Q1 2020 Earnings Call

Good morning, Thank you for joining the Sherwin Williams companies reveal a first quarter 2020 results and our outlook for the second quarter fiscal year of 2020.

On today's call or John Morikis, Chairman and CEO, David <unk>, President and COO, almost fishing CFO Jane Cronin Senior Vice President corporate controller, and Jim Jaye, Senior Vice President Investor Relations.

The conference call at the webcast simultaneously in listen only mode. It's your direct via the Internet.

Not sure when Dot Com and archive replay of this webcast will be available at your when dot com beginning approximately two hours. After this conference call concludes and will be available until Wednesday may 13, 2020 at five PM Eastern time.

This conference call. They include certain forward looking statements as defined under U.S. Federal Securities laws with respect to sales earnings and other matters any forward looking statements speak only as of the date on which such statements made in the company undertakes no obligation to update or revise any forward looking statement well. There was a result of new information future events or otherwise.

If all declaration regarding forward looking statements is provided in the company's earnings release transmitted earlier this morning.

Sure the copies prepared remarks, well open the session to questions.

Well now turn the call over to John guest.

Thanks, Jesse good morning, everyone. I Hope you in your families are remaining safe and healthy during the pandemic.

Given the extraordinary circumstances over the last quarter, we changed our typical format a bit today to provide you with some additional perspective.

After my opening remarks.

I'll turn the call over to Jim Jaye, or senior Vice President of Investor Relations for some short comments on our first quarter results.

Dave It's all our president and Chief operating Officer will follow Jim.

To provide you with details on how we're responding to the pent up.

After David's remarks, I'll share some color on what we're seeing across our various end markets before turning it over to our Chief financial Officer helmets decision.

Provide you with our revised outlook for the year.

Let me begin today by thanking the more than 60000 employees of Sherwin Williams for their courage determination that resilience in the face to the cobot 19 pandemic.

There were extraordinary efforts to serve each other our customers our company in our communities during this challenging time.

Truly has been inspiring.

This wonderful team has my deepest appreciation and my deepest respect and I'm confident in their ability to meet the challenges ahead of us.

Clearly.

We're in a much different economic environment than anyone could have imagined when we provided our 2020 outlook back in January.

More than 26 million filed for unemployment benefits in the U.S. alone since mid March.

Another geography is also remain under significant pressure.

Sure Williams is not immune from these realities, we are seeing major near term impacts to demand and most of our end markets.

Really long tenured and experienced management team that has successfully manage the company through a number of challenging times.

Recession in early two thousands the 2008 2009 financial collapse and the integration of Valspar, the largest acquisition and the company's long history.

Our entire global team remains on daunting and it's taken actions to navigate this crisis.

We remain very confident in our ability to manage the near term impacts we are seeing.

Well position ourselves for continued long term success.

We have developed and are executing a comprehensive response to the pandemic most focused on the safety and well being of our employees our customers our company and our communities.

Were implemented multiphase contingency plans across our businesses to adjust to the near term business environment.

We are well positioned from a balance sheet and liquidity perspective.

We've adapted in order to stay connected to our customers through this crisis, including modified operations in our stores and increased use of ecommerce and other technologies.

We believe we're seeing a pause in demand in many of our end markets rather than destruction of demand.

We believe the long term fundamentals remain intact.

We intend to continue strategic investments to support profitable growth.

These include continued investments in our stores our products, our ecommerce platform and other initiatives as we look for opportunities to expand our business.

But before moving ahead I'd like to thank our team again for remaining focused and delivering on our first quarter plan, even as the cobot pandemic began to impact us.

Let me now turn the call to Jim Jaye, where some additional comments on the quarter.

Thank you John and good morning, everyone.

In addition to this mornings press release and our commentary on today's call. We provided a slide deck on our website with additional information.

All comparisons in my remarks or to the first quarter of 29 team unless otherwise stated.

Overall, Sherwin Williams delivered a strong first quarter that was in line with our expectations.

With year over year improvement in sales gross margin profit before tax EBITDA diluted net income per share and net operating cash.

First quarter 2020, consolidated sales increased 2.6% to $4.15 billion.

Consolidated gross margin increased to 45.6% from 42.9%.

Consolidated profit before tax increased $93.4 million to $392.3 million.

Diluted net income per share for the first quarter 2020 increased to $3.46 per share from $2.62 per share.

The first quarter of 2020 includes acquisition related amortization expense of 62 cents per share.

And the first quarter of 2019 includes acquisition related costs and other adjustments of 98 cents per share as described in the regulation G. reconciliation table included in our press release.

Excluding these items first quarter adjusted diluted earnings per share increased 13.3% to $4, an eight cents from $3. It's 60 cents.

Adjusted EBITDA increased $48 million to $623.1 million or 15% of sales.

Cash from operations was $54.9 million, an increase of $91 million year over year in the quarter.

As is typical for us in the first quarter, we used cash to build inventory levels in advance of the busier spring and summer selling season.

We continue to monitor the demand environment closely.

From a segment perspective, the Americas group grew same store sales by 7.4% and improved segment margin by 140 basis points.

Consumer brands group and performance Coatings group also delivered improved segment margin performance.

Additional details on our segment performance are included in the slide deck I referenced previously.

Let me now turn the call over to David School for some specific comments and how we're responding to the pandemic.

David.

Thank you Jim and good morning, everyone.

Let me also add my sincere thanks to our entire global team without a doubt are incredibly talented and dedicated employees remain our most important asset and we have implemented a wide range of temporary policies and protocols over the last two months to protect their health and safe.

<unk>.

These actions include enhanced paid sick and or family leave.

Alternate flexible and remote work arrangements.

Visitor and employee screening protocols.

So show distancing best practices additional P. P E and sanitary procedures and we have established a global crisis response team among many other measures.

We also took the unprecedented step of temporarily closing our paint stores sales force to further protect employees as we moved to serving customers with curbside pickup and delivery options.

As for our customers, we provide a central products and services that are helping painters create and maintain clean and healthy living environments at health care facilities manufacturing plants.

Residences and for other vital infrastructure.

Many of these contractors have expressed their gratitude to us for keeping our stores open and enabling them to keep their businesses running.

Doing their jobs generating income and supporting their family.

We're also supporting industrial customers and mission critical areas, such as food and beverage packaging health care equipment.

Food manufacturing water treatment and energy infrastructure.

During the crisis, we have delivered critical coatings products to producers of ventilators oxygen tanks and hospital bed frames.

At this time, all major architectural and industrial plants and distribution service centers are an operation.

Utilization rates vary based on manufacturing site and customers are.

We have had no significant issues with raw material availability or supply.

We've had a very small number of north American stores closed intermittently during the crisis related to varying government orders.

The vast majority of stores remain open.

All of our businesses have developed and are executing on multiphase contingency plans to adjust to the near term business environment.

We have taken targeted action to reduce costs.

Cause or eliminate certain programs cut general expenses and delayed filling open positions.

We've also made adjustments to a small percentage of our workforce through involuntary leaves and reductions in force.

We have additional levers we can pull if necessary.

Through all of this our employees continue to support the communities, where they live and work to date, we have donated hundreds of thousands of masks gloves and lab codes to those on the front lines fighting the virus.

We have also manufactured and donated hand sanitizers to many hospitals throughout the country.

Our entire team remains focused and determined as we manage through this crisis. We're confident we will emerge from this as a stronger company.

Thank you David.

As I mentioned in my opening remarks, we believe we're seeing a pause and demand rather than destruction of demand. We continue to feel confident in the long term trajectory of our end markets.

Well some economies cautiously began taking steps to reopen the pace in scale that which this will happen is far from Claire.

We believe April will be the most challenging month of our second quarter from a comparison perspective.

With some gradual improvement as the quarter progresses.

Whether the recovery gains momentum in the second half a 2020, we're not until 2021 remains to be seen.

We believe providing additional granularity on our end markets and how they might begin to emerge from the current environment maybe helpful to investors.

Let me begin in the Americas group with our North American stores.

Again.

First quarter trends were very strong with same store sales up 7.4%, reflecting robust underlying demand.

We've seen a dramatic near term pause brought on by the pandemic with all end markets, except Dci why being significantly impacted.

