us in September of last year and we are not going to be going up against any significant load in the Q4. Okay. And I'll follow-up on plant consolidation.
I know you've kept a couple of U. S. Plants going for longer than your recent plant 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? Yes. We're continuing to put in capacity in other sites to make sure we're going to service, 1st, our stores, strong volume growth that we see had in the Q3 and the outlook, plus the low volumes that we've seen. So we haven't made those calls yet, but as you know, our normal practice will tell our employees first and then we'll talk about it going forward. Thank you.
Thank you, John.
Thank you. Our next question is from TJ Juvekar with Citi. Please proceed with your question.
Yes. Hi. Good morning. Good morning, TJ.
Can you talk about the DIY paint growth versus contracted applied 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 your own stores. So what is the split between the 2? Is it sixty-forty contracted DIY?
And how fast are these markets growing?
Our business through our stores is about 85% professional, painting contractor or property management. And that's the piece that is obviously going to track. We should have some growth in our DIY business. The DIY business, relatively small piece, and it's really focused on the specialty high end consumer that's looking for specialty store experience. So we clearly are really focused on the professional side.
What is the overall industry in
terms of DIY and contractor?
What is your own store, what's overall industry? The DIY piece would be the largest piece overall. Yes, if you look at the overall industry, DIY is about 38% of gallons. So it's a bigger slice in
the industry obviously than it is in our stores, right?
If you yes, 38 overall, this segment is larger than any one particular professional segment, right?
Okay. What I would add to that though is you still we still continue to see the trend from a beta cell to deiformis of population ages. That leads into the res repaint that we talked about in high single digits in the quarter. We grew high single digits compounded from previous 5 years. So as 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. Your goal was to get leverage below 3 times by the end
of this year. And once you
get there, would you be willing to look at bigger acquisition? And is Europe still in attractive market for you given that recent slowdown in
the European overall economies? Yes.
I think, Jay, you're right. We are going to be below 3 to 1 by the end of this year. Our target is 2 to 2.5. And as John talked about with earlier about M and A, we are going to be very disciplined about our approach to M and A. We look at it for the long term, not that I understand Europe is a little bit slower, Asia is probably slower than what we had expected specifically on the industrial side, but we look at it for long term.
So the right opportunity were to present itself at the right price, we absolutely can go after
it. Thank you. Our next question comes from the line of Bruce Nalick with Evercore ISI.
I'd love to follow-up on the Performance Coatings Group. I think, Don, 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 you said cost and FX performance coatings was up 1.3%. Was that all price?
And what do we think we can still get there that now the raw materials appear to be moderating? Hi, Craig. 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, no, we're not done. We are our year to date operating margin is 14%, it's over 14%.
We talked about targeting the high teens to low 20s. And if you look at the significant ramp up in raw materials that we saw in 'seventeen and 'eighteen, we talked about Valspar particularly our industrial not getting a price early in 'seventeen. So we're still chasing that. So as 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.
But we got more work to do.
Yes. I'd add to that, Greg. But 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 try to work with our customers and allowing them to work through the pricing to their customers ultimately. And we expected some compression there as the new owners of the 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 cost of raw materials and the overall cost of goods.
You need to get the pricing through when it raises. Here, we made a decision that we'd work with our customers. But to Al's point, we're working with them in a way to pass those through because we need to recover that as well.
And 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. And then there was one thing, and John, I just want to you had an announcement through the quarter about looking at a new R and D facility and headquarters. I know it will 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. And Chuck, I know you've been here and many of us on the call have been to our building here to know that we operate in a building that's nearly 100 years old. And 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 the factoring in the maintenance costs and just overall issues that we face in this building. We feel it's necessary to move towards the solution.
We're in the midst of that process. We hope to make an announcement on the location by year end or early 2020. But realistically, Greg, I would say that this is not something that we prefer to do, quite frankly. It's not something that we think of any type of we deserve or reward or anything. This is out of necessity to be able to hire and retain the best people in this industry.
And we owe it to our employees, quite frankly, to put them in a better environment than they're working in right now. And when you look at the retention of these terrific people, we need to make this move.
And in Cleveland different areas, is it important to get those people together? Or does it actually make sense to have sort of 2 powers of power?
I'd say that we're really looking at this to your point of where does it make sense. I don't I'm not a believer. I mean, 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? So where we believe that there are opportunities and synergies, we'll bring those together.
But we're not at all 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 and D people closer together and more consistency where there are synergies and efficiencies amongst the R and D teams. And that's what we're working toward.
