宣偉 (SHW) 2002 Q1 法說會逐字稿

Please stand by.

Good morning and welcome to the Sherwin-Williams Co.'s first quarter earnings release conference call. Today's call is being recorded.

At this time, for opening remarks, I would like to turn the call over to Conway Ivy, Senior Vice President Corporate Planning and Development. After his remarks, Chris Connor, Chairman and Chief Executive Officer, Sean Hennessy, Chief Financial Officer, John Ault, Vice President and Controller, and Lydia Bazarko, Director of Corporate Planning, will be available for questions.

Please go ahead, sir.

Thank you. Good morning, everyone. Thank you for joining us today for the review of our first quarter 2002 results and our expectations for the remainder of the year.

This conference call is being transmitted live in listen-only mode via the Internet at www.companyboardroom.com. A replay of this broadcast will be available approximately two hours after this conference call concludes. It can be accessed at www.companyboardroom.com and will be available until Tuesday, April 23rd at 5:00 p.m. eastern time.

Before proceeding, I would like to remind you that, during this conference call, we will make forward-looking statements with respect to sales, earnings and other matters. These forward-looking statements are based upon management's expectations and beliefs concerning future events.

Forward-looking statements are necessarily subject to risk, uncertainty and other factors, many of which are outside the control of the company. This could cause actual results to differ materially from such statements. A discussion of these risks and uncertainties and other factors are described from time to time in the company's reports filed with the Securities and Exchange Commission.

The company assumes no obligation to update the information presented in this conference call, which information speaks as of today only.

Before proceeding with our review of results, I'd like to make one comment. Many of you already know that Lydia Bazarko has announced her forthcoming retirement on July the 11th after 38 years of dedicated and outstanding service to our company. Due to this, today's conference call will be Lydia's last earnings call with you.

As you know, Lydia has played a critical and indispensable role in forming and maintaining our communication with all of you. Lydia and I have worked closely together for the past 23 years, which has been a honor and a blessing for me. Therefore, I wish to, again, publicly acknowledge and thank her for her contribution to our company, and I know you all will join all of us in wishing her a happy and prosperous retirement.

After going through and reviewing our results, we will open this session to questions.

Starting with summarizing our company's overall performance for the first quarter of 2002 versus the first quarter of 2001, net sales decreased eight-tenths of one percent to $1.15 billion. This result was impacted by poor economic conditions in South America, weakening currency exchange rates in Argentina and Brazil and a continuing sluggish domestic industrial maintenance and OEM sector.

Gross margins increased to 42.8 percent from 42.2 percent. We received the benefit of cost reductions through plant shutdowns that increased productivity at the plant level and also the benefits of moderating raw material distribution and energy costs compared to a year ago.

These factors helped offset lower production volume in industrial maintenance and chemical coatings products.

Pricing was essentially flat to last year. SG&A, as a percent of sales, increased from 36.4 percent to 36.7 percent of sales. SG&A dollars were only up $500,000. In spite of the weak sales environment, we continued investing in our businesses, particularly our paint stores, the expenses of which were essentially offset by cost reductions in the consumer segment.

Interest expense decreased $4.5 million, due to our decreased borrowings and lower interest rates relative to the first quarter of 2001.

Other expense net decreased income, before income taxes, by $9 million. This was primarily due to foreign currency exchange losses, which were not offset by gains on the sales of certain assets that were reflected in the first quarter of 2001.

Net income before accounting charges declined $2.1 million to 34.8 million from 36.9 million in the first quarter of 2001 due primarily to lower sales.

Diluted net income per common share before accounting changes for the quarter was 23 cents per share compared to 23 cents in 2001. Excluding the amortization expense of intangible assets and goodwill in 2001 to be comparable with 2002. Diluted net income per common share before accounting changes would have been 27 cents per share on the first quarter of 2001.