In residential repaint customers are delaying interior work related to social distancing concerns and having painting contractors in their homes.

We expect this demand to return gradually as the pandemic subsides and customers and contractors implement appropriate protective measures.

We expect extra repaint work to gain momentum near term, which will help to offset some of the interior softness.

The new residential starts were up strong double digits to begin the year as workers returned from stay at home orders work on these home should resume.

Our national homebuilding customers remain positive long term, though cancellations have increased and order rates have softened near term.

Activity should eventually improve as mortgage rates are low and the supply of homes is limited.

As a reminder, there's about a 90 to 120 day lag from the time construction begins to the painting phase.

In new commercial many of our customers were reporting strong backlogs and our first quarter sales were up mid single digits.

Construction has been deemed as essential and most locations and jobs and progress will be completed.

Work is largely continuing albeit at a slower pace due to increased jobsite restrictions and labor challenges.

We expect starts to be delayed in the second quarter, but we're optimistic that they will pick back up because the economy begins to reopen more broadly.

In property maintenance overall renters demographics are favorable so apartment turns have slowed dramatically near term.

Management companies remain positive and expect rents are movement to begin quickly once the economy reopens.

Maintenance related to hotels and restaurants is likely to return more slowly.

Some capex projects had been put on hold in some areas due to local mandates.

Our DIY business is strong as consumers are nesting and using stay at home time to work on affordable home improvement projects such as painting.

We expect our DIY business remains solid in the second quarter before returning to more normal low single digit rates stay at home orders are lifted.

And protective and marine approximately 40% of our sales are tied to oil and gas, which has fallen sharply over the last quarter.

Major oil and gas companies have suspended or delayed capital expenditure projects.

Which have and will continue to impact our results.

Adversely or sales and other end markets, such as water and wastewater treatment pharmaceutical flooring rail and marine remain as planned which will help to offset.

The softness from weaker oil and gas business.

What we're seeing short term disruptions and headwinds the long term drivers. We've cited in the past remain intact, including household formations and demographic trends.

Given these long term drivers, we intend to continue to invest in our business.

We anticipate opening approximately 50, new stores this year, while continuing to focus on sales reps management trainees innovative new products and productivity enhancing surfaces.

Moving onto an update for consumer brands group.

Yeah, why demand in North America continues to be strong stay at home mandates have increased home improvement demand.

Sales to home centers and other retail channel partners continue to perform well and we are encouraged by growth prospects with multiple customers in this channel.

Looking at our international businesses, we expect our sales to be under considerable pressure through the second quarter.

Our expectation is for these businesses to slowly returned to more normal activity in the third quarter as the economies of the world begin to open.

Lastly, let me comment on trends in performance coatings group.

Overall, we anticipate industrial demand recovering more slowly than architectural demand.

From a geographic perspective, North America remains the largest region performance coatings and was our strongest performer prior to the pandemic.

We would expect it to be true going forward.

Have started to see some recovery in China, but a slow at a slower pace than anticipated.

We expect continued pressure in Europe, and Latin America.

And packaging demand for food and beverage cans remains robust.

We anticipate strong continued demand in additional business wins, driven by sustainability trends and our non BPA Val pure vseventy coatings.

In coil coatings.

We're seeing a temporary pause in slower pace of some commercial construction projects.

Jobs in progress will eventually Brazil, and coupled with the continued capture of new business. We expect this business to remain one of our best performers.

In general industrial we're seeing substantial demand weakness in various end markets, including heavy equipment, agriculture transportation and general finishing.

We expect this recovery will be slow and we'll see continued pressure throughout the rest of 2020.

And industrial wood softness across various end markets, including furniture kitchen, cabinetry and flooring has continued.

It is difficult to forecast the timing of improvement, though many of the same drivers influencing new housing could benefit this business.

In automotive refinish the business has been impacted by the various stay at home mandates that had been instituted across the country.

The decrease in miles driven has led to a decrease in collisions.

The pace of recovery in this business will depend on how quickly stay at home orders are lifted and people begin to return to their normal routines.

Let me reiterate that while we are seeing near term pressure across most end markets. We serve we're confident in the long term trajectory.

Now I'll turn the call over to almost issue, our chief financial Officer to talk more specifically about our revised 2020 guidance, our cash and liquidity position and our approach to capital allocation.

Al.

Thank you John and good morning, everyone. We anticipate the negative impact of covert 19 on the U.S. and global economies will most likely continue through the second quarter.

We do not expect immediate meaningful improvement ahead, and most end markets. We serve and we are unable to predict when any noticeable improvement and those end markets will occur.

Given the near term trends in indicators, we see at this time, we anticipate second quarter 2020, consolidated net sales will decrease by a low to mid teens percentage versus the second quarter of 2019.

Looking at our operating segments for the second quarter, we anticipate the Americas group to be down by a low double digit to mid teens percentage.

Consumer brands group to be up by high single digit to low double digit percentage.

And performance coatings group to be down high teens percentage.

For the full year 2020, we're revising our sales guidance to reflect uncertainties in the timing and pace of improvement in the U.S. and global operating environment.

Yes, economic conditions began returning to normal in the third quarter 2020, and continue improving through the fourth quarter. We anticipate full year consolidated net sales to be flat to down a low single digit percentage.

If economic conditions do not materially improve until the first quarter 2021.

We anticipate full year 2020, consolidated net sales to decrease by a mid to high single digit percentage.

This revised full year 2020, consolidated sales guidance as compared to our previous full year guidance of an increase of 2% to 4%.

On an operating segment basis for the full year, we anticipate the Americas group to be flat to down by a mid single digit percentage.

Consumer brands group to be up or down by a low single digit percentage and performance coatings group to be down by high single digit to low double digit percentage.

Considering our revised range of potential sales, we are revising our diluted net income per common share for 2020 to be in the range of $16.46.

<unk> $18.46 per share.

Compared to our previous guidance of $19, a 90 110 to $20.71 per share.

And compared to $16.49 per share earned in 2019.

Full year 2020 earnings per share guidance includes acquisition related amortization expense of.

Of approximately $2.54 per share.

On an unadjusted basis, we expect full year 2020 earnings per share of 19 to $21.

One key assumption embedded in our outlook is the raw material deflation, we expect to realize for full year 2020.

We expect the raw material basket to be lower year over year by a low single digit percentage.

Switching to our balance sheet, which along with our liquidity position remained strengths of the company.

At March 31st 2020, we had $239 million in cash and $2.5 billion of unused capacity under our revolving credit facility.

At the end of the first quarter, our leverage ratio improved 3.1 times on net debt to adjusted EBITDA compared to 3.5 times a year ago.

As Jim noted earlier during the first quarter, we used cash to build architectural inventory levels and advance this spring and summer selling season.

However, our teams reacted quickly slowing demand in various businesses in regions, where it occurred and aggressively reduced inventory, which help reduce our year over year working capital $151 million.

We have completed a number of actions over the past year to reduce our risk and improve our financial flexibility.

We recently completed a bond issuance in March for $500 million, a 10 year notes at 2.3%.

$500 million 30 year notes at 3.3%.

These are the lowest coupon rates in the history of the company.

The proceeds of these issuances were used to complete a tender offer for 500 million of 2.75% notes due in 2022, well also be used to pay off a 429 million two and a quarter notes that are coming due in may.

Our next long term debt maturity in 2021 is 25 million.

In the first quarter, we repurchased 1.7 million shares of our company stock and increased our quarterly dividend by 18.6% to $1.34 cents per share.

We are committed to maintaining this dividend increase through the rest of 2020.

As David mentioned, we are executing contingency plans to reduce spending and conserve cash.

As part of those plants, we are lowering our full year 2020 capital expenditure forecast from $320 million to $180 million.

And temporarily delaying our share repurchases until we see improvement in the end markets we serve.

Finally, we have put a pause on spending related to our new headquarters and R&D facility projects.

Continue to work through various planning processes.

That concludes our prepared remarks with that I'd like to thank you for joining us This morning, and we'll be happy to take your questions.

Thank you we will now be conduction a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation from the indicate that your line is from the question Q.

You May proceed starts you if you would like to your move your question from the Q.