That's great. Good luck, guys. Yes.
Thank you.
Thank you. The next question is from Peter Kuper with Deutsche Bank. Please proceed with your question.
Thank you. John, you mentioned strength this quarter in coil and we finished maybe gaining some share. What's revenue share gain? And is there more going forward in both of the product lines?
I think what's nice about the growth is coming is in every region, double digits in every region. So 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 food dynamics impacting impacted by tariffs, the sales of their farming, the products that are on farms or the equipment that they're storing, all of some of those delays are impacting coil. So we see upside there. But 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.
And we've long talked about the efficiencies we gained by the combined Sherwin and Valpar teams coming together and the assets and technologies. And we're just starting to see some
of that. So we think
there's a lot of really good opportunities ahead for this business despite where it's performing right now.
Very good. And Al, just on a debt refi, what's the benefit to interest expense going forward? Yes. Obviously, with the low interest rates that we refinanced to 2.25, 2022. With the we did the if you recall, in the Q2, we did the 400,000,000 euros currency swap.
So net net, it's going to be pretty neutral going forward, maybe down a little bit depending on what we do next year.
The next question is from John Roberts with GBS.
Good afternoon, John. Back on that, the project, will
that be cost neutral to
your operating cost to your headquarters and the new R and D facility? Yes, Don. We're still crunching those numbers and it's hard to fully get a feel for that and to determine location and design and things like that. But we're in multiple buildings around T Mobile, Ohio, all pretty old. My expectation is we're going to see some benefits to the ongoing operating costs.
Okay. And then 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? Yes. We're going to certainly call out amortization.
We'll see how we what we do with integration. 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 control.
The next question is from the line of Derek Moy with Global Research.
I'm wondering if you can comment on inventories in 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. But I don't know if we'd point to a significant reduction in inventory as having much impact on our numbers.
Okay. And follow-up is just looking to the Americas Group. I was wondering if you can maybe break down interior versus exterior, same store sales?
Exterior was up double digits, and that would include paint stains and primers. Interior sales were up high single digits.
Great. Thanks a lot.
Thank you. Our next question comes from Justin Speer with Zelman and Associates. Please proceed with your question.
Good morning. Thank you for
Just in regards to the performance coming business,
the addition that you're driving towards, I guess,
the primary reason for being behind trends was price and cost. But now that looks down a little bit better footing, and you have that counterbalance against underlying emerging market or international markets are a little slower or weaker than maybe you were expecting maybe in a year or plus ago. But I guess my question is what are the
incremental steps you need to take to
drive towards that optimized scale in this business? And when do you think you get there? Yes, Justin. Just 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 each of these regions. And 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. And then specifically on the synergies, the $415,000,000 run rate versus the $315,000,000 we'll have from the P and L acquisition to date, but it would be by and large on Performance Coatings. It's just by design, the industrial integration was coming after the architectural integration. And we're on path. We have a plan.
And rest assured, as we implement those synergies, we'll see those things. 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. So that makes sense. I wanted to follow-up questions
I actually have on that subject on the synergies.
I just want to make sure
I understand the mechanics of this. Yes, dollars 315,000,000 in the
P and L. Are you saying that you've already done the work to drive that incremental $100,000,000 of synergies, especially if that's going to be realized in 2020? Or is that something that carries into beyond 2020? Yes. If you recall at our Investor Day, we talked about that $100,000,000 being spread out over the next few years.
I would say the $100,000,000 has projects in the pipeline to support it, but we got to get to execution and really dial into what people are going to say. There might be a little bit variability in there, but we definitely have the projects identified. Now it's all about execution. And the last question is more to
your term focus, is thinking about the inside
margins for Q4. Given that right now
it's tough for us to draw a relative beat on typical seasonality as it explains to particular consumer brands or Performance Coatings. But just maybe some indications of where the margin destination is going towards your Q4 implied guidance?
Yes. As you would expect, our stores our North America paint stores tag is typically being up mid to high single digits. That's higher gross margin that's going to help. But you definitely see a seasonal discount. So I would expect our sequential gross margin to be lower, but certainly and this is a low bar, but certainly hot butter year over year.
Yes. I guess in terms of
that consumer brands in particular, over
the last period you saw a sequential degradation that was almost 800 basis points. Is that
the typical sequential degradation you should
think about in the brands?
You're going to see a little thinking about because we had the Logan in the 3rd quarter and then didn't have any in the 4th quarter. It will be less should be less than that this year.
This year.
