Q4 2020 Sherwin-Williams Co Earnings Call

Good morning, Thank you for joining the Sherwin Williams Company's review of fourth quarter 2020 results and our outlook for the first quarter and full year of 2021 well.

With us on today's call are John <unk>, Chairman and CEO al on the station CFO Jane Cronin Senior Vice President corporate controller, and Jim Jaye, Senior Vice President Investor Relations at Communications.

At this conference call is being webcast simultaneously in listen only mode by issuer direct via the Internet at Www Dot Sherwin dotcom.

An archived replay of this webcast will be available at www Dot Sherwin Dot com beginning approximately two hours. After this conference call concludes.

This conference call will include certain forward looking statements as defined under U S. Federal Securities laws with respect of sales earnings and other matters any.

Any forward looking statements speaks only as of the day on which such statement is made at 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.

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

After the company's prepared remarks, well open the session to questions.

I will now turn the call over to Jim Jay.

Thank you and good morning, everyone.

Sherwin Williams delivered outstanding results in the fourth quarter.

The momentum with which we exited the third quarter continued in the fourth quarter with the pace of growth accelerating across our pro architectural and industrial customer segment.

We saw continued unprecedented growth in our DIY business during the quarter of double digit increase in residential repaint.

Solid expansion in new residential.

Modest improvements in commercial and property management and high single digit growth in our industrial segment.

Fourth quarter 2020, consolidated sales increased nine 1% to $4 $49 billion.

Consolidated gross margin increased 140 basis points to 47, 4%.

Consolidated profit before tax increased $206 5 million to $503 $9 million.

The fourth quarter of 2020 included 77 $4 million of acquisition related depreciation and amortization expense.

The fourth quarter of 2019 included $119 3 million of acquisition related amortization expense and the other acquisition costs.

And $71 $3 million of other adjustments, which included noncash impairment charges related to indefinite lived trademarks, partially offset by of Brazil indirect tax credits.

Excluding these items consolidated profit before tax increased 19, 1% to $581.3 million with flow through of 25%.

Diluted net income per share in the quarter increased to $4 46 per share from $2 at 66 per share a year ago.

The fourth quarter of 2020 included acquisition related amortization expense of 63 per share.

The fourth quarter of 2019 included acquisition related amortization expense and other adjustments of $1 61 per share as described in our press release.

Excluding these items fourth quarter adjusted diluted earnings per share increased 19, 2% the $5 nine per share from $4 27 per share.

EBITDA grew to $733 $9 million in the quarter or 16, 3% of sales.

Net operating cash grew to $844 $8 million in the quarter or 18, 8% of sales.

All three of our operating segments delivered excellent top line growth.

Margin expansion and strong flow through in the quarter.

Segment margin in the Americas group improved 270 basis points to 21, 7% of sales.

The resulting primarily from operating leverage on the top line growth and favorable mix.

The flow through was 51, 3%.

Adjusted segment margin and consumer brands group improved 280 basis points of 13, 6% of sales, resulting primarily from operating leverage on the double digit topline growth.

Flow through was 34, 6%.

Adjusted segment margin and performance coatings group improved 100 basis points to $14 four per cent of sales.

Driven by operating leverage on the high single digit sales growth and lower input costs.

Flow through was 28, 1%.

Let me now turn the call over to John <unk> for additional commentary on 2020, along with our guidance for the first quarter and full year 2021.

John.

Thank you Jim and good morning, everyone.

The strong results in our fourth quarter led to another record year for sure on Williams <unk>.

The deepest appreciation and respect to go out to all of 61000 members of our incredible global family and to our leadership team for everything they've done.

While none of US anticipated the severity of this year's challenges our people responded as they always do when facing the adversity with extraordinary effort.

With determination and with resiliency.

When it mattered most this team delivered and I'm incredibly grateful for all they do.

To that end, our full year 2020 results demonstrate the strength of our people our business model and our solutions based approach to meeting customer needs.

We generated record sales despite the impacts of COVID-19.

Cash from operations net income and net income per diluted share also weren't records.

<unk> increased by double digit percentages over 2019.

I'd like to call out just a few full year highlights in more detail.

Sales increased two 6%, including the negative impact of one 1% related to currency translation to a record $18 $4 billion.

Gross margin improved 240 basis points to 47, 3%.

EBITDA grew to a record $3 4 billion or 18, 7% of sales.

Segment margin expanded in all three business groups.

Adjusted diluted net income per share, which excludes acquisition related amortization expense and other items called out in our press release.

Increased 16, 4% to.

The $224 58 per share.

Net operating cash for the year increased to a record $3 four 1 billion or 18, 6% of sales.

We returned approximately $2 $93 billion to our shareholders in the form of dividends and share buybacks.

An increase of 145% over the prior year.

We invested $303 $8 million in our business through capital expenditures and we retired $400 million in debt any of the year with the debt to EBITDA ratio of two four times.

As Jim described we achieved these record full year results with a strong close of the year.

Let me provide some more detail about our segment performance in the fourth quarter.

In the Americas group.

Fourth quarter sales increased by 9% over the same period, a year ago, including just under two percentage points of price and the headwind of one two percentage points related to unfavorable currency translation.

Same store sales in the U S and Canada were up nine 3%.

We saw consistent trends across the business in the quarter and we significantly outpaced the rate of growth we delivered in our third quarter.

And residential repaint, our largest segment.

We delivered double digit growth in the quarter interior and exterior work were both strong existing home sales are robust and contractors are reporting solid backlogs.

I'm also pleased to report that once again, we grew this segment by double digits on a full year basis.

We continue to see great opportunities here for share gains going forward.

Demand remains unprecedented in our DIY business.

Where sales were up by a double digit percentage for the fourth consecutive quarter.

New residential also remained an area of strength for us with the rate of growth accelerating from mid single digits in the third quarter to high single digits in the fourth quarter.

New housing permits and starts have been trending very well since summer and customers are reporting solid order rates.

We've not yet seen meaningful recovery in our commercial business, which was up slightly in the fourth quarter the.

The predominant theme remains that projects are being delayed rather than canceled.

Property maintenance was also up slightly in the quarter the turnover in multifamily properties remains slow.

Protective and marine was down by double digit percentage where growth in our smaller customer segments, such as flooring bridge and highway and water and wastewater treatment was more than offset by softness in the oil and gas segment.

We continue to aggressively pursue opportunities in all of these end markets.

From a product perspective sales and both interior and exterior paint were up by double digit percentages with interior of becoming a larger part of the mix than it was in the third quarter as is normal for our fourth quarter.

For equipment sales also were up double digits in the quarter.

Contractors typically invest in this type of equipment in anticipation of solid demand.

In December we announced a 3% to 4% price increase to our U S and Canada customers effective February one we.

We would expect to realize approximately one 5% from price in the first quarter and just under 2% in the following quarters.

We opened 54, new stores for the full year on the U S and Canada, partially offset by consolidation of underperforming stores. The majority of which were in Latin America.

Along with these stores, we continue to make investments in sales reps management trainees innovative new products and productivity enhancing services to drive additional growth.

We're also pleased by a continuing uptick in the use of our E Commerce platform.

Moving on to our consumer brands group.

We delivered sales growth of 13, 6% in the quarter, including one four percentage points of positive impact related to currency translation as DIY demand remained robust.

Sales in North America increased in line with our mid teens segment growth guidance.

The international demand was variable with Australia up low double digits, Europe up low single digits and Asia down mid single digits, respectively.

Our global supply chain organization continued to perform at a high level in the quarter working collaboratively with our customers and businesses to help meet the strong demand.

The strong sales growth along with prior portfolio improvements and international cost reductions drove the significant improvement in our margin performance.

Last.

Let me comment on our fourth quarter trends and performance coatings group.

Following an encouraging third quarter, we continued to build momentum across the business in the fourth quarter group.

Group sales increased by high single digit percentage.

The impact of currency translation was not material in the quarter per.