Just a bench using speaker Clinton and may be necessary to pick up your hands at this our president Mr. keys.

Our first question comes from Chris Parkinson with Credit Suisse. Please proceed with your question.

Great. Thank you it's good to know everybody is doing well.

So I'll leave it certainly have been open ended but can you speak to some of the key trends.

The Americas groups, such as the sustainability of the DIY boost.

Any color on the magnitude.

The divergence between exterior and interior paint trends and just how to think about things on a sub regional basis.

For what you're seeing in April is there any differences between forensic the southeast versus the northeast. Thank you very much.

Thanks, Chris.

First I would say regarding the DIY business as we mentioned in our prepared remarks the.

Nesting.

Phenomenon and if you will have our customers.

Largely the result of their spending more time at home.

And we believe that that will continue largely through the stay at home orders.

Historical historically, if you look at the underlying principles.

That have us, believing that this gradually shifting back to the do it for me as opposed to be a why primarily with though we think those are still intact. Those are the aging demographics the.

Home appreciation.

Aging housing stock.

And as well I would say that if you look at the last recession and DIY why.

Grew.

Not in huge amounts, but it was not protracted either here, we have as much more significant.

Comp in DIY business, and we're experiencing a DIY business and our stores for those customers that are.

So preferring a more.

Specialty store experience and through many of our customers on our consumer brands business and we're working hard to serve them as well.

As it relates to your next question regarding the.

What was the interior versus exterior.

Both were up double digits in the first quarter.

And.

We expect that has the season starts to turn a little bit here that we'll start to see more lift in the exterior business.

As a result of more contractors.

Getting the go ahead from homeowners, who in some cases right now our preferred not to have in many cases right now are preferring not to have.

Painting contractors enter their horn their home.

And regionally you asked a question there what we're seeing what we see regionally.

I'd say that.

We are starting to see more estimating and I would say the close rates.

In those estimates are growing.

Largely in southeast and southwest right now they are lagging.

In the northeast and in the Midwest, which you would expect heavily influenced by what's happening in New York, what's happening in Illinois, and Michigan. So.

I'd say, you know going back to the point that we referenced a few times in the prepared remarks, you know we saw structurally there's not been much shifts. So we expect this do yourself to continue short term gradually shipped out to do it for me and we love our position with those customers to be able to capitalize on.

<unk>.

Great. Thank you did see great color also just as a corollary that keys die very quickly just break out the trends in PM and across the Americas group in PC. Just if you go through the oil and gas protective into corrosion and then just the smaller marine just anything changing there in terms of your thought process. Thanks.

Very much.

Yes, I'd say in PNM.

We mentioned that that represents about 40%.

Sorry oil and gas represents about 40% of our PNM business through our stores.

And we have a very strong position there.

I'd say that the.

Oil price has had an.

Impacts primarily.

In the upstream business, where.

Your offshore shale et cetera, mid stream with storage.

Downstream I'd say in refining and cracking, there's still quite a bit of investment going on.

What I'm really pleased with is the shifts that our teams are putting into place to the pivot to where the business is not necessarily where we are we have a strong very strong position in those areas that are under pressure. We've got wonderful talent wonderful products and we're doing a very good job I believe.

Even moving into some of those areas that are underserved by Sherwin right now in the oil and gas as well as other areas that we mentioned those are the water wastewater food and beverage even pharmaceutical flooring. So.

There's a pretty experienced team we have here and we're taking advantage of those experiences the scar tissue few well from some of the past experiences we're not waiting for things to happen, we're trying to capitalize and drives things make them happen.

Thank you.

Yep.

Thank you. Our next question comes from Ghansham Punjabi with Baird. Please proceed with your question.

Hey, guys, good morning, Oh baby ones doing well.

Good morning, Hey, Good morning, Hey, John just kind of picking up on the last few comments right. So you know your comments, you've seen that sort of a pause in demand versus necessarily a destruction in demand.

But some of the metrics in terms of U.S. unemployment and credit markets have changed dramatically over the past couple of months.

Yes, what gives you confidence that apart from the dislocation that you and others will see Duke that this is in fact, a pause versus something that's going to have a tail associated with it.

Yes, I think.

In each market.

When we look at.

The drivers of those those segments, Oh, we look through and understand.

We think with a pretty good line of sight on on what's going to happen I think if you.

If you look at for example in new residential.

We feel there's a pause that that you know there's.

A fundamental need for housing in the country.

And ER and that while.

The short term traffic and.

And models and the feedback that we're getting from from our large new residential customers.

Clearly indicate some concern with a shorter term, we're not running the quarter I mean running the company to have a great second quarter here and Thats. It we're doing the best we can with the cards that we were dealt with in the second quarter, but we're looking at the fundamentals and we believe that if you go by segment through our business that there are some very sound fundamentals.

And in areas, where there is some softness we're not waiting we're moving into those areas that that offer opportunity.

So segment by segment, where dissecting our business I understand we have the right people doing the right things to capitalize on those opportunities and Ghansham I, just add to that and that that's partly why the unpredictability about.

How are segments come out of this and and the timing of that and that's why we you know if you will bifurcated the guidance to say, okay. If we see things started improving in the third quarter and then continue to improve in the fourth quarter, we think.

Flat to down low single digits, but if it the true recovery doesn't start until the first quarter 2021, Yeah. We're looking at that mid to high single digits down estimates so.

We for perfectly understand the uncertainties, but that's why we're giving a range of the timing of when we expect the businesses to come back.

Understood and then just on the DIY piece that you're benefiting from a from in the stores group.

Our consumers engaging with your associates I mean generally your stores offer very high touch experience with advice instead of consumers. How are your associates pivoting towards this new reality of social distant thing and then just sort of related to that are you seeing any from high level standpoint are you seeing any specific trends that are visible in terms of.

Maybe the DIY be speak a bit more price sensitive in terms of the choice of paid thanks.

Ah yes. Thank you for that question because it gives you a terrific opportunity to recognize a wonderful team. We've got a terrific leadership team and Pete if we don't build a sinus and all our division presidents there, but more importantly.

As strong as those leaders are we've got just a wonderful team in our stores and or close to a customers and sales reps that are doing a terrific job and your question gives me.

Just that the opportunity to thank this wonderful team for everything they're doing you're right.

It's changed things.

We are curbside only so it's given us an opportunity to leverage some of the investments that we've made in our digital platform, we have orders coming in via the a.

Digital platform that we've been investing in with a much greater.

Utilization so we're excited about that.

And I would tell you that we've been inundated with emails and notes and even phone calls from customers that have gone out of their way to to comment and recognize our employees and their willingness to work with people. We've we've begun utilizing a color fulfillment. So customers can go online quarter colors and have them into the.

Their homes.

In relatively short period of time.

In our people in the stores are.

Eager to help these people over the phone to make sure that that they're taking care of.

And then.

The transaction takes place is accomplished contact was a transaction when these employees these customers.

Pull up into our stores.

The product is order to the back to their car.

I don't know I couldn't count how many.

Points of contact I've had with people recognizing the wonderful service and approach that we're taking.

And that's on our stores I would say that we're blessed with a number of.

Really really strong and good customers on our consumer brands team and.

Hardie pets, and Keith will lower the.

Two leaders running that business is really helped us to try to be as responsive as we can to that important segment and channel to our customers and we're trying to instill as much as we can and our learnings from our store side into those customers and vice versa and.

And just really.

Providing solutions to our customers so.

We're really excited about this and say that the trend that we're seeing in our DIY business as.

Excited on consumer side as well as our stores.

And the pricing sensitivity piece.

Yeah, I'd say that on pricing.

We continue to see a positive mix in our business I'd say that much like contractors, who recognize that 90% of their projects. Our labor costs. You know many homeowners, particularly those that are shopping at a strong William store.

Typically willing to pay a little more to get the finished that they're looking for and and have it be as productive as possible. So we're seeing a positive mix shift in both the a.

ER contractor business that we see as well as the do it yourself.

Okay perfect. Thanks, John.

Thank you.

Thank you. Our next question comes from John Mcnulty with BMO capital markets. Please proceed with your question.

Yeah. Thanks for taking my question I guess two to two points. So on the raw material side down low single digit just given what we've seen in oil prices in propylene. It seems a little bit on the low side can you give us a little bit of color into what you're seeing in the various baskets for.

