Good morning. Thank you for joining The Sherwin-Williams Company's review of first quarter 2018 results and expectations for the full fiscal year of 2018. With us on today's call are John G. Morikis, President and CEO, Allen Mistysyn, CFO, Jane Cronin, Senior Vice President Corporate Controller, and Bob Wells, Senior Vice President Corporate Communications. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at sherwin.com. An archived replay of this webcast will be available at sherwin.com beginning approximately two hours after this conference call concludes and will be available until Monday, May 14th, 2018, at 5:00 P.M. Eastern Time. This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to 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 24th press release. Consolidated sales in the first quarter 2018 increased $1.2 billion, or 43.6%, to $3.97 billion. Excluding Valspar results, core consolidated sales increased 4.9% in the quarter. Consolidated gross profit dollars in the first quarter increased $343.8 million or 25.6% to $1.69 billion. Consolidated gross margin in the first quarter was 42.5%, compared to reported first quarter 48.6% in the same period last year. Selling general and administrative expenses increased $203.5 million or 20.1% to $1.21 billion 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&A as a percent to sales is primarily the result of a mix effect from the inclusion of Valspar. Interest expense for the quarter increased $65.9 million to $91.5 million. The increase was entirely due to acquisition-related interest expense. Consolidated profit before tax in the first quarter decreased $3 million, or 98 basis points to $303.6 million. These results include a year-over-year increase in acquisition and integration costs of approximately $106.8 million. Our effective income tax rate for the first quarter 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% 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 first quarter earnings per share comparison in a Regulation G reconciliation table at the end of our first quarter 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 $128.7 million, or 6.6%, to $2.08 billion. 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 first quarter, 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.
First 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. First quarter segment profit increased $32.2 million, or 10.5%, to $337.4 million. First 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 million, or 103% to $656.4 million. 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 $18.3 million or 32.8% to $74.2 million. Segment profit for the quarter includes a $31.8 million 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, first quarter net sales in U.S. dollars increased $743.3 million or 153.4% to $1.23 billion. 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 first quarter increased $33.7 million or 58.9% to $90.8 million from $57.1 million last year. Segment profit for the quarter includes a $57.5 million charge for purchase accounting amortization. Excluding Valspar, core segment profit decreased 12.1% in the quarter. Currency translation rate changes increased segment profit $4.6 million in the quarter.
As a percent of net sales, segment profit decreased to 7.4% in the first quarter 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 Sixth District Court of Appeal 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 two issues to resolve. First, calculation of liability based on the pre-1951 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 28th, and initial briefs on the proposed size of the abatement fund were filed last week. The next hearing is scheduled for May 24th. 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 first quarter. Let me turn the call over to John Morikis 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 first quarter. 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, and 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 first quarter 2017, with a little more than half coming from volume. Consolidated gross profit dollars increased by nearly $40 million in the quarter, but core gross margin declined 93 basis points year-over-year to 47.8%.
SG&A as a % of sales decreased 121 basis points. Core consolidated profit before tax increased 7.2% and expanded 25 basis points as a % of sales. Core diluted earnings per share, again, excluding Valspar results and acquisition costs, increased 10.7% to $2.89 compared to the same quarter last year. The Valspar business added a little more than $1 billion in net sales and $0.68 to earnings per share in the quarter. Consolidated first quarter 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 TAG'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 first quarter last year, reflecting our progress in implementing price increases to offset a challenging raw material cost environment and good expense control as SG&A decreased slightly as a % to sales. The group opened seven 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 first quarter, but the improvement is not quite as obvious in the numbers. On a year-over-year basis compared to pro forma combined results from first quarter 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, first quarter sales increased nearly 15% compared to fourth quarter 2017, much of which is probably attributable to seasonality.
In first quarter reported operating margins expanded 720 basis points to 11.3% compared to 4.1% in fourth quarter. Backing out purchase accounting amortization expenses from both quarters, segment operating margin in the first quarter was 16.2% compared to approximately 9.9% in the fourth 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 28th, 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 Purdy, 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, 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 first quarter 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 expect earnings dilution of approximately $0.40 this year. In the Performance Coatings Group, top line growth was just under 10% compared to pro forma combined revenues in the first quarter 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 million, adjusted operating margin in the quarter was 12.1%, which compares to 13.5% pro forma 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 $557.8 million in the first quarter, which includes $137.9 million from Valspar. EBITDA margin was flat year-over-year at 13.9% of sales. Core EBITDA without Valspar increased 6% to $413.9 million.