On January 1st, 2002 we adopted Statement of Financial Accounting Standards No. 142 titled, Goodwill and Other Intangible Assets. In accordance with the requirements of this standard, indefinite lived intangible assets and goodwill were reviewed for possible impairment. Due to the reduction in fair value of certain acquired trademarks in businesses primarily related to our South American acquisitions and the acquisition of selected brands within the Thompson Minwax Holding Corp., the company recorded an after tax transitional impairment charge of 183.1 million or $1.21 per share in the first quarter.

In accordance with SFAS Number 142, the transitional impairment charge was recorded as a cumulative effect of a change in accounting principle. After shaking this impairment charge, our intangible assets were 188.7 million and goodwill was 562.3 million at the end of the first quarter 2002.

I will now review our performance by segment for the first quarter of 2002 versus first quarter of 2001. You will see that sales in our paint store segment increased four-tenths of one percent to $695.9 million. This was due primarily to strong architectural paint sales that were offset by weak industrial maintenance and product finishes for OEM sales.

Sales to both painting contractors and do it yourself customers were strong. Sales of our chemical coatings or product finishes for OEMs continued to show unfavorable comparisons. We see improvement in some segments such as wood furniture, while other market segments to which our business is weighted continue to lag. These segments include office furniture, plastics, and some contract coaters.

Regionally, our mid-west division led the sales performance followed by eastern division and southeastern division and southwestern division. Our chemical coatings division again showed a decrease. Comparable store sales decreased one-half of one percent. Excluding our chemical coatings, our comparable store sales were up. Stronger sales growth was also mitigated by weakness in our industrial maintenance sales performance.

Operating profit in the stores segment declined 6.8 million to $40.1 million. This was primarily due to the cost of the new color system launch including an exclusive color palette by Martha Stewart and a gain in 2001 on the sale of certain fixed assets.

In spite of the still sluggish US economy, we continue our new store opening program. The first quarter of this year we opened 12 new stores, closed two and acquired 24 stores with the Johnson Paints acquisition which we completed at the end of March. Paint stores ended the quarter with 2,607 stores in operation. Johnson Paints manufactures and sells paint and related products under the on the southwest coast of Florida and in the Miami area.

Turning now to the consumer segment comparisons for the first quarter of 2002 versus first quarter 2001, sales increased to 278.8 million or three-tenths of one percent. Increased sales of paint, stain, applicators and aerosols to certain existing customers were essentially offset by a shortfall in sales in the cleaning solution business unit.

Operating profit increased 17.8 million to $43.2 million. This was due to better absorption as a result of stabilizing sales, moderating raw material costs compared to last year, lower distribution and energy cost and cost reductions coupled with tight expense controls due to our operational excellent programs.

Going now to our automotive finishes segment for the first quarter comparisons. Sales decreased 3.7 percent to $111.6 million. The slowly recovering domestic economy continued to curtail this segments OEM sales and the mild winter restrained growth in collision repair sales.

For the first quarter of 2002, the operating profit of 11.4 million was essentially flat with last year's 11.6 million. The operating profit was negatively impacted by lower sales volume and the related manufacturing absorption. That was partially offset by moderating raw material distribution and energy cost compared to last year.

Regarding our International Coating Segment's result for first quarter 2002 versus first quarter 2001, excluding the effects of currency exchange fluctuations relative to last year, net sales for the segment increased 2.6 percent for the quarter and gallons were up slightly. In US dollars, net sales were down 8.1 million to $61.4 million in the first quarter of 2002 versus first quarter 2001.

The sales decrease in US dollars was due primarily to unfavorable currency exchange rates in the Brazilian real and Argentine peso. The Segment reported a loss of $8.5 million down from an operating profit of 4.3 million a year ago. Excluding a $9 million charge to operating profit due to the recorded impairment of long-lived assets in accordance with SFAS No. 144, the international coating segment would have realized a small operating profit.

The reduction in operating profit from last year was due primarily to significant currency rate fluctuations, particularly in the Argentine peso. And this adversely effected gross margins as a result of many of our required purchases for raw materials being on a US dollar denominated basis.