Price was positive in all regions and all divisions generated growth.

Regionally sales in Asia grew the fastest in the quarter up by strong double digit percentage of Europe, and Latin America also grew by double digit percentages.

North America sales were just slightly positive from a divisional perspective, I'll start with our coil coatings business, where growth was up double digits in the quarter and positive in every region. The.

This team continues to do a remarkable job at winning new accounts and all regions.

We're also seeing the gradual resumption of selected commercial construction projects.

Our packaging team also continues to deliver great results.

Sales were up double digits in the quarter and positive in every region.

Demand for food and beverage cans remains robust on.

Our non BPA coatings continue to gain traction and both we and our customers are investing in capacity expansion.

Sales in the industrial Wood division were up by double digit percentage in the quarter positive trends in new residential construction are driving increased demand for kitchen, cabinetry flooring and furniture.

We're especially encouraged by the return to growth in our general Industrial Division, where sales were up by high single digit percentage in the quarter.

We saw meaningful improvement in portions of our heavy equipment building products and container segments as well as more general finishing.

We believe the strong performance was the mix of inventory restocking by some of our customers and growing in demand.

Sales were up in all regions, except North America, which was down about 1%, but improved significantly from the third quarter.

Sales were also slightly positive in the automotive Refinished division in the quarter heightened the social restrictions at lower than normal holiday travel due to a resurgence in COVID-19 pressured miles driven and collision shop volume.

Turning to our 2021 outlook, we see an operating environment with very solid North American new residential and residential repaint demand.

The trajectory of recovery in commercial on property maintenance is likely to be choppy and comparisons in DIY will be challenging we.

We anticipate industrial demand will continue to improve as the year progresses.

The impact of variables such as the timing of the Covid vaccine the incoming U S administration and proposed stimulus and infrastructure spending are hard to gauge at this point.

That said our team of skilled at adapting to any number of conditions and we have many opportunities to grow share in all of our businesses.

We'll continue to target growing at a rate that outpaces the market through customer driven solutions based on innovation.

All of you added service and differentiated distribution.

For the first quarter of 2021, we anticipate our consolidated net sales will increase by a high single digit percentage compared to the first quarter of 2020.

We expect the Americas group to be up high single digits we.

We expect the consumer brands to be up by a mid teens percentage and we expect the performance coatings group.

The up by mid to high single digits.

For the full year 2021, we expect net sales to increase by a mid to high single digit percentage.

First half growth is expected to be stronger than second half given the negative impact of Covid had on our first half a year ago.

We expect the Americas group to be.

The up a mid to high single digit percentage consumer brands group to be up or down by a low single digit percentage and performance coatings group to be up by a mid single digit percentage.

We expect diluted net income per share for 2021 to be in the range of $23 87.

The $224 67 per share compared to $22 <unk> per share earned in 2020.

Full year 2021 earnings per share guidance includes acquisition related amortization expense of approximately $2 53 per share.

On an adjusted basis, we expect full year 2021 earnings per share of $26 40 to $27 20, an increase of 9% at the midpoint over the $24 58, we delivered in 2020.

One key assumption embedded in our outlook is that the market rate of inflation for our raw material basket will be up by a low to mid single digit percentage in 2021 compared to 2020.

Assuming no further escalation of above our current outlook and no supply disruption.

We expect to see year over year inflation in all four quarters with the largest impact likely occurring in the middle of two quarters.

We expect the rate of inflation to be most significant on the petrochemical side of the basket as.

As we've demonstrated in the past we will seek to offset these increased costs with pricing actions as appropriate.

Let me close with some additional data points and an update to our capital allocation priorities.

Given volume growth pricing actions and our ongoing continuous improvement initiatives, we expect full year gross margin expansion.

We expect to get SG&A leverage in 2021 by controlling costs tightly and non customer facing functions.

We will continue to make investments across the enterprise that will enhance our ability to provide differentiated solutions to our customers.

We expect to return to our normal cadence with around 80, new stores opening in the U S and Canada in 2021.

We will also be focused on sales reps capacity and productivity improvements as well as systems and.

On product innovation.

We also plan additional incremental investments in our digital platform and the home Center channel. These investments are embedded in our full year guidance.

We expect currency exchange will not have a material impact on sales for the full year.

We expect our 2021 effective tax rate to be in the low 20% range.

Our core Capex guidance for the year is approximately $370 million. In addition to this core capex.

We expect to make investments of approximately $100 million in 2021 related to our new headquarters and our new R&D facility project.

Depreciation should be about $300 million and amortization will be about $310 million.

Interest expense should be about $340 million.

We have $25 million of long term debt due in 2021.

Historically, we've targeted dividends at about 30% of our prior year GAAP earnings.

Next month at our board of Directors meeting.

Will recommend an annual dividend increase of 23, 5% to $6 62 per share up from $5 36 last year.

We expect to continue making opportunistic share repurchases.

We'll also continue to reevaluate the acquisitions that fit our strategy.

2020 was a very challenging year and I'm incredibly proud of the way our team responded to deliver record sales and earnings.

At <unk> 'twenty 'twenty one begins.

We're energized and more determined than ever to capitalize on the many opportunities we see in each one of our businesses.

We believe the long term fundamental strength of our end markets remain intact.

We're poised to thrive in 2021, and as I mentioned last quarter, we feel like we're just getting started in many ways.

Our team has experienced.

Our goals are clear our solutions are many.

And our confidence is high.

We remain focused on delivering value for all of our stakeholders over the long term.

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.

At this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad and the confirmation tone will indicate your line is on the question queue.

You May press star two if you'd like to move your question from the queue.

For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Thank you on our first question comes from the line of Ghansham Panjabi with Baird. Please proceed with your questions.

Thank you good morning, everybody.

I guess first off on your fiscal year 'twenty, one guidance, you know tag up mid to high single digits can.

Can you sort of walk us through the your current view on the very sub segments in there and theres been some divergence thus far in residential versus commercial construction of the U S. On how do you how do you sort of expect that to evolve as the year unfolds.

Well Ghansham I'd say, our first we have great confidence in the market here, we've been working very hard as you know to position the company to strategically.

Thrive whichever way the table tilts.

So while there may be some shifts.

In the in the market, we believe we'll be able to capitalize on the opportunities regardless of which way.

On the market May move so let me just run through quickly the answer your question I think on.

On the new reservoir of residential standpoint, we think.

Coming off of a high single digits in the fourth quarter.

We believe the permits are strong in our position in new residential is very strong as you know we've got a.

Terrific position with 18 of the top 20.

The homebuilders and we expect that that momentum that they are experiencing will result in some nice gains for US. We're also very pleased with the.

The gains that we've been making with the regional builders so on a <unk>.

The new residential position, we're feeling really really good.

From a residential repaint position.

I'd say that the the strength that we mentioned earlier double digits now for six consecutive years give us a lot of confidence in the way that this business is moving.

This is driven by both interior and exterior work as we talked about in homeowners now beginning to let these painters back into their homes.

Has us feeling really good not only about the market itself, but our growing position there.

The backlog.

In this residential repaint business gives us additional confidence.

There has been some question about any shift between do it yourself and do it for me.

We believe that the do it yourself.

And do it for me are both terrific opportunities.

The do it yourself remained strong consumers are nesting.

And while there they are choosing to to jump on the opportunity to make.

On an impactful difference on their home in a very reasonable project from an investment standpoint end time.

So we're excited about the momentum that we have there as well.

We're working hard at relatively small percentage of our business overall DIY, but our net promoter score even in these challenging times both on the professional side and the DIY side are improving so we're going to work hard to continue to retain those customers that are.

That of entered into our stores.

Commercial.

The improved significantly over the third quarter.

Down from double digits to slightly positive.

Still the recovery has been more muted here than the residential repaint and new residential projects here are beginning to open back up.

But with restrictions for distancing and the number of people on the projects.