Net operating cash in the quarter was $40.7 million compared to $231.8 million a year ago. Net operating cash in the first quarter last year included a benefit of approximately $137 million from settlement of the treasury lock hedge. Changes in working capital account for most of the remainder of the difference. On March 31st, the company had $158.6 million 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 million in cash dividends. The balance sheet reflects preliminary purchase accounting balances and total debt of approximately $10.8 billion. We intend to reduce our net debt-to-EBITDA ratio to approximately 3 to 1 by the end of 2018. Our capital expenditures in the quarter totaled $42.3 million. Depreciation was $71.6 million. An amortization of intangibles and inventory step-up was $85 million.
For the full year, we continue to expect capital expenditures to be approximately $330 million, 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 million to $290 million, and amortization will be about $340 million. 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 first quarter, we purchased 600,000 shares at an average price of $401.91 per share. On March 31st, we had remaining authorization to acquire approximately 11 million shares. It's hard to believe that June 1st will mark one 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&A, raw materials, manufacturing, distribution, R&D, and revenues. We have confidence in our 2018 year-end annual run rate synergy target of $320 million, which should benefit this year's P&L by about $140 million to $160 million. 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 million to $415 million. Turning to our outlook for the balance of the year.
With strong sales and volume momentum coming out of the first quarter, we anticipate second quarter consolidated core net sales will increase a mid to high single-digit percentage compared to the second quarter of 2017. In addition, we expect incremental sales from Valspar to be approximately $600 million for the months of April and May, with June 1 making the one 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 first five months of 2018 to add approximately $1.7 billion to consolidated revenues. With these factors in mind, we anticipate diluted net income per common share for 2018 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 Lowe's partnership, which reduces the anticipated income contribution from Valspar to $2.30-$2.50 per share. Acquisition-related costs and purchase accounting impacts are expected to be $3.40-$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. We'll be happy to take your questions.
Thank you. At this time, we will be conducting the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is coming from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.
Good morning. Thanks, guys.
Good morning.
I guess, just a couple of questions. First off, just wanted to understand the 5.2% same-store sales performance. I know that you guys increased the prices by 3%-5% in October, maybe you can just update us on the traction there.
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 know that the paint season is off to a slow start here, are you optimistic that things could improve with weather getting better and labor availability maybe loosening up? How do you see that playing out? Thanks.
Sure, Arun. Let me start with the volume piece, 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 confidence is very strong. You're right, we got off to a little slower start in a smaller quarter. 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. That team is executing extremely well. We have great confidence it's going to be a terrific year for our stores.
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 looked 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.
Just as a quick follow-up as I can. On the other two segments, margins also appear to be improving, and I was pleased to see the consumer performance. 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.
Why don't I take the same approach here? I'll talk about just the market here for just a moment, then I'll have Al talk about the pricing. 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%. 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. Quite frankly, they're the furthest along in the integration. They're working hard, trying to be as responsive as they can to our customers' needs without regard to what brand they're selling.
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 are seeing a positive effect of pricing initiatives on Consumer Brands. It's 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 increase for raw material in the quarter. We had talked about our first half of the year having a tougher comparison from a raw material standpoint. I would say that group is probably the furthest behind with the highest inflation. Again, making progress and will continue to do so as we roll the quarters out.
Yeah, 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%, then this most recent quarter up 9.8%. They're showing improvement year-over-year in their operating profit. The profit, if you look at a pro forma 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. 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, Arun.
Thank you. The next question is coming from the line of Jeffrey Zekauskas with JPMorgan. Please proceed with your question.
Thanks very much. If I can just follow up on the Performance Coatings Group numbers. It looks like sequentially, your revenues were up a little bit and your operating profit was down, I don't know, $15 million? 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? How do you expect that progression to go in the second quarter?