Turning now to our balance sheet. We show you our balance sheet items on our Web site under Sherwin.com Investor Relations Press Releases. And since we show those to you there, I will not list them here, but I will .

We have continued to achieve good working capital performance. Our accounts receivable plus inventories less payables to sales were below last year's ratio. Operating performance has also improved with receivable days down by two days. Inventory days were down 11 days with or without the divested graphic arts business. We completed the sale of our graphic arts business which was our internal label supply business. We completed that sale the end of February.

Total borrowings to capitalization were 33.6 percent at the end of the quarter versus 40.6 percent at the end of the first quarter 2001. Barring any large acquisitions, we expect our total borrowings to capitalization to be approximately 26 percent at the end of 2002.

During the first quarter of 2002, the company purchased 1,762,800 shares of its common stock in the open market. We intend to purchase shares of the company's stock for treasury in the open market from time to time.

In the first quarter 2002 in terms of other items, we spent $18.4 million on capital expenditures, depreciation expense was $25.3 million, and amortization expense was $2.7 million. Capital expenditures were less than depreciation in the quarter due to the timing of some expenditures, which are expected to fall in the second and third quarters. For the 2002 year, we expect to spend $130 million on capital expenditures, $115 million on depreciation and $10 million on amortization.

Since many of you will have questions, I will also give a brief update on our lead litigation. In terms of Rhode Island, as many of you know, the judge has set September 4th as the beginning of a trial on whether lead paint is a public nuisance in Rhode Island. This first phase of the trial will not determine responsibility or liability, if any. These factors are left to additional phases of the trial, which are still not fully developed by the court.

In Santa Clara County, California, the case is now in discovery as to fraud-related issues after the court dismissed the public and private nuisance causes of action. It is the defendants position that only public buildings will be the focus of any alleged injury review.

In Harris County, Texas, in the Spring Branch Independent School District, a suit was filed in June of 2000, seeking damages for abating lead paint in school -- in the school buildings in the district. This case is proceeding through discovery toward a trial date the judge has set for early September this year.

To date, we have less than 100 lead litigation cases filed since 1987. Excluding the most recent cases, over 85 percent have been dismissed. The active cases are in discovery, and the Rhode Island and Spring Branch cases are the only ones currently scheduled for trial.

I would now like to return our review -- turn our review over to Chris Connor, who will make some general comments and highlight our expectations for 2002. Chris.

Thanks, Conway, and good morning to everyone. Thanks for joining us today.

Our first quarter came in pretty much as we expected, and we were encouraged by a number of improvements we saw in our company, beginning with the Consumer Division, who showed the impact of the many significant improvements we've made in the infrastructure of this segment. With sales stabilizing to essentially a flat performance, the segment was able to generate significant profit improvement. This comes from the cost reduction and productivity enhancements we've made as a result of our operational excellence initiative that's been in place now for almost two years. There's still room for improvement, and we continue to place a high priority on these efforts inside the company.

Working capital was another area where we continued to show improvement, even when measured against a strong performance in 2001. Conway has already commented on our improved inventory and receivable performance. And I might add the additional cash generated as a result of these continuing improvements allowed us to pay off another $100 million in debt in the quarter, further strengthening our balance sheet.

We've repeatedly stated that we'd use our free cash to pay down debt, make acquisitions to strengthen our control distribution platform and purchase our stock. And this quarter just completed is a great example of our commitment to this strategy. Along with the $100 million debt reduction, we also acquired the assets of the Johnson Paint Company, strengthening our controlled distribution store platform in southwestern Florida. This comes on the heels of our fourth quarter 2001 acquisition of the Mautz Pain Company in Madison, Wisconsin. We also purchased 1.7 million shares of stock in the quarter. All of these moves have been made with the best long-term interest of our shareholders in mind.

The question I imagine on your mind today regards to flat sales performance of our store segment in the first quarter. And upon closer inspection, there are several factors influencing this results that I'd like to share with you.