Requiring PPE. So we're working closely with our contractors are we navigate through these challenges and we think it's a terrific opportunity for us to.

To support our customers as they grow with us.

And the new World here, and then finally in property maintenance.

The recovery of property maintenance as I mentioned earlier remains slow but positive.

The demographics here for apartments are favorable.

Just under pressure with terms.

So at maintenance and property management in the in the area of apartments has been slow but.

Also in areas like hotels restaurants et cetera, we are seeing.

On the multifamily area of investments Capex investments to upgrade properties.

This has gained traction.

Areas somewhat influenced by the the D on the organization.

And this would be where you might have C level of property is going to be in beta a.

Again, we've got a terrific position here with relationships with 18 to 2018 of at the top 20.

Property management company so let's.

Jay whichever I walk through those kind of quickly the whichever way. These beef market sales were as I mentioned feeling really good about that so.

Homeowners, who have now been called back to work end up back on the production line or traveling for their businesses or back in their offices wherever of those.

Gallons are sold we like the position that we are end to be able to capitalize on it. So we're really confident about that and then maybe you can take a moment just to talk about the macro data that supports our confidence.

Yes, John sure and good morning, Ghansham, if you look at the new residential piece, obviously, John mentioned at but permits starts have been very strong since the summer you look at in December they were up mid single digit.

The last three months, it's up double digits on starts single family has been a bit stronger obviously than multifamily.

You look at some of the other indicators.

The 30 year fixed mortgage still very supportive of around $2 seven or so in in December.

U S consumer confidence a little bit shaky at this point and unemployment is still above six but we think of everything that we're seeing hearing from our customers on the new rent side is is very solid end. We've got the long term view, which we've articulated in the past about household formation is continuing to be strong.

If you look at resi repaint existing home sales increased for the sixth consecutive month in December.

Up 23% year over year.

Month's supply is still pretty low median home prices are continuing to rise. So people have equity in their homes and feel good about repainting U.

You look at <unk>.

<unk> at the leading indicator of remodeling activity is modestly more positive next year and the National Association of Homebuilders remodeling Index is also near record levels. So feel very good on.

On that maybe commercial just to wrap up real quickly I think commercial is John characterized at the recoveries a little bit choppy. There I'd go back to what we said at our analyst day in the fall strong starts at the end of <unk> 19 in early 'twenty before the pandemic hit many of those starts are now as we get into 2000.

<unk> going to start we think get to the painting phase. So we should see some improvement there I think what's still.

Less clear is the pace of new starts heading into later this year I think there'll be a recovery, but we'll have to see how strong net is he got you on the Dallas station one of only one other comment to add on.

Because of the way 2020 unfolded with the.

A weaker first half and a stronger second half you know it's important that we get off to a good start and.

As we've talked about in the past with our paint stores group North America of having a strong second half of 2020.

Mid single digits, and then, especially with the fourth quarter being up high single digits.

Typically translates to growth on our first half of it gives us confidence about the paint store at architectural.

Architectural volume to start the year into our into our.

The first half.

Similar result, with a strong second half of 2019, which was up high single digit.

And leading to a strong first quarter of 2020 of which was up high single digits. So that's what gives us the confidence on architectural going into the first half of the year.

Okay. That's very thorough thank you so much and then just real quick on my second question on on the inflation side I mean, you're very specific in terms of raw materials in terms of how that's going to sequence in 2021, you called out pricing and and tag.

How should we think about performance pricing like what it would be announced so far.

Three years ago, we had an inflation cycle of the industry was distracted, including you guys closing on Valspar, how are we going to approach inflation differently. In this particular of inflation cycle. Thanks, so much.

Of that Ghansham I think we're in a completely different spot on Huawei, where when we closed out on 2017 as you recall.

There was not a lot of price out on the market relative to industrial as raw materials were increasing in 17 and then we.

We collectively as an industry chase debt for the following two years I think we are.

Ahead of it in the sense that we are out with price across the different of our of our divisions. We have more price to go as Jim are at.

As John talked about its heavier on the Petro Chem side and we are absolutely.

Out in the market with price a little bit higher than what I would say you would see on our.

Tag architectural business because of the.

Higher increase we see on Petro, Canada, So I think youre going to see a different environment plus the other thing I would add is with the our.

Confidence in the growing volume at we expect volume to be stronger.

And this year relative to what it was back end 17 at I think as we've talked about that really is what the main driver of our margins are and we'd expect a.

Strong first half with volume in our performance coatings group that will help offset some of the raw material impact as well.

Perfect. Thanks, so much.

Thank you Ghansham.

Our next question is from the line of Jeff Zekauskas with J P. Morgan. Please proceed with your questions.

Thanks very much.

Hi, good morning on your administrative costs in the quarter were up I don't know $65 million, maybe they were up 55 of the year debt.

Think of unusual happened in the fourth quarter and what's your outlook for administrative costs in 2021.

Yes, Jeff.

If you look at the year over year on the fourth quarter most of that increase.

It was due to the Brazilian tax credits at FERC.

Occurred in the fourth quarter aside from that the room.

<unk> increases were due to higher comp.

And incentives, including stock based compensation are.

We had a higher environmental expense in the quarter and then.

We took the opportunity in the fourth quarter as we saw a stronger sales than what we had guided to our guidance as you recall was up to the up 3% to seven we ended up above the high end of that range at a little bit over 9%. So it's at some of the spending we delayed and it infrastructure and some of the digital initiatives.

Cross the enterprise, we put some money back in their debt.

Drove that increase up a little bit that was partially offset by a decrease in integration costs.

You look at our outlook for 2021, my expectation is interest rate interest expense at a pretty flat year over year, and then I would expect to be flat to down.

Slightly on the admin.

For the rest of the year.

And then thank you for that and then from the strategic point of view.

I don't think you bid on Ticagrelor.

Can you talk about why you didn't or why that would have been a good fit or a bad debt can you can you.

Reflect the on that asset.

As it relates to Sherwin Williams.

Well Jeff.

I don't know that I want to talk about any one particular asset I might give you our thinking overall in the U.

And of the drive your own thinking to that of our our pipeline as we see at is robust and we continue to do.

The evaluate what we believe are strategic fits for our company.

On to US, we look at very unique and differentiated solutions.

On solutions that allow us to drive our customers' success.

I'm just want to take a moment on this because I think it's important you know all of our view is is that when our customers are successful we're successful.

And when we're driving value for them. It allows us to create value for our shareholders. So we're focused on targets.

The drive those unique solutions, our our strategy is not going to be defined by what comes up for sale.

We're not trying to be everything to everyone nor trying to be everyone.

The be everywhere for everyone.

Look proactively for targets that are kind of fits for our strategy that fit us.

The geographic areas that we feel that are of GAAP that provide of technology that we can leverage.

More adds to our distribution that fits our strategy.

We believe we are uniquely positioned not to require acquisitions to grow the.

Our focus is on right now at prioritization of opportunities that.

That we have and turning them into shareholder value.

Since we are likely.

Jeff going to see us more doing bolt ons more likely in the industrial space with targets to support what we call our right to win not just commodities are not just the book of business.

Where we're really focusing on those high value areas at.

That allow us to differentiate so a great example would be the there's a lot of talk now about infrastructure not to say that we're only focused on protective and marine but I think it gives a good example, if I take bridge and highway as an example, youre likely going to see us.

On the bridge side or as we say the HB I the high value infrastructure, not just chasing commodities.

So our view is that those acquisitions that fit our ability to differentiate with unique solutions allow us to create value not just trying to be everything to everyone everywhere Jeff.

The only thing I would add to that as you know we don't haven't gone on at.

Sure and we've talked about this in the past we believe we can grow organically.

And if you look at the last two years 19 of 'twenty, we grew sales of modest two 3% CAGR.

That's sort of our 800 million of incremental dollars.