Our next question comes from Truman Patterson with Wells Fargo.
Nice quarter. Yes, hoping we can touch on the raw material outlook a little bit more, just breakout between your resins and titanium dioxide. It looks like pulling 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?
And then on the titanium dioxide part, it seems like there are some moving parts there. You have your old U. S. Business seems fairly robust and some of your competitors don't seem quite as healthy, while at the same time you have some slowing international markets here in particular.
Sure, Truman. I'll parse that out maybe in a couple of different pieces. Maybe I'll start with the TiO2 piece. I mean, 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 keep 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 fokalene or ethylene direct.
Those are key parts of what we make and there's other market dynamics there as well. But I think that things were to stay flat where they are right now heading into 2020. We did say that the Q1 of 'nineteen was the highest inflation that we had this year. So if things were to stay flat from here, it's probably reasonable to think that 'twenty could we could see some tailwind there. But beyond that, pretty hard
to tell what's going to happen.
Okay. Thanks for that. And then just wanted to dig into your gross margin a little bit more, nice performance up over 300 bps 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, etcetera? And then 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 2 quarters?
Yes, Truman. Joe, I always start with volume. And especially when it's our North America paints for its volume, that's always going to be the best leverage we have. It is our highest margin business. And as the growth investments help to be at our growth engine, it's big portion of our business to drive our margins.
We did have the year over year comparison with the run up in raw materials that we saw in the 2nd and third quarters of last year. So 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 improvement. So with moderating raw material costs that we talked about, the team has 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 for the past 3 years now. And year to date, our operating our gross margin adjusted 4.7 percent. We see the progress we're making, but we got a ways to go to get to the long term target of 25% to 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, if I could, about North America Architectural. First, wondering if you've seen the interest rate reductions we've seen some of your customers in the housing, the residential housing market, certainly some of 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?
Yes. 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 2 years
right now, And mortgage rates are certainly helping drive that, the solid job growth, just lower new home inventory out there.
If you look kind of at
the second half of twenty nineteen, it's 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. So those are some of the headwinds. So I'd say overall, what our customers are telling us, which is pretty good about.
Our most recent data talks about is
a little bit mixed, single family permits and starts are positive sequentially
and year over year. Multifamily was
a little bit more mixed. So overall, though, I think we feel pretty good about where new res is heading right now. And then Jim maybe staying in that vein and looking at some of these industries. I noticed the Harvard Lyra 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 sort of their perspective forecast versus your business to give us some comfort that it's not as dire as they're suggesting? Yes.
I would say there's a number of things we looked at there, Bob. So, the 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 dollars. And so 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 fell of 2 months where they were up. Year over year, existing home sales are
still up low single digits, so that will be a driver. And 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. And to John's earlier point about share of wallet, new account aggregation, I think you still feel pretty good about
the repaying opportunity for us. Great. Thanks for the help.
Thank you. The next question comes from the line of Dmitry Silversteyn with Buckingham Research Group. Please proceed with your
question. Good morning, Dmitry.
Dmitry, your line is live. He may be on mute.
Good morning. Good afternoon. Thanks for taking 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? And what was the pricing like in Australia and China and Europe for you and your business? Yes. 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. And those smaller consumer segments, it's not material. Okay. So most of it okay, so it was less than 7.5% for the division overall. But if the international was flattish, let's say, then I think was less than 2.5% of what you're telling me.
Yes. International number. Okay. Got you. And then secondly, just to follow-up on the strength that you guys have seen in coil.
I know business has changed a lot and especially since you guys bought it from Valspar or bought it when you bought Valspar. But historically, it's been a business since the large North American exposure to the commercial construction market. So 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? Or were the share gains really to me drive or more so than the market performance?
I'd say it was a little bit about Dmitry. There clearly were some share gains, and we also are the benefactor of some of the commercial business. I'd also mention that we as I mentioned earlier, we did experience some pressure on the ag side that drew that back down a little bit. But you're right, we benefited from some of the commercial. We grew share and we're determined to continue to drive it.
Our next question I was wondering if
you have a better idea as to the sales changes you are anticipating. I think that you did not really give us any specific numbers when you got lost car, and we're waiting to see how this going to unfold. Do you have a better feel as to how much growth
we can see from that?
We do, but we're not going to share it today. We feel good 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, there is I'm assuming that at this point, most of the non BTA coatings has been replaced, or rather the BTA has been replaced. So what kind of a growth rate are you looking at going forward? And is the fact that some beverage companies are going from plastic I think they are saying they will, going from plastic containers to aluminum cans, is that going to help?