Materials, and how you're thinking about how they trend throughout the year.

Sure and good morning, John I'm now what I would say is given the significant decline in crude as you point out we do expect to realize lower year over year raw material costs throughout the remainder.

2020.

The full year will be down by low single digit percentages, we talked about compared to our prior estimate of being flat for the year.

I think the rate in the second half of the year will depend largely on how the downstream derivatives like propylene and ethylene react to the declines in crude and I would say also if demand has not improved through the second half the year than we could potentially see.

More meaningful benefit.

The majority of the benefit year over year is gonna be on that resins insolvent side.

If you take a look at the T O two side I think we've seen strong demand there in the first quarter and the second quarter, but it's probably too soon to fully understand the supply demand impact in the effect on pricing there.

I would say at this point, we do anticipate stable to potentially lower prices for T O two in the back half.

Historically weaker global demand has resulted in lower pricing.

But again I think the decline that we're expecting to see in the basket is tied more on that petrochemical side, and it's really going to depend on how propylene and ethylene respond.

Got it that's that's helpful and then I guess in the stores business. So if I if I understand correctly, you shut down the fun part of the store kind of in late March is there a way to think about how much sale forget when you went just to curbside pickup and just so that we can kind of think about why.

When you know these required closure is in that type of thing and how to think about the snap back can you give us a little bit of color or anecdotes on that.

Yes, John.

It's hard to say exactly how much of a decline were seeing but are we and we.

We saw but in our in our second quarter guidance, we're talking about the Americas screwed down low double digit to mid teens I think just commentary as we've seen April progress. The weekly sales on architectural have improved week to week from one dollar volume standpoint.

The.

As a reminder April was our toughest comp a year ago. If you think about how North America paint stores progress through the second quarter last year April was.

A strongest quarter and then it ticked down in May and ticked down in June. So we were fully expecting April to be our toughest comparison. So that's what makes it a little bit harder to gauge how much is related to the this is to shelter in place.

And the changes to our sales floor.

John I I would add this though.

So here are Ceos got all our businesses leaning forward.

In a very positive way so I'm I'm.

Fit more optimistic I might say in the sense that we've come into this business with a pretty strong performance a strong comp store sale number and David has our teams every one of them, including our stores, taking the activities right now that will help us grow even faster coming out of it.

And so the activity that we have in new accounts and product demos and information. This is probably some of the most aggressive time, we've had because we have had some customers on a professional side that is.

Had interior projects that had been delayed they're not it we're not able to get on the exterior projects and so it's.

Provided our teams more accessibility to some of these customers and our new account activity is actually up as a result of this our demos of new products are up so.

Give hats off to the David and our teams not only in our stores and all of them for what we're doing during these times and so.

Get what you're asking you know as these stores close you know how quickly do they rebound are our desire.

Really strong desires to come out of this much stronger than even what we were before.

Great. Thanks, very much further color just.

Thank you.

Thank you. Our next question comes from Iran, Viswanathan with RBC capital markets. Please proceed with your question.

Yes, hi, good morning.

Well I want to thanks for taking my question and wanted to go back to comments you made earlier.

I guess you referenced potential for opening 50, new stores. This year, maybe you can just discuss or how you see that playing out are there particular regions that you're targeting.

And if you could relate that to some of the performance that you saw in Q1 or Q2 of that you're seeing right now.

Are you targeting areas, where you maybe you're seeing some weaker performance regionally or.

As it just underpin penetrated areas. Thanks.

It varies by Division.

We are looking at in some areas, what we call fill in markets, where we have.

Underserved markets in areas that we might have more penetration, but we're missing some gaps and there's a lot of areas quite frankly that we're just not happy with our performance yet and in the area of market share and our position and we've got a long way to go and.

So I'd say, it's kind of a balance between the two.

We'd like to take advantage of our position in the market, while providing more accessibility to our customers under the same time, we have to get after some of these markets that are underserved.

Okay. Thanks, and then just as a follow up I just wanted to ask about the refinished business as well.

As in miles driven are.

Drop significantly.

And just give us your thoughts.

Add some growth recently in the last couple of years and all that bigger business for you now so.

Could you out yet just comment on that business and what you see the outlook there. Thanks.

You're right we've seen.

Ill driven down considerably.

And we expected that.

<unk> that impacts.

Could be for another 30 to 45 days following the end of stay at home orders. So so little bumpy right now if you will not business no pun intended.

But our our teams are really doing a nice job. There I think you know I mentioned last quarter was a bold statement and I stand by it I think our position in this auto refinish business is as strong as it's been.

Since I've been on.

This for the of the building here and.

I've got a lot of confidence in our leadership in automotive or.

Confidence in our performance coatings seem and what we're doing and I think.

We've got a lot of determination in this business to outperform its we're going to run to have to get some cars on the road.

To a to be able to see some of that though.

I'd say here, though as well if I could you know the the effort that we haven't the connectivity in virtual learning and the virtual demos that that our teams are initiating here. It's another area that you know out of adversity. Sometimes comes the best you know we've we've we've had a lot of things that we've been working on that we've been able to.

Accelerate and we believe it's helping to convert some of these customers. Some of that were on offense before some who are just come online before the pandemic and.

Again, we expect to be able to capitalize on this as we come out.

And just lastly, I know you.

Talking about evaluating your business in Australia.

Could you just comment on where you stand there and the progress has been made thanks.

Sure Yeah, the virus impact on Australia has been severe as well were 100% contact was there.

But.

I'd say that we started to address to your question Rs DNA in our position long before the pandemic.

And I'd say that are adjustments not only in Australia, but I'd say.

In Europe, even even in Asia. If you look at Europe, we had a 70% flow through on our business there.

In Australia, we we've taken we think the appropriate SGN a steps there as well as in Asia.

The prior to the a pandemic weve.

I believe right size some of the business there and we've made some some very difficult decisions in some areas and we've invested in some other areas to be able to capitalize on our growth. So I wouldn't limited to just Australia I think we're we're taking what we believed to be the appropriate aggressive steps for these businesses to drive the operating margins we've.

We've said time and time again, we're constantly looking at prop programs.

We're looking at a.

Brands, we're looking at businesses even stores every element of our business. If it's just it's helping us reach our goals, we want to put our FEP foot on the gas if not we're making difficult decisions.

Great. Thanks.

Thank you.

Thank you. Our next question comes from Steve Byrne with Bank of America. Please proceed with your question.

Yes. Thank you for taking my question.

Just curious about your North American.

Consumer business here your guidance for second quarter is is quite robust.

Is the trends that you're seeing in April representative of your outlook for for the second quarter I'd or you are you seeing.

All that strong of a volume growth during the during the month of April.

I would say unprecedented growth in April.

I'd agree with that Steven.

We really started seeing a kick and about mid March.

And that trend has not only continued but accelerated in April.

And David So we'll make some comments about.

Trimming the salesforce or the the personnel in the tag group again.

In his remarks can you just comment or what you expect SGN aid to be in the second quarter versus the first.

Yeah, I mean, we're not trimming just to be clear, we're not trimming personnel in our tag organization. In fact will continue to invest as John talked about and and new stores.

We will see.

The trend and SGN a.

Decline in our and our second quarter.

Because of a sales shortfall, we probably won't see the percent of sales improved but you know the steps that David talk about in our contingency planning their material and as he talked about as we see demand and the trends and demand develop.

We have other levers are ready to go the Polish if we need to but.

We're not going to be cutting our stores organization, yes, Steve maybe just to make sure I'm not sure. What you may have picked up or the ways. We may have said it but.

We're always looking at our investments and.

And there are times in our normal business that where we might be skinning down in <unk> in an area.

Investing in other areas, but I think the idea that.

It's important to here is in our stores businesses.

Very sound fundamental business that that we expect to put more gas in that tank every chance we can.

And if I can just squeeze one more in about housing starts are your are your contractors.

Indicating to you that the it's a slow down driven by you know a delayed permitting or are they ARX also seeing any problems with labor.

No I don't know that the labor issues coming up right now I think the.

Let me go back to the very first part of your question. We don't think that the fundamentals of changed neither as our position in that market.