With that though we grew adjusted PBT, just under $640 million of flow through of 77% I think that talks to the strength of the model and the and the strategy that we've put in place and then when you look at our 2021 sales guidance to be up mid to high single digits, we expect to accelerate that growth in 2021.

Thank you very much.

Thank you Jeff.

Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.

Thank you and good morning, everyone I'm, just trying to contextualize the performance of the impressive performance in the fourth quarter and tag.

On the at the North of 9% versus I think of four 5% comp of the prior period and I'm, assuming particularly in residential repaint that your customers don't have complete access to.

The their customers for Covid reasons. So I'm just wondering if you can help us understand or as you know from your customers sort of what percentage of their book of business or the prospective book of business. They actually have complete access to you know sort of exiting the fourth quarter versus maybe where they were entering or in the third quarter because of the we can get a sense of.

You know how the opportunity set is kind of progress as.

As we move through 2021, I think you should plan on the opportunities to be very solid I don't have a number I think it varies by customer and at probably by geography, but.

As you would expect with over 3000 sales reps and nearly 5000 store managers out there every day.

Working this this customer we are of very good feeling about what theyre doing and through our CRM. We've got an understanding of the activity there and I would tell you at.

Terrific.

And the number of ways I would say the the confidence that we have presents itself the.

The drive that we have in new account activity for further growth.

The interest in fact in 2020, we actually opened more new accounts or many of them in residential repaint.

In 2020 than we did in 2019.

And so.

The visual I'd like for you to understand is is that we've got this terrific customer base, that's growing in their loyalty to us through the introduction of new products and innovative solutions the <unk>.

Digital platform you've got.

The new living well the introduction of <unk>.

Of the products, where our customers I'll be happy to share with you in a moment here we've got Oh.

Terrific service the.

Of the roles of our reps play in helping these customers to be successful. So we've got the homeowners who have been who that are.

Thanks, just to have their homes painted after.

Spending maybe a little more time in there that the when the.

Appreciate it earlier the desire to maintain those painting contractors as loyalty to our company is growing and a strong desire for us to not only take care of those that are doing business with us now the to grow that and I think we're we're hitting on a lot of those cylinders. So as I mentioned six years of double digit growth in it.

We expect that momentum to continue.

And if I could just ask on the the raws and price.

The the February one start date versus I think last year was of Jan one start date I mean, what what were you waiting for to make the price increase announcement in and how comps you know what what caused the percentage increase that you chose and.

A lot of folks that are worried about further inflation in the back half on the crude oil chain further into petrochemicals are on Tio too. So are you confident that you're at that you took enough or should we think that maybe it's possible you'll need to take more during the year of if necessary.

Vincent you know.

I would say the timing of what was really a function of.

The rapid increase we saw at as the fourth and raw materials of the fourth quarter progressed.

So we hadn't planned on ongoing even at early.

The where we thought the raw material environment was as you know we look at this every month and try to project. What we think the baskets kind of move both with architectural and industrial and when we saw at the.

The rapid increase of propylene, we adjusted the schedule and went out with the price that we think was right on on architectural and industrial.

Because we had some businesses that.

We're still working through that process I think it allows us to adjust.

At the price increases at <unk>.

Kind of be versus what we thought it was going to be so we'll probably update we're going to go out with the higher increase than what we had.

<unk> had on architectural and here's the as you know as the year goes on.

We see raw material costs, increasing more than than what we had planned or what we have on our guidance.

You know us we are disciplined and we will go out with another price increase you saw that kind of 11 12, when we had at go out with five price increases on the 18 month period at just the discipline is still there and if.

We're not covering our costs will have to go out again, but right now we feel comfortable at the price increases that are going into the market.

Thanks for the detail on looking forward to a great 2021.

Thank you Vincent.

The next question is from the line of Greg <unk> with Evercore ISI. Please proceed with your questions.

Two questions one.

You mentioned the digital investment with the home centers could you get a little more specific in terms of you know what that is on how we should think of that.

Yeah the P J.

I think there is a digital investment and the home center of digital investment. So I want to make sure that you are clear with our comments on Greg we are.

We're excited about our relationship we share of definition of success with our.

Consumer brands customers that has us leaning forward and.

On anxious on growing the this growing opportunity we're interested in.

The retention of the customers that our customers are experiencing and we're working with them in ways to help them do that.

Rather that the specifics of those details come from those customers on the timing will.

We will be explained by those customers internally ours were very excited about that as well.

I just wasn't of that out in the both the do it yourself again lesser part of our business.

Spending a little bit of time on.

On to serve those customers quad.

Quite a bit of investment in the attention going towards our professional digital platform Greg.

We're going to the introducing in this first quarter the.

The new initiative called <unk>, plus which is one suite of tools that are designed to make our customers more successful and it's unique and we think unique in a way that only sherwin can bring it to the market.

And it brings all the elements to our customers at the in store.

Online the wrap all of these in a way that we think will help our customers.

<unk> be more successful in the narrow endeavor so.

As I mentioned, we're rolling out on the first quarter and we're very excited about the impact of that'll have as well, but digital across the board internally and externally is something that we're focused on.

That's great and the follow up.

For hours on leverage.

2.4 times now and with the amount of cash you generated last year.

Hi.

Where do you where are you comfortable with that can at that need to get down the two or are we at a point now that free cash flow should really just be generally buying back stock or investment M&A whatever.

Yeah, that's correct.

I talked at the.

Target leverage that we were looking at was two to two and a half I'm very comfortable at 2.4, and I think you're absolutely right, we're not going to pay down debt.

In 2021, and we will use the free cash flow for M&A.

M&A end.

Absent M&A, we're going to buy our stock back.

That's great good luck guys.

Thank you Greg.

Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.

Okay.

Hey, guys nice a nice end of the year there.

So the.

Sort of taking a look at you know the sales girls, but you guys put up at 19 in 'twenty 'twenty 'twenty.

'twenty one outlook is stronger.

At the midpoint of your guidance for EPS is a little bit less. So just curious you know what like the the given that you know our sales costs, it's pretty good.

But what's sort of holding back some of the Etfs cross leverage relative to the last couple of years.

Yeah, Mike you know we.

We did have a little bit of a tailwind.

In 2020 relative to raw materials.

As we've talked about with raw materials going up low to mid high mid to high single digits and the pricing that we have to put in to get on top of that you know.

On Unfortunately that doesn't go down of our bottom line.

As much but I think we're excited about the 9% on top of of 16, 4% increase to your point and expect.

Segment operating margin improvement across all segments, we do expect to see a modest gross margin expansion as we are.

Half of the volume growth we have the.

Rice increases to offset inflation at but and we also have this continuous improvement culture that we've talked about in the past and I think the teams have done a really.

Good job and have done a lot of hard work on different levers to keep driving our our operating margin in particular, not just our gross margin and you see that I would say in our international businesses.

Yes, even at flat sales on our consumer businesses and you see significant growth in on.

Our operating profit.

You see that on our performance coatings group with a you know.

4% increase on our second half and you see nice 40% plus.

Flow through on that so.

Thank you.

Depending on how the volumes flow through our second half depending on how raw materials are in the high end of the low end of that range of Italian if we're in the midpoint high end of all of our guidance. So I think we're feeling really good about a 9% increase.

And including with the mid to high single digit growth with some very good investments for our future as well so that's right.

Feeling good about it.

Got it and then just a quick follow up on tag and I apologize if I missed the S. R. R M I.

Are you planning any new stores this year and if the are there any particular areas you know at.

And then the country that youre going to focus on end and then just sort of a comment I hope you have a lot of orange and brown paint readily available given the browser finally on its way.

Well, we love that you just made that comment well most of US are Pittsburgh fan here.

Justin the.

Steeler fan, but the rest of us are the.

Right there with you.

Yeah, we do plan on continuing to invest in our stores, we just mentioned.

The investments in the stores and reps are an important part of that and we're gonna be back into that range likely in the 80 to 100.

As we go into 2021.

