Q1 2021 Sherwin-Williams Co Earnings Call

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

With us on today's call are John Murray, just chairman President and CEO.

And Mr. Shin CFO Jean.

Jane Cronin senior Vice President corporate controller, and Jim Jaye, Senior Vice President of Investor Relations and communications.

This conference call is being webcast simultaneously and 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 and dotcom 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 to sales earnings and other matters any forward looking statements speaks only as of date on which such statement is made and the company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or other.

Wise.

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

And so the company's prepared remarks, we will open the session to questions.

I'll now turn the call over to Jim Jay.

Thank you good morning, everyone Sherwin Williams delivered terrific results and the first quarter, the momentum with which we exited the fourth quarter continued in the first quarter we.

We entered the quarter with strong expectations and we finished stronger.

We capitalized on extremely robust demand across both architectural and industrial markets, leading to sales and two of our segments that exceeded the guidance we provided at the beginning of the quarter.

We generated double digit growth once again, and residential repaint as well as and new residential and DIY.

We also generated double digit growth and our industrial business with improvement in every region.

Before getting into some of the specific numbers I'll remind you that in February our board of directors approved and declared a three for one stock split and the form of a stock dividend to make the stock more accessible to employees and a broader base of investors.

Trading of our shares on a stock split adjusted basis began on April <unk> 2021.

And I'll share and per share amounts in todays press release and conference call commentary had been adjusted to reflect the three for one stock split.

Additionally, all comparisons and our prepared commentary. This morning are to the first quarter of 2020 unless otherwise specified.

So starting with the top line first quarter 2021 consolidated sales increased 12.3% to $4 $66 billion.

Consolidated gross margin decreased 20 basis points to 45, 4% due to greater than anticipated raw material cost inflation.

SG&A expense as a percentage of sales decreased 300 basis points to 28, 5%.

Consolidated profit before tax increased $116 $7 million or 29, 8% to $509 million.

The first quarter of 2021 included $75 $6 million of acquisition related depreciation and amortization expense and one time costs of $111 $9 million related to the divestiture of the Waddle Australia business.

The first quarter of 2020 included $75 $6 million of acquisition related depreciation and amortization expense.

Excluding these items consolidated profit before tax increased 48, 8% to $696 $5 million with flow through of 44, 9%.

Diluted net income per share in the quarter increased to $1 51 per share from $1 15 per share a year ago.

The first quarter of 2021 included acquisition related depreciation and amortization expense of 21 cents per share.

And one time costs related to the water divestiture of <unk> 34 per share.

The first quarter of 2020 included acquisition related depreciation and amortization expense of 21 per share <unk>.

Excluding these items first quarter adjusted diluted earnings per share increased 51, 5% to $2 <unk> per share from $1 36 per share.

<unk> EBITDA grew to $848 $7 million and the quarter or 18, 2% of sales.

Net operating cash grew to $195 $7 million and the quarter.

All three of our operating segments delivered excellent top line growth margin expansion and strong flow through and the quarter.

Segment margin and the Americas group improved 240 basis points to 19, 2% of sales.

<unk>, primarily from operating leverage on the high single digit top line growth.

Flow through was 46, 4%.

Adjusted segment margin and consumer brands group improved 440 basis points to 21, 4% of sales, resulting primarily from operating leverage on the double digit topline growth.

Flow through was 38, 9%.

And adjusted segment margin and performance coatings group improved 60 basis points to 14, 3% of sales drip.

Driven by operating leverage on the double digit sales growth, which was partially offset by higher raw material costs.

Flow through was 19, 1%.

Let me now turn the call over to John <unk> for additional commentary on the first quarter and.

Along with our guidance for the second quarter and full year 2021.

John.

Thank you Jim and good morning, everyone.

We're off to a tremendous start in 2021.

Credit goes to all 61000 members of our team who are serving our customers at a high level and.

Resolutely pursuing and capturing new business and managing through transitory disruptions and supply chain.

There is no better team and the industry.

Demand was robust across both architectural and industrial businesses and the quarter.

And particularly in March where sales were well above our forecast.

We're seeing very positive trends as economies continue to reopen.

And as we've often said volume is the strongest driver of our results and we leveraged this strong growth to deliver improved profitability in every segment and the quarter.

Yeah.

And the Americas group first quarter sales increased by eight 6% over the same period a year ago.

Including about 1.7 percentage points of price.

The impact of unfavorable currency translation was not material.

Same store sales and the U S and Canada were up eight 2% against a high single digit comparison.

And residential repaint, our largest segment.

We delivered strong double digit growth and the quarter against a double digit comparison.

We have grown this business by double digits for five consecutive years.

We expect this momentum to continue.

Contractors are reported solid backlogs and interior and exterior work were both very strong.

Demand remained unprecedented and our DIY business, where sales were up by a double digit percentage for the fifth consecutive quarter.

New residential also remains an area of strength for us with low double digit growth and the quarter against a high single digit comparison.

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

Momentum is gradually building and our commercial business, where sales and the quarter were up low single digits against a solid quarter a year ago.

Projects continue to resume at varying paces and comparisons are favorable over the remainder of the year.

Property maintenance was down slightly in the quarter, though turnover and multifamily properties is improved.

The month of March was positive and we expect to see meaningful improvement as the year progresses.

Protective and marine was down by a mid single digit percentage and a quarter, but improved sequentially and delivered strong growth and the month of March.

Growth and smaller customer segments, such as flooring bridge and highway and pharmaceutical was more than offset by softness and the oil and gas segment.

We continue to aggressively pursue opportunities and all these end markets and we expect continued improvement as maintenance projects cannot be delayed indefinitely.

From a product perspective sales and both interior and exterior paint were up by double digit percentages with interior being the larger part of the mix as is normal for our first quarter.

Additionally, this is the third consecutive quarter spray equipment sales increased by double digits and the quarter co.

Contract is typically invest in this type of equipment and anticipation of solid demand.

Our previously announced 3% to 4% price increase to U S and Canadian customers became effective February one.

Prior to the supply chain disruption the industry began experiencing later in the quarter.

We realized approximately one 7% from price and the first quarter, and we would expect 2% or better and the following quarters.

We will continue to evaluate additional pricing actions as needed.

We opened 11, new stores and the quarter and the U S and Canada.

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

Moving on to our consumer brands group sales increased 25% and the quarter, including two seven percentage points of positive impact related to currency translation.

And as DIY demand remains robust.

Sales and all regions were above our mid teens segment growth guidance led by Asia, and followed by Europe, North America, and Australia, respectively. We.

We exited the Australia business in this segment at the close on a quarter.

As you know our global supply chain organization has managed within this segment.

And I want to thank this team for their incredible performance and navigating the industry wide raw material supply chain disruptions caused by winter storm euro during the quarter.

We are working collaboratively across our businesses to keep our customers and feeds and on.

On the job.

Last let me comment on first quarter trends and performance coatings group.

The momentum we saw on the third and fourth quarters of last year continued and accelerated and our first quarter group.

Group sales increased by a double digit percentage.

Currency translation was a tailwind of 2% and the quarter.

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

Regionally sales and Asia grew fastest in the quarter followed by Europe.

And of which were up by strong double digit percentages.

Latin America grew by a high single digit percentage North America, other largest region and the performance coatings group continues to gain momentum where sales were up by low single digit percentage.

From a divisional perspective, I'll start with the industrial Wood Division, which had the highest growth and the group.

Sales were up by a strong double digit percentage and the quarter and were positive in every region.

Strength in new residential construction continues to drive robust demand for our products and kitchen, cabinetry flooring and furniture applications.

And general industrial and the largest division on the group.

Sales were up by high teens percentage and were positive in every region.

Sales were strong within heavy equipment building products containers and general finishing.

Well theres likely and element of inventory restocking by our customers in these numbers, we believe growing and market demand is the larger driver given recent PMI and industrial production reports.

Our packaging team also continues to deliver great results sales were up high single digits against that and nearly double digit quarter, a year ago and were positive in every region.

Demand for food and beverage cans remains robust and our non BPA coatings continue to gain traction.

And this team has been remarkably consistent and has delivered solid growth and every quarter since John Williams acquired the business as part of the Valspar acquisition and 2017.

We and our customers continue to invest and this terrific business.

Our global coatings business has also been a remarkably consistent performance.

Sales grew by high single digit percentage and the quarter against a double digit comparison a year ago. This.

This team continues to do an excellent job at winning new accounts and all regions.

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

Less automotive refinish sales were up by a mid single digit percentage and the quarter.

This level of growth is very encouraging and given the miles driven and collision shop volume remains below pre pandemic levels, particularly in North America.