First of all, our architectural business, both the professional painting contractor and the do-it-yourself customer, was strong in the first quarter. In fact, this was the strongest quarter we've seen in our DIY business in several years. This portion of our stores business should remain strong and continue to drive improved results, particularly as we come into the architectural painting season.

The industrial and marine business did not have a good quarter. The continuing stress in the manufacturing sector of the economy has curtailed plant maintenance projects and new capital spending, both of which have a negative impact on our coating sales.

Our chemical coatings business also continues to struggle, as we have yet to see a rebound in the OEM customer segments we serve. We do believe, however, that we are poised for improved results in these two areas when these portions of our economy rebound. The long-term prospects for growth throughout this segment of our company remain very solid, and we continue to make the necessary investments to widen the gap between Sherwin-Williams and our competitors.

Taken as a whole, we expect that year-over-year sales and profit comparisons for our company will continue to be challenging through the remainder of the first half and into the second half of 2002, as we anticipate only a slow pick up in the industrial and OEM markets. To improve sales and operating income, we plan to continue launching new products, opening new stores, promoting our new color system, enhancing the shopping experience in our stores, and increasing the productivity of our operations.

We anticipate the second quarter sales will be flat to up slightly over last year's second quarter. With sales at that level, we expect diluted net income per share for the second quarter to be in the range of 62 cents to 68 cents per share. As we have previously forecasted for the year 2002, we expect sales will finish flat to up slightly compared to 2001. Our expectations for diluted net income per share before the cumulative effect of change in accounting principle for the year remain in the range of $1.88 to $2.03 per share compared to $1.68 per share earned last year. Adding back goodwill amortization to 2001 net income to be comparable to new accounting standard effective in 2002, diluted net income per common share would've been 62 cents per share in the second quarter and $1.83 per share for the year.

This includes our opening comments. And now Conway, Sean, John, Lydia and I would be happy to take your questions.

Thank you. The question-and-answer session will be conducted electronically. If you'd like to ask a question, please press the star key followed by the digit one on your touch-tone telephone. We will proceed in the order that you signal us and take as many questions as time permits. Once again, that's star one if you'd like to ask a question. And we'll pause for just a moment.

Our first question comes from of Credit Suisse First Boston.

Good morning. A very impressive job on your balance sheet improvements. I just had a few cleanup items. On the -- you mentioned in the store business the profitability was affected by the rollout of the new color system. Can you elaborate a little bit on what the other impacts were? Or was it just the new color system?

I think we've been talking, , about the rollout of that program. And we showed that at our conference. Along with that, we've also begun a store refresh program, which is our commitment to redo our stores over the next two to three years.

And your refresh program is the whole -- all the stores?

The goal is that all the retail stores we have, which probably accounts for 90 some percent of them, over the next three years will go through this update in total refresh. And I think the final piece end is in the first quarter of last year we had the sale of a piece of property down in Georgia that we showed it was in the -- how much, John?

Four million.

Four million dollar range. So, we had that to overcome as well.

And can you just repeat, please, the regional breakdown?

Sure. Yes. The Midwestern division led, followed by the eastern division. And I got it out of order -- and then followed by the southwestern division and the southeastern division.

And then as I'd indicated, out chemical coatings division, again, showed a decrease.

And you said without the chemical , your same store sales would have been up .5 percent?

No they were down .5 percent all-in, backing , they would be positive.

OK, down .5 all-in. OK. And then how many stores, , do you think you'll open in '03, if you have any projections yet. And what do you think it will be for '02?

I think the net -- net store openings would run about, you know, three percent of the base, and that would include, you know, acquisitions. So I think, excluding acquisitions, net this year would be, you know, around 45 to 50. And that -- with the Johnson Paint acquisition, this already puts us in the year at, you know, around 75.

And, of course, in the longer term, we would say, roughly, three percent a year, but we've not set the objectives for 2003 at this point in time.

OK. And then -- I'm sorry, I was just going to ask with respect to the consumer segment, you mentioned that the strength of your consumer business without cleaning solutions was pretty strong. Can you elaborate a little bit, given that's been an area where you've been, you know, struggling a little bit with lost share and with some of the major customers -and what more -- specifically, how the business is doing?