Robert I don't have to do with all of this pandemic flows, but it's an important investment that we continue to to.

Do you expect to put fuel on that tank for sure.

Thank you.

Thank you thanks, Mike.

The next question comes from the line of John Mcnulty with BMO capital markets. Please proceed with your question.

Thanks for taking my question I guess at two things one on the <unk>.

If we assume that the DIY markets really didn't eat much into the the do it for me side I guess, how much is there a way to think about how much pent up demand. There is just given the COVID-19 situation in 2020 at.

And is this in your opinion do we have of multiyear catch up or is this you know kind of lot of it be really be made up in the in 2021 I think it's.

It's likely the longer buildup in most would realize I mean, when you think to your point.

On the do it for me I think is the growing population there was a DIY surge of about 60% of the people, saying that they undertook some home improvement projects.

We believe that the.

Back that there's such a backlog right now given the surge that we've already seen in DIY when you talk to our painting contractors.

We believe that there is still quite a bit of the pent up demand and there's underlying long term.

Demand drivers, we think the support that the aging population the home price appreciation aging housing stock the stock market appreciation.

The dual income families. All of those we think continue to feed the.

The do it for me and we're working really hard to us to be the the one that those contractors churn.

Got it on that that's that's that's helpful and then maybe just.

Kind of tied to that you indicated equipment sales were up double digits is there do you have line of sight as to the the who the buyers are is it tied more to the do it for me side of the market is it tied more to the to the new residential kind of market. I guess is there a way to think about that in terms of who the buyers are on and and maybe where that.

That kind of accelerated growth may be coming from.

Yeah, I'd say that it seems to be strong across most.

Segments.

John.

The technology there is moving in our relationship with those customers.

We want to be that go to shop for the residential repaint Contra.

Contractor that may be looking at the fact that they are a little shorter on labor than they would appreciate and they see the opportunity to to go faster and pick up projects. So we want to be the go to supplier that can help educate them on how spray equipment could.

The help their productivity and quality, so that along with and we are seeing this as well a positive mix shift in quality. So we see a movement up in our quality for the same reasons. These painting contractors in many cases are finding labor.

Painters that might be less experienced and so spray equipment opportunities at our one area of that help their productivity as is the increase in quality the.

Minimize any callbacks or disruptions to the employer to the homeowner while improving their productivity yeah. John as you know I mean of strong spring.

Equipment sales as the leading indicator on we've talked about this in the past, particularly on the on the contractor base.

As a positive sign as we go on to the first half of 'twenty 'twenty one.

Sure Thanks, very much for the color.

Thank you John.

Next question is from the line of Arun Viswanathan with RBC capital markets. Please proceed with your questions.

Great. Thanks. Good morning, Thanks for taking my question congratulations on the the great performance in 2020.

I guess, maybe I'll ask the question on consumer and performance could you just walk us through how you see both of those segments kind of evolving through 'twenty. One obviously, you got the tough comps and the consumer in 'twenty. One I think on your last call you may have indicated that maybe.

Maybe in those periods you show negative growth in consumer are you still thinking that way and then similarly in performance I'm.

Just given the weak Q2.

Do you think that the year would would actually result in that.

Of that segment being above your your overall sales guidance.

Yeah Ron.

Let me start with consumer and guidance for the full year to be up or down low single digits end.

Our expectation with DIY is that we will see that strength certainly true the first quarter end most likely into the into the into.

And so the second quarter and it just depends on whether that continues on our third quarter or not end.

So yes, we do have to the middle quarters up over 20% and consumer but I think the team has done a lot of it.

Good work on helping our.

Customers.

Retain <unk> gain a bigger share of the DIY same.

Wells I think.

We'll see how how results and the market share comes out, but we believe our customers are gaining share relative to their peers in particular at largest customer in the home Center channel I think youre going to see.

The investments we made through the second half of of 2020.

Cross different programs, including the pro start paying dividends into two.

2021 at granite is the small base, but our expectations are high on that.

At the segment in the pro segment and I think we're doing a lot of the right things.

What's driving that in and we'll see how that plays out at the year year unfolds.

When you look at performance coatings group of <unk>.

<unk> second half similar to what I talked about with our paint at North America of paint stores the strong.

The stronger second half in particular of strong fourth quarter.

The translates into a store.

Strong performance on our first quarter and as you mentioned.

Going up against the soft second quarter.

We're expecting that team.

To grow you know.

For the year mid mid single digits could it be above our overall growth sure.

It depends on what happens with.

Infrastructure, what happens with the continued momentum we're seeing outside the U S. And then really we have a great opportunity and confidence in North America coming back John talked about or you.

Yeah basically up.

Low single digits.

That's about 50% of our performance coating sales.

And it's really encouraging to see general industrial start picking up which is our largest segment industrial was up double digits.

Our second largest segment. So we feel like a lot of momentum and could it be higher than the overall company share.

Certainly strong first half of Rune I just at this.

As a result of the PCB business performance coatings business.

You got to give great credit to our team our leadership there when things were pretty dismal and things were looking pretty challenging. This this team kept their chin up and leaning forward I'm really proud of what they accomplished.

I think everything I agree with everything else said I'd also add the we're leaning forward with market share gain share as well. So we're not just simply the way and not relying on the market to get better Theres been a lot of terrific work is taken at been taken place in some of the chip most challenging times debt.

Many of us have been through and the they really positioned our company well I think our leadership.

So at PSEG here, they've done a wonderful job and we have high expectations of them going forward as a result of the great work they're doing.

Great. Thanks, and I guess, the just as a quick follow up on the capital allocation side at you know the M&A activity in the sector seems to have picked up quite appreciably.

Are you seeing are you know interesting opportunities out there or the evaluations looks a little too stretched for you and if you are seeing opportunities.

Are they in anything in the digital or our EV space or electrification play space that you'd want to.

Pursue or yeah, maybe you can just comment on on the M&A environment.

I'd say, our I mentioned earlier I think our pipeline is very robust where we are the number of projects that we're working on some of which we expect to complete this year.

I want to reiterate and reemphasize on both sides here one that we don't feel as though we haven't gone on our head with the absolute need for acquisitions in order to grow I think we've proven that end.

We're excited about the what we see in front of us in the in the.

And the windshield that.

Gives us great confidence with or without them now that said on the other side I want to be very clear. We are excited about some of these projects. We are very deliberate in what it is at we're doing we're confident that that the many of these would be of terrific fit and we're working towards them. So we.

We feel really good about what we have and what's out there yeah in the room.

As we just talked about our leverage ratios are within the target. We want it we have a strong balance sheet, we generate a ton of cash.

And you know we're not.

Worried about valuations of the valuations as John talked about we will take a disciplined approach to it where we can get a return for our shareholders and I think that's a key and I think we can get to the evaluation of that debt.

That makes that happen.

Thanks.

If you're on.

Our next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.

Yes. Thank you.

Just thinking about the various end markets you have in Cogs is at.

Is it reasonable to assume that.

The you know the.

The paint to sell for.

The new four commercial projects versus what goes into the contractors.

Reaping.

Is the shift towards a much higher quality paint.

Potentially with the you know.

The higher unit price and higher margin what is that mix shift towards the resi repaint.

The bill of meaningful benefit to you and do you do you do you record the body in.

The 2% price comment that you made John in out of the 9% same store sales or is that.

Is that mix shift benefit in price are not included in the 2%.

So Steve I might suggest that you look at it on a slightly different way, let me let me let me introduce this thinking debt.

The positive mix shift that were experiencing is actually in nearly every segment intact. So within commercial if I could just isolate on commercial for one second if you would if you could imagine a project that was built at bid where COVID-19 wasn't in the mind of the of the project.

Estimate or and they put this together and all of a sudden now theres starts and stops and restrictions on how many people can be on the project and you know all of the all the challenges that we all know.

Now you start to realize when the.

Cost of labor is only 80% to 90% of the project.