We're also pleased with new installations of our products and systems in North America, which were very strong.

This is a good indicator of future momentum and our business before.

Before moving onto our outlook, let me speak to capital allocation on the quarter.

We returned approximately $930 million to our shareholders and the quarter and the form of dividends and share buybacks.

We invested 775 million to purchased three 3 million shares and an average price of $234 96.

We distributed 151 8 million and dividends and increase of 23, 5%.

We also invested $64 3 million and our business through capital expenditures.

We ended the quarter with a debt to EBITDA ratio of two five times.

Turning to our outlook, we continue to see robust demand in North America residential repaint and new residential and continued recovery in commercial and property maintenance.

Comparisons and DIY will be challenging over the remainder of the year. So we are excited by opportunities to work with our retail partners to grow sales and the pros who paint segment.

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

We'll continue to leverage our strength and innovation value added services and differentiated distribution as we expect to grow at a rate that outpaces the market.

On the cost side of the equation, we now expect raw material inflation for the year to be and the high single digit to low double digit range a significant increase from the low to mid single digit range, we communicated in January and and.

And already challenged and supply chain due to COVID-19, the February natural disaster, and Texas further impacted the complex petrochemical network co.

Causing significant disruptions.

These production disruptions, coupled with surging architectural and industrial demand.

Pressured supply and rapidly driven commodity prices upward.

Recovery has been significant in recent weeks and is improving.

But it is still far from complete.

At this time, we anticipate some moderation of costs and the back half of the year.

It will still be elevated year over year.

As we've previously described there is a lag of about a quarter from the time, we see inflation and commodities to the time, we see the impact and our results.

Given this timing and we expect to see significant raw material inflation, and our second quarter, which will be the highest of the year the pace at which capacity comes back online and supply becomes more robust remains uncertain.

We have been highly proactive in managing the supply chain disruptions to minimize the impact on our customers.

We expect to be and a similar mode throughout the summer months as reduced raw material availability resulted in lower than anticipated inventory build during our first quarter.

Our close working relationships with customers and the strength of our global supply chain and give us great confidence and managing through any challenges that may occur.

We've also been highly proactive and our pricing actions to offset the raw material inflation, we are seeing.

And we've issued price increases and both the consumer brands and performance coatings Group. In addition to the previously announced price increase and the Americas group.

We likely will need to take further pricing actions if raw material costs remain at these elevated levels.

While we are fully committed to combat and rising raw material costs. We also recognize that the timing of price realization will likely result, and some near term margin pressure.

Against this backdrop, we anticipate second quarter 2021, consolidated net sales will increase by a mid to high teens percentage compared to the second quarter of 2020.

We expect the Americas group to be up by a mid to high teens percentage, we expect consumer brands to be down by a low double digit to mid teens percentage, including a negative impact of approximately four percentage points related to the water divestiture.

And we expect performance coatings to be up by a high twenties percentage.

For the full year 2021, we plan to provide you with an update to our sales and EPS guidance at our virtual financial community presentation event scheduled for Tuesday June eight.

We expect to have greater clarity of raw material availability and cost inflation trends at that time as well as further confirmation of the strong demand trends. We are currently seeing.

Our current sales and adjusted EPS guidance remains unchanged at this time we.

And we expect consolidated net sales to increase by a mid to high single digit percentage and we expect the Americas group to be up by a mid to high single digit percentage consumer brands group to be up or down by a low single digit percentage, including a negative impact of approximately five percentage points related to the water diverse.

Stitcher and performance coatings group to be up by a mid single digit percentage and we expect diluted net income per share for 2021 to be and a range of $7 66 to.

And to $7 93 per share compared to $7 36 per share earned in 2020.

Full year 2021 earnings per share guidance includes acquisition related amortization expense of <unk> 80 per share and a loss on the water divestiture of <unk> 34 per share on an adjusted basis. We expect full year 2021 earnings per share of $8 80 to $9 seven.

And increase of 9% at the midpoint over the $8 19, we delivered in 2020.

Let me close with some additional data points that may be helpful. For your modeling purposes, we expect to see some contraction and full year gross margin given the lag between price realization and the rapid and greater than expected increase in raw material costs.

As we capture price and inflation and abates, we expect to see gross margin recover and then expand over time, just as it has and the previous cycles.

We expect to see expansion of full year adjusted pre tax margin as we leverage strong sales growth while controlling SG&A.

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

We expect to return to a normal cadence with around 80, new store openings and the U S and Canada in 2021.

We will also be focused on sales reps capacity and productivity improvements systems and product innovation.

We also plan additional incremental investments and our digital platform and the home Center channel.

These investments are embedded in our full year guidance.

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

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

And we expect full year depreciation to be approximately $280 million and and amortization to be approximately $300 million.

The Capex and interest expense guidance, we provided last quarter remains unchanged.

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

We expect to increase the dividend by 23, 5% for the full year.

We expect to continue making opportunistic share repurchases will also continue to evaluate acquisitions that fit our strategy.

We're off to a great start in 2021 with our excellent first quarter performance. Our team is operating with momentum and energized by the many opportunities in front of us as the recovery gains strength.

And we see demand remaining strong over the remainder of the year and nobody is better equipped to provide differentiated customer solutions and then Sherwin Williams.

We are confident and our ability to manage through transitory raw material availability and cost inflation issues and we expect to deliver another year of excellent results.

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 a question. Please press star one from your telephone keypad and a coffee.

Information total indicate your lines and the question queue.

And you May press star two if he would like to remove your question from the queue.

Competition sort of using speaker equipment and may be necessary to pick up your handset before pressing the star keys and <unk>.

One moment, please while we poll for questions.

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

Hey, guys good morning.

And I think about 'twenty, one 2021 at this point John from a volume standpoint.

Versus perhaps what your thoughts were coming into the year are there any outliers on the positive or negative side relative to you and I shall be as it relates to the various verticals.

Ross your three operating segments I'm, just asking because <unk> sales was above your initial guidance <unk> guided you know above us and and the street as well, but your full year guidance for sales and still pretty much intact and I realize that model as part of that but just curious on your thoughts on the various verticals.

Let me take a run out and I'll have I'll have al jump in because we're getting a little bit into the forecast here John.

I'd say from a performance standpoint.

We feel really good about the momentum that each of our segments are producing I would say the.

The return if you will of the Gi business and the industrial wood business at the pace that it's coming as a.

It is pleasing to us we expected that to occur and it's coming in at a pretty robust pace.

And long spoken about how we've tried to position the business.

Both defensive and growth and those markets impacted by <unk>.

COVID-19, we are we believe positioned very well to capture that so to your point Gi and industrial wood are growing if you would.

At the segments and.

And our tag business, the residential repaint new raise.

And doing quite well as well as DIY.

Hey.

We're expecting continued traction and our commercial property management businesses. So.

And I'd say every element of the industrial business.

Outside of the protective and marine business, which is showing.

On sequential growth.

<unk> has been really improving well and quite frankly every element of the architectural and sitting on every every cylinder, but let me let me ask <unk> to jump in regard and forecasts as well Hey, Ghansham. This is al and and you know and as I said on our January earnings call.

And we did have a weaker first half last year, and a stronger and stronger second half. So it wasn't a part and that we got off to a strong start and that in the first half.

As you mentioned, we did start off the first quarter strong and we are ahead of our guidance.

And honestly the second quarter sales guidance was closer to where we expected it to be based on the strong channel we saw coming out of the fourth quarter into our first quarter, those continued strong trends, especially and tag and TCG.

And so those momentum carried and we're going against a weaker second quarter last year, but.

That being said the first quarter is a small quarter for us and.

And as we as we typically do we wait and get through the second quarter before we give an update on that on a full year and as John mentioned in his opening remarks.

And which generally would be in July so as John mentioned in his opening remarks, we're prepared to give us and update on our full year sales and EPS guidance at our June eight financial community presentation. So not.

Not too far on the future, but gives us a good outlook and more data points to give you a better view of the year, yes, It's a little earlier update then.

I'll mentioned, we'd normally would do that coming out of the second quarter. So a little bit earlier in June, but it will give us an opportunity.

Given some of the challenges are and the market right now to give you an update at that time.

Okay and then just second question I mean on on the pricing side for tag and obviously, you've got a price increase through effective February 1st.

But your raw material guidance and it's basically more than <unk>. What it was three months ago for the year. So I guess, what would you need to see to sort of.

Adjust pricing and and tag as the year unfolds and also remind us what was the last time tags on multiple price increases and and one given in any given year. Thanks. So much.

I'd say this cash.