Sure. I don't think we said it was strong. I think we said that the cleaning solution business, you know, taken out, hurt that a little bit. But, you know, basically getting back up to a flat, stabilized sales basis had been a goal for us for a while there, , as you know.

And I think that, as always, there are number of customers in that segment that continue to do better than others, and, you know, we enjoy those businesses. Others are not doing as well. You know, I think where we focus there has been getting cost out of that operation and lowering the break-even, so that when we can get to these flat to slightly-up sales numbers, we can show some improvement, and that's what we did.

And I think, you know, we're encouraged that business is stabilizing and then starting to, potentially, show some growth this year.

OK, and one final question -- clean-up question on the lead paint. You mentioned that there were two cases that are set for trial. We obviously know about Rhode Island. Was the other one Harris County?

Correct.

The Spring Branch school district that's located in Harris County, Texas.

Spring Branch? OK. Thank you.

Thank you, .

Our next question comes from with .

Hi, .

After all of Ivy's excellent questions, I have just one more.

I would like to know, in terms of -- you're talking about strength in architectural coatings -- and very strong on both the professional side, and strongest in in several years. Order of magnitude -- are we talking mid-single digits, high-single digits or something less?

High single-digits.

Thank you very much.

Thank you, .

Moving on to Timothy Gerdeman with Lehman Brothers.

Good morning.

Quite a bit of concern recently starting to mount in the chemical industry, in particularly the coatings industry, Conway, about raw material costs in the second half of the year.

I'm just curious what kind of discussions you're seeing out of your raw material vendors at this point.

In terms of that, when we -- when we look at the raw materials for the first quarter, they -- and, as you know, we always talk concerning relative to what we see for the industry -- they were relatively flat to slightly down for the paint industry. And as we all know, the crude oil pricing is increasing in the second quarter, you know, versus the first.

There is an announced price increase of five cents per pound, effective March 1st, 2002, and this increase may eventually affect the larger buyers in the second quarter.

There continues to be price pressure on metal containers, due to the steel tariffs, you know, recently put in place. On a general base, know there's a great deal of upward price pressure from chemical and other raw material companies to increase prices in an effort to, you know, increase their margins and reduce losses.

When we package, you know, all of this together, we believe the raw materials for the paint industry may increase around two to three percent in 2002. And this is up from our prior forecast of one percent that we gave, you know, in our February conference call. And I think part of the, you know, influence on this is what's been going on in the oil market, related chemical markets.

Great, thanks. One other follow-up question, please, if you would.

I understand that there are quite a few paint coatings assets still up on the block. Can you comment about consolidation activity or opportunities as you look into the remaining part of the year for Sherwin-Williams?

You know, we obviously don't want to come in on any specific acquisition candidate, but, you know, the deal flow remains, and I think it's always a question between whether a seller would achieve their pricing expectations and a buyer would achieve theirs, particularly in these times.

So there remains consolidation opportunities.

Great, thank you.

Thank you.

of has our next question.

Good morning. I had a quick question about the consumer business. I was surprised by the margin level. I don't remember a first quarter having, you know, having a 15 percent-plus margin level in that business. I understand that you've reduced your break-even points, but I was just wondering if there might be anything unusual on the cost side in the quarter.

Is there -- are you at a sustainable level on the cost side, excluding whatever happened with raw materials?

Well, I would say, when you look at 15 percent, I would not say that that's sustainable. We don't see that for the full year for that segment. But we did have those plant closings last year, and we're starting to -- beginning to see the benefits this year.

We have reduced the SG&A in the consumer group, brought down -- brought our structure -- our cost structure back down in line with our sales. And I think you're right, I think we have dropped our break-even point.

And we've continued to reduce our inventory levels relative to last year, and while we've been maintaining our service objectives. So those three things continue to happen. I think mentioned the operational excellence before, and -- but we don't see the 15 percent margin remaining for the remainder of the year.