The incremental investment and of higher quality product will actually increase their cost of goods from of paint perspective, but overall when you think about labor and the choppiness there experiencing the will actually make them more efficient more profitable on that project.

So across all segments now going beyond just the the commercial what we are experiencing is exactly what you said at a positive mix shift is in residential repaint.

We might have painters with a little less experience and so they don't want to be disruptive to the homeowner of touch up issues. They want on maybe get away with one less co. So they can get out of the home quicker all of these different durability. All of these different areas are important aspects of the product mix shift in a positive direction.

Same with commercial new residential.

If you look at the number of painters on of new home end and the delay of getting pushed out so they want people to be able to come in.

Paint the home get off of with little.

Call back of our touch ups. So we are experiencing this positive shift through all of our architectural business.

That's helpful. Thank you.

Just wanted to ask you about that war room brands that you acquired with the Valspar the call in years past. There was this thinking of that you can reinvigorate.

The team in China of whether it's to modify that store model of war or to change. The you know the the way it's promoted the or the outreach the contractors whatever.

What's your view on an outlook on debt on the brand in China is that still.

You know best.

On a for you guys or more where do you think the outlook is for that brand.

Yes, Steve.

I think at you have to look at at and maybe two different ways. One on the performance coating side and then one on the architectural side and I'll just comment you know the.

The small impairment we took was more on the performance coating side side as we continue to drive our customers on our products to Sherwin Williams brand and Valspar on the.

On the architectural side of it.

I think it's part of our strategy and I'll, let John Yes, I think so.

One thing I think we've proved.

In a year, where the pandemic is not of years, you should try to reposition of architectural brands in China.

So I think as we move forward. There's a lot of work that we're working on I do think there are a number of opportunities there. It is a relatively fragmented.

Fragmented market and there are terrific opportunities and you should expect that we're continuing our working on establishing the most solid brand strategy moving forward.

In 2020, we have high expectations for the team, but I would tell you that in 2020, we have to be somewhat understanding.

The consumer marketplace in China with everything going on in the two of the pandemic was not a year, we're going to gain a lot of ground in this area. So we're ramping that back up.

We'll be doing a lot of testing I wouldn't think debt in 2021, we're going to move the needle by our architectural sales in.

China, but we certainly believe it's ASC that needs to be planted for our future.

Very good. Thank you. Thank you.

Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.

Thank you John on the large they've been increase are you trying to target of certain yield.

And if so what is that yield.

Yes, David.

You know the.

The 23, 5% of increasing the dividend at two $6 62.

Represents.

30% above prior year EPS as reported this is Ben.

<unk>.

Policy of ours, and we and we've historically targeted at that I know you know we've gotten away from that briefly when we conserve cash to the integration of Valspar, but over the last couple of years last 2020 up 18, 6%.

2019 were up over 31% so we're back on that 30% of prior year EPS.

Got it and then just on the quarterly earnings progression should be typical of this year in terms of the percentage of earnings in Q1, and Q2 et cetera should be a little more maybe a little bit different given the.

The dynamics of the marketplace.

Yes.

David.

As I talked about with the stronger sales on the first half of it I'd expect to see with our performance coatings group and our tag Aaron in particular in North American architectural because of the somewhat easier comps that we have in the second quarter, you would expect to see a stronger first half.

On sales and EPS growth debt, then you would see in our second half, but yeah.

In the second half we still expect.

Positive sales at and.

It's just not going to be as strong as our first half.

Thank you.

Thanks, David.

The next question is from the line of P. J P. J <unk> of a cart with Citigroup. Please proceed with your question.

Yes, hi, good afternoon, everyone Hey, John.

Mentioned that you've been growing double digit for last six years clearly you've gained share.

The in the residential repaint or new housing construction of both who.

Do you think is losing share is at is at independent dealer channel that does the lost share or could it be something one of your larger competitors can you just talk about where are you where you want them taking the share from.

Yeah P. J, we don't discriminate when it comes to share gains so we're at.

We're working every market that's what's beautiful about our industry. You know every market has its own independent market and you have to win at.

And I would say this that Lewis.

With our view you know many people look at our stores because of the storefront didn't think were mainly the retail store that is not the case, we are not the company that unlocks our door and hopes the things good things happen.

Of the tag leadership, Pete Ippolito and his entire of leadership team great credit for the aggressive view that they take.

We're not waiting for things to happen and so in each market to answer. Your question. There is a there is a plan. The plan includes who are those customers that we might know and we might be doing business with that we could expand our share of wallet with the.

There are some of that for whatever reason, we have not earned their trust or their business end and it's up to that local team to get to know those customers and build that relationship. So it's not one contributor it's at.

Bush of where that easy it's challenging, but we get out there every day.

And this this team has a wonderful mentality you know this team thinks about.

You eat what you kill so you need to get out there every day at Hunton and provide for your family and loved the mentality of they have.

Oh, great and quickly I'll.

I'll be brief here, but you know of good to see industrial economy broadening out the industrial coatings on what.

Are you surprised to see heavy duty equipment come back so quickly and the recovery. Thank you.

I was I was pleased to see at come back I don't I don't know that I would say surprised we have a terrific leadership team in this business that is doing a wonderful job to your point there has been seven quarters of tough sledding.

But we have really good momentum right now on three of the four regions posting double digit gains in North America.

Well, just slightly lagging is trending very well.

At the back half of the quarter here in North America was was strong.

And we believe that the heavy equipment as well as many of these other segments that we're focused on on.

Our really are somewhat some of them are recovering some of them as they recover might be rebuilding inventory. So we're taking that into account as well, but this is the team thats aggressively out there as I mentioned, just now with tag you know as far as market share gains.

This team of Carl's, Oregon Route and his team are really working hard to to to gain ground and you've got a lot of respect for them and the job they're doing.

Great well your aggressiveness of showing at the resource. So thank you wonderful team. Thank you.

The next question comes from the line of Chris Parkinson with Credit Suisse. Please proceed with your questions.

But beyond mute, Chris we're not hearing you.

Let me, yes, Sir we may be at maybe on mute at the moment, let me check that assay on gentlemen.

Hi.

Actually we it looks like Oh.

We'll move on to Bob Court with Goldman Sachs. Please proceed with your question.

Hi, This is Tom Glinski on for Bob. So I was just wondering if you could give some color on the diverging trends between Australia and China in the architectural markets.

Yeah, I'd say for us.

Both are relatively small and and what's happening.

For our business.

Australia for us delivered flat growth for the year are significantly.

The improved our profitability there we've increased our efforts to.

To develop the right platform for distribution, there and we're optimizing net platform, we've taken I think listen really.

Good steps in cost reduction actions to improve the margins.

In Australia.

And from a from a market standpoint, I think we're holding our own in China as I just mentioned.

I think there is the region.

For us in the architectural Uh huh.

At a decline, but we believe going forward here, we have a lot of ground to be gained and the relatively small position to build on top of I would say it was a tale of two half as well.

No the first half.

<unk> really got hit hard.

With the Covid in China or in Asia in particular.

So you know on a fill at flat full year for Australia.

Australia and Asia, you look at our second half.

It's up double digits. So I think the focus of the teams and the opportunities that we have and a really sharp showed in the second half and we expect that to continue on the first half of it at the two.

'twenty one.

Got it that's helpful. And then just on the performance coating side Ive discussed in the past potentially getting to operating margins around the 20% level. It sounds like pricing next year is gonna be and the.

Two per cent range could you just talk about the outlook for margins in that business in 2021.

The first I'm gonna have to give it to al but I'm going to tell you that the resolve and conviction. We have on getting there has never been stronger we've got a lot of confidence in what we're doing on the teams that are delivering at so we know we're going to get there.

Yeah, Tom I think we've made good progress in 2021, if you look at our second half operating margin it was up 100.

Basis points to 15, 2% flow through.

The strong and I mentioned this earlier over 40% on sales that were.

Up 4%.

And.

If you look at the.