From.

And I'll take you back I believe that demonstrated that conviction and determination to put pricing and your point is a good one as we entered the year, we put some pricing and and and this does that natural disaster came in and February what.

Would we see well we continue to focus in on efficiencies through our own facilities on our own approach.

Positive mix shift, which we're seeing right now and are pretty aggressive rate with customers moving up and quality helped to offset some of that.

But I would say this that we're not taking additional pricing off the table, we prefer quite frankly not to go out and the mid of the myths of the painting season, we've got painting contractors that are.

And out there quoting projects right now and.

And we prefer to work through those prices or those projects with them on those prices, but I think we've demonstrated in the past a willingness to do that if we need to.

The other piece comes with the loyalty that we build and a way and which we handle these situations, we've often talked about while.

And while we're not.

Hoping for compression in margin as Al just mentioned, we accept a little margin compression and its part of the relationship that we've built we think it's unique when our customers see.

US out with pricing they know what's real.

And when we're out with pricing we needed if we find ourselves and this situation unable to offset it and pricing raw material pricing that remains.

It remains at a high.

Elevated level will be out with additional pricing and Ghansham, let me just add to that debt.

As John talked about it and his opening remarks, our focus is on operating margin expansion.

And volume isn't the number one driver of that and and Youre seeing that on our first half and our expectation is that we'll see that momentum going into our second half, but also selling price increases that have been and plant and I.

Brought and Thats, not just tag, but across all the segments and my expectation is that we will.

Offset a full year raw material increases dollar for dollar.

We expect to get leverage on SG&A.

Will more than offset the debt.

Gross margin contraction and and that's typical as you know.

Gross margin short term gross margin.

Contractions typical on an inflationary environment.

And we've shown our discipline and to get price pricing increases to your question. You go back to 2010, 11, and 12, and we were out with six price increases and 22 months.

And coming out of that you saw gross margin not only recover but expands from almost 600 basis points from 2013 through 2016. So so the discipline is there and its still there and as John talked about.

We're providing solutions to our customers that they value.

And and this is why and it it's really important and that we offset that raw material increase was 85% of our cost of goods sold and to provide those services and solutions at the high level on our customers are expecting we need to offset those raw materials and.

And as John said, if raw materials inflation persists at these high levels.

We will need to go out with another price increase later this year and then we believer and that same environment and raw materials moderate we'll start to see our margins recover and then grow long term as we see our continuous improvement process to take effect and and we're able to hold onto a majority of those price increases.

<unk> gone from I might add one additional point to that and that is that while we were not cavalier about it. We're we're very sensitive to pricing and what it means to our customers. It does represent a relatively small percentage of their total cost of goods al mentioned that raw materials represented 85% of our Cogs. If you look at a painting contractor.

Represents about the same percentage of their cost paint on the project majority of their costs are I'm, sorry, 85% labor remainder cost. So it's a relatively small percentage of their total cost of goods.

We're disciplined and we're sensitive to it but we also know to Al's point, if we're doing our job providing solutions to our customers, helping them make more money disciplined and our approach there understanding and when we're out there with the need for it.

Very clear thanks, so much.

Thank you.

The next question is coming from the line of Bob Court with Goldman Sachs. Please proceed with your questions.

Thank you very much good morning.

And I wanted to ask what you gave some moderation maybe and the rate of growth and tag and the second half and I think you sort of explain why a second ago, but I was wondering if you could help me think about implications on the DIY component there.

And maybe what 15 or 20% of your sales through the stores.

And what do you see on that comparison as you get into the second half and it would it be any different than what you would report and the consumer group.

Thanks, Bob I'd say as you mentioned DIY was very strong and.

As we've previously indicated we do expect DIY eventually to revert back to a more normal low single digit rate.

As stay at home orders I'm, sorry, yes stay at home orders began to ease and people begin returning back so.

Comparisons will be more challenging beginning in the second quarter of this year.

Our belief is that as a company, we've really been working hard.

To position the company strategically to be able to capitalize on whichever way the market tilt. So if in fact DIY reverts back our position as it relates to the pro segments, our industrial business.

And we think that.

We're going to be the the winter if you will.

As it shifts one way or the other we've worked very hard to position the company to be able to capitalize on.

And the market whichever way it turns on the DIY side through our stores than while we might see some of that.

On revert back the pros will be higher on the on the <unk>.

<unk> side, our consumer brands group side.

It's largely driven DIY business, but we are working hard with many of our customers on the pro who paints and there as well as and initiatives of the company you've heard us speak about the commitment that we have there the investments that we have there and quite frankly, the determination that we have there and.

And so whichever way the table <unk> Bill Bob We believe we're going to be on top of it and and.

And quite frankly don't discriminate 222, which segment. It comes from and we're just very determined to be the one leading and each of those segments, Yeah, Bob and I would expect.

If you looked at those two businesses combined so.

John talked about moderating.

Why and the stronger and the other segments, we still expect our second half to be up mid.

Mid to high single digits and those combined.

Architectural businesses, if you will and I think if you look at the comparison, maybe you can talk about and 2019 versus 'twenty. One I think if you look not just at the comparison to the most recent year. If you look back to the previous year.

We're still growing at a pretty impressive rate yes.

Yes, I think you'd be looking at.

Closer to low double digit increase over that the second half period as well.

So we're not giving it back we're fighting along with our customers to keep it.

And my quick follow up you mentioned on your prepared slides growth.

And that's a growth and the interior paint segments.

Can you give us some characterization of willingness to have the do.

And what form a contractors back and homes.

Yes actually.

And so good observation you make because we did see strong double digit growth actually both and interior and exterior, but the interiors such a large percentage on that.

And would that be smoothed, it's really terrific for us.

And the rest raws repaint. This is the second straight 20% quarter growth.

And as I mentioned in the prepared remarks and over five years of consecutive double digit growth.

This is a team that's just really focused and executing on.

A lot of.

Terrific efforts to be able to capitalize on that and we've got a new leader, there and Heidi petz and very aggressive leader and we're excited to see what she brings to this business as well because I would tell you. These contractors are bullish they're returning back into this interior work with a greater pace and greater comfort by by their customers and macro day.

The data is strong and you look at the existing home sales up 12% year over year for March the Libra projecting mid single digit growth, even the FHA and a.

And HB remodel index I think it hit a record. This this period 86 greater than the record previously at 82 so co.

Contractors are clearly confident and bullish.

We expect this is going to be another record year for us and residential repaint, there's good momentum.

And you should expect us to be pushing the pedal all the way to the floor and this segment.

Thank you.

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

Yes. Thank you.

What are you looking at your yes, good morning and and.

And thank you for taking my question.

And if I look at your full year guide.

And.

Total implies the second half.

And and pad being kind of mid single digit sales.

Sales growth.

At best is it fair to assume that that's that's just scale.

And would seem that you would your group.

Pricing actions.

Could approach that.

Push more price and.

And that wouldn't leave any room for volume growth because it just is it just conservative and that's fairly stale.

Yes, Jay.

And now.

Ghansham, we're going to look at updating our full year sales and EPS guidance at the <unk> of June 8th FCP Conference.

And it didn't make sense to me.

And tried to take a look at one segment.

And just the sales and not not.

Total company so.

We're going to give you an update for the all of the segments and.

And.

Full year at debt at that meeting, let me be very direct <unk>, we're feeling very good very strong about architectural performance and we expect.

Strong performance going forward here.

Okay, and then help me better understand your thinking on on.

And taking more price actions and it seems.

That you're kind of waiting to see whether these raws.

<unk> remain at these levels I'm not I'm a bit surprised you wouldnt wouldnt take advantage of this clearly inflationary situation on.

Push price now given the comments you just made about.

Co contractors.

Cost of your paint is a relatively small fraction.

The concern about.

Maintaining about loyalty.

And so really absorb this and not pushed price how help me understand that a little better yes, Steve I want to be clear on that as well and I mean, when you talk about absorb I want to really.

Picture this right we've been out with pricing, we're working through that pricing and the effectiveness of that pricing is important to us right now.

When you say absorb.

I want to put that in context were talking about that we will and.

As we have and the past temporarily accept some minor compression as we work and build through that loyalty and communicate to our customers our intentions and our plans and so.

As al mentioned, and we expect to recover and $1.

This year.

My view on this is very simple.

Would give up a little.

And.

True.

I would say, except a little compression and the short term when I know that and our long term I'm going to come out of this with the customer and the price and that's been our model and the past and it's worked very successfully and it's it's a cadence and our customers have learned to expect and appreciate from us and.

And.

I challenge anyone to give.