We feel the gap and Sherwin Williams value proposition is wide and I'd say, it's growing wider.

If you look at.

Rates and this may go back to the question Ghansham asked so why we have confidence if you look at.

Rates are low housing supply is limited and.

And.

While there is some short term impact so the business.

We feel as though the fundamentals are still there.

I remind you that we have an exclusive relationship with 18 of the top 20 nationals and and from the regionals, where we have the opportunity. There. We have an exclusive was 73 of the top 100. So there's there's more opportunity there for us to leverage.

And I would tell you that the value that we bring in distribution our reps the products the.

Even the design tools and local training or are really areas that we're focusing on.

So I.

Our customers right now for the most part are.

Our dealing with the short term, but I would tell you the discussions that we're having with them in fact last week alone we have discussions with our top the all top 10 build or is it reached out to us wanting to ensure of our supply chain and our capability to serve them.

And I can assure you were ready more than ready to serve them.

That's that's part of what gives us confidence there was gonna be some bumps in the road in this quarter no question, maybe rolling a little bit into the Q3, who knows but.

We've got terrific relationships are going to be right, there with them and no. One has the responsiveness to serve our customers like Sherwin Williams.

Thank you.

Thank you Steve.

Thank you. Our next question comes from Bob Port with Goldman Sachs. Please proceed with your question.

Thanks very much.

I want to say, thanks to a allergenic whoever's idea was to give the sub segment data in this slide deck I think it's very helpful. Then appreciated.

The Americas was a lot of credit for that Bob anywhere.

I wanted to ask about the Capex reduction that's pretty dramatic decline I know you mentioned.

John only 50, new store openings, which maybe is about half of what is tip. While is that the bulk of that decline or where else are we seeing the capex reductions.

You know within our global supply chain.

You know we are paring back some of the capacity projects that we had scheduled to start this year going into next year.

I would tell you that that decrease.

Higher 40 million you know what what we'll do throughout the year as monitor again, how the demand trends or are developing and as we see a for instance, our stores architectural.

Start building back up well, we'll turn some of those back on the that it's the timing deck that caused the delay, but I think the 140 would be kind of your Max case, and then you know as we said, we'd see things turnaround will start investing back in our plants and our distribution center.

As in the automation.

To help with our continuous improvement projects and operating efficiencies and things like that.

And I am sorry, if I missed it Alby you gave some guidance on second quarter tag sales.

Did you comment on what the daily receipts in April suggested that we were thinking down 30% or something pretty acute and then moderating is that reasonable.

Yes, actually our receipts have held up pretty well I think you know maybe as you get into early May we're going to see a gap, but then start improving as we get towards the second half a may into June as because as I mentioned, Bob you know as we look at the progress on our weekly sales.

That keeps improving.

As we are staying close to our customers were not getting a lot of a concern about bad debt or solvency of our customer. So right now as we look at it I do expect a little bit of slowdown here and early may and maybe mid may, but then pick up that start picking up again.

[music].

Great. Thanks, Phil.

Thanks, Bob.

Thank you. Our next question comes from PJ Juvekar with Citigroup. Please proceed with your question.

Yes, Hi, John Allen the team good to hear from you.

Peter.

How much fewer how much is your online ordering up in the quarter from contractors or yeah why.

And how much of these older sort of curbside pickup what's the liberty.

And longer term do you think that's a new trend that will remain in place post go ahead.

So.

Probably not going to like these answers other than a online is significant.

Curbside versus delivery.

I'd say the largest part of our.

I'd say, it's probably other contractors I pretty evenly split obviously, the do it yourself or curbside is delivered right outside of our stores.

And I would say regarding the future yeah, we we want.

ER, we want our customers using this.

System.

We believe it helps in our customers efficiency, we think it helps our efficiency at allows us to be a better partner to them.

And it allows our customers to move seamlessly through our business.

And and you really begin utilizing the the tools and resources that we have much better yeah PJ it remains to be seen of curbside.

Has staying power I think by and large and you look at our residential repaint contractors, they like the interaction with our stores they like.

The interaction with our with our reps.

On the DIY side I think there's some.

Color counseling that that they like to get while all coming into our stores and currently they're really not getting that interaction. So.

We'll see.

That they may have some staying power, but I do think theres a lot of interaction and support they get from our stores on making recommendations on colors and different things like that but up but I might add though PJ the.

The curbside aspect of it we we think that has legs and that will continue as it is one of the outtakes that.

That customers enjoy in some cases.

The ability to.

Get in and get out of the majority of the customers that come into the morning start their business you know have their crews at our stores can still do that and those that want to come in and Zip out.

We'll offer the best about.

Okay, and just related to that lets say in the future. It's it's an online order followed by delivery.

Does that lower barriers to entry into business or is it an advantage for you because you have a local store and you can get there faster.

I'd say, it's a huge advantage to us it's really no different when do you think about it gives the customer picking up the phone and requested in order and having us deliver that product to them.

It's really no different from that aspect, but I would say that.

We really enjoy this store platform that we have in the ability to do.

Both the.

Multi point distribution.

Capability.

We're 30 minutes from you anywhere and our ability to deliver and quick turnaround or.

You know with quick responsiveness, we think is important but it's also a foundation we believe.

Because those customers that are in every morning.

They are building a partnership with our employees as there is a loyalty that that grows and I'd say that loyalty grows both ways. It grows with the customer to sherwin and in the sure one to two the customer and.

We think that distribution is is is one and albeit one very important aspect of the stores.

But we really value our role in our customer success and.

And I'd say, we may value at more than other others, because we have a terrific relationships with these customers.

But I'd say these are valuable important in building the partnership and that that partnership includes.

The problem solving for the customers training job management.

Helping them really run their business and involves evolves from just a transaction.

To a two a strong relationship and I would tell you a 35 years ago when I was in a store.

Built some of those strong relationships and.

You know unfortunately about a year and a half ago I lost my mom.

And I would tell you I was shocked when I went back home and found.

A few contractors that I served when I was a store manager.

That came back and spent time with me there I think.

Sure that story, because I think it captures the essence of what we do in our stores, we've built strong relationships and they last.

Deliveries important, but we do a lot more than just deliver.

Great. Thank thanks for the color.

Thank you Peter.

Thank you. Our next question comes from Vincent Andrews Morgan Stanley. Please proceed with your question.

Hi, Thanks, Hi, everyone got everyone sounds well just wanted to ask on the Americas group guidance for the second quarter and the rest of the year. We're talking about this on prior calls, but you clearly been gaining a lot of market share and by my estimation. The second quarter, you kind of lap that step up in share gain that really started to take hold in the second.

Quarter last year and that really bad weather period. So when you think about what you're telling us about twoq and once you're telling us about the balance of the year or is that reflective of sort of how do you think the overall do it for me or just general pain industries and they do are you still baking in that you're going to continue to gain share, even though the comps or maybe getting a little higher.

Peter.

We're going to gain share.

Very clear on that [laughter].

Going to gain share in and we're just getting started I I look at what's happening and what we're doing during this time.

And the work that the that that leadership team and what they're delivering and I'd say, we've got the best people in the field the best store managers best reps, they've got great resources.

And we're making investments Vincent during these times that that we expect to took them out is pretty strong and Vincent you know.

When you look at those of you know we look at at the long term and we got an SGN a question earlier, but you know as we keep adding reps, we keep adding stores.

We invest in a product innovation in E Commerce platform.

Is this the confidence that we'll exit the environment and position better to grow multiple the end market and and highlight that point is similar.

So what we saw coming out of the 2008 and nine recession.

And I'll highlight for you.

Three five and 10 year compounded average growth rate of architectural sales on our North America stores grew at a high single digit rate in each of those three categories, which we believe was a multiple of the end market and we believe the same dynamics are in this situation.

Yes, now that that makes sense glad to hear you guys are leaning into it as a follow up one of the other things we've talked a lot about over the last few years when when we had a low unemployment environment. It was it was a bit challenging in periods, where that where there was pent up demand from bad weather to to prosecute that demand, but obviously, we go through the summer where unfortunately gonna have.

Some pretty unattractive.

Unemployment numbers and I'm just wondering are.