Yeah. Jeff, you're absolutely correct. We did see an acceleration of raw material cost increases in our first quarter, and it predominantly impacted our Performance Coatings Group. 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
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. Pricing actions are in progress.
Yeah, 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 kick in as well. 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. 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. On an annualized basis, is the sales benefit something on the order of $200 million on a four-quarter basis? I guess I'll leave it at that.
Yeah, Jeff, if you look at 2019, you would expect it to be around that amount, maybe slightly below, but around that amount is 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 residential repaint, commercial, and property management? Just getting away from some of the 1Q noise, just what are your intermediate to long-term thoughts? Also a quick comment on Latin America would be very helpful. Thank you.
Yeah, Chris. John walked through the current quarter's performance by segment. We had another double-digit performance 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, 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% growth in remodeling activity through the year. In 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% or 5%. That translates to probably an equivalent level of growth in square footage. 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.
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. 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. 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. I'd say it's progressing, not fast enough for us.
We want to move faster, we're continuing to work with our teams to gain traction at a faster rate.
That's helpful. 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 Valspar? Also, I recently saw some price increases in packaging, but what else can you do throughout 2018 to look at the setup for 2019 a little more favorably? Just any insights there would be very helpful. Thank you.
Yeah. Sure. 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. The more we work at identifying sales synergies, I tell you that the more we're finding, and the teams are energized and accelerating that. I think first 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. By segment, each of those business units have identified those levers where we can pull and drive results.
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 that we're going to be able to achieve that. I'd also say that we have more confidence than ever in the sales synergies that are out there. Our teams are working to identify those segments, those customers, and how to better leverage the combined assets to drive the complementary nature of this business.
Chris, on the pricing side, we have talked consistently about specifically on Valspar performance coatings side that we're one price increase behind. We're going to chase that throughout 2018. That being said, as John mentioned, price is 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 filled up with your product?
Yeah. Let me take a piece of that, Steve, 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. To answer it's a little bit of both. There are certainly some expenses that we're investing in. 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? 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.
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 third and fourth quarter with very little sales recognition hitting this year. Let me just ask Al to touch on that a little bit.
Yeah. 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. You're having the cost of those roll in, as John mentioned, primarily in our third and fourth quarter. That being said, we're excited about the program in 2019. Certainly will be accretive to sales as we talked before, but in profit.
Okay. Thank you. That's helpful. I was wondering if you have made any changes yet in the China paint model of that Huarun brand, that 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. 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 two 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?
Yeah, Don, I think you're right. Price would be around that 2%. As you recall, we went out 10-1 on October 1st. As we continue to roll that in, we might see a little bit more going into our second quarter. The difference is volume, and you're absolutely correct. We do expect our stores, U.S. and Canada stores, to be in the higher end of the mid to high single digits for our second quarter 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. Then absent those levers, we'll talk to our customers first, and then talk to the street about any other increases.
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 latter? What's sort of the difference in your outlook for raw material increases between those two different end markets?
Yeah, Don, on the architectural side, the primary driver is still TiO2. We're seeing a somewhat similar trajectory in TiO2 to what we saw in 2017. All the global producers, as we expected, have announced second quarter price increases that are currently under negotiation. 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 affects architectural coatings, but it affects the industrial piece. Epoxies, zinc. All heading in the wrong direction. 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.
Yeah. 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 first quarter from an earnings standpoint play out the way you thought it would relative to initial expectations? I know there are several moving parts such as weather, et cetera, that weighed on the quarter, but did the timeline of synergies come in ahead of your initial view, maybe? How much do you think the unfavorable weather in the U.S. impacted the quarter, the best you can tell?
Yeah. 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 the timing of some discrete items. You look at the strength in our Consumer Brands and our Performance Coatings businesses, both outperformed even what our expectations were. That's really 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. Just as sort of a follow-up, just given perhaps some weather disruptions this quarter as well, at least 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?
Yeah, we've had a lot of discussion about that, Ghansham, 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 develop to help their productivity and the services that we provide in our stores to be able to help them be responsive. It's going to be a push. There's going to be a lot of people working hard and on weekends and long hours. Right now, I'd say we're still confident in their ability to turn this into an outstanding year.