And the exception to the idea that.

Not trying to run for a perfect quarter versus the years or decades that we've built this relationship with our customers Shouldnt take priority over trying to go out immediately and adjust we will get it. We know we will we'll work with our customers and by the way we will come out of it with a more loyal customer as a result of the way we handle it and so.

And I'd just add to that.

Where we could on on.

On the industrial side, which which really saw rapid increase and the raw materials over the last 30 60 days.

We just delayed the pricing maybe 30 days. So we can go out with a higher <unk>.

Increase and we had planned and so we saw some of our group businesses out April one, but we are out across all businesses and all all divisions, and we talked about expecting to see.

What kind of growth and the selling price realization from around one 7% of our first quarter, a little over 2% and our second quarter and then we'll evaluate.

As we normally do month to month and take action, where we need to and certainly we would tell our customers first and then and then communicate to the street.

Yeah.

Okay very good thank you for that.

Thank you Steve.

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

Thanks, very much when I look at your SG&A costs.

<unk>, maybe they're down I don't know $145 million and that seems unusual given your historical pattern and you had very very nice sales growth.

And what's what's keeping the SG&A cost. So so low is there something unusual on the first quarter.

Jeff I would say and.

And our SG&A was actually consolidated all in one.

And one 4%.

And the costs are related to new stores reps.

Turning to investment and consumer brands.

And enough customer programs and additional services and reps and our performance coatings group and then the e-commerce initiatives and continued investments there we do have that.

Decrease and continued decrease and travel year over year debt.

Haven't we haven't really fully turn that back on but as these economies start reopening.

Well, we will see some of that I would say and the environment. We're in.

And we're going to focus on continuing to put investments and and why are we can offset and non value activities and and or.

Some of our.

Back office functions, we will do the same.

The savings there to help offset those investments, but we're going to continue to invest in this environment and you should expect to see.

Increase and a modest increase on our SG&A going forward.

Was there unusual management compensation last year, and if you think about management comp and.

2020 related.

2021.

Should it change much.

Yes, I think Jeff.

Jeff we set our full year targets at the beginning of the year and the comp will.

Be dependent on our achievement on those targets.

Look sequentially from the fourth quarter, the first quarter and.

Fourth quarter last year to the first quarter of this year.

Would it add more comp on our fourth quarter last year as we typically do we true up our.

Accruals.

Towards the end of the year and with a strong fourth quarter. We had we did have more comp expense on our fourth quarter, including stock comp.

Alright, okay. Thanks, thanks very much.

I'd just add just because I think it's important part of your first question I understand you were asking kind of the.

The decline or management of the SG&A, but I think it is important and going back to the question that Steve asked earlier about pricing and the investments that al mentioned, we're continuing to make because we believe thats an important element and our strategy. So while we're managing expenses and many areas. We're also investing and many critical areas and Thats what.

In fact allows us to execute on the strategy and which allows us to stand in front of our customers.

Having provided a solution that allows them to make more money and.

And ask for more money when we need to so I think your question is a great one, but I want to be clear that while we are managing the expense. We're also investing in critical areas as well.

Thank you so much.

Thanks, Jeff.

Our next question comes from the line of P. J <unk> with Citi. Please proceed with your questions.

Yes, hi, good morning.

And I had good morning, I had a just a clarification question on the consumer brands.

Sales went up 25% in the quarter, which was a large number.

And a year ago sales were down 5%.

So was there something going on with the inventories and maybe last year as pandemic approach and <unk> that big boxes took inventories down and they are building. It now or is there something else going on like you know you had exited the es business.

So what.

What are the puts and takes and this $25 and growth number and consumer brands Jay.

If you go back from the first quarter of 2020 that was certainly the ace impact was part of it.

Really we had a difficult.

Because of COVID-19 and Asia Pacific was down really big and impacted our first quarter and and even some of the moderation we saw.

And our other international businesses and.

And we really had a strong.

First quarter with our international business is up.

And when I say strong double digits were talking 50, plus percent and we saw a nice flow through there.

And and the sell through on the DIY side was still strong with our retail partners, both here and outside of the U S.

Thank you for that clarification.

And now with your net debt to EBITDA closer to two five times should we expect shadow and to get more aggressive on M&A.

Especially as the recovery continues.

What kind of acquisitions would be at the top of your shopping list.

Well.

P. J I would say you should expect us to see.

A lot of activity mainly in the industrial piece.

And our pipeline looks very robust.

So we've got a number of projects that we're working and we hope to have completed this year.

I would say that.

It is important to again understand our strategy.

As a reminder, we're very focused.

On unique and differentiated solutions and the solutions that can help our customers.

Achieve their success at a greater rate.

And when thinking about that it's pretty simple we believe that this greater success our customers have.

The more they view us as a valued partner so we're not focusing on.

Trying to be everything to everyone everywhere, we're not focused on commodities.

Focus on those elements are unique differentiation.

High value.

Infrastructure as an example.

And the areas that we can help expedite a production line lower energy costs improved color glass whatever it might be.

Well as technologies that we can buy and brought into our distribution. So.

We are determined to do this but we also believe we're unique in this sense as well, but we're positioned very well given.

The Valspar acquisition as well as just the positions that we've had.

And our growing not to require acquisitions for growth.

Our focus right now is on prioritizing our growth opportunities and so it's an exciting time here at Sherwin Williams, where youre looking at where do we invest where do we go and not because we don't know where to go.

And so many opportunities for us to grow and that's what our <unk> team our performance coatings group.

<unk>, just and been a new group adjusted bids on New group President there and our leadership teams are really focusing in on so we're excited about the M&A is an important lever we expect.

More activity going forward here, but a very disciplined approach not only and the financial modeling, but where we're going to go we're not just trying to buy a book of business and we're looking at good strategic values.

And not necessarily available driving our strategy, it's what we see going on in pursuing that and making it happen.

Great. Thank you.

And thanks P J.

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

Thanks for taking my question on the first one would just be on the on the consumer brands group can you speak to.

Where you see the industry in terms of in terms of inventory and is there any necessary catch up just given the strength that you've been seeing and the markets, but also some of the some of the supply chain disruptions and maybe how that may flow through as we're looking through the rest of the thinking on let's say the next couple of quarters.

Well I'd say that there are some challenges as you mentioned I think there is.

A pretty good inventory level.

And the channel for the most part but I'd also say that this natural disaster is just that.

It was a disaster.

And I also believe that this is a way and what you respond to demonstrate your DNA to your customers and.

And our 155th year of doing business.

And we still utilize these challenges.

Such as this natural disaster and a demonstrate why our relationship with Sherwin Williams is valuable.

And so on the face of adversity, we love that our teams are running into the center of the fire working to collaborate.

With our customers to position them for success, responding and quite frankly trying to minimize the disruptions.

We think we're unique and our asset base, we think we're unique and our experience and we think we're unique and our ability to respond and we're trying to utilize every aspect of our assets our facilities, our people to be able to do that and I.

And I really believe John and that will exit this closer to our customers than ever and and.

And I say that because we are utilizing.

These assets it could be we've got a very robust fleet of tractors trailers and delivery vehicles and <unk>.

So even on the home center front.

When product becomes available we're not waiting for someone to come begging.

Transportation company to come pick up our products or to be responsive to ours and we own. Those those are ours are those are our people our assets. We can dictate those same with our 4005 hundred stores.

You asked primarily about the home centers, but same stands true with our own stores.

Located in the communities they serve.

With.

Well trained highly.

Qualified leaders in those stores with inventory close to the customers. We've got reps on both the stores front and the home Center front and.

So what we're trying to do is be as responsive as we can and so while there is some choppiness if you will from.

And inventory standpoint, and we're working through those it's getting better every day and you know we clearly see this as a transitory issue that we're dealing with we believe we'll get on top of it and our goal is to be on the other side have customers point to Sherwin Williams and say, we want and the rest of you that would be just like a debt.

Got it and that makes that makes sense and then I guess, maybe just as a follow up on the cost side I think theres no theres, obviously, a lot of focus on the on the pet Chem side of it I guess can you speak to some of the other cost baskets, whether it's on the on the T O two on pigment fraud or tin plate. It does seem like there's just a lot of general inflation and so it may not just be the spike up.

And back down that were seeing and pet cameras, but there may be more and more consistent inflation and some of the other buckets can you can you help us to quantify that or think about that as far as you're progressing throughout the year.

Yes, John and I'm happy to take that one and let.

Let me just begin by reiterating a little bit what John and Allen and saying these whole total area of raw material inflation is is a transitory issue for us is not new for US we've demonstrated an ability to manage through this many times in the past and we will get through this as well.

