Good morning. Thank you for joining The Sherwin Williams Company's review of Q1 2018 results and expectations for the full fiscal year of 2018. With us on today's call are John Marikas, President and CEO Almas Fishin, CFO Jane Cronin, Senior Vice President, Corporate Controller and Bob Wells, Senior Vice President, Corporate Communications. This conference call is being webcast simultaneously approximately 2 hours after this conference call concludes and will be available until Monday, May 14, 2018 at 5 pm Eastern Time. This conference call will include certain forward looking statements as defined under U.
S. Federal Securities Laws with respect to sales, earnings and other matters. Any forward looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions.
I will now turn the call over to Bob Wells.
Thanks, Jesse. Good morning, everyone. In the interest of time, we've provided some balance sheet items and other selected financial information, including a slide deck with a breakdown of our results by the new reportable segments on our website, sherwin.com under Investor Relations, April 24 press release. Consolidated sales in the first quarter 2018 increased $1,200,000,000 or 43.6 percent to $3,970,000,000 Excluding Valspar results, core consolidated sales increased 4.9% in the quarter. Consolidated gross profit dollars in the Q1 increased $343,800,000 or 25.6 percent to 1.69000000000 dollars Consolidated gross margin in the first quarter was 42.5% compared to reported 1st quarter 48.6% in the same period last year.
Selling, general and administrative expenses increased $203,500,000 or 20.1 percent to $1,210,000,000 in the first quarter, but decreased as a percent of sales to 30.6% from 36.6% in the same quarter last year. The decreases in both gross margin and SG and A as a percent of sales is primarily the result of a mix effect from the inclusion of Valspar. Interest expense for the quarter increased $65,900,000 to 91,500,000 dollars The increase was entirely due to acquisition related interest expense. Consolidated profit before tax in the Q1 decreased $3,000,000 or 90 8 basis points to $303,600,000 These results include a year over year increase in acquisition and integration costs of approximately 106 $800,000 Our effective income tax rate for the Q1 was 17.6%. We expect our effective tax rate for full year 2018 to be in the low to mid-20s.
Diluted net income per common share increased 3.6 percent to $2.62 per share from $2.53 last year. The $2.62 includes $0.95 per share in acquisition related expenses, including purchase accounting, amortization and income of $0.68 per share net of incremental interest expense from Valspar operations. We have summarized the Q1 earnings per share comparison in a Regulation G reconciliation table at the end of our Q1 2018 press release. Let me take a few moments to break down our performance by segment. Sales for the Americas Group in the first quarter increased $128,700,000 or 6.6 percent to $2,080,000,000 Comparable store sales in the U.
S, Canada and the Caribbean, that is sales by stores open more than 12 calendar months, increased 5.2% in the quarter. Regionally in the Q1, our Canada division led all divisions, followed by Southwest Division, Southeast Division, Midwestern Division and Eastern Division. Sales and volumes were positive in every division. 1st quarter sales in Latin America region stated in U. S.
Dollars increased 9.5%. Currency translation reduced net sales in U. S. Dollars by 2.8% in the quarter. 1st quarter segment profit increased $32,200,000 or 10.5 percent to $337,400,000 1st quarter segment operating margin increased 60 basis points to 16.2% from 15.6% last year.
Turning now to the Consumer Brands Group. First quarter external net sales increased $333,000,000 or 103 percent to $656,400,000 Revenue reclassification related to the newly adopted ASC 606 reduced net sales by 2.1%. Excluding sales from Valspar, core sales for the group decreased 5.3% in the quarter, including a 1.6% positive impact from currency translation. Segment profit for the consumer brands group in the first quarter increased $18,300,000 or 32.8 percent to 74,200,000 dollars Segment profit for the quarter includes a $31,800,000 charge for purchase accounting amortization. Excluding Valspar, core segment profit for the group decreased 11.8% in the quarter.
Segment profit as a percent of net sales for the quarter decreased to 11.3% from 17.3% last year. Excluding Valspar, core operating margin for the group decreased 118 basis points in the quarter to 16.1%. For our Performance Coatings Group, 1st quarter net sales in U. S. Dollars increased $743,300,000 or 153.4 percent to $1,230,000,000 Excluding sales from Valspar, core sales for the group increased 5.3% in the quarter.
Stated in U. S. Dollars, Performance Coatings Group segment profit in the 1st quarter increased $33,700,000 or 58.9 percent to $90,800,000 from $57,100,000 last year. Segment profit for the quarter includes a $57,500,000 charge for purchase accounting amortization. Excluding Valspar, core segment profit decreased 12.1% in the quarter.
Currency translation rate changes increased segment profit $4,600,000 in the quarter. As a percent of net sales, segment profit decreased to 7 point 4% in the Q1 compared to 11.8% last year, including the purchase accounting amortization expense. Excluding Valspar, core operating margin for the group decreased 195 basis points in the quarter. I'll conclude my remarks on the quarter with a brief update on the status of our lead pigment litigation. In our Santa Clara County, California lawsuit, the 6th District Court of Appeals remanded the case back to the trial court.
A new trial court judge has been assigned the case as the judge who presided over the trial retired. The trial court has 2 issues to resolve. 1st, calculation of liability based on the pre-nineteen 51 housing standard and second, selection of a receiver. The new judge will determine the process for deciding these two issues. An initial hearing took place March 28 and initial briefs on the proposed size of the abatement fund were filed last week.
The next hearing is scheduled for May 24. The defendants plan to seek certification in the U. S. Supreme Court. Petitions are likely to be filed in June or July.
That concludes our review of our operating results for the Q1. So let me turn the call over to John Marikis, who will make some general comments and highlight our expectations for the remainder of 2018. John?
Thank you, Bob. Good morning, everyone. Thanks for joining us. Despite a slow start to the painting season in certain regions of North America, we delivered strong results in our Q1. Sales, gross profit, net income and diluted earnings per share were all first quarter records for the company.
We're seeing continued strong demand across most businesses. We're making good progress on the Valspar integration, value capture and pricing initiatives to offset raw material inflation. If you back out the contribution from Valspar, our core consolidated sales grew by nearly 5% compared to Q1 2017 with a little more than half coming from volume. Consolidated gross profit dollars increased by nearly $40,000,000 in the quarter. The core gross margin declined 93 basis points year over year to 47.8%.
SG and A as a percent of sales decreased 121 basis points and core consolidated profit before tax increased 7.2% and expanded 25 basis points as a percent of sales. Core diluted earnings per share, again excluding Valspar results and acquisition costs, increased 10.7 percent to $2.89 compared to the same quarter last year. The Valspar business added a little more than $1,000,000,000 in net sales and $0.68 to earnings per share in the quarter. Consolidated Q1 2018 EPS excluding acquisition expenses increased 36.8% year over year to $3.57 per share. The Americas Group grew volumes and improved their operating performance compared to the first quarter last year, although growth was at the lower end of our expectations due to slow exterior paint sales in some regions for most of the quarter.