On the volume strength, we expect in 2021 in that business. You know we've talked about of mid single digit growth rate you have price in there the rest of the isn't going to be volume.

Yeah.

Sure.

As well as all of the hard work the team has done over the past.

A few years right sizing their footprint outside the U S are reducing complexity by driving reduced skus SKU level of consolidating platforms to try to get scale on certain raw materials and you know.

So a lot of hard work to drive.

The operating margins, we expect operating margin expansion.

On a 2021 on that mid single digit growth rate, even with the raw material increases that we're talking about.

And on top of that we had.

We haven't talked about at much this year, but we still have the.

Facility projects in the pipeline to.

To rationalize.

In 2021 Unfortunately.

Just the reality of it we pushed those back.

And so were probably about six months delayed on those but they're still.

On the on the table, we're committed to completing those to help continue to drive our costs down and.

You'll see us as volume continues to go in and.

We'll make more progress on net operating margin here in the next couple of years.

That's great. Thanks, guys.

Thank you.

Thank you. The next question comes from the line of Christopher Parkinson with Credit Suisse. Please proceed with your questions.

Great. Thank you I'm in the office on apparently I forgot the use of headset.

[laughter], so just very quickly on the packaging front well within PC.

You're beginning to see some long term secular tailwind emerging beverage in particular with many of your key customers expanding capacity in various geographies.

There's this idea that the gross could accelerate to the mid single digits in terms of volumes do you believe that is realistic and also just on a global basis, how would your overall characterize your current competitive positioning. Thank you.

Thanks, Chris and I would say the.

We enjoy a good position, but we know that there are terrific opportunities out there from a market opportunity perspective.

We do feel along with our customers that this is in fact, the business that we want to invest in and both our customers and Sherwin are continuing to invest both in technology.

The <unk> and capacity we are thrilled with this unique technology, we have RV 70, it's the only of Pax see non BPA on the market.

Others are of critical polyester in this <unk> 70 of the game changer, it's more versatile it doesn't require lines to be shut down for changeovers.

Constant the consistent mill thickness, just gives more productivity to our customers.

And so you're right, we're having discussions with them as they are asking us to be in different parts of the world of serve them.

Yes, it's a unique solution for our customers and when we talk about our ability to add value to our customers. This is exactly what we've got 29 patents protecting this technology is unique and it helps our customers and what they're trying to do and that's exactly where we wanted to the help them to be successful.

That's very helpful and just returning to a previous question on new store openings, just as we get back into a more normalized environment, you've always been the first the stress that theres still opportunities in some of your core markets in the southeast and Midwest et cetera, but just given the projected longevity of the health of the U S housing.

What you're obviously hearing from your customers at perhaps still time to really focus in on some of the Underpenetrated markets.

Given the long tail of any color would be appreciated. Thank you very much.

The answer is yes, Chris.

We absolutely look at opportunities in the you're exactly right, we're investing in the southeast and southwest areas, where there's growth and equally important to us is greater market share penetration.

In the other.

The other parts of the country and so we're not limiting ourselves on where we're going to grow.

We are we're married to the success here and so we're going to look for the right opportunities and we're going to the drilling and find them and I've got.

Confidence in that and our tech leadership team to be able to do exactly that.

Thank you very much thank you.

Yeah.

The next question is from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.

Yes. Good afternoon, just one question.

With the three parts I guess on on the subject of share repurchases.

As I look at some of the information from your press release at it looks like you repurchased quite a bit in the fourth quarter end. So I was wondering if you could comment on the dollar amount that you bought back in the quarter.

Secondly, what the diluted share count would have been exiting the quarter and then third John you talked a little bit about you know of robust M&A pipeline end.

You know desire to make bolt ons there I know it's early in the year, but you know sitting here today I'd be curious to hear your view on.

The potential balance between repurchases and M&A for 2021, if you have.

The strong feeling about that thank you.

Kevin Yes.

We purchased one 6 million shares on the fourth quarter from 1.15 billion and as I talked about coming out of third quarter, we at us little over $600 million of cash on our balance sheet.

I talked about expecting to have a strong cash generation of our fourth quarter and putting that cash to work in M&A and absent M&A buying.

Buying our stock back so.

You can you can extend that to the full year at such a strong cash generation of over $3 $4 billion.

We returned $2 $9 billion to the shareholders as John talked about and it's all opening comments of 145% increase and that just goes to our disciplined approach to our capital allocation policy, we're not going to hold cash.

We're going to invest on our business and Capex on our core at below 2% with our building and facility projects that'll be over 2% for a few years here.

We're going to keep driving that dividend based on earnings growth at 30% of prior year EPS and then absent M&A, we're going to buy our stock back and you saw that are impacting our fourth quarter.

At $1 6 million shares Kevin really.

Because of the way the calc works at might impact at the fourth quarter.

You know a few hundred thousand shares for the year, it's probably not not not quite that much just because of the math, but.

I'll, let John.

There's not much more ahead of I think the point that I'll make is an important one you know absent M&A.

That we would be back end buying stock we don't the.

We feel we've got plenty of dry powder here and and we're excited about some of the targets that we're working on the island, we're continuing to fill that pipeline, but again I don't want to be clear, while we're excited about it we don't feel as though we haven't gun pointed to our head. So we're not going to be out there just trying to buy a book of business. So that we can.

Say that we're growing sales and then he is going to be strategic fits and add value or we're at.

Really not interested.

Perfect. Thank you both.

Yeah.

Our next question is from the line of Ken Center with Keybanc Capital markets. Please proceed with your question.

Good afternoon, John Al Thanks for your time.

Two questions.

First the.

The industrial wood, that's up nicely can you talk to the stability of the Asia business, which I know was affected by cabinet of tariffs in the U S first and perhaps the U S shipments.

And then the second question to say you have it.

Your consumer margin framework, obviously the.

This year at least you were discounting taps DIY comps, but you're also picking up a lot of volume in tag, which is helping that business margin at that business is margin. What's your latest thinking on that at the longer term margins. There. Thank you very much.

Okay, I'll take the industrial wood and I'll have I'll jump on the consumer margin.

First you're right. This has been a terrific.

Rebound by a strong team, calling David and his team and industrial would have really been driving hard we had growth in all regions with the three of three of four of our regions in double digits.

The strength that we're seeing is driven mainly in the areas of kitchen cabinets also furniture and so when you talk about the longevity.

I would say that that gives us great confidence here of the backlog of orders ahead for furniture is very long I mean at some of these are out six months or more.

Just because of how strong.

Orders are so.

I think our position is terrific.

<unk> of strength driven off of not only just wonderful service and availability, but growing and.

And the unique technology portfolio that helps our customers reach their goals of.

Again the <unk>.

Terrific leadership team doing a really good job here on the face of the diversity of I think they are proving their stripes here yes.

Yeah, Ken on on.

At the.

At the consumer margin and you've called out tag as well, so I'm kind of talked to a combined kind of.

Architectural margin if you will end.

On the consumer group, our expectation even on top of a strong 2020 to have margin expansion, though not quite near what we saw in 2020, but you know at the continued strong DIY that I talked about expectation to go through the first half.

We'll see how that goes as it goes into our our third quarter, but really when you look at the strength in our tag and we talked about.

Full year being up mid to high single digits and I would say typically as we talked about at our paint stores group North America would be at the higher end of that range.

We have a higher.

Uh huh.

Ongoing margin, if you will end and that'll help drive debt.

Combined margin higher end, our expectation is as you know the heart.

When we set of new.

High watermark on our expectations are that our teams are going to exceed that at <unk>.

Watermark.

I would just at I think the volume pieces of terrific opportunity as Allen mentioned I think on both sides. We're looking for that and again I know I'm, calling out of few leadership.

Opportunities when we talk about consumer while the DIY side.

Starting here of very strong and we feel good about it we still believe that there are terrific opportunities for growth in our our pro side we've got.

Brian pattern.