Youre, absolutely right and our first quarter raws were up by mid single digits year over year. The biggest driver there was on the petrochemical side.

<unk>, rather and solvents and packaging materials.

And as you would imagine that hit our performance coatings group, a little bit harder with their greater exposure to the pet Chem side that.

And that trend is continuing here into our second quarter. If you look at propylene ethylene and <unk>.

C H D P E all of those commodities and theirs.

The highest we've seen and in many years and some are at record levels.

And you take a look at what's driving that across the chemical industry. We've seen a number of things was already a challenging environment related to COVID-19, John mentioned Winter Storm Yuri we had 168 production facilities that were offline and disrupted production for an extended period.

60, plus of those facilities offline.

Our refineries have been operating at below average utilization rates due to depressed demand for transportation fuels and <unk> got the demand as we've talked about screaming both on the architectural and industrial side. So I mean, that's the petrochemical side I know you asked about some of the others, we're seeing similar dynamics there as well.

And steel is.

We're seeing increases supply tightness due to unplanned mill shutdowns Corona virus outages high demand. So that's impacting our cost on steel pails and drums.

On the <unk> side, I would say the market is getting a little bit tighter there as well driven by high demand and you've got the stimulus packages construction demand recovery of industrial demand, you've got low inventories and logistical constraints. So I think ti and two is moving.

Moving as well for all of those reasons is why we took up our guide for the year, they're moving up to that that high single low double digit percentage for the full year.

<unk> should be the peak, that's how we see it right now that capacity will come back online and some of these costs. We think will start to moderate but as al mentioned, we'll give you a better view of that at our June 8th FCP event. Thanks.

Thank you very much for the color on the detail I appreciate it.

You bet.

Okay.

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

Thank you.

Don Allen and performance coatings, and it looks like and Q2, you'll be above 19 levels.

Premium pretty meaningfully.

And why how is.

Is that being driven by.

Yes, David.

You're absolutely right we should be.

High single digits low double digits versus.

19 and.

I think it so all the things that John talked about.

And his opening remarks by division and I'll, let him jump and I.

Love to because I think we're really optimistic about our entire industrial business all divisions, and all regions delivered year over year growth and the first quarter.

Look at the market manufacturing PMI is positive and every regions customers positive. We do believe that the vaccines should drive stability and.

Comparisons will be favorable and moving forward, but this is a terrific leadership team that's leaning forward aggressively and <unk>.

Should bode well for us and the balance of 2021.

And.

Run through the businesses and I talk about them briefly.

The prepared remarks, but.

If you look at some of these that have really been terrific performers and I'd start with a strong double digit gains and our industrial wood.

Got really good momentum here and if you look at furniture kitchen cabinets flooring. Many of these correlate to new residential we expect that momentum to continue through the first half and.

And note that the second half.

Well may become a bit more challenging as the year goes. This is a team that's really planting a lot of really good seeds with their customers growing not only through existing customers and we'd like to say share of wallet, but also in new customers and so.

Good leadership team here, we have high expectations and.

<unk> talked about our Gi business and.

Coming and second with a high teens number is.

As a good place to be.

And every region here was.

Double digits as well, except North America, and North America was up mid single digits and it continues to show momentum again and PMI here is very positive and we expect demand to improve.

Good share gains here, we're driving the business and a very positive way.

<unk> is another one where demand for food and beverage and.

Cans remains very robust.

Spoken repeatedly about our non BPA coatings is continuing to gain traction.

Both we and our customers and packaging are.

And investing in additional capacity, we've got terrific partners good partnership and.

We anticipate strong demand going forward here for quite some time and.

I'm really proud of what this team has accomplished they've delivered for US every quarter since we've acquired Valspar and <unk>.

Between the packaging and coil and not only have we seen terrific growth.

We've long been asked about diversifying our business, that's really helped us to diversify our business, both the packaging and coil and coil we see.

Really nice growth resumption and commercial projects is picking up growth and appliances.

And again and I've talked about the new business wins and this business has really been strong in all regions and this is another terrific leadership team and then.

Our automotive refinish is I think is really been something that I've been talking about very positively for a number of quarters and.

And again this is another terrific quarter for this team.

And like others and the market, we experienced significant growth in Asia.

And.

To a lesser degree, but still significant and in Europe, but our strength is here and the Americas.

And we believe we're continuing to gain share here.

Through our focus on new accounts and installations.

Innovation, I mentioned installations and my prepared remarks.

We've got more systems and and.

And products going here in North America, more and installs I believe than we've ever had I think it has the highest rate we've ever had for this business and that clearly bodes well.

And for us going forward and Thats in the face of miles driven and collision shop volume that's still off.

Pre COVID-19 levels. So this industrial business is proving to be everything that we had hoped to do and be.

We still have some work obviously in the area of operating margins.

Pleased with.

And the momentum that the team has but theres still a lot of upside, we still think theres upside and the operating margins as well as cash and debt.

As I mentioned and our leadership team that will deliver that and so we're looking forward to.

And John and that sounds that's very impressive and my reasons why youll be raising your segment sales guidance I guess on June eight.

Doesn't that imply that the FLIR guidance could be also a conservative as you really performance coatings itself should be up meaningfully versus current cash current guidance.

Well.

Like I said, we would normally give you an update at the end of the second quarter, we're going to move that up into early June and we will give you an update then but if.

And if you're sensing a little bit of bullishness or confidence and all of our voices I'd say, that's probably appropriate.

Thank you very much.

Thank you David.

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

Hey, guys nice quarter.

Mike.

And just one quick one on consumer brands group.

If you were to if you are able to hit that.

Part of the outlook for full year, you'd need yeah, third and fourth quarter to be flattish to up on really tough comps. So if that were to occur.

Is that really just driven by.

Trends and DIY sustaining or are there things that your team is doing there.

And to create some growth and maybe have some gain some shelf space so on and so forth.

Yes, I'd say I mentioned earlier, the pros, who paint us and an important initiative.

And one that we expect you know Mike I feel really good.

We had a terrific year, and we continue to post and terrific numbers and and.

Our CPG business.

We've got terrific partners here and they are committed to growing and we're committed to growing and investing and our businesses together I think.

The way exactly pays it plays out from a timing perspective and.

And kind of shifts and the market that's yet to be seen but we're committed to this business and we're committed to our customers and.

And one way or the other we're going to help them be better at what it is they're doing and we're willing to execute on that invest in it and deliver on it and you can.

You can count on that leadership team and wonder.

And for leadership.

Already you could see some of that work as al mentioned and different parts of the world but.

We've got a leadership team here and Brian patent and Todd Ray that are doing a wonderful job getting close to our customers and really delivering for them and we expect that to continue.

We're holding them accountable to do that.

Yeah.

Alright, thank you.

You bet. Thanks, Mike.

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

Thank you and good afternoon, everyone.

I just wanted to ask you maybe al on the inventory level, you mentioned on your prepared remarks, but and it's down $100 million or so year over year. Despite sales being up 500, and raws are obviously up so I'm just curious about two things one is there any risk of any sort of supply constraints on your side that my job.

Curtail some volume upside it sounds like maybe.

Maybe in the second quarter or potentially later in the year.

Particularly if they are you know we have another bad hurricane season, or something like that and then secondly, I'm just curious if youre seeing and maybe this is more on the Americans group, but ill ask it from the rest of the segments as well whether some of your smaller competitors are and all volume constrained as far as you can tell and is that providing opportunities for you.

Yeah, Vincent why don't I take that because I think the raw material supply issue is something that I tried to touch on before and I would say that as Jim mentioned with 168.

Facilities, and the petrochemical industry going offline it had an impact on not just the paint industry, but many industries and.

And as diversified as we are and supply base and geographically and when something like this happens it's a significant natural disasters going to impact many industries.

And it has impacted us and so we're working hard with our suppliers.

B.

And to be very clear, we want to be the ones that stand out amongst our customers with the greatest supply, but there are challenges right now and.

Natural disaster like this is going to be challenging as I mentioned and we mentioned repeatedly we believe its transitory we think that we'll get on top of this I think the fact that we have the the.

Tenure and our leadership team.

And our global supply chain as well as procurement gives me great confidence the asset base that we have and the responsiveness and quite frankly, the willingness to do whatever it is where we can get product and we'll ship it from wherever we can make it the fastest to get it to our customers.

And to serve them properly and we're doing a lot of that right now and so it is a real issue.

It's getting better.

But it's one that we've dealt with and as far as our competitors.

Yeah, I'd say as I mentioned on.

And all.