Sales to residential repaint contractors in the U. S. And Canada grew at a double digit pace for the 16th time in the last 18 quarters. Protective and Marine Coating sales in the U. S.
And Canada grew in the high single digits. In Property Management, new residential, commercial and DIY segments all contributed to TEG's growth in the quarter. Latin America sales in total increased 9.5%. It appears that the fundamental demand and trends remain strong across the business. TAG segment operating margins improved 50 basis points compared to the Q1 last year, reflecting our progress in implementing price increases to offset a challenging non material cost environment and good expense control as SG and A decreased slightly as a percent of sales.
The group opened 7 net new stores in the quarter, bringing our total store count at the end of the quarter to 4,624 stores in the Americas. Our plan calls for this team to add approximately 100 net new stores in the Americas by the end of the year. The e commerce platform launched by TAG last year is receiving positive reviews from both our customers and our field organization. And we expect adoption to increase over time, enhancing both our in store and field service experience. Consumer Brands Group also showed good progress in the Q1, but the improvement is not quite as obvious in the numbers.
On a year over year basis, compared to pro form a combined results from Q1 2017, sales increased 3.8% and adjusted operating margin excluding the purchase accounting impacts improved by 260 basis points. If you look at it sequentially, 1st quarter sales increased nearly 15% compared to Q4 2017, much of which is probably attributable to seasonality. And 1st quarter reported operating margins expanded 7 20 basis points to 11.3% compared to 4.1% in 4th quarter. Backing out purchase accounting amortization expenses from both quarters, segment operating margin in the Q1 was 16.2% compared to approximately 9.9% in the 4th quarter. The improvement in segment operating margin both sequentially and year over year is a result of successful expense control and cost synergies, as well as our early progress in implementing price increases.
On February 28, Lowe's announced a significantly expanded partnership with Sherwin Williams, through which Lowe's will become the only nationwide home center to offer our top selling wood care brands including Minwax, Cabot, Thompson's WaterSeal, the top paintbrush brand in Pretty and industry leading spray paint in Krylon. Lowe's continues to be the only nationwide home center to offer our Valspar and HGTV home by Sherwin Williams brands of interior and exterior paints. Both companies are supporting this effort with incremental investment in service, training and brand communications. And we're confident this combination of high quality products, category leading brands and outstanding customer service will accelerate comp growth in Lowe's paint aisle. Lowe's will determine the timing and cadence of the department resets.
While there was no impact from this announcement in Q1 2018, we do expect this expanded partnership to result in increased volumes and revenues in full year 2018. Given our anticipated investment in marketing, displays, training and other support areas, we earnings dilution of approximately $0.40 this year. In the Performance Coatings Group, top line growth was just under 10% compared to pro form a combined revenues in the Q1 of 2017. Sales were up in every product category led by packaging coatings, general industrial and industrial wood coatings. Reported segment operating margin was 7.4% compared to 11.8% reported last year.
If you back out the impact of purchase accounting amortization in the quarter, which was a little over $57,000,000 adjusted operating margin in the quarter was 12.1%, which compares to 13.5% pro form a combined operating margin last year. The pressure on operating margins year over year is a result of continued escalation in raw material costs, most notably petrochemicals and epoxy, which are a large portion of the Performance Coatings raw material basket. We continue to work with our customers to recover these cost increases through pricing actions. EBITDA or earnings before interest taxes, depreciation and amortization increased 44% to $557,800,000 in the first quarter, which includes $137,900,000 from Valspar. EBITDA margin was flat year over year at 13.9 percent of sales.
Core EBITDA without Valspar increased 6% to $413,900,000 Net operating cash in the quarter was $40,700,000 compared to $231,800,000 a year ago. Net operating cash in the Q1 last year included a benefit of approximately $137,000,000 from settlement of the treasury lock hedge. Changes in working capital account for most of the remainder of the difference. On March 31, the company had $158,600,000 of cash on hand that will be utilized to reduce debt and fund operations. During the quarter, we raised our dividend to $0.86 per share, paying $81,000,000 in cash dividends.
The balance sheet reflects preliminary purchase accounting balances and total debt of approximately $10,800,000,000 We intend to reduce our net debt to EBITDA ratio to approximately 3:one by the end of 2018. Our capital expenditures in the quarter totaled $42,300,000 Depreciation was $71,600,000 and amortization of intangibles and inventory step up was $85,000,000 For the full year, we continue to expect capital expenditures to be approximately $330,000,000 which is about 1.9% of anticipated sales. As we continue to invest in productivity improvements, systems and new stores. Depreciation should be between $280,000,000 to $290,000,000 and amortization will be about $340,000,000 On our year end 2017 call, we said we would resume opportunistic open market purchases of company stock in 2018 at a level sufficient to offset dilution from options exercises. In the Q1, we purchased 600,000 shares at an average price of $401.91 per share.
On March 31, we had remaining authorization to acquire approximately 11,000,000 shares. It's hard to believe that June 1 will mark 1 year since the close of the Valspar acquisition. I'm extremely proud of the progress we've made in the 10 months we've been together. Perhaps most proud of the fact that we are increasingly functioning as a single unified global team. You should take comfort in the fact that as a team, we remain focused on execution and value capture in the areas of SG and A, raw materials, manufacturing, distribution, R and D and revenues.
We have confidence in our 2018 year end annual run rate synergy target of $320,000,000 which should benefit this year's P and L by about $140,000,000 to $160,000,000 We expect to book most of the remaining costs to achieve these synergies in 2018. And we are increasingly confident in our long term annual run rate range of $385,000,000 to $415,000,000 Turning to our outlook for the balance of the year. With strong sales and volume momentum coming out of the Q1, we anticipate 2nd quarter consolidated core net sales will increase a mid to high single digit percentage compared to the Q2 of 2017. In addition, we expect incremental sales from Valspar to be approximately $600,000,000 for the months of April May, with June 1 making the 1 year anniversary of the close of the transaction. For the full year 2018, we continue to expect core net sales to increase a mid to high single digit percentage compared to full year 2017.
In addition, we expect incremental sales from Valspar in the 1st 5 months of 2018 to add approximately $1,700,000,000 to consolidated revenues. With these factors in mind, we anticipate diluted net income per common share for 18 will be in the range of $14.95 to $15.45 per share. This guidance has been revised to include approximately $0.40 per share dilution from our initial investment in the Loews partnership, which reduces the anticipated income contribution from Valspar to $2.30 to $2.50 per share. Acquisition related costs and purchase accounting impacts are expected to be $3.40 to $3.50 per share. Given the many moving parts in last year's results and this year's guidance, it can be challenging to understand our underlying earnings per share performance.