Okay, perfect. 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, 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. I think the team is still on pace to rationalize the four facilities that they had talked about late last year, that'll roll in our third and fourth quarters. 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. Just as a follow-up, the 600,000 shares repurchased in the first quarter, is there a reason why it was so large in the first quarter? How should we be thinking about repurchases for the balance of the year?
I think we talked about offsetting option dilution, typically, our first quarter is our largest quarter on options exercise and with restricted stock that's issued in the first quarter. I think we're a little bit ahead of it. I would say the options didn't come in as heavy as we thought. We'll monitor that as the year goes on, make sure that we meet our commitments, make sure we're paying down our debt, to get our debt-to-EBITDA leverage down to the approximately three to one that John talked about.
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, and I was wondering if you could maybe elaborate on that a little bit, kind of what you're seeing from the macro perspective in the industrial side of your business.
Yeah. When you look at our businesses, naturally, they don't move consistently across each business in one direction. We have seen in any region, some businesses performing better than others. Overall, collectively, those businesses are performing quite well. We've got a lot of confidence in the team, and I've referenced just the terrific talent that's come from Valspar, and the relationships that they have with their customers are just outstanding. 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 are going to 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. Within consumer and performance, how fast on a pro forma basis has the Valspar part of the business been growing?
Duffy, you look at certainly in the quarter, both the consumer business was up over 13% and the Performance Coatings Valspar business was up a similar amount. I'd 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. You would expect low, mid-single-digit growth across the group, I think. 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. 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.
Again, they're well down the path of integration, and we're looking at it a combined business, and our outlook is to say that mid- to high-single-digit growth rate is probably what we're looking at.
Okay. Relative to consensus, you guys beat the first quarter pretty handily. You just talked about you beat your own internal expectations, yet you brought the year down the same $0.40 that the Lowe's stuff is going to hit you. With a bad first quarter 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?
Yeah, sure. First, to be clear, we reaffirmed our original full-year EPS guidance at the midpoint. That's a 26% increase year-over-year. You need to deliver, and we needed to deliver a strong first quarter 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 and the next rest of the quarters to be in the low to mid 20% range. You know what, Duffy, our first quarter is our smallest and generally most volatile quarter of the year. It's been a longstanding practice of ours to wait and see how the painting season unfolds before considering revisions to the outlook. 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 is at the expense of The Home Depot or somebody else like that rather than your own paint stores?
Yeah. 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. 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. We think it's a terrific opportunity for us, along with our customer, Lowe's, to better penetrate that. 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.
We're really excited about working with our customer to reach those customers in a new and increased rate.
Very good. John, just lastly, in Performance Coatings, how would you characterize level of competitor support for price increases in these businesses?
I'd say that when you think about this, when you think about the cost of goods, the raw materials represent 85% of the cost of goods. When the basket moves, you really need to get it, 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 whole. 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.
Good morning.
You guys clearly delivered on sales synergies by winning this Lowe's business. 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? Secondly, did you have to offer a lower price to win that business?
Well, we don't talk about specific pricing or customers. 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. 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.
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-
Right
dropped this year as the cost moves in. Moving forward, next year, we expect that's going to help us, and our goal's going to be to grow that in both sales and profitability going forward, not just the one year.
Okay. 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's definitely starting to show positive signs. I think our teams are executing well. 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 $3.57 was what you posted. Can you tell me what the EBITDA would be on the same basis?
EBITDA was up 6% in the quarter for the core Sherwin. That would've been, give me one second, Bob. We would've made $414 million versus last year of $391. Up 6%. As we talked about, $551, $552 is the total.
Your $552 has the one-offs? I guess I'm trying to extract it to make it a like for like to the EPS number.
Yeah. You take about $30 million adjustment for the one-off. The 552 would be-
I got you
add 30.
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, why lock in anything now if it might loosen up down the line?
Hey, 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 one or a zero here. We're looking at what's 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. 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 first quarter? Can you maybe walk through what you saw in sort of the different segments in consumer, including in Europe and in Asia?
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. Remind you that the Consumer Group pursues four 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 first quarter. We did have a benefit of that as well. 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 and Asia offer opportunities. They're much smaller businesses.