Also, one other follow-up, if I may. The -- I was just curious why the impairment charge for the international business was not included in the overall charge. Why was that taken out of operating profit?

There was -- there are two different financial accounting standards that deal with impairment. One forty-two is the transitional impairment, which is a cumulative charge, and the statement 144 deals with impairments that need to be allocated against current operations. And that was a charge that followed statement 144.

Will that have any impact going forward on the performance of that business?

No.

Thank you very much.

Thank you, .

We'll move next to of Merrill Lynch.

Hi,

Good morning, everyone.

On the $7 million swing in the amortization of intangibles because of the application of FAS 142, about how would you allocate that across the segments, or how was it? What would the difference be, you know, maybe percentage-wise?

Most of the amortization expenses in the consumer segment, where we did many of the acquisitions over the last few years -- I don't have with me any kind of a percentage allocation between the segments, but most of the significant area would be within consumer -- very little in stores and a little bit in international. But not large amounts.

OK. That was my main question. Lydia it was a pleasure working with you. We wish you well.

Thank you very much, .

Thank you, .

Our next question comes from - Deutsche Banc.

Good morning, Greg . Lydia, I also want to extend my best wishes to a prosperous retirement. It's been a joy to work with you.

Couple of questions. First, going back to the store's profitability. Chris, how much of the decline was influenced by mix? In other words, you mentioned that industrial coatings and product finishes were weak. Is there a mixed consideration that enters the equation here as well in terms of explaining the decline in profitability?

No, I don't think so, . There was certainly a mix change in the business in the quarter. Architectural, as we commented, was in the strong. It's really an expense issue. And as showed you the considerable investments we're making there on new systems and updates. I think that's really been the issue. Again, back to the sale of the asset in the first quarter had a big impact.

But I think, you know, in terms of our chemical coatings and industrial maintenance business, they were, you know, not contributing, you know, to increase in profitability given the, you know, decline in sales.

But are the margins on a normalized basis in those particular categories similar to much above, much below the segment average?

They're very similar. That's why it's not a mix issue for us. 2

All right. In terms of international, obviously, you know, even absent currency adjustments it continues to be a difficult area for you. Chris, I know you've talked about, you know, this an area that you monitor quite closely. And could you offer any comments with respect to what you saw in this quarter and how that influences your thinking with regard to how you plan to invest in those regions as we move forward?

I think when you look at South American business the history of that has been long- term commitment. And we go through these phases down there and we happen to be in a particular tough one for our American companies right now. I think that our commitment is to stay the course down there. We've got good operations. We have good brand names. We're seeing sales gains. gains and market share gains in local currencies. The conversions are hurting us.

And to your question about future investment. Again, we've talked about our focus on adding to controlled distribution. Our most recent acquisitions fit that model perfectly. There may be some opportunities like that internationally. But, you know, we think have a pretty full plate of brands down there and just want to operate and run what we've got and improve our operations down there.

Final question. Looking at the write-offs specifically in the consumer business. Can you just review what the cumulative write-down has been for the Thompson business, number one. Number two, what was the original purchase price of that business. And number three, what impact will those write-downs have on future profitability?

We haven't broken that out, you know, by the businesses, you know, in terms of our disclosures. But I believe we paid I mean, you'd have to look at the facts, but I think we paid around $830 million for the Thompson Minwax business. And, you know, I think the Minwax portion of that is performing very well. The Seal portion of that's performing very well. And I think as we've, you know, indicated to all of you in the past, we of course have been disappointed in the oh, since acquisition on the results of Thompson, but are, you know, very much encouraged by the, you know, new product introductions and that that we have coming forward.

There were also other trademarks and brands included in that acquisition such as and Red Devils. And I think also kind of as a general policy when it would come to, you know, allocating, you know, acquisition cost we would place more weight on trademarks.

In terms of the total I think if you go back and add up our, you know, impairment charge from December of 2000 and these charges this would give you a pretty idea of what the total would be. Most of that would be skewed toward the consumer segment where we made those acquisitions.