All of our competitors are feeling feeling the same pressures.

What I'm really proud of and.

And I've mentioned these leaders and our Heidi Petz adjusted bins are Brian pattern.

Every one of them when we talk there is not one of them that are sitting there talking about boy. There are challenges the challenges that we're talking about are how quickly we can grow how fast we can be in front of our customers. How fast we can be in front of our competitors' customers and so while some might be and.

Similar situation from a raw material very few of the ability to respond like Sherwin Williams and.

And yeah, we're trying to take advantage of that we're trying to turn those into customers. So you should expect that we're aggressively in front of those customers right now talking about our products our services and how we can help our customers make money.

And maybe just as a quick follow up I think and tag you've talked about property management being down. So maybe if you could just give us a little bit more color on how the trends are moving.

Moving there both sequentially and year over year, and what you expect for that for the rest of the year.

I'd say, a recovery would be choppy would be the best way.

And that I would.

Describe that.

It has improved sequentially, but was down by <unk>.

Mid single digit and in the quarter.

As we went through the quarter. The results got better now some of that came from comparisons that were a little bit easier, but we believe that.

There is a meaningful recovery.

Under foot and this business.

And I'd say that aligns with Dodge, whose nonbuilding starts are forecasted to rebound and the mid to high single digit range.

We continue to gain good momentum.

And here by diversifying this business and.

And I'd say that when you when.

And when you look at our property management.

I would say.

We're in a leadership position here, we've got great determination to continue to grow.

But I'd say also I think it's important as we are seeing more activity and our southeast and southwestern divisions, where there are fewer I'll call and governors are COVID-19 governors compared to the Midwest and eastern areas.

I would say that.

Comps are more favorable over the rest of the year.

But again, just as we talked earlier we're.

Not waiting for comps to get easier to be way to demonstrate zone.

And that's where we're on attack.

We're talking right now and a lot of these customers.

Some of this might fall a little bit between property maintenance and.

And a little bit of the commercial side, but if you look at the.

The tourist industry and there are many.

Starting and expecting for that to pick up and we expect some of those facilities as they start to.

And get better utilization rates.

Then begin investing more and that business as well so.

We're positioned really well, where we've got a I believe a good strong leadership position here, great relationships and a lot of determination.

Thanks, So much look forward to the event and Jim.

Thank you thanks, Chris.

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

Yes, good afternoon.

Within the U S, which would you speak to the regional trends that you saw in the quarter and your U S architectural business and whether or not there was a top line impact from Yuriy and then looking out maybe over the medium term I'd be curious to hear your thoughts on.

And on demographic trends more people seem to be moving to Florida, and Texas is that an issue that hit your radar screen from the point of view of strategy or capital allocation as it relates to your store base for example.

Yes, we love people, moving regardless of where they move and we liked them to paint and and change their mind on the cover a couple of times, while they're doing that so.

And we're positioned very well and the southeast and southwestern divisions are terrific.

Markets for US the density of our stores is high there, but there's still plenty of opportunity.

We talked about resuming our store count new stores up into that.

80% 80, plus range. We're excited about that I think we have good coverage and the divisions that are the benefactors of some of that movement.

But theres still opportunities and we love the shift that might be taking place if it'd be permanent or temporary.

If you look at.

You talked about the demographics or the the performance by area.

The largest growth that we had was and our Canadian division.

Team has been working really hard at executing up there over the last few years, we've been making a lot of investments. So quite frankly are our expectations are high for this division, but they are delivering.

And I'd say.

As I mentioned and the South Eastern Division is another area terrific leader and Todd Wisdom and that area that has been down there for quite some time and is doing a terrific job leading his team mid western and southwestern and eastern divisions came in and.

In order.

And I'd say all of them have terrific leaders and are executing so.

Just trying to be cute there Kevin about the move but the reality is is that is there a shift and demographics. We think we're really well positioned and will capitalize on and wherever it goes largely because of our relationships with the contractors that are going to be on the receiving on.

Understood and then just on the housekeeping side, how would you characterize the level of earnings dilution associated with your divestiture of what'll.

Yes, Kevin.

And you look at the remaining three quarters the impact on <unk>.

Tumor and be about close to 5% and then the <unk>.

And as immaterial, hence the portfolio reviews that we complete on a regular basis looking at customers brands businesses and we set mid term.

Scott Gotta be not just sales targets the scale and growth targets and we have to look at our operating margin and Rona and cash flow and if we don't believe these businesses are programs can meet those targets.

Yes.

Decide they can be better served with somebody else.

Okay. Thank you very much.

Okay.

Our next question is coming from the line of Duffy Fischer with Barclays. Please proceed with your question.

Yeah, Good morning, Hey.

Hey, Duffy.

Just one question from me I just wanted to triangulate a.

A couple of ALS comments, so you talked about volume being the biggest driver of margin expansion.

But if you use your EBIT number and just look at the incremental margins tag came in at 46% year over year consumer was 39, but consumer grew a lot more than tag did so can you just talk about the puts and takes of why tag was able to have.

The higher incremental margins and consumer even though it didn't have the volume growth.

Yes, I would say Duffy the couple a couple of reasons and strong volume and tags on high.

Same store sales increased eight two versus a strong seven and four last year.

And.

And the product mix within tag was favorable residential repaint was strong DIY was strong new res was strong we saw double digit growth and exterior.

So and the price increase effectiveness was strong and our first quarter leading to that.

Hi.

Flow through of 46%.

Tumor flow through at 39%.

Say it.

Happy really happy with that strong flow through and.

The team has been and we've talked about this investing and the pro paint and our and our home center channels driving those investments.

And also had a little bit of a mix shift as.

Asia Pacific and Europe grows faster than the U S.

Even though we're seeing nice improvement and the operating margins there and it does it does dilute.

Our consolidated margins. So those are kind of a high level factors that would impact that and the last thing I would say as consumers price increase did come in.

A little bit.

On a little bit of a more of a lag.

And in the first quarter towards the end of the first quarter and our second quarter and then they also get the benefit of the Ace business being.

US walking away from the Ace business.

Okay.

Perfect. Okay. Thank you guys.

Thanks Duffy.

Our next question is from the line of John Roberts with UBS. Please proceed with your question.

Thank you I want to make sure we beat to death, this raw material and inventory issues there.

Did you have to shift your production mix at all due to any limited availability of Ross did you maybe you have to make more vinyl instead of acrylic or more urethane instead of a proxy.

Yes, I'd say.

And we're shifting all the time, though John.

The timing of arrivals and raw materials of the plants that it's going to be manufacturer manufacturing that we might have seen a little bit more of that unusual here.

And the obvious situation, but I'd say, that's something that we do and what I mentioned earlier about the.

The strength of doing business with Sherwin Williams.

And that's the benefit of a company like ours the capacity that we have the assets that we have.

Quite frankly, the purchasing power that we have.

A lot of opportunities on an everyday basis here now with this situation.

As our products become available.

And we're able to utilize our assets.

<unk> ability to our best ability.

And then are you still seeing strong spray equipment sales and the stores as a leading indicator consistent with some of the growth outlooks that you projected.

Yes, we are.

Alright, thank you.

Thanks, John.

The next question comes from the line of ethylene Rodriguez with Jefferies. Please proceed with your question.

Good afternoon guys.

One quick one in terms of the business.

And there is some question Marshall and protective and marine and little bit of auto refinish, but are you seeing any real fundamental improvement in those businesses and when do you expect to start seeing maybe pre COVID-19 levels and and so on those businesses.

I would say that we're seeing sequential improvement and all of them and we expect that to continue.

The timing on pre COVID-19 levels.

We'd like to see that obviously is sooner than later, we're working hard with our teams to be able to to reach those levels.

A little hard to give that kind of projection by division and this format, but you should expect it to debt is absolutely our intent.

Okay. Thank you.

Thank you.

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

Alright, Thanks for taking my question here, guys and I know, it's getting late.

I guess I just wanted to circle back and a lot of the strength that you've seen and your expectations, maybe and in future periods. So obviously, you've seen double digit growth and resi repaint from for many periods and that seems like it's a it's actually going to continue.

But you've also seen a recovery on the new side.

If you were to think about those two dynamics.

Feel that paint stores will continue to grow next year at a one five to two times and market club.

Yes.

Okay.

And then I guess, maybe on the industrial side. Similarly, we have a nice recovery going on now but.

You saw some nice strength and refinish.

Scott packaging at length.

And what areas of that business are potentially still below normal that you may expect to see recovery in future periods as well and.

The industrial business Youre asking.