We believe the most meaningful way to view guidance is to exclude Valspar acquisition costs and one time items, which results in a full year EPS guidance midpoint of $18.65 compared to $15.07 adjusted EPS last year. On this basis, earnings per share would grow by nearly 24% year over year at the midpoint of our 2018 guidance. We've included a Regulation G reconciliation table with this morning's press release to better illustrate all the moving parts. 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 be conducting a question and answer session. Please proceed with your question.
Good morning. Thanks guys.
Good morning, Arun.
I guess just a couple of questions. So first off, just wanted to understand the 5.2% same store sales performance. I know that you guys increased the prices by 3% to 5% in October. So maybe you can just update us on the traction there. And then similarly, if you are in kind of a low single digit increase on prices, that would imply kind of a similar rate for volume.
How do you see the volume kind of progressing through the year? I mean, I know that Q1 is off sorry, the paint season is off to a slow start here. But are you optimistic that things could improve with weather getting better and labor availability maybe loosening up? Or how do you see how that playing out? Thanks.
Sure, Arun. Let me start with the volume piece and then I'll have Al talk to the pricing. You're exactly right. We're feeling terrific about the volume and the momentum that we have in our stores organization. Had a number of opportunities to talk with not only our customers, but our employees.
And there's an overall feeling of confidence in the year, many customers talking about this being a record year for them. And I'd say the not too concerned with that, feeling not too concerned with that, feeling good about the key drivers that we've been talking about for quite some time, the continued focus on new accounts and share wallet of existing customers. So that team is executing extremely well. We have great confidence it's going to be a terrific year for our stores.
And Arun, this is Al. When we talk about pricing in our paint stores group, we realized a little more than 2% effective pricing. That was roughly sufficient to offset the raw material increases that we're seeing. And it's in line with the effectiveness that we were expecting in the quarter.
One other thing I'd add to that Arun, we also look at some of the purchases of our customers to give us even more confidence. If you look at spray equipment purchases, for example, those were up double digits. The whole basket, if you look at those things that we look at internally to try to get a sense of how confident our customers are. They're all pointing terrifically in the right direction.
And just as a quick follow-up, if I can. On the other two segments, margins also appear to be improving, and I was pleased to see the consumer performance. So I don't know if you can just characterize the price cost situation you're seeing in those two segments. Are they also improving? Thanks.
Yes. Why don't I take the same approach here? I'll talk about just the market here for just a moment and then I'll have I'll talk about the pricing. But you're exactly right. If you look at consumer, for example, and the way that we're running this business and the way that we look at the results, it's a combined business.
Their combined business for consumer was up 3.8%. And when I say it's combined, it's really one integrated organization now. We don't run separate businesses between the consumer, architectural and the legacy SHW. There's one leadership team, there's one marketing team, one sales organization. And quite frankly, they're the furthest along in the integration.
So they're working hard, trying to be as responsive as they can to our customers' needs without regard to what brand they're selling. And when you look at the performance that they're posting, we're feeling pretty good about their position and the momentum that they have.
I think on the price side, we're still we are seeing the positive effect of pricing initiatives on consumer brands. Certainly a work in process and we have room to grow there. On the Performance Coatings side, as Bob or John talked about in the call, they did see the biggest impact on the increased raw material in the quarter. We had talked about our first half of the year having a tougher comparison from a raw material standpoint. And I would say that group is probably the furthest behind with the highest inflation and again making progress and we'll continue to do so as we roll the quarters out.
Yes. Let me just give you a couple of comments on Performance Coatings from a market side. If you look at the momentum that they have Arun there, if you look at just going back to Q3, their sales were up 5.8%, Q4 up 6.9% and then this most recent quarter up 9.8%. And they're showing improvement year over year in their operating profit. So the profit, if you look at a pro form a basis for that same Q3 period, was down 15.9%, Q4 down 8.7%, and this most recent quarter down 1.5%.
None of us are happy with down 1.5%, but it does illustrate the momentum that we're gaining here while growing our sales. And this is a team that's very determined in what they're doing, and we've got great confidence that they're going to continue to gain traction here.
Great. Thanks. Thanks, Varun.
Thank you. The next question is coming from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.
Thanks very much. If I can just follow-up on Performance Coatings numbers. It looks like sequentially, your revenues were up a little bit and your operating profit was down, I don't know, dollars 15,000,000 So it looks like what's happening is that your raw material squeeze is getting a little bit larger or your raw materials are rising faster than your pricing efforts. Is that true? And how do you expect that progression to go in the second quarter?
Yes, Jeff, so you're absolutely correct. We did see an acceleration of raw material cost increases in our Q1 and it predominantly impacted our Performance Coatings Group. And as you can imagine, when they go up that quick, it's very hard for us to react and put another price increase into the market. That being said, we do have pricing implemented and we'll monitor that situation as we always do on a month by month basis. And if we see another increase that warrants a price adjustment, we'll do that.
So pricing actions are in progress.
Yes. I'd describe it as they're rolling in. There are continued pricing activities that continue, but there are a number of agreements that have already been established that we're waiting for the timing to click in as well. So it's a combination of those price agreements that we've already hit on as well as those that are continuing to be implemented.
Okay. And for my follow-up, in consumer brands, you've picked up some business at Lowe's and I guess you've lost some business at Depot. Like on an annualized basis, is the sales benefit something on the order of 200,000,000 dollars on a 4 quarter basis. And so I guess I'll leave it at that.
Yes, Jeff. So if you look at 2019, you would expect it to be around that amount, maybe slightly below, but around that amount, it's a good start.
Okay, great. Thank you so much.
Thanks, Jeff.
Thank you. The next question is coming from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.
Thank you. Just very quickly within the Americas Group, can you just comment on the actual end market trends across the Resi Repaint, Commercial and Property Management? Just getting away from some of the 1Q noise, just what are your intermediate to long term thoughts? And then also a quick comment on Latin America would be very helpful. Thank you.
Yes, Chris. John walked through the current quarter's performance by segment. We had another double digit performance from in the residential repaint segment, high single digit in protective and marine and mid single digit in most of the balance. I will tell you the outlook for new residential looks pretty positive, among most of the public builders orders, new orders and backlogs are up in the low teens. We've seen continued significant home value appreciation that should drive strong remodeling activity.
Harvard's LIRA forecasts 7 plus percent growth in remodeling activity through the year. The non residential square footage started the year pretty soft, but we expect commercial starts to grow this year probably in the range of about 4%, 4%, 5%. That translates to probably an equivalent level of growth in square footage. So new commercial looks strong. Residential repaint will continue to drive outsized growth in that segment because we're seeing probably a shift from DIY to do it for me and a lot of investment amongst stay in place homeowners in upgrading their homes.
And Chris on Latin America, I'll take that. As a reminder, Latin America represents about 3.9% of our sales. From a sales and volume perspective, all countries were positive both in volume and sales. Pricing continues to improve with more pricing rolling in. So same activities there that we just talked about.