Have your customers talk to you about they're actually able to go out higher more painters now and so maybe we will see a benefit from that at least for some period of time over next few quarters, we might I think it's a little bit early for that but Oh, we might and.

You know again, that's where the I don't want to feel like I'm preaching on these on this store platform, but I mean.

If our customers are hiring people that might be less skilled or less experience, that's where we can shine for them. We work with those customers. It fits the products that we provide and all the.

The.

The reality that we use in our products to make sure that they flow and level better than.

Others are the touch up the fact that we own our own colorant to allow that.

That you know the touch up is easier and better all of that allow us maybe a less experience or less skilled or growing and skill maybe painter or to be.

A producer for our painting contractor. So we like we like this type of environment, where we can shine and that's what we'll continue to to really try to leverage as we move through this process.

Thanks, very much guys appreciate it.

Thank you. Our next question comes from Mike Harrison with Seaport Global Securities. Please proceed with your question.

Hi are still morning here in the central time zone, but good afternoon guys.

Wondering John if you can quantify how many of your stores are close in a in North America right now and are those all situations, where you've been restricted by the government, where there are situations, where you have a handful of stores and you've decided to consolidate business.

From that handball handful into one or two locations.

Yeah, Mike Let me have David So answer that one hi, Mike right now, we probably have close to 30 stores in North America that are close.

Those are all those stores are due to government mandates.

The team's doing a really nice job and trying to fulfill orders and deliveries from other locations that are open.

And then as Zach continues to hopefully open up those stores old immediately open up when when the government allows.

And also was wondering a little bit about the cadence of demand from contractors.

As we're probably going to see some slowing in existing home sales and some of these commercial projects.

Maybe get deferred your competitor yesterday talked about coming air pocket.

In some of that commercial business in particular is that something that you see as well or do you think it's going to be study.

I I think Theres ER.

There's structure is coming out of the ground right now and while there are some delay in getting on those of.

One because of the stay in place or stay home and.

And the other in some of those areas, where there are allowing workers to come in its with restrictions so there'll be likely some delay in those but.

Our customers are still feeling good about those the other thing I would mention as you know we track very closely requests for.

Specs for colors for data sheets, all things that we look at as data points in helping us understand kind of the trend and they're very strong.

And so are we think short term there I mean, there's going to be some bumpiness in this quarter, we get that again.

You know second quarter is going to be a challenge, we're going to get through that and as our contractors and our specifiers and our architects are working on projects, we're going to be the ones right, there with and helping them.

Alright, and then or just quickly you guys introduced its Michael.

Michael This slide all paint a couple of years ago I'll go up heat shield has that been tested for effectiveness against us Corona virus and are you getting increased interest in that product for either commercial or residential applications right.

We we do but it's not a virus or coaters coating that kills virus with.

That is a micro pipe.

Micro microbial look very easy to say.

So it will show some bacterias, but it will not kill a virus now that said we've had an interest as overall health and wellbeing. The concern of ensuring that you have is safe and environment as possible has helped us in this area and we do have more interest on that product.

Alright, thanks very much.

Thanks, Mike.

Thank you. Our next question comes from Kevin Mccarthy with vertical Research partners. Please proceed with your question.

Good afternoon, I'm, just wondering if you could speak to the price contribution embedded in your same store sales growth I think he had an increase of 3% to 4% on January one.

Perhaps you can.

Lightness as to how much of that has been realized at this point.

Yes, Kevin that that.

Price increase is gone.

As expected and we've realized or just under 2% of effectiveness and in the quarter. We do expect that to get a little bit better answer the second quarter, but progressing as planned.

Very good and then secondly, al with regard to our capital allocation and see paused.

Share repurchase activity.

Is it safe to say that.

M&A activity is likewise pause for some period of time or how would you characterize.

Level of interest for bolt on or larger acquisitions at this point.

No well, we have a lotta interest and and and the acquisitions I think what we're continuing to do is work with the teams on you know generating or the the targets and filling our pipeline. Obviously in this environment. It is challenging that being said I feel very good about our liquidity.

The amount of cash we generate.

You know at 2.5 billion and available liquidity sources, we've done a lot of work pushing our near term maturities out so.

Our actual very good about our balance sheet and our capacity to make M&A as as we come out of this and we and we see.

Some of these targets, maybe coming to maybe coming to the market. So I feel very good about our position.

Okay. Thank you very much.

Kevin.

Thank you. Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you good afternoon Jain al how should we thinking about decremental margins in your various businesses and in Q2 here.

Yeah, I you know, what's what's when you say decremental margin with with all the businesses, except for our consumer brands.

Being down what I think you see is all the actions that these these groups have taken and continuous improvement.

I point to our performance coatings group, who as we saw demand through the second half of last year slowing they really have done a nice job controlling costs improving even how their operations are and you saw nice pickup in there.

First quarter operating margin was was up so I think you know I'm the way I look at it is all the actions that we've taken.

Coming into this and all the actions, we're taking now I would not to expect to see.

It's not a dollar for dollar document if you will I think you're going to see us do better than that or how much.

It obviously to all the it depends on volume and.

But I think we've done and taking the right actions Yeah. I think if you look at that business, particularly the performance coatings group.

Strong literary our order and Thompson there that are for less over a year period had been really driving a wonderful leadership team beneath them that are really driving expense reductions down to to be a in a position to.

To leverage everything that we can hear so I think there's been a lot of good work and it will only continue.

And John just then because some consumer brands very strong results or you gain are you gaining share in this business with just the underlying growth of the.

Of the market as we see right now.

I think it's early to tell I think right now we're working very hard to be the best supplier. We can and you know as data comes out we'll know better but.

Right now, we're we're trying to build the brands the products and make sure that we're servicing our customers better than anyone else code.

Thank you very much thank you.

Thank you. Our next question comes from Truman Patterson with Wells Fargo. Please proceed with your question.

Hi, good morning, everybody and thanks for taking my questions glad to hear you all are safe and healthy. So so John now you all have touched on this quite a bit but I'm, hoping to ask it a little bit differently in the Americas group, you're expecting the second quarter sales to be down low double digits to me.

Teams.

And then for the full year flat to down mid single digits at the low end of that full year guidance I think it implies that revenues improved to kind of a mid single digit decline.

In Threeq and Fourq you could you just walk us through.

How you all are getting there I mean, maybe some of the assumptions that you're making that even at the low end, we're going to kind of improve.

Versus the second quarter.

Yeah sure M&A you know as.

We start seeing and we're this is really going to come in is as we start seeing states.

Start opening up and the shelter in place.

Second of orders are removed and Jobsites started opening up more and and we can get back to work I think.

As that progresses through the quarter.

I expect to see improvement in the trends in the weekly sales rates and then when you get to.

The third quarter in the fourth quarter, you know I expect that to continue exterior.

Even in in the second quarter coming into the third quarter on rise repaint, there's opportunities as John talked about I mean there.

Construct commercial projects that are in place today that need to get paying it. There. There are housing units in place today that that need to get paying it and we expect those to happen here just timing so.

And as we carry the additional stores and reps that we've put in last year that we're putting in this year you.

You would expect the the ramp up.

As we get through the third and fourth quarter.

Okay. Thank you for that men on the performance coatings demand you're expecting it down high single digits, the low double digits in 2020.

It could you just give us an idea whether you're seeing any of the pricing contracts start to soften a especially in.

In the face of a lower raw material environment.

Yeah, Truman that let me just jump on the pricing you know the amount of sales, we have indexed or or Mpeg two and indexes is probably less than 10% within.

Performance coatings, it's less than 3% overall.

I just think your historically and I'll even go back to my experience in 2000 in 2001, industrial just seems to be a slower recovery than the architectural side of our business.

Asia Pacific, which is by and large back to work.

As slowly coming a growing but you know I think you'll see China in particular pick up a lot faster as the U.S. and European economies start getting back on their feet are our business as a.

Significant component that's export related and then it then it's just you know what do you think.

Europe, and Asia, or I'm, sorry, Europe, and North America, how we come out of that so you know, it's going to be a little choppy across businesses across geographies, but like we talked about I mean packaging is going strong we expect that to continue as we get back to work and people driving their cars or.