Yes, yes, I would absolutely say that we're pleased with the momentum and our automotive refinish Theres a lot of seeds that are being planted or expectations for that business are very high I think even with the growth that we are experienced.

Experience and and GI and industrial would we expect that momentum to continue I'd say coil is going to continue to grow.

And then just.

And some time here, we havent expectations for every one of those divisions divisions to continue to grow there's a lot of upside.

Our position and the market.

There is we're not sitting here with.

And enormous amount of market share here, where we can grow I mean, there's opportunities and every one of those businesses.

We believe we have the <unk>.

Product technology, the assets and most importantly, the people to be able to execute on that and so our expectations are very high for each one of those businesses.

Thanks, both on our sales and operating margin from from both perspectives.

Thanks, John.

You bet.

Thanks Arun.

Thank you. Our next question is from the line of Garik <unk> with loop capital. Please proceed with your question.

Great. Thanks. So just one question from me just looking for some clarification on tag pricing and just recognizing there could be some upside later this year, but although you got one 7% and the first quarter, you expect 2% or better and following quarters is that 2% total or about 2% on top of the 1.7 and you just got I'm, assuming it's the same day zero lifestyle.

But just wanted to be sure.

Yes, and Thats, 2% in total and it's.

And maybe even a little bit better than the prior effectiveness of price increases that we've done.

Great. Thank you.

Thanks.

Our next question is from the line of Mike Harrison with Seaport Global. Please proceed with your question.

Hi, good afternoon.

And Mike wanted to dig in a little bit on this opportunity with pros who paint.

At Lowe's and it sounds like they've talked about some success.

And.

And bringing these people into the stores do you have any metrics you can share on what kind of benefit you've seen.

In the paint aisle and maybe talk about what specific product lines at.

And at Loews, Youre gearing towards the pro market or how you are positioning better serve them.

And Mike we do have a metric.

Metrics, none that we can share and these would be our customers metrics that that we feel.

It's very important and that relationship for them too.

To discuss and to share and I would also say even from a product offering targeting those customers.

And I'll talk about our stores and maybe use that.

To reflect on.

And.

And the business that you are asking about if you look at our on.

Our high end products many of those are sold to the.

So the DIY customer, but many are also sold to the residential repaint contractors. So I don't know that you would find customers and our stores that are professionals that are not buying some on some product that nearly every price point that we offer and so the work that we're doing on the pros that paint.

Targets the same type of breadth of product there are customers that are.

And at very high and our upscale homes that want to use the very best and there are others quite frankly that might be.

And a different price points, but have also recognized that the largest cost of their goods and cost of goods is in labor and they make more money using a higher quality paint. So we're not we're not only designing products for pros or DIY customers, where we're designing.

<unk> for the and application with the idea of the applicator and mines. So we do build some pro products largely on the commercial side that are maybe more geared towards that application, but when you go into a home center and you're going to find.

And those pros.

Typically shopping throughout the entire product line.

Yeah.

Alright, and I also wanted to revisit the want Hill divestiture, just wondering kind of what that says about your international expansion plans our strategy on the architectural side.

And maybe comment on why <unk> wasn't a good fit.

And it's been a little while since we've talked about China on the architectural side any any comments there.

Yes, I'd say, Mike it's a great question and one I'd like to touch on because I think it demonstrates the discipline as well as strategy. So my message.

Two a shareholder would be.

We are committed we are committed to growth.

And we're making investments and those areas that we believe.

And have the opportunity to reach and long term targets that al just walked through them and we're not interested and just a book of business. We're not interested and practice, we know how to make paint and our shareholders expect a return on their investment and that's what we're out to do so we're looking at.

Programs, we're looking at.

Geographies, we're looking at customer.

Programs themselves to understand which ones are a viable and meaningful to both our customers and our shareholders and those areas, where we can see the long term investments paying off we're going to invest we're going to get in there and grind out.

What needs to be done to win.

But we're not going to be and some part of the world other part of the world.

Expenditure, extending our time and our treasurer and areas. It doesn't offer the return that our shareholders deserve.

Thank you.

Our next question is from the line of Truman Patterson with Wolfe Research. Please proceed with your question.

Hey, good afternoon, everyone. Thanks for taking my questions.

I'll try and be quick because I know were getting late.

First question on tag and performance coatings group, clearly different pricing dynamics different different raw material baskets and potential inflationary pressures.

You all mentioned some gross margin compression and near term.

And as either segment at.

At risk of just kind of greater compression.

Over the next quarter and then.

Either segment.

We will take a little bit longer to to recover.

And all the inflationary pressures.

Yes, chairman and I would say just because of the size of the Petro Chem side of the basket moving higher than the other is short term.

And.

We would see it more of a compression on TCG, but as you know and as I talked about for the year, we're not focused on on gross margin compression or expansion alone and it's a combination of things. We're focused on operating margin growth and that comes in many ways and starting with volume and we are showing strong volumes.

And performance coatings group and tag.

And the selling price increases and as I've talked about PSEG has incremental selling price increases.

Coming into our second quarter and.

Getting leverage on SG&A, and where we fall out on.

On the operating margin improvement is really driven by that volume first but you can.

And have confidence and our.

Disciplined.

And resolved without getting price increases and.

If we need them later in the year to offset dollar for dollar and the raw material increases across all day.

Yes.

Okay, Okay, and Thats really helpful. So and TCG, primarily a bit more compression just due to raw materials, rather than and then their ability to.

If pricing at least you know moving forward.

Okay and.

And then.

This has been asked a couple of different ways, but I just wanted to ask a bit more directly and.

And make sure I'm not missing anything DIY and the U S. Through April you, all arent seeing any slowing whatsoever and the reason I'm asking is it looks like and consumer and the second quarter sales guide looks.

A little soft, but I think that might include.

On the water divestiture, so just wanting to understand that.

Yes, that's true and it does include about a 4% and for awhile.

Yeah.

Yeah.

Okay, but youre not seeing any deceleration and DIY in April.

Let me say it this way.

And our guidance.

Good day Andrew.

Yes.

Yes.

And within our guidance.

Alright, Thanks, guys. Good luck on the upcoming quarter.

Thanks Truman.

Our next question is from the line of Justin Speer with Zelman and Associates. Please proceed with your questions.

Thanks, guys I appreciate it.

A few questions here one on just following up that DIY paint maybe not through your retail partners, but through your stores how does the DIY DIY point of sale trends look through the quarter for the quarter may be even to April and.

And maybe if you could help us maybe understand in terms of those guidance from the second quarter, how much of that and maybe tied to managing your retail customers managing inventories or perhaps just the supply chain disruption versus underlying demand slowing.

No I'd say that.

Is it I'm not quite sure I understand your question.

I would say HSN and it's not demand slowing and I think we're showing.

<unk>.

Set top line sales guidance.

And so it's not related to anything and restocking or inventory level polzer pushes within the retail channel but.

Up.

Mid to high teens on a consolidated basis and strong improvements across the sector.

Each of the segments, our tag and TCG and particular, that's driven by the underlying demand trends and that's not anything related to the inventory.

CPG down low double digits to mid teens, we have to waddle impact.

But even with that.

Guidance, we're still going to be up mid to high teens relative to the second quarter of 19th So we're not giving it given it all back and we're maintaining some momentum there.

With an effort on trying to grow as I mentioned already on the third.

Through those retail customers through the with the pros that paint as well.

Sure Yes.

And I recognize there's just tremendous growth and.

I know that you are looking at it.

And maybe toggling back to low single, but maybe there's some.

And some phasing and some timing, where maybe we tilt negative and.

And thats, what youre guiding to so but it sounds like that's all on view towards maybe and demand.

First of all the inventory situation its more of a view that and demand for whatever reason and the second quarters, and it's gonna be a little bit softer year over year for your business through retail and.

Not necessarily and it may be but I guess the question on that but that reflection on the actual end demand and the customer.

That you are expecting there.

We are saying is is that as people go back to work, they're not going to be on painting and.

And if that occurs and there is a little less DIY business.

We think Sherwin Williams is uniquely positioned to capture it and other.

On the other horizons a bit so if people are going back to work and more painters are coming to their homes, while they're at work, we're going to pick that up if people are going back to work and their plants. The production of those plants are going to be up and going online, we're going to picture and pick it up there so and go through in great detail adjusted but I know you know this business very well and we've had this.

And a number of times.

Our view is is that we've been working hard quite frankly for years for this moment.

Whichever way the business sales were there.

There and we're going to capitalize on it and if it's and DIY were there if the zone res repaint, where there are puts and new residential property maintenance commercial property management whatever it is we're there we're going to capitalize on.