We've achieved some pricing, but we're out working hard to drive additional pricing as well as other margin initiatives internally that we can pursue. Additionally, we're focused on pursuing more profitable segments and price points and customers as you would expect, while continuing to look for additional synergy opportunities. So, we didn't expect to go from a standing start here to a full sprint. This is kind of the path that we expected to see as we saw improvements in Latin America. So I'd say it's progressing not fast enough for us.
We want to move faster and we're continuing to work with our teams to gain traction at a a faster rate.
That's helpful. And just
you did hit a little on this, but just to dig, I guess, one step deeper. Can you just talk about the end market performance and Performance Coatings, specifically those assets acquired from Val? And also I recently saw some price increases in packaging, but kind of what else can you do throughout 2018 to look at the setup for 2019 a little more favorably? So just any insights there would be very helpful.
Yes.
Sure. There are to begin with, there are some incredible sales synergies that our teams are working on. We're very excited about not only the pipeline or funnel, if you will, of existing identified sales synergies, but we're adding to those projects and programs every day. And so the more we work at identifying sales synergies, I'd tell you that the more we're finding the teams are energized and accelerating that. So I think 1st and foremost, the combined businesses are going to be much stronger and more meaningful, we believe, in the marketplace, and our continued efforts there will be to identify more.
Now that said, there's a lot of work that we can do to continue to improve our performance. And by segment, each of those business units have identified those levers where we can pull and drive results. But I'd say when you look at the Valspar business and the transaction, we've always said, we had high expectations in our ability to achieve the value capture. We knew we could get the cost out and we're working aggressively to that and we have more confidence now than ever than that we're going to be able to achieve that. But I'd also say that we have more confidence than ever in the sales synergies that are out there.
And so our teams are working to identify those segments, those customers and how to better leverage their combined assets to drive the complementary nature of this business.
And on the pricing side, we have talked consistently about specifically on Valspar Performance Coatings side that we're one price increase behind. So we're going to chase that throughout 2018. That being said, as John mentioned, prices rolling in and we expect that to continue throughout the year.
Very helpful. Thank you.
Thank you. The next question is coming from the line of Steve Byrne with Bank of America Merrill Lynch. Please proceed with your question.
John, you mentioned a few of these commercial expense line items that you're accelerating as part of that agreement with Lowe's, the sales expense, the marketing and displays and so forth. Are these one time upfront line items that will dissipate over time? Or is it a matter of the expenses are occurring and the sales is going to lag before that shelf space in Lowe's is full filled up with your product?
Yes. Let me take a piece of that, Stephen, and I'm going to have turn it over to Al. I will say this that our expectations here are to help drive Lowe's business. And so to answer it, it's a little bit of both. There are certainly some expenses that we're investing in.
So we're adding additional people, for example, to be a little closer to the sales associates to ensure better execution on the sales floor, right? So doing more of what we've done and wanting to drive better results requires a little different behavior. We think helping to have the sales associates become more familiar and comfortable with a simplified product lineup and technology, helping them to sell better in the aisle, all of those things we think are better off with the additional investments that we're making. When you look at the earnings release that we've posted where this $0.40 hits in here and hits our EPS, part of that comes from the fact that to your point, some of it hits in the 3rd Q4 with very little sales recognition hitting this year. And let me just ask Al to touch on that a little bit.
Yes. Steve, it's really just a timing issue. As you roll the program out, we're basically missing the summer selling season on the paint side, but you're having the cost of those roll in, as John mentioned, primarily in our 3rd Q4. That being said, we're excited about the program in 2019. Certainly, it will be accretive to sales as we talked before, but in profit.
Okay. Thank you. That's helpful. I was wondering if you did have made any changes yet in the China paint model of that Wah Run brand, the legacy Valspar brand. Have you made any changes in that overall model to accelerate sales?
Not so much in the model, Steve, but we are in other areas. We feel as though we've got quite a bit to bring to that business in technology and the approach to growing our business that we're transferring there. Okay. Thank you.
Thanks, Steve.
Thank you. The next question is coming from the line of Don Carson with Susquehanna Financial. Please proceed with your question.
Yes. Thank you. Going back to Paint Stores Group, you had 5.2% same store sales growth. You're talking about Q2 and full year 2018 core sales up in the mid to high single digits, so I assume Paint store
group would be at the
high end of that. What would be the price volume breakout there? Is price going to continue to add about 2 points or given some of the increases we continue to see in TiO2 and with rising oil prices, do you need another price increase in Paint Stores Group to maintain gross margins?
Yes, Don, I think you're right. Price would be around that 2%. And as you recall, we went out 10.1% on October 1. As we continue to roll that in, we might see a little bit more going into our Q2. So the difference is volume and you're absolutely correct.
We do expect our stores, U. S. And Canada stores to be in the high end of the mid to high single digits for our Q2 and for our full year. As far as price goes, we have a long standing tradition that we'll continue to monitor the raw material basket. We'll push back on our vendors.
We'll try to internalize from cost reductions as much as we can. And then absent those levers, we'll talk to our customers first and then talk to the street about any other increases.
And as a follow-up, on raw materials, can you differentiate between what you're seeing on the architectural side versus the industrial side, particularly with epoxies on the ladder? What's sort of the difference in your outlook for raw material increase between those 2 different end markets?
Yes, Don. On the architectural side, the primary driver is still TiO2 and we're seeing a somewhat similar trajectory in TiO2 to what we saw in 2017. All the global producers as we expected have announced 2nd quarter price increases that are currently under negotiation, but that's really primarily what is driving inflation in the architectural side. On the industrial side, the raw material basket, you've got crude oil, propylene, which also architectural coatings, but it affects the industrial piece, epoxy, zinc, all heading in the wrong direction. So we're seeing inflation from more of the raw material components on the industrial side.
There's certainly inflation in the basket on both sides, probably more on industrial.
Thanks, Bob.
You bet.
Thank you. The next question is coming from the line of Ghansham Panjabi with Baird. Please proceed with your question.
Hey, guys. Good morning. Just to sort of back up, given that you stopped giving quarterly EPS guidance, did the Q1 from an earnings standpoint play out the way you thought it would relative to your initial expectations? I know there are several moving parts such as weather, etcetera, that weighed on the quarter. But did the timeline of synergies come in ahead of your initial view maybe?
And how do you think the how much do you think the unfavorable weather in the U. S. Impacted the quarter the best you can tell?
Yes. So I would say the quarter did come in a little bit better than what we were planning. We did have a lower tax rate in the quarter due to some discrete the timing of some discrete items. But you look at the strength in our consumer brands and our Performance Coatings businesses, both outperformed even what our expectations were. So that's really what we why the quarter came in better.
As far as weather is concerned, it's hard to pinpoint an exact amount on what the impact is in the quarter. Okay.
And just sort of a follow-up, just given perhaps some weather disruptions this quarter as well as at the beginning of the quarter, how do you feel about your customers catching up to their backlogs as the year progresses in context of trades generally being tight from a labor standpoint previously?