We'll start seeing auto refinish picked up as John mentioned, so I just think the cadence is a little bit slower than architectural.

Okay. Thank you all.

Keytruda.

Thank you. Our next question comes from John Roberts.

Please proceed with your question.

Thank you I'm glad you're all well.

You gave us some june quarter sales guidance, but not earnings guidance, where in your cost structure is the most uncertainty that you can't flow that through is it in labor costs are the stores Costa raw materials, but.

What are you most uncertain about there and your cost structure.

You know John you know, we haven't we've given sales guidance only and 18 through 18 and 19 I saw no reason to start giving a P.S. Guy quarterly guidance now you know I don't think there's uncertainty.

Around our cost structure, I think that plans and the the actions we've taken to reduce our costs reduced our discretionary spending hold open items are all our are going to impact the second quarter, but we're not managing the company for the second quarter, we're managing it for the long term and we're really looking at the recovery coming.

Out of a third and fourth quarter and really tried on momentum into 2021, that's what we're looking at.

And then to come in earlier on the broad material basket being down low single digit per se I assume that's a price index for the raw materials do you have significant inventory of raw materials to work down that your dollar purchases of raws will be down more than that low single person.

Oh, you know John you know the but really the the vast majority of our dollars are in bulk tanks at our factories. We're not buying ahead of any material nature, we're staying close to our suppliers and making sure.

They're able to service us and in particular, you know I, what I would say the team has done a very good job of managing this rapidly increasing unprecedented DIY demand I think there.

Reef retrofitting plants, they're moving products around the built capacity and our suppliers have done a terrific job, making sure we have the raw materials needed to keep up with that demand and I think our procurement teams in our global supply chain supply chain teams need to get a lot of credit for that but.

No no reason.

That we would be buying ahead on raw materials.

Okay, Thanks stay well.

Thank you that's on it too.

Thank you. Our next question comes from the line of spiritually loop capital. Please proceed with your question.

Hi, Thanks, I'm just wanted to be clear just on the two Q a consumer brands guidance does that include the.

Ladies exit and Ah I guess software Asian fundamentals, because that's what does it does seem to the the retail piece is running mid teens better not mistaken.

Yes. It. It does include both of those just that the one comment.

On the Ace business that we exited because were.

Getting towards the a that that agreement I mean, we are shipping ace ER. The final I would say inventories of of the private label and this quarter. It will be all done so I would say that a from a quarterly standpoint, the second quarter is probably the least impact it and then third quarter.

And we'll get a.

Back a little heavier in that fourth quarter will moderate a little bit just because it's a small corridor and and it does include Asia as well.

Great. Thanks, just one also follow up to sort of comment earlier around exterior here are the Americans gaining momentum just wanted to see is this just seems low.

Or are you seeing an increase in contractor backlogs.

It's driving some of that momentum that you identified earlier.

Well I think it's a number drivers I think certainly seasonal when you look at sequential improvement there is a piece of that I'd say that.

Our teams are doing a very nice job of really focusing on this business through contractor relationships and.

As well through product technology. In fact, you may recall last quarter I talked about a product this flux temp.

Really good.

Feedback and interest from residential customers as well as new residential this is a product that can.

Be applied down to 35 degrees or up to 120.

Degrees without sacrificing performance or application and so it's that type of innovation along with.

Service and.

The the relationships that were building in our stores that has us, believing that we're going to grow here and outpaced the market.

Thank you will move onto our next question, which comes from the line of David Salinger with Wolfe Research. Please proceed with your question.

Hey, good afternoon, and thanks for taking my questions hope everyone St sake.

So comparable sales again very strong here can you talk about what you were seeing early in the quarter from an underlying demand perspective. It seems overall housing metrics were improving in pretty good pace and regarding early trends into Q2, how long do you think that DIY performance. The outperformance there can't hold off is there some potential pole.

Forward and demand on the back half a year.

Oh, I I'll take a first run it doesn't let al jump and when you asked about our run early I would say life was really really good for here [laughter], we were having a we thought this was the the year and we so again feel the fundamentals are there, but we were we were smoking.

I'm DIY why I'd say and now you can come back if you want to add anything on that yeah, why I'd say that.

It's hard to say, if you're pulling forward there might be some of that well have to see how it.

How it unfolds you know when you think about.

The professionals that are going in and doing homes often times.

Which you'll find is DIY why customers more willing to take on projects like.

Small room bedroom living room, whatever not typically two story for years.

Oftentimes exteriors off limits, just because the scope of work there was gasoline into the work that goes there and you want to could try to complete a project those projects typically take a longer time. So yeah why consumers are typically more focused on.

Smaller more manageable projects and what you see is a lot of activity right now and quite frankly, we like it we think that the idea that.

That not just the short term benefits of having customers purchasing product, but the idea that customers are enjoying the benefits of a repaid.

We think is up as a positive longer term.

Customers can get a an idea of the impact that a relatively low cost investment can have on.

On their on their home and certainly the mental wellbeing and time like this one lot of people have a lot of anxiety and stress is relatively inexpensive some of them. They will tackle themselves and you know if some of them down the road say you know what I got to go back to work, but you know this room would look well look nice painted as well then you know.

My carryover as well, but want to see if it's a pull forward of we mortgage from some of that or not.

I think it it it will slow as people get back to work and you know.

If a if unemployment.

Ticks up.

We don't expect to see continued surgeon D. I Y <unk> and we're also monitoring on the registry pain side you know.

We believe it and again, we'll we'll see how this plays out but by and large that the the people that want to do a DIY project aren't going to higher contract. The people that tend to higher contract painting contractors to do the work are going to continue to higher painting contractors were not expecting a.

Big hit and our rest repaint due to the the surgeon DIY and certainly on exterior as we've talked before you know typically those are going to be done by painting contractors.

Got it that's all very very helpful and could tie how your commentary into wait a casino that that's the pricing increases planned throughout the year has there been any data suggest to suggest customer pushback on higher pricing in this environment and how's that shaping your your thinking towards.

Further pricing opportunities from here. Thank you very much.

It's not a impacted as we can see right now the choice of products in fact, as I mentioned earlier, we said we are experiencing a positive mix shift and quality.

And I'm just like we have in the past, we get together monthly as a management team.

Review, our total costs basket and we make decisions on a monthly basis, when we do that we talked to our.

Employees are customers and then we shared with the financial community.

Our adjusted I think we're ready for the next question.

Thank you. Our next question comes from Rosemarie Morbelli, what Chief Research. Please proceed with your question.

Thank you good afternoon, everyone and thank you for hanging on for me.

I was wondering if you win area. We didn't talk about 20 is Latin America and could you give it feels like what is happening there in terms of funds that he meant that the no shut down if any or the lack of shut down actually which make creates more issue going forward.

Oh sure Rosemary I'd say.

Chile is likely maybe the best described as the closest to having normal operations.

I'd say, Argentina in Ecuador for the most part.

Our are closed for most in time.

In Mexico.

60% of our stores are operating normally and.

Roughly the balance are running on curbside or.

Got a small very small percentage close but the most part that split between the normal and curbside.

And then Brazil I'd say.

Roughly.

About.

34 of our stores are closed.

And.

The remaining.

Open about <unk>, which is about 53% that Robert those 53 represent over 70% of our gallons.

And.

If you that so that's through our own stores. There if you look at.

Our business through our dealers about half of our dealers are closed and about 60% of the home centers are closed but offering delivery only.

So little bit of a mix and a in Brazil, and Rosemary I'd just add you know in a in the first quarter. If you look at.

Death of FX on.

Our Latin America team it was in the mid teens.

In embedded in our Q2 guidance is that will accelerate.

Because we can continue to see the devaluations in the re I.E., Argentina and pay so a Mexican peso, so that's going to Vietnam additional drag on those businesses in the second quarter.

So in the past she used to give us a number of stores in Latin America and an in North America, you have now put them both together a utility closing down stores in that region.

You know us.

Last quarter, we did close eight in Latin America.

And.

I think this goes back Rosemary to the point that I made earlier about our ongoing.

I call it a pretty rigorous review of businesses brands customer programs other investments and.

We've closed eight.

And those were in areas that were persistently soft markets.

It's a we've got a terrific leadership team down here as well and David and the team are working closely together too.