And it makes sense and yes, you have a great portfolio to adapt to the dynamics day last question I have and on the free cash flow margin expectation for this year.

You had a very very strong last year on that front and how you're thinking about the phasing of free cash flow margins. This year.

Yes, Justin we are expecting.

To be even a little bit above that.

On the 12 and a half 13% net operating cash targets, we've set for ourselves.

And then with <unk>.

Our capex, our core capex below 2%, but we also have the.

Building, our future $100 million that we talked about so.

If I look at.

Net operating cash less capex, we've talked about the yen.

Above that 11, 5% and I think we.

It might be a little bit below that just because of the extra $100 million.

But I do expect a strong net operating cash for the year.

Yes.

Excellent. Thank you guys really appreciate it.

Thanks, Justin.

Yes.

Our next question is from the line of Rosemary and more Valeant with Gabelli and company. Please proceed with your question.

Thank you good afternoon, everyone and thanks for taking my question.

I have just one quick question on the potential infrastructure Bill.

How much of your.

Performance coatings would be and it would benefit from it.

From it and what technologies do you need in order to have a bigger impact.

Rosemont is a great question and that's something that has us very excited.

Our protective and marine business is a terrific business positioned very well I think a big part of it and I think you know as well as most of them.

Tried to follow what this infrastructure bill might look like.

I think we all recognize that there is there's a lot of variability and what might come and be coming down the pipe here. So maybe just the pieces and parts.

We have a terrific position and water and wastewater we have a terrific position and.

And on.

And we say bridge and highway, but it's ours is on the high value and of the bridge.

And if you look at airports are investments.

Virtually any infrastructure that goes in and we'd be.

Very well positioned to be there and I think very well positioned and I might say because you asked about technology, we do have very unique technologies from Florida ceiling and.

Our goal there is to ensure that the coatings that we provide not only offer tremendous protection, but we have very unique systems that allow our.

Our coatings to have the assets put back in place quickly and rapid return to service we refer to them. So.

Probably a sporadic.

And poly coatings that there can be coated recorded quickly and and.

And put back in place so that bridge lane closures down considerably or floors can be recorded and put back and placed quickly and.

All of these are part of the product offering that we bring.

And then our customers have learned to expect and quite frankly, we worked very hard to debt.

So depending on what comes out and that.

Bill, we think we're going to be very well positioned to capitalize on it.

Can you.

Quantify how much of your business could benefit.

And for a second that the whole thing Thats true.

[laughter].

I don't know how to quantify that until we see the reality of it.

And I can appreciate for your modeling, but that'd be purely speculation on our part right now I will say this rosemary and we're very well positioned to capitalize on it.

Okay, and do you need and.

I need to additional and technologies of yesterday it sounds as though this is what you are going to be looking for in terms of M&A can you share with us and take the.

And the gaps and you'll technology portfolio.

We would not do that publicly now we do recognize that there are opportunities we're out looking.

Some of those but we wouldn't want to flag those areas that where we're pursuing the M&A targets right now.

And again.

And sorry, and feel on the M&A I presume that you are not looking at and these things and size of the Valspar, We I'll touch on law about bolt on.

Di plus acquisitions, I think there and we've spoken openly about how long we covenant that balance for our business I don't think there's another valspar out there.

Our opportunities for us, but not not something like a valspar.

Okay. Thank you very much and good luck.

And <unk>.

Our next question is from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question.

Afternoon, everybody. Thanks for squeezing me in.

And I just wanted to follow up on you mentioned and expectation of pricing offsetting raw material inflation this year and.

If I did some back of the envelope math raw is 85% of Cogs expected inflation and 10% at the midpoint and that seems to imply something like 4% to 5% pricing for the total company for the full year and assuming the pricing will ramp throughout the year.

Probably higher than that and the back half of the year and you've already addressed.

<unk> kind of 2% pricing plus going forward and we'll see if and when.

And if or when you do another price increase there, but can you kind of talk about pricing and the other segments and how is that the type of pricing you're <unk>.

<unk> based on the actions that you're taking there and then we'll kind of see what you guys end up doing with tag.

Yeah, Kevin and I think what.

You can expect is we'll continue to.

Monitor the raw material basket as we normally do.

And if it persists at these levels then yeah.

Typically eat to offset the dollar she got again about.

50% on the raw material increase just because of the.

The sales Cogs dynamic works.

So and to be fair.

Some.

Businesses within industrial and our Argo and higher than others, just because of the dynamics within that specific business. So I would say that.

My expectation is still that we would offset the raw dollars.

Dollar for dollar with price and and.

To be clear, if we don't see that happen and Kevin, we'll offset it with other internal savings and and.

And SG&A and other other levers that we have to pull so and.

Total.

And to leave here thinking that way if I don't care, if they don't get price, they're not going to offset the raw material increase that's absolutely not the case and we'll look at all levers and we are available because again, our focus is growing operating margin.

Yeah, Okay, and then one other quick one on on in the retail with the retail partners that I think last year, there wasn't really much and the way a promotion, but now that we're entering.

The paint season, and there tends to be promotion throughout some of the holidays and curious if you're if you're aware of what the promotion activity will look like.

This year.

We are but that's not something that we would discuss out of respect for our customers.

Okay, Alright, thank you very much.

Thanks, Kevin.

Thank you. Our final question is from the line of Greg Melick from Evercore ISI. Please proceed sir.

Well, thanks a lot.

And Spice and still I still haven't just wanted to make sure that the raw material high single digit low double digits is that and industry forecast as opposed to assure on forecast.

And yes.

Yeah, and then if and.

And if that's the case is this one of those odd years, where just given the chasing of inventory and to stay in stock from your customers there.

At your raw material bill might be up as much as the industry or even more.

It's an industry forecast.

Greg is what I would say I don't know al if you have any other yes, Greg to your point if you look at because we're on a last in first out basis and North America is the largest.

Portion of our sales.

I would say it this way.

The higher.

Because of the rapid increase this year than we might be and other years, where it may be more muted.

B the way I kind of frame that.

And so it would be I mean, obviously, you guys are going to buy well.

But we shouldn't.

Assume that you would be less and the industry. This year, given just the uniqueness of it.

Right.

And I wouldn't make any assumption around that I don't know what our peers are buying and what prices are at I, just and I understand where we're at and we're trying to explain.

Year over year on a.

Rapidly increasing like it is and this year versus a more stable our costs are going to be up higher because of all that last day, we might be on the spot a little bit the spot market a little bit more on doing those things that we need to keep our customers and business and so there might be a little more volatility this year than other years.

Makes total sense. Thank you and I guess on volume I just wanted to make sure I got it right and you don't think there was any material volume impact from being out of stock and it sounds like there may have been some but it may have been 50 bps of volume demand not not hundreds of bps nothing material.

Okay. Thank you good luck current job thanks correct.

Thank you at this time, we've reached the end of our question and answer session for today and I'll hand, the call back to Jim Jay for closing remarks, John before you jump in here and let me. Let me just there were some really good questions I just wanted to circle back on and just a couple of points. One I think that I think it's important to understand how confident we are we've a proven ability to grow and the <unk>.

Most difficult markets, I think topline and Bottomline and.

I believe we're executing our strategy and thats uniquely position us to outperform the market and we believe our peers.

We had a couple of points here that I think are important to reemphasize and that's the commitment we have been making strategic investments and stores and innovation and reps both.

Technical Rep sales and specification reps as well and all driving towards solutions and those solutions that help our customers to be more successful and those services and products. We think are an important element not only and and the ability to help our customers be more successful, but and are building that relationship with those customers.

And I think managing through these periods.

And if times highlights the proven record I think other company and the leadership team.

And most importantly, the terrific Sherwin Williams team members that are closest to our customers every day.

Great confidence and our position and more importantly, I think great confidence and our future I've said this before I believe we're just getting started and I think that best frames. The mentality of this leadership team.

And we're proud of what we've accomplished we're not complacent. We think we're just getting started and we're looking forward to the future. So Jim I'll kick it over to you to talk about the FCP. Yeah. Just a couple of housekeeping items on the virtual financial community presentation, that's going to be at two P. M. Eastern on Tuesday June 8th Ken Thats Tuesday June eight and registration for that.

It'll be available on our Investor Relations website very shortly.

As you heard multiple times today, we will give you an update.

The full year, we will also have some newer things this year with other members of our management team around technology and ESG, so that should be a great event.

And if you need more information you can reach out to Natalie DARR on my team.

And with that I want to just thank everybody for joining our call as always myself, Eric Swanson will be available to answer any other questions. You might have so have a great day and thanks for your interest and Sherwin.

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