Leading the organization Heidi Petz in there before now over in our stores. These two leaders have done a terrific job positioning us we believe for continued run there and.

We can go on at on about tag that Theres, a lot of jet fuel in that tank I really believe.

I've said this before you know we feel inside of this boardroom, we feel like we're just getting started there's a lot of opportunities.

A lot of levers to pull here in Europe.

People one of them hard.

Thank you very much.

Thanks, Ken.

The next question is from the line of end than ethylene Rodriguez with Jefferies. Please proceed with your question.

Oh. Thank you good afternoon guys John.

Just one quick one of them I know, it's getting late on M&A, you've talked about areas, where you might want to add in the portfolio.

Industrial auto high value sectors, but other parts of the current portfolio that are not the best of suite for you like even if you don't have to name them.

Just trying to get the sense of how satisfied you all of the current portfolio.

So just some of it make sure I understand are you are you, suggesting or you're asking what areas are we not interested in.

No what areas you might want to divest.

I'm sorry.

You're right, we probably wouldn't talk about any specifics, but I would say that.

On a regular basis, we are constantly evaluating.

Every aspect of our business everything from program customer programs to brands to businesses and.

We're always looking at how to drive the margin and in success forward and so you know even even down to the stores. If we found stores in some Latin America or some outline markets. You know we had some in Canada, where we looked at the the.

The investments that we had and said you know what it's not going to get the return that the.

The hurdle that we have for ourselves so.

I'm not going to call out any specific area, but I will tell you. It's a it has to be of constant discussion that we have regularly I think it's part of the discipline that we have here at true yeah.

And then I would tell you of a buyer of businesses by our by our regions.

We look at growth targets, we look at scale. We look at return on sales, we look at Rona and we look at cash flow in and we set targets in the mid to a medium to longer term and if we don't think we're going to be able to achieve those targets.

Then we look to do something else at that business end and that's what's driving these decisions.

Okay. Thank.

Thank you very much.

Thank you.

Our next question is from the line of Gary like Shame on me with loop capital. Please proceed with your questions.

Oh, hi, Thanks, just given the recent surge in orders on the new Rosie side and the builders are starting to talk again about labor constraints, just curious if you're starting to see that at all on the contractor side and are you experiencing any extent of the lag in and starts to true when you start to see walls to get painted.

When we get payment did you say.

Yes.

We've not experienced that as far as the the.

Project flow I don't I wouldn't say that we're experiencing anything that's unique I mean, there have been challenges with labor I think it's been somewhat consistent.

I think there's more interest if you will on the part of builders to to find.

Quality products that will help.

Accelerate.

The construction towards close and so if at.

If you take a look at products at Hyde imperfections in touch up well those are of greater interest and so we are seeing some positive mix shift in this area.

Okay, and I guess, just the follow up question just on mix it doesn't sound like it but would there be any concerned the mix starts to reverse as you start to pursue price increases.

The impact to offset inflation.

No actually at it actually supports at more of what the.

Does come back to the point that I made earlier when you consider the labor represents about 80% to 90% of the cost of goods for most contractors.

Higher quality product actually helps the efficiency so that we.

We continue to see a positive mix shift and we expect that to continue.

Got it thanks again best of luck.

Thank you.

Yeah.

The next question is from the line of Justin Speer with Zelman Associates, let's just use of your questions.

Thanks, guys.

One of the quite I don't know, if you will but at what.

Would it be possible for you to quantify the incremental growth investment in the fourth quarter and at 2020, particularly in consumer brands and perhaps if any of that maybe just kind of fall off at 2021.

Yes, Justin.

I talked about on our third quarter call.

On that you would ask that historically, our fourth quarter SG&A tends to be flat with our third quarter end and you you delever on a on a sequential basis.

But I did expect to see year over year fourth quarter.

Leveraging the experience that on a consolidated basis, Yeah. I also highlighted at the level of investment we would make in the fourth quarter will be dependent on the amount of volume were experienced in the quarter end as I talk about you know or as you see our volume was higher in the quarter than our of 3% to 7%.

So we took that opportunity.

To invest in our businesses.

Driven by consumer and performance coatings and yeah. There are some of those investments.

The investments so at one time.

Others that'll be continuing at and the way I'd, probably look at it is you're probably going to see.

I'd go 50 50 on on what May have been one time versus ongoing.

Some are just related of it quite honestly to the sales increase of.

But we have added head count income.

In consumer to go after the pro and the other investments debt and programs that we've made to help continue to retain the DIY sales that we've enjoyed this year. So.

And that's you know the other the other part of the is really looking to our first half end.

We expect Asian with the expectation that we would have a strong first half on sales of putting those investments in the fourth quarter and really true the second half of the year of going to pay dividends for us looking out into the second half of 2021.

Excellent and if you could.

Just wanted to revisit Ken's question on on the Americas Group.

Just wanted to better understand at maybe this is a shift in strategy at cars or maybe maybe the game has changed a little bit, but you had a nice tailwind from commodity maybe some temporary cost savings at that sort.

Helped swing profit higher this year.

For 2020 of about 200 basis points higher end, the Americas group and <unk>.

How are you telling us at 20 to 22, 2% as the new normalized kind of run rate for tag I guess should share is that a difference because I know historically at kind of bumped up in that 20% range and you're used to maybe the plow on the growth of investment.

The game of the market changed where there's 22 is the right number for.

For us to consider as a baseline.

Yeah and in tag on I would I would say, we're going to continue to push that.

Operating margin higher.

Regardless of the economic environment I think the team has done a really good job of pulling the different levers first as you know Justin is as always growth.

And when you're looking at tag for 2021 for the year at mid to high single digit growth that allows us.

Even in an inflationary environment.

To continue to invest back on our business for future growth as well as growing our operating margin in the current year. So I think you could expect us to continue to drive that operating margin higher.

Excellent. Thank you guys and I appreciate you squeezing me in.

Thanks, Justin.

Thank you are free.

Final question is from the line of John Roberts with UBS. Please proceed with your questions.

What's allowing you to grow in auto refinish from everything we can see collision activity is down.

Well I think if you if you.

You look at auto Theres been a lot of really good work and I would say this debt when we're looking at auto one of the things to recognize this is a terrific. The example, I think of the.

The synergies that are out there as it relates to the acquisition.

On.

All of this ultra the nine K that we brought in and brings in a terrific opportunity for us to bring solutions to our customers I think if you look historically John.

It's a sherwin has been really well known for their.

Theyre primers and their clear coats.

Ultra nine K brings at.

Different applications of wet on wet application that at.

It helps the technician.

Get greater throughput.

The increasing productivity and it actually helps considerably in the color matching capabilities.

So I think the overall.

John.

Application service and.

And the ability to help our customers increase their productivity is.

That's really what's driving that and Youre right. I mean, we think of this as a tough and tight market miles driven have been down about 75% of the pre COVID-19 miles and the claims are down. This is the team that's not waiting and they are out there.

Moving aggressively with new technology, and we've been talking about this for a few quarters. If we thought that this was a business that was.

Kind of not getting the credit they deserve.

The large part of it was at the Covid miles and the pressure hit some of that I think youre starting to see.

What we've been expecting for some time and we expect that momentum to continue.

Thank you.

Okay. Thanks, John.

Thank you I'll now turn the floor back to Jim Jay for closing remarks.

Thank you, Rob and once again just to close the huge thank you to all of our employees around the world for a great 2020 performance end.

And I hope that came across on our call that we're excited about 2021 and the momentum we have across our business.

One quick housekeeping item, we will be holding our annual financial community presentation on Tuesday June 8th at will be a virtual event.

Again that date is Tuesday June 8th and more details will be forthcoming.

As always I'll be available for your follow up questions as well.

My colleague, Eric Swanson look forward to speaking with all of you as we go forward in 2021. Thank you again for joining our call today have a great afternoon.

Bye bye.

Thank you everyone. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.