Yes. We've had a lot of discussion about that, Ghansham. And overall, I'd say at this point, we still feel pretty good about the contractors' ability to maintain what they're calling or what they're projecting to be a record year. We're working hard to help them with that. We've talked a lot about the products that we developed to help their productivity and the services that we provide in our stores to be able to help them be responsive.
So it's going to be a push. There are going to be a lot of people working hard on weekends and long hours. But right now, I'd say we're still confident in their ability to turn this into an outstanding year.
Okay, terrific. Thank you.
Thanks, Ghansham.
Thank you. The next question is coming from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thank you and good morning everyone. As I think about the manufacturing synergies associated with Valspar, I was pretty focused on your ability to consolidate their facilities. But now with this incremental volume going into Lowe's, I mean, how does that change the calculus there? Is having more volume better than shutting down more facilities? Or what if anything has changed?
Absolutely, having more volume is always better than shutting down facilities. But I think the team is still on pace to rationalize the 4 facilities that they had talked about late last year and that'll roll in, in our 3rd and 4th quarters. And I think that team does a great job of finding capacity within the four walls that allows us to take on incremental business without adding significant assets or requiring us to keep the fixed assets.
Okay.
And just as a follow-up, the 600,000 shares repurchased in the Q1, is that was that is there a reason why it was so large in the Q1 and how should we be thinking about repurchases for the balance of the year?
No, I think if you look at we talked about offsetting option dilution and typically our Q1 is our largest quarter on options exercise and with restricted stock that's issued in the Q1. So I think we're a little bit ahead of it. I would say the options didn't come in as heavy as we thought. So we'll monitor that as the year goes on and make sure that we meet our commitments that and make sure we're paying down our debt to get our debt to EBITDA leverage down to approximately 3 to 1 that John talked about.
Okay. Thanks very much.
Thanks Vincent.
Thank you. The next question is coming from the line of Scott Mushkin with Wolfe Research. Please proceed with your question.
Hey, guys. A lot of my questions have been actually answered, but I have one. I think in the press release, you guys talked about the choppiness of kind of the international markets. So I was wondering if you could maybe elaborate on that a little bit, kind of what you're seeing from a macro perspective in the industrial side of your business?
Yes. So when you look at our businesses, naturally, they don't move consistently across each business in one direction. So we have seen in any region sub businesses performing better than others. But overall, collectively, those businesses are performing quite well. We've got a lot of confidence in the team.
And I referenced just the terrific talent that's come from Valspar and the relationships that they have with their customers are just outstanding.
So,
a little bit of choppiness, I think, is pretty normal. We've got a lot of confidence in the team. And as we combine these businesses, as I mentioned earlier, there will be a lot of synergies for growth.
All right, perfect. That was my only question.
Thanks, Scott.
Thank you. The next question is coming from the line of Duffy Fischer with Barclays. Please proceed with your question.
Yes, good morning. First question is just as we start to anniversary Valspar, the growth rate within Valspar businesses starts to matter more as we do our year over year. So within consumer and performance, how fast on a pro form a basis has the Valspar part of the business been growing?
So on that, you look at the certainly in the quarter, both the consumer business was up over 13% and the performance coatings Valspar business was up a similar amount. I temper the consumer business a little bit. I don't think we're expecting double digit gains. We'll take double digit gains, but I don't think we're expecting that out of that team on a longer cycle. But you'd expect low mid single digit growth across the group, I think, and that's where we're starting to look at Duffy is, we've integrated so much and made such great progress, specifically, as John mentioned, on consumer.
It's hard to look at Valspar versus Sherwin. So, we look at the group and we're expecting low to mid single digit growth in that group. On the Performance Coatings side, the momentum they have, we're expecting a little bit better than that. And again, they're well down the path of integration and we're looking at a combined business and our outlook is to say that mid single digit growth rate is mid to high single digit growth rate is probably what we're looking at.
Okay. And then, again relative to consensus, you guys beat the Q1 pretty handily. You just talked about you beat your own internal expectations, but yet you brought the year down the same $0.40 that the Lowe's stuff is going to hit you. With a bad Q1 weather wise and some momentum there theoretically to pick up, it feels like that means Q2 through Q4 is a little bit light relative to what your original expectations are. Can you just kind of help triangulate some of those numbers?
Yes, sure. First, I mean to be clear, we reaffirmed our original full year EPS guidance at the midpoint, that's a 26% increase year over year. So you need to deliver and we needed to deliver a strong Q1 and get off to a strong start. As I mentioned, the tax rate was a little bit lower that gave us a little bit of a tailwind. We fully expect the full year to be in the next rest of the quarters to be in the low to mid-twenty percent range.
And Duffy, our first quarter is our smallest and generally most volatile quarter of the year. It's been a long standing practice as ours to wait and see how the painting season unfolds before considering revisions to the outlook. And I think that's served us well in the past and we fully want to continue with that practice.
Terrific. Thank you, guys.
Thanks, Duffy.
Thank you. Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you. Good morning. John, Lowe's has a professional paint focus going forward. How do you make sure that incremental professional paint sale at Lowe's expense of Home Depot or something else like that rather than your own paint stores?
Yes. So there's a terrific opportunity there. When you think about the painting contractor that's painting every day, they typically have gravitated towards a specialty paint store and we work hard to make that easy for them. But there is an entire customer base when you think about the home centers, people that use paint in part of their projects or part of a remodel project that it's a little more difficult for our teams to reach through a specialty store. So we think it's a terrific opportunity for us along with our customer Lowe's to better penetrate that.
And we don't think at all that it's cannibalizing our core business. It's typically customers that are in home centers that are purchasing other products, be it drywall or plumbing or whatever it might be and using paint as part of that project. And we're really excited about working with our customer to reach those customers in a new and increased rate.
Very good. And John, just lastly, in Performance Coatings, how would you characterize level of competitor support for price increases in these businesses?
I'd say that we when you think about this, when you think about the cost of goods, raw materials represent 85% of the cost of goods. When the basket moves, you really need to get it. And our view is clearly on adjusting to the basket as it moves. I'd say that because nearly everyone probably has similar dynamics, many would feel the same pressure and probably have to take the same type of activity to stay hold, but we're more focused internally than we are from a competitive standpoint. We'll let them make their decisions.
We know we have to make ours.
Thank
you. Thanks, David.
Thank you. Our next question is coming from the line of P. J. Juvekar with Citigroup. Please proceed with your question.
Yes. Hi, good morning. You guys clearly delivered on sales synergies by winning this loan business.
So question
on this incremental business that you just won, do you expect that to be a lower margin business because of increased branding and marketing cost? And secondly, did you have to offer a lower price to win that business?
Well, we don't talk about specific pricing or customers. But I would tell you that the value here is in the branding and the opportunity to help our customer reach their goals. We clearly have a raw material basket that's moving. We think it's just good practice for us to have open discussions with our customers about our need to remain whole to be able to serve their business and help them grow. And so that's the nature of our business.