There's a lot of effort going on there as the synergy opportunities are explored for technology and transfer of just institutional knowledge. It's going both ways. The reality is if we're going to be successful here, we've got to move the North American needle. That's what we're working on the most.
All right. You guided to $600 million of incremental sales for the two months of Valspar in the second quarter. It looks like that's maybe a little slower pace than I had that you did about $1.06 billion 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 at a lower run rate than you were in the first quarter?
Yeah, Mike, I wouldn't read anything into that. It's approximately $600 for April and May, and then it rolls into our comp going forward. 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 Michael 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?
Yeah. We don't break out gross margin specifically in the guidance. 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 the raw materials trend like we believe they will, we should see sequential improvement. I would go back to also, the original EPS guidance at $19.05, it's a 26% improvement. Implied in that is gross margin expansion and SG&A leverage. That's the only way we can get to those numbers.
Your raw material outlook is still low single digits?
Mike, it's still 4%-6% range. Based on the first quarter 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. 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. 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 cost embedded, is it a plus $0.40 plus next year?
Yes, it'll be a plus $0.40. 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 million in 2019. My question is, how would you characterize the amount of foregone sales at Home Depot relative to that number? Is there a timing difference between the load in at Lowe's versus the phase out at Home Depot?
Yeah, Kevin, 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. Much past that, Kevin, we're not going to get into a lot of the detail.
Yeah, 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. Second for Al, given the change in tax regime and the lower rate in the first quarter of 2018, do you see any downward tension in your rate? I know you're affirming low to mid 20% range, but was the 1Q level strictly discrete items, or is there any residual effect that you foresee?
Yeah. The 1Q was the timing of the discrete items. 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 cost drives the consolidated rate down, but really nothing more than just timing of discrete items in that first quarter. It's a very 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. 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. 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? I just wanted to check into that, see if there wasn't something behind that.
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, and a lot of good work and really terrific effort on the part of the Performance Coatings team as well. Yes, there are going to be synergies there. I will say that there are synergies going to hit in 2018. Then as you look ahead from a manufacturing standpoint, there'll be additional opportunities from an asset rationalization standpoint in the future that'll take a little bit longer as we get systems and processes in place to look at those outside of the U.S. that'll benefit the Performance Coatings business the most.
Nishu, let me add that, just if you look at the cadence of the midpoint that we talked about, $150 million by quarter, it's really more front-end loaded than back-end loaded. That's related to the projects that have been validated as we went through last year that we see going through the P&L and feel confident about. 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. In terms of the Consumer Group, I know this will go away next quarter, 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.
I mentioned this 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. As we brought the businesses together, for example, the sales organization is a combined sales organization. There are some sales reps that were previously from Valspar, some from Sherwin-Williams, same with products. This is the area, as I mentioned, that we've made the most progress in integration. It's very difficult to account one side or the other. Our focus here is purely on doing what's right for the customer. If selling a 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 in Valspar, legacy Sherwin. 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 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 Rednor with Zelman & Associates. Please proceed with your question.
Hey, Al, could you just clarify relative to the $140-$160 of synergies this year, how much exactly was realized in 1Q?
It'd be if you split it, the $150 by four quarters. We saw a little bit more than that in our first quarter. It's the way I'd characterize it.
Okay, thank you. 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 first quarter. They were high single digit gains in interior, and we were positive in the 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. 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.
Just lastly, John, a few years ago, you guys put a significant amount of SG&A spend into the Lowe's program. Safe to say that trailed some of the more robust expectations you had 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. 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 two or three 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. When you look at the alignment that we have there, we think it's going to be a big win.
That said, we talked a lot about their performance in North America. Their partners outside of that specific customer had a terrific first quarter 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. 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, John.
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 two different areas there, Dmitry, you're right. There's the architectural type customers that apply wood in homes as well as the manufacturing. There is a trend to having more of that product manufactured in a factory as opposed to stained and finished on projects.
How does that affect your business? Is a net positive for you, either on top line or margin, or neutral or negative?
No, I'd say it's probably neutral. 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. Got it. Just a bookkeeping question. Was there a foreign exchange benefit to your Performance Coatings revenue number? You provided for Consumer and the Latin American piece, but maybe I missed it, but not for Performance.