It is going to help. But again, I might take bit of exception to your assumption that we have moved through the non BPA to or 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. So 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.
And then lastly, if I may,
on the automotive, is that mostly refinish? And can you talk about the trend there?
It's all refinish. And the trend for us, particularly in North America, we're gaining some traction. Over the last couple of quarters, we've talked about the fact that combined technologies, the legacy golf car and Sherwin Technologies coming together, provided an overall better system with greater speed for the VR shops to push vehicles through with greater efficiency. And we're out demonstrating that to customers right now with some very good traction. So we're 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 of of stepping or more than of stepping the decline in the level of collisions?
That's a good point because if you do look at the overall market, it was a relatively flat market due to the decline in collision. So 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 gain.
All right. Thank you very much.
Thank you. Thank you.
Thank you. Our next question comes from the line of Christopher Carrelo with Canaccord Intelligence. Please proceed with your question.
Good afternoon, everybody. 2 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, solutions selling and consultative selling, it really takes a very good understanding of what your customers are trying to accomplish so that you can be there when they need you, if it's a product or service. Again, varying degrees. So when you look at a VR shop, vision might be a little bit shorter. And if you look at so Protective and Marine as an example, where their pricing and quoting projects that could be out a year in advance.
I mean, there's a wide spectrum of projects. When you look at various OEM customers, I mean, there's, depending on the industry, varying degrees of line of sight. I think the point there 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 it being the wrong product. And you do that by getting close to their needs and understanding what they're working on.
So we've got a pretty good China side in most of the segments. We're always working to make that better.
The next question comes from Rajvind Panjabi with Baird. Please proceed with your question.
Hey, guys. Sorry to given where we are on price cost curve for the industry using the market leader, having led to increased price increases initially and perhaps willing to keep
some share and subsequent to
now you're rebooting on share or is it broader than that?
I'd say our approach, quantum is pretty consistent. And I know you've been following us for some time. Our view, and Al touched on this earlier as it relates to ice block. Our first effort is always to try to offset, not just in our storage 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 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.
But 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. So 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.
I'm not sure if possible, but if the costs are going up, we have to be open with them and we have those
discussions. Okay.
That's helpful. And then just finally, your 2020 financial guidance
was roughly a year from an increase of 305 and I think FX as well. You obviously mentioned you're now seeing a storage group which is a very profitable segment for you. How does that timeline
change at this point?
Yes. Got you. And so looking a couple of 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.
I mean, you look at some of those metrics, we're making progress, whether it's on Tinta with an 80 basis point growth year to date with net operating cash over 12% of sales. So we're making progress on different fronts. The fact compare with raw material costs and it's also top line growth. And if you go back 2 years, I think we were expecting a little bit better top line growth from what we're seeing across the different segments.
Our next question comes from Kevin Hocevar with Northcoast Research.
Your guidance of mid- to high single digit same store sales growth in the Q4 and your pink stores sounds like most of that will 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 wind there. So if the wind 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 if there's a harsh winter, can you make it difficult to hit that type of growth?
Kevin, there's a number of points to that. And the first one I might say is it's a smaller quarter, so it can be influenced a bit easier than the larger second and third quarter. And oftentimes, what it might impact is the progress on a project. So yes, it's nice to weather. There might be outdoor painting there might be outdoor painting taking place.
There might be issues if it's really the harsh winter as we saw last year with the all trades and their ability to get on a project and move a project through the cycle. So it's all dependent upon what kind of weather and to what extent we deal with it. And we really don't know. I mean, each one of these can be different and unique in their own, and we're going to just respond to the best price we know of given whatever we place.
Okay, great. And then in the Performance Coatings, you about your team being focused on controlling selling expenses given the soft trend market. Can you elaborate on that? And what levers are you pulling to dial back off 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, I mean. And you try to as I say, we're controlling our costs. Industrial wood is an example where, as John talked about, it's soft and we think it will be soft going forward. Another area is that we're still investing in, and into growth opportunities. So I think the teams that have responded to the slower sales and we'll continue to manage that.
Thank you. It appears we have no further questions at this time. I'd like to pass the floor back over to Mr. Jay for any additional concluding comments.
Thank you, Jesse, and thanks everybody for joining us on the call today. Appreciate your interest in everything we're doing and your support.
I will be around and Eric Swanson will
be around for some questions over the remainder of the week. And we look forward to talking with you. Thanks so much. Have a great afternoon and the rest of your week.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.