We're not going to get into any specifics, but I would say that it's going to help our profitability. And is that help our profitability for next 12 months or is the profitability going to improve after the 12 months? No, if I understand your question correctly, we're going to have a little bit of drag that Al talked about. That's the $0.40 that we thought this year as the cost moves in. But moving forward, next year, we expect that's going to help us and our goal is going to be to grow that in both sales and profitability going forward, not just 1 year.
Okay. And then your LatAm business was quite strong, revenues up 9.5%, profits were up. What are you seeing there? Are you seeing a turnaround in LatAm business?
The market is definitely starting to show positive signs. I think our teams are executing well. But again, I want to be very clear, while we're pleased with the progress, there's a lot of work for us to continue to work on and our teams are really hunkered down trying to do the right things here.
Okay. Thank you.
Thanks, P. J.
Thank you. The next question is coming from the line of Bob Koort with Goldman Sachs. Please proceed with your question.
Thanks very much. Al, you guys gave an earnings number that excluded some of the one offs that I think $357,000,000 was what you posted. Can you tell me what the EBITDA would be on the same basis?
So EBITDA was up 6% in the quarter for the core Sherwin. That would have been give me one second. So we would have made $414,000,000 versus last year of $391,000,000 so up 6%. And as we talked about $551,000,000 $5.52 is the total.
But your $5.52 has the one offs? I guess I'm trying to extract to make it a like for like to the EPS number. Yes.
So you take about it's about $30,000,000 adjustment for the one off. So the 552 would be at 30.
And then on TiO2, do you guys have any desire to enter into these long term contracts that the producers are seeking? Or do you think this is just a typical hardcore commodity? So why lock in anything now if it might loosen up down the line?
Bob, we have a terrific procurement team, as you know, and our goal is to do what's right. If they feel as though there's some benefit to lock up a piece or a part of that, they have the ability to do that. We're not convinced that it has to be a 1 or a 0 here. We're looking at best for our shareholders long term and we'll take the appropriate action as they see fit.
Got it. Thank you very much. Thanks, Bob.
Thank you. Our next question is coming from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.
Hi, good morning. I was wondering if you could comment just on the consumer business overall, the sales growth there was pretty good. Wondering, did you already see some additional load in at Lowe's in the Q1? Can you maybe walk through what you saw in sort of the different segments in consumer, including in Europe and in Asia?
Yes. So, Mike, we did not begin to see the benefit of the new agreement at this point. The growth primarily came through North America through a cross section of customers, but primarily in the national retail category. And I'll remind you that the consumer group pursues 4 segments, this national retail, MRO or in commercial, other retail, and as you mentioned, Europe and the small business in Asia there. The other point before talking about those other areas, I'd say we did face a softer comp in the Q1.
So we did have a benefit of that as well. But when you look at the numbers, if we're going to move the needle, it's going to be in North America. The European business in Asia offer opportunities, but there's much smaller businesses. So there's a lot of effort going on there as the synergy opportunities are explored for technology and transfer of just institutional knowledge going both ways. But the reality is, if we're going to be successful here, we've got to move the North American needle.
And that's what we're working on the most.
All right. And then you guided to $600,000,000 of incremental sales for the 2 months of Valspar in the second quarter. It looks like that's maybe a little slower pace than I have that you did about $10.60 $1,060,000,000 in the first quarter. Is that reflecting some of the changes with the big box retailers? Or kind of how should we think about that contribution maybe being in a lower run rate
than you were in the Q1?
Yes, Mike, I wouldn't read anything into that. It's approximately $600,000,000 for April, May and then it rolls into our comp going forward. But nothing of concern in that run rate.
All right. Thanks very much.
Thanks, Mike.
Thank you. The next question is coming from the line of Mike Sison with KeyBanc Capital Markets. Please proceed with your question.
Hey, good morning guys. In terms of gross margin, when you think about the 42.5%, where does that go for the rest of the year? And what's kind of the embedded gross margin for the full year embedded in your guidance?
Yes. We don't break out gross margin specifically in the guidance. But what I would just say is, as we talked about, our first half would be our toughest comparison on a raw material basis year over year. If raw materials trend like we believe they will, we should see sequential improvement. And I'll go back to also the original EPS guidance at $19.05 it's a 26% improvement.
Embedded implied in that is gross margin expansion and SG and A leverage. That's the only way we can get to those numbers.
And your raw material outlook is still low single digits?
Yes, Mike, it's still 4% to 6% range. Based on the Q1 running a little higher in terms of year over year inflation than we anticipated, we're likely going to push toward the higher end of that range for full year. Now as a reminder, that is our outlook for the industry on a basket similar to what we buy. That does not include raw material synergies.
Got it. And then just a quick follow-up on the $0.40 As you head into 2019, will you overcome that $0.40 Meaning that once you get the sales in from Lowe's and you've got the costs embedded, is it a plus $0.40 plus next year?
Yes. It will be a plus 40. We're not going to probably talk about how much of it more than that.
Got it. Thank you.
Thanks, Mike.
Thank you. Our next question is coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Good morning. Thank you. In response to an earlier question, I think you indicated potential for sales to Lowe's in the amount of nearly $200,000,000 in 2019. My question is, how would you characterize the amount of foregone sales at Home Depot relative to that number? And is there a timing difference between the load in at Lowe's versus the phase out at Home Depot?
Yes, Kevin, that was the number I was quoting is a net number for 2019. As far as timing goes, Lowe's will dictate the cadence of the roll ins and Home Depot and that will happen this year as well. But much past that, Kevin, we're not going to get into a lot of the detail related
to you. Yes. I think out of respect to our
customers, both Home Depot and Lowe's, we're going to allow them to announce when the different brands will be or will not be available.
Fair enough. I appreciate that clarification that it was a net number. And then second for Al, given the change in tax regime and the lower rate in the Q1 of 2018, Do you see any downward tension in your rate? I know you're affirming low to mid-twenty percent range, but was the 1Q level strictly discrete items or is there any residual effect that you foresee?
Yes. The 1Q was the timing of the discrete items. And I would highlight, if you look at our core business, Valspar and Lowe's together, our effective tax rate was 19.4% versus last year of 22.7%. The impact of the acquisition related costs drives the consolidated rate down, but really nothing more than just timing of discrete items in that Q1. And it's a small quarter, so has a bigger impact.
Thank you.
Thank you. The next question is coming from the line of Nishu Sood with Deutsche Bank. Please proceed with your question.
Thank you. I wanted to ask about the synergies. In your commentary, John, you mentioned synergies contributing to margins in the consumer group, but didn't mention it in the margin commentary for Performance Coatings. And that may just have been the different trends. I just wanted to dig into that a little bit.
Should we expect here on a 2018 kind of sequential basis, different cadence of synergy realizations. So I just wanted to check into that to see if there wasn't something behind that.