But I would comment, in December of 2000 that impairment charge did not include any of our South American operations because they were not impaired at that time. But as we all know, since the economic factors in that have, you know, impacted us, you know, that is mostly the goodwill charge that you're seeing this time. The remaining value that you would see is primarily in the Minwax and Pratt & Lambert acquisitions.

So the as I recall, Conway, the after tax charge taken back in 2000 fourth quarter 2000 was just under 300 million. Is it safe to say that that would have been almost entirely Thompson Minwax and that a discharge the majority of it would have been Thompson Minwax. Would that be an accurate characterization?

Yeah, backed in that charge also included some of the goodwill of Pratt & Lambert as well.

That was a relatively small portion of that charge?

We haven't broken it out. And it also that charge also included some of the goodwill on Thompson's.

OK, great. Thank you. , again, best wishes.

Thank you, .

with has our next question.

Good morning, everyone!

First question in the selected information in the press release you have net expense or income from financing investing activity have really swung against from income a year ago to expense this year. Could you detail what caused that?

, that's generally the sale of the assets that occurred last year. One of the sales Chris mentioned before was in the paint stores segment and it was an additional property sale that generated Incorporate. But those two items account for most of that change.

OK, so in that table it's broken out of the segments, but in the segment reporting it's included?

That's correct.

All right. The other thing I want to ask about and I missed some of the Q&A so somebody may have asked this. Could you give us a sort of sales figure for paint stores just for architectural product?

No, , we don't want to, you know, break that out. But I think the only thing to give you a flavor is if we back out the drag on caused by our chemical coatings sales decline, our comp store sales would be up.

Would be up, you said?

Yes, positive.

Yeah, would be positive.

And finally, can you give us an update on a roll out of the plastic can both in terms of timing and how many retailers might be launching it and how you're handling the release of the product? Are retailers that get the product going to launch at the same time? Is it some kind of controlled program?

The Dutch Boy Twist and Pour package that you refer to is on target for a third quarter launch. We're finalizing all the first phases of the testing, et cetera, on the package and marketing pieces. We continue to show it to existing customers where it's receiving rave reviews. And presenting it to new distribution opportunities. And as we finalize those we'd be happy to share that, but we don't have that information right now, .

All right, thank you.

Thank you.

We'll hear next from JP Morgan.

Hi, .

Mr. , your line is open.

Good morning, can you hear me?

Yes.

Good morning. This is sitting in for this morning.

Do you have a question?

Yes. OK, the phone was breaking up. Now we're here again.

The operating performance in the consumer segment was up significantly. Does that reflect lower advertising costs? And if yes, how much? And how much is due to lower materials? If you can break that off.

The first quarter historically is not a strong advertising quarter for the paint industry. So there's really no impact at all of advertising there.

And we have not wanted to break out the raw material cost component, you know, of that.

OK. And then I think you've said that before that, but how big were the asset sales last year in the store business?

They were approximately $4 million.

Four million. OK. Thank you very much.

Thank you, .

Moving on, we'll hear from Richard Diamond of Capital.

My questions have been answered. Thank you.

Thank you.

We'll move next to of .

Thank you.

Hi, Barbara.

Good morning, you all. And I want to extend my congratulations on two things, number one, the 70 percent increase in the consumer segment earnings. I know you've worked very hard at that, and that is a real credit to all the efforts that you've made. Congratulations on that. And secondly, I think of mine with that. I think it's a two year high in your stock price. Well deserved, and keep up the good work.

My questions are in the DIY in the store segment you indicated that that was the best you had for some time. I don't see how it could be related to the rollout of the Martha Stewart stuff. I mean, was it that fast? Could you give us some feedback on what's going on there?

Sure, I'd be happy to. I think that -- first of all, let's talk about some of the broad industry trends that are favorable here. We have seen a strong DIY quarter, I think, as the country goes through these economic cycles and things get a little tough. There has historically been, , a move back to DIY from painting contractors by a couple of a points over the course of that year. So, it's a good time to be in the DIY paint business.