On Performance Coatings on the FX impact on our PBT was about $4.6 million.
4.6. That's on profit, right?
That's on profit.
What was the impact on revenue?
It was a 3.9%, 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. I want to direct a question to Al, a technical question, Al. Looking at the purchase accounting impacts for the first quarter, they were $0.71, and the guidance was $2.65 for the full year, so not quite four times as much. Does that simply reflect the lower tax rate in the quarter, or were there some one-time non-amortization items in the first quarter?
There's about $30 million of non-amortization type items in the first quarter. Chuck, we called out $100 million for the year on one-time integration costs, and the way that would roll out, it'd be second quarter would probably be similar to our first quarter, and then it'll drop down from there.
All right. Thank you on that. 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 have 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? We're bringing products and services that help them reach their goal. When our raw material basket moves, we have open discussions with them to help them understand what's happening from our cost standpoint. 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. 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? Are your costs inflating like they are in the third-party trucking market?
The answer to your first question, I'd say that it is an important part of our service model. 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. The ability to serve customers, as a result of having our own drivers, allows our drivers to make nighttime 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, we're also very sensitive to what's happening in the market to make sure that we're paying our drivers appropriately.
Great. Thank you.
Thanks, John.
Thank you. The next question is coming from the line of Greg Melich with MoffettNathanson. Please proceed with your question.
Hi, thanks. I had a quick one for Al and then a follow-up on price and volume. Al, the three times the 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?
Yeah. It won't change it. I think it'll change it by roughly a third to a half when we get the full impact of the leases on our balance sheet.
Got it. That's how much it'll go up. When you get that target to stay under three, it'll bump up that sort of the headwind you have into next year.
That's right.
Okay.
That's right.
Then on the business, I want to make sure I got the comp right and the price volume mix. 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 hundred basis points 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.
We should assume that price still stays around that 2 level.
Yeah. Certainly, you get a little bit improvement as we continue to work with our customers, 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 and questions. Very briefly, it's mostly about timing, the timing of the $0.40 cost for developing those solutions. If you could tell us about $0.20 in Q2 and Q3, then almost breakeven in Q4. That's question number one. About the same questions for synergy, I think you pretty much answered that it would be about the same for each quarter, but just if you could confirm the impact of the synergies per quarter. Finally, raw materials. I tried to get the absolute dollars headwinds in Q1. Is that fair? Is it just a bit above $110 million of headwinds from raw materials? Thank you.
On the timing of the Lowe's program, I would say it's going to be more heavily weighted to our third and fourth 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 first and second quarters. On the pure raw material dollars, the $110 million I think you said sounds a little bit heavier than what I would say, but not really materially off.
About $100 million?
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 comments earlier about how your customers have improved their productivity 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? Secondly, I don't think there's any ambiguity 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?
What we're building as our benchmark would be the consolidated excluding Valspar acquisition 18.35-18.95. That's what I would have you focus on as our base going into 2019.
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 first quarter. They've got a lot of work to do. They're going to be, we're sure, working longer hours, more weekends, we're going to participate in that.
Perfect. Thank you.
Thanks, Laurence.
Thank you. Our next question is coming from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed with your question.
Good afternoon, everyone, and thank you for taking my question so late. I was wondering if you could give us some details on the packaging side. One 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, first 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?
Yeah. The packaging business is our fastest growing business in our Performance Coatings business. 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. 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.
Again, another strong performing area for our Performance Coatings Group. They're having very good progress, or they're making very good progress in various segments in different geographies around the world. Earlier, there was a question about choppiness, and I made the comment about that it's not every business and every segment moving straight line. 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. Collectively, that business is performing very well. Again, as I mentioned in my prepared comments, it's in the top two or three of the Performance Coatings Group.
Could you share with us which areas are not doing as well in North America, for example?
Rosemarie, we don't break into that business in great detail. I'd say overall, we're very pleased with the performance there. 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. 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 22nd. 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. Presentations will be followed by a Q&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 rjwells@sherwin.com. I will reply with a link to our registration site. Jim Jaye, 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 time.