Yes. So if I didn't speak to the synergies and the work that the team is doing on the Performance Coatings side, then that was an error on my part. A lot of good work and really terrific effort on the part of the Performance Coatings team as well. So yes, there are going to be synergies there. I will say that there are synergies going to hit in 2018.
And then as you look ahead from a manufacturing standpoint, there'll be additional opportunities from an asset rationalization standpoint in the future that will take a little bit longer as we get systems and processes in place to look at those outside of the U. S. That will benefit the Performance Coatings business the most.
Yes. And Nishu, let me add that, just if you look at the cadence of the midpoint that we talked about $150,000,000 by quarter, it's really more front end loaded than back end loaded. And that's related to the projects that have been validated as we went through last year that we see going through the P and L and feel confident about. And then the back half is really getting impacted by new projects, system implementations that John talked about and then the factory closures that I talked about earlier.
Got you. That's helpful. Thank you. And in terms of the consumer group, I know this will go away next quarter, but or maybe the quarter after that. But in terms
of the
breakdown between the old legacy Valspar and the legacy Sherwin Williams, quite a strong performance from the Valspar side of things, kind of continuation of trends on the Sherwin Williams side of things. I wonder if you could just speak to that and particularly the acceleration on the legacy Valspar side.
Yes. So I mentioned just briefly earlier that the way this business is managed and run now, it's very difficult to account for a sale or a synergy on one side or the other. So as we brought the businesses together, for example, the sales organization is a combined sales organization. There were some sales reps that there are some sales reps that were previously from Valspar, some from Sherwin Williams, same with products. And so this is the area, as I mentioned, that they've made we've made the most progress in integration.
So it's very, very difficult to account one side or the other. Our focus here is purely on doing what's right for the customer. And so if selling the gallon of Sherwin or a gallon of Valspar is what's right for the customer, we're pursuing that. We're adding that up and giving you that information as a legacy and Valspar legacy Sherwin, but it's not the way we're running the business and it really doesn't account for the overall synergies and efforts that are taking place. It's probably the most area that's the area that's most gray amongst all of them.
Got you. Makes sense. Thank you.
Thank you. The next question is coming from the line of Scott Rednar with Zelman and Associates. Please proceed with your question.
Hey, Al, could you just clarify relative to the $140,000,000 to $160,000,000 of synergies this year, how much exactly was realized in
1Q? It would be if you split it, the 150 by 4 quarters, we saw a little bit more than that in our first quarter. It's the way I'd characterize it.
Okay. Thank you. And then can you guys talk to on the paint store side within North America, the delta between interior, exterior, kind of what was the gap and are you seeing that at all reverse here in April?
Naturally, the interior was much stronger in the Q1. So there were high single digit gains in interior and we were positive in the low or mid single on exterior that this time of year, we would expect to see more exterior gallons going out in the Southeast and Southwest than what we did. And Eastern's impact was probably significant as well. Not so much that they saw the impact on exterior, but just on completion of projects, it certainly had an impact on business there.
And then just lastly, John, I mean, a few years ago, you guys put a significant amount of SG and A spend into the Lowe's program. And safe to say that trailed some of the more robust expectations you have for that program back in 2014, 2015. How do you get confident that a higher level of spend right now you could get a return on that spend when you look to the next couple of years?
Well, it's every element of the business, Scott. If you start with the fact that we've got a partner here who is committed to us and us to them in this area of their business. So the opportunity to work collectively on a brand assortment, the training of their people. The simplified branding, if you just look at it from that standpoint, instead of having 2 or 3 different brands in there with sales reps all calling on the sales associate giving their feelings on which is the right product to sell in which situation, the ability to better train and have them more knowledgeable about the product technology. I mean, every aspect of the business we think is terrific and meaningful.
And when you look at the alignment that we have there, we think it's going to be a big win. Now that said, we talked a lot about their performance in North America. Their partners outside of that specific customer had a terrific Q1 as well. We've got great relationships with other customers that we're continuing to work with, if it's Ace or Menards or a whole host of other customers that are doing extremely well. So we're very pleased and we're very focused on doing what's right for each one of these customers and we think we've got some good momentum.
Great. Thanks so much, Chad.
Thanks, Scott.
Thank you. The next question is coming from the line of Dmitry Silversteyn with Longbow Research. Please proceed with your question.
Yes. Thanks for taking my questions. A lot of my questions have been answered, but I just want to confirm something. In your Wood Coatings business, your competitor was talking about seeing some weakness there because of the way Chinese are coating at the plant rather than coating in the field. Are you seeing that in your wood business or is your wood business primarily sort of plant applied coatings?
Well, there are 2 different areas there, Dmitry. You're right. There's the architectural type customers that apply wood in homes as well as the manufacturing. And there is a trend to having more of that product manufactured in a factory as opposed to stained and finished on projects.
And how does it affect your business? Is it a net positive for you either on top line or margin or neutral or negative?
I'd say it's probably neutral. I mean maybe yes, it's an opportunity for us. When you look at our market share there, Dmitry, there's tremendous upside and that's what we're focused on.
Okay. Okay. Got it. And then just question. Was there a foreign exchange benefit to your Performance Coatings revenue number?
You provided for consumer and the Latin American piece, but I don't maybe I missed it, but not for performance.
On performance coatings, the FX impact on our PBT was about 4,600,000
dollars That's on profit, right?
Yes, it's on profit.
What was the impact on revenue?
It's 3.9% of the tailwind.
Okay. Thank you very much.
Thanks, Dmitry.
Thank you. Our next question is coming from the line of Chuck Cerankosky with Northcoast Research. Please proceed with your question.
Good morning or good afternoon, everyone.
If
I want to direct your question to Al, technical question, Al. Looking at the purchase accounting impacts for the Q1, they were $0.71 and the guidance is $2.65 for the full year. So not quite 4 times as much. Does that simply reflect the lower tax rate in the quarter? Are there some were there some one time non amortization items in the Q1?
It was about $30,000,000 of the non amortization type items in the Q1. And Chuck, we called out $100,000,000 for the year on one time integration costs. And the way that would roll out, it'd be 2nd quarter would probably be similar to our Q1 and then it'll drop down from there.
All right. Thank you on that. And then John, when we're looking at pricing actions, Sherwin Williams takes, it seems that it's relatively easy. And I say that with much respect to get them through to the contractors. How do you look at the same situation when you're talking to retailers and talking to OEMs?
Well, I wouldn't say that any pricing is easy, Chuck. What we're trying to do is what we've done historically and Valspar has done historically as well. And that is continue to provide the products and services that allow our customers to be successful. We're in the solutions business, right? So we're bringing products and services that help them reach their goal.
And when our raw material basket moves, we have open discussions with them to help them understand what's happening from our cost standpoint. But I'd say this, it's not so much the discussion or that meeting that determines our success, Chuck. It's what we do all year. When we're working for our customers on a regular basis, helping them reach their goals, then as our costs go, we're much more likely to be successful in having those cost discussions than having to come down to one discussion if you've failed all year. So we're working hard every year to provide the great products and services that allow us to be successful when our raw material basket moves.