Evaluate every one of these operations are going to stand on their own or we make tough decisions and we've made some tough decisions and we'll continue to look at that business. We.

You want to continue to grow that business. There are some dynamics in that market that make a little more challenging, but we've got a lot of upside potential we should be unionist, though.

Thank you and then let's face I mean can you talk about lead a bit about any any changes in the competitive environment.

Everyone is trying to gain share everyone is trying to upset you know the impacts of the pen didn't make a can you give us any feel for what is going on in the marketplace.

Are you talking about just holistic, though in general or yes. It in general, but if you can look at the different you know Ariads young.

Doing saying, yeah, it'd be it'd be hard to do that for every part of the company in every region, maybe I could make this statement that we have a lot of respect for our competitors here.

Very good global competitors and we've got a lot a really good regional competitors everyone's businesses different these are really challenging times.

We're gonna do what's right strategically for us and our customers through through our strategic.

Vision and model that works for us and.

You know other companies may be taking different different path.

We have a lot of respect for them.

If it keeps us.

Motivated and driven as a healthy paranoia, if you will because good competition makes you better we've got a lot of really good competitors.

Thank you very much.

Thank you.

Thank you. Our next question comes from Great Management Evercore ISI. Please proceed with your question.

Hi, Thanks, guys and thanks for getting through all these questions really helpful. Now.

I too long as on pricing.

You mentioned architectural could you talk about performance coatings group the pricing environment, there given everything that's going on.

And then I had a follow up on stores.

Craig.

You know.

Kind of been chasen.

The pricing and raw material through 18 and 19. So we did go out with selective price increases in the in the first a.

Early in 2020.

You know they talked about the small number of contracts we have on indexing, but.

I think the dynamics within our performance coatings group are similar to the dynamics that we talk about an architectural and that is you know we continue to invest in innovation that helps our customers be more effective more efficient drive.

Faster line speeds on there on their manufacturing lines to to drive their.

Total cost of application down it is really what we're looking at to 10 move off of just price kinda cost metrics and and I think that's important to continue to focus on and we'll continue to do that and continue expand our services to our customers to to drive.

Growth for that for the both of US have helped them make more money help them achieve their goals help solve their problems.

And we can do.

That's great and then second on the stores business.

What percentage of the orders are you now taking via E commerce, whether it be the the app or.

Website as opposed to just the I guess, a phone or walk in order and others and are there any products that your customers, especially new accounts are asking that you added the assortment.

And this environment, where you can really leverage the stores network.

Regarding the online I I would say this Greg it.

It's a growing it's a high percentage growth, but it's it's relatively low overall, so while we're excited with a percentage.

It's it's it's off of a relatively low basis as we're really now getting behind US we expect that to continue and and we're going to come out of this better as a result of it.

As far as a products that our customers are asking for yeah. There are some and we're looking into them.

We'd like for you to find them on our shelf before we achieved before we talk about them.

Hi sounds good good luck guys. Thanks, Thank you Greg Greg So say.

Thank you. Our next question is suggested <unk> with Jpmorgan. Please proceed with your question.

Hi, Thanks very much.

Our the social distancing practices of Sherwin Williams uniform across a it store network or are they different in different states and how do you expect them to evolve from now to the end of the year well the state's set your pipelines or will you sent them.

Yeah, Hi, this is David.

Thanks, a question we have some standard protocols that we follow.

For social distancing as our stores come back the team has done a phenomenal job Adobe decals on floors will be.

Guiding walkways. So you know, it's a little different dynamic than than say our manufacturing plant.

Where it's all Baxter and his team has done a great job ensuring.

A strong social dispensing practices, we follow CDC guidelines at a minimum we have some health care professionals that we consult with as well. So we take that very seriously and we try to go above and beyond everywhere we can.

Okay.

When you think about the next year or two in terms of the value of pain.

We're going to go through a period, where raw materials are going to come down quite a lot. The consumer is going to be distressed a contractor market is going to be much looser.

Yeah, sure wouldn't really likes to price for value has too. Many coatings companies do you think we're going to go through more of a deflationary period in terms of product pricing in pain with the raw materials coming down in the margins being good or two.

Think about we're going to have more of a continuation of the pattern before the recession, where there would be intermittent general price increases as a base case.

Jeff I think you know an important element to keep in mind is the cost.

Structure of a contractor when you mentioned that Sherwin stores.

90% of a cost cost of goods for a painting contractor is labor.

And so our focus is on driving the efficiency and productivity and profitability of that customer.

Through innovative products and services and.

We will continue to invest in areas that will help them to do that and we believe in turn our position.

With that customer improves and improves from a royalty usage and acceptance standpoint and so.

Not our intent Oh, we know we have to be competitive in the marketplace. It's we I mean, that's a price of entry. If you will enter the market will continue to ensure that were.

Competitive, but will also be making those investments we think that will help justify the prices that were charging our customers yeah, Jeff I think that's a very important point by continuing to invest and that innovation and making the painting contractor more effective where they can get more jobs done the same number of people you know.

Yeah.

Makes it a paint such a small portion of their cost, but I would point to you know 10, 11, and 12 and we saw the big run up and costs raw material costs and they rolled over and we by and large held our price well 13 through 16, and we saw a nice improvement in our and our gross margin, but you can only do that.

You're continuing to invest in and products and services.

That are going to continue to help the painting contractors make more money you can't you can't offer commodity products and services and and ask for.

Specialty store margins or pricing.

Okay. Thank you so much thank you to say Sir.

Thank you. Our next question from Christopher Perrella with Bloomberg Intelligence. Please proceed with your question.

Hi, Good afternoon, how quick question on inventory levels, all with the rapid drop in demand actually you guys building into the spring Oh for robust business I think I'll touch on this little bit where are your raw material standing and what to to the best of your estimate.

Working capital impact.

In.

Second quarter.

Yeah, So Chris you know.

We I think it isn't very good job, managing our inventory and and I would just say that the raw material inventories.

Much smaller part of our overall inventory, but we did a much better job very good job managing inventory down where we saw weakness in demand and that helped contribute to the 151 million improvement we saw in working capital in our first quarter.

I think you're going to us and we do and did build architectural inventory to what we had planned coming into the season as we're seeing a little bit softer or we're seeing softer sales and our tag group.

We're still seeing like we talked about that unprecedented increase in the DIY through the home center channels. So you've seen a switch and I talked about it earlier about our global supply chain I mean, we're building and producing every gallon. We we can and we're continuing to look and work with our customers on getting there.

Right products made getting the right products and inventory and into the store shelves, both in our stores and with our our retail partner. So it definitely very so packaging you know we're building inventory as much as we can across all the regions because we continue to see strong demand.

I can assure you.

We'll continue to manage our inventories lower and we've done a lot of different things. We've cut we have more communication between the selling organization in our supply chain we've cut.

Batch sizes, we cut safety stock we've.

Gone to more of a Macon ship model in some cases versus make to or versus make the stock. So there. There are lot of levers that we've pulled and we'll continue to pull that sweet.

Yeah demand environment unfolds.

All right and one quick one what the implied sell what the sales guidance for two Q is there any employed.

Channel drawdown and your performance business or is that all basically street volume out of your factory to the customer.

It's a all volume out of the factories, but again I think in those markets. In particular, we've we've the team has done a nice job driving inventory down so that it's just more out of the factories.

Alright, Thank you very much.

Chris.

Thank you it appears to have no additional questions at this time, so I'd like to pass the floor back over to management for any additional concluding comments.

Thank you Jesse a this is Jim Jaye, just wanted to thank everyone for their questions and interest today.

And I hope it came through very clearly gotten their confidence in determination to manage through this crisis near term as we go forward.

Before we sign off today I did want to do a housekeeping note to all of you we will be postponing our annual financial community presentation, which was scheduled for June 3rd in New York City. This year.

It's our intent to reschedule that event.

Hopefully later this year you don't have that date, yet, but as we have details. We'll let you know whether that's going to be a virtual presentation or not so.

Thank you as always I, along with my colleague, Eric Swanson will be available for follow ups or.

And please contact Natalie Dar in our office to be added to the Q and thank you have a great thing.

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation and you may disconnect your lines at this time.