Understood. Thank you much.
Thanks, Chuck.
Thank you. Our next question is coming from the line of John Roberts with UBS. Please proceed with your question.
Good afternoon. You operate your own truck fleet in the U. S. Is the tightness in the trucking market allowing your controlled distribution to allow you to gain any share or provide any extra advantage right now? And are your costs inflating like they are in the 3rd party trucking market?
The answer to your first question, I'd say that it is an important part of our service model. So the idea of being able to serve our customers with our fleet is one component, John, of what I just mentioned, having good service all year. We have about 700 drivers that operate 550 tractors and they're an important part of our team. And so the ability to serve customers is a result of having our own drivers, allows our drivers to make 9 time deliveries, for example, in our stores so that our store people can be more focused on our customers. To your point about the flexibility, we can be responsive as opportunities arise to be there when our customers need us.
As far as the costs, we have terrific retention of our employees, including our drivers, because we pay a very competitive wage and we'll continue to do that. There's not been significant price or cost increases here, but we're also very sensitive to what's happening in the market to make sure that we're paying our drivers appropriately.
The next question is coming from the line of Greg Melich with MoffettNathanson.
I had a quick one for Al and then a follow-up on price and volume. Al, the 3 times debt to EBITDAR leverage, where does that go once we make the lease accounting adjustment? Does that change it by a turn or how do we think about that?
Yes, it won't change it. I think it will change it by roughly a third to a half when we get the full impact of the leases on our balance sheet.
Got it. So that's how much it will go up. And so when you get that target to stay under 3, that will bump up that sort of the headwind you have into next year?
That's
right. Okay.
And then on the business, I want to make sure I got the comp right and the price volume mix. So if the comp was 5.3% and let's say price was 2% and volume was 3. Given that the rest of the year looks like the comp will need to be a couple of 100 bps higher, is that improvement in comp that you're expecting more from price increases rolling through or more from volume pickup?
It's going to be from volume.
So we should assume the price still stays around that 2 level and that that's not
Yes, I mean, yes, certainly you get a little bit little bit improvement as we continue to work with our customers, but it won't be significantly more than that.
Okay. Thanks a lot. Good luck, guys.
Thanks, Greg.
Thank you. Our next question is coming from the line of Patrick Lambert with Raymond James. Please proceed with your question.
Hi, good afternoon. Thanks for taking. A few questions. We see it's mostly about timing. The timing of the $0.40 cost for developing LoVE solutions, if you could tell us about the EUR0.20 in Q2 and Q3 and then almost breakeven in Q4, right?
That's question number 1. But the same questions for synergy, I think you pretty much answered that it could be about the same for each quarter, but just if you could confirm the impact of the synergies per quarter. And finally, raw materials, I tried to get the absolute dollars headwinds in Q1. Is that fair? Like it's just a bit above $110,000,000 of headwinds from raw materials?
Thank you.
So on the timing of the Lowe's program, I would say it's going to be more heavily weighted to our 3rd and 4th quarters. As far as the synergies, Patrick, like I said, it's pretty even throughout the quarters, but a little more heavily weighted to our 1st and second quarters. And on the raw just the pure raw material dollars, the $110,000,000 I think you said sounds a little bit heavier than what I would say, but not really materially off.
About €100,000,000
Sure.
Okay.
That's it for me. Thanks, Patrick. Thank
you. Our next question is coming from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Good afternoon. Just two quick clarifications. You had some commentary about how your customers have improved their productivity. Does that in the Architectural segment, does that imply that the summer volumes could be higher than your historical growth rates? Or do you see the soft start to the year as more just pushing out into creating pent up demand that will be satisfied in Q4?
And secondly, I don't think there's any ambiguities in this, but apparently there might be, which of the earnings ranges is the benchmark that you will be using to build your bridge to 2019?
So on the what we're building as our benchmark would be the consolidated excluding Dalspar acquisition $18.35 to $18.95 That's what I would have you focus on as our base going into 2019.
And in terms of the comments on customer productivity, I think the comment was we're going to do everything in our power to help our customers improve their productivity both through product performance and service model in an effort to frankly help them catch up. They fell a little behind in the Q1. They've got a lot of work to do. They're going to be, we're sure, working longer hours, more weekends, but we're going to participate in that. Perfect.
Thank you. Thanks, Lawrence.
Thank you. Our next question is coming from the line of Rosemarie Morbelli with Gabelli and Company. Please proceed with your
question. Good afternoon, everyone, and thank you for taking my questions late. I was wondering if you could give us some details on the packaging side. 1 of your competitor is making progress and says that they are gaining share on the non BPA coatings. Could you help us understand what is happening there, 1st of all, in terms of what your growth is in that category?
And then whether the industry, at least in Europe, has already caught up and everyone is more or less non BPA?
Yes. So the packaging business is our fastest growing business in our Performance Coatings business. So we're thrilled with the momentum that we have there, the team that's executing and quite frankly, the technology that we have. We think we have a very unique technology that has really been very well accepted by our customers and it's growing in acceptance here and we're thrilled with it. It's performing very well and from a market share standpoint, we think we're doing quite well.
All right. And if we look at the general industrial side, could you give us a feel for the trends and the categories which are showing more improvement year over year and continuing in that particular vein?
In general, industrial, you're talking about?
Yes.
Well, again, another strong performing area for our Performance Coatings business. They're having very good progress or they're making very good progress in various segments in different geographies around the world. So earlier there was a question about choppiness and I made the comment about that it's not every business in every segment moving straight line. So here in the GI business, there are segments in, for example, North America that are doing very well that may not be as performing as strongly in other parts of the world, but collectively that business is performing very well. Again, as I mentioned in my prepared comments, it's in the top 2 or 3 of the Performance Coatings segment.
Could you share with us which areas are not doing as well in North America, for example?
We don't Rosemarie, we don't break into that business in great detail. But I'd say overall, we're very pleased with the performance there. And this is another area from a price standpoint that they've got some very large customers, they've been working through pricing and we're expecting to see price recovery in this space.
Okay. Thank you.
Thanks, Rosemarie.
Thank you. It appears we have no further questions at this time. So I'd like to pass the floor back over to Mr. Wells for any additional concluding comments.
Thank you, Jesse. As a reminder, our annual financial community presentation is scheduled for Tuesday, May 22. It will be held in Boston. The program will consist of a brief business review by our segment leadership teams, including an update on our Valspar integration plan and progress, and presentations will be followed by a Q and A session and lunch with management. If you have not signed up and would like to attend, registration is still open.
Send me an email at rjwellsherwin.com and I will reply with a link to our registration site. Jim Jay, our VP of Investor Relations and I will be available over the coming days to help you with any follow-up questions that arise as you digest this morning's call. I'd like to thank you again for joining us today and thank you for your continued interest in Sherwin Williams.
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