And beyond that, I think our own efforts, just in some really strong promotions that we've run, the focus on the store shopping experience that we talked about in our release. And Martha has had that kind of impact immediately. I have been in dozens of dozens of stores since we've launched and it's fascinating to watch the customers at that center. And it's not just the Martha launch. It's the entire new color array that's really having a lifting impact on our DIY business.

Thank you very much.

Thank you, .

of Morgan Stanley has our next question.

Yeah. Hi. Good morning.

Good morning.

Just a real quick one. You talked a little bit about the store refresh program. How many stores have you rolled out the refresh program in this far? And can you just talk a little bit about maybe what type of change you're seeing in sales as a result of that?

Sure. Through the first quarter -- and we just announced this at our national meeting in January -- we've gotten 40 stores done. We expect to have 250 more completed by the end of the second quarter. And, , we have not yet begun the process of analyzing the impact. It's just too early, but that's something we'll do.

OK. Thank you.

Thank you.

Our next question comes from of Bank of America.

Yeah. I think other people have addressed this. Again, I'm trying to get to the combination of strength in paint sales in terms of DYI and painting contractor. I guess while you won't quantify it, I get the feeling we're talking about high single digits.

Yeah, we have commented. One's high single digits in both of those customer segments were in that range.

OK. I guess maybe more importantly, what about the outlook for the balance of the year? Do you see those kinds of strong trends continuing?

Well, I think that it's tough to see that right now. We have commented on the moderating effect of IM and chemical coatings. I'd love to see that architectural business stay strong the rest of the year. Time will tell.

And also, we need to see -- I think our winter was milder this winter. That could have had some influence on architectural sales, though we do see continuing strength as we go into April. So, that is positive. If it had been due to essentially the mild winter, you might have borrowed some sales out of the second quarter into the first quarter. So, we want to be fairly conservative as we go forward.

That's helpful. Thank you.

Thank you.

Our next question comes from of Partners.

Hi, guys. I'm afraid I missed part of the call. But I'm a little concerned about something, or maybe an explanation, I guess. Chris, particularly, there's a filing where you exercised options and bought 14,000 some odd shares.

Yeah.

But if I look at the history of your ownership as previously filed, the net ownership seems to be down despite that purchase from all the 90,000 later in '00. And I noticed there's no filings between to account for decline of over 60,000. Were there any transactions with the company that haven't yet had to be filed?

No, there are none, . And I'm not familiar with that showing down. That transaction in December was a swap that I made to use current stock to exercise and hold options. I've been a net acquirer of stock consistently. And I don't know where that number would be coming from.

OK.

I'll have our guys look at that because that's not ...

Yeah, , it's -- this is Conway. If you want to send me that information that you're looking at, then we could reconcile it with our filings to maybe answer your question in detail.

OK. And do you maintain a window of time during which the insiders can transact in this stock?

Sure. Yes. The SEC guidelines.

And when will that window open up for you guys for this quarter?

Three days.

Three days? And it stays open for how long?

Depending on what's happening.

It stays open until the third month of the quarter and it actually ends on the 15th day of the third month. So, from the 16th day of the third month until three days after the earnings release, insiders are not allowed to trade Sherwin-Williams stocks.

That's when you cannot. OK.

Yes.

Correct.

Good. Lydia, enjoy yourself. Thank you for everything up until now.

Yeah. Thanks, .

As a reminder, it's star one to ask a question. Next, we'll hear from of Newberg Bergman.

Good morning, everybody.

Good morning, Harry.

A quick question for you. I think that you said that the decline in the paint store -- earnings numbers in Q1 of $6.8 million was largely a result of the Martha and, I guess, the store -- the refreshening program. What should we expect on a go-forward basis? Is that sort of a $6 million or $7 million range going to continue on a quarterly basis for the remainder of the year, or was that sort of a front loaded amount?

There were two things there. There was the $4 million gain on the sale of assets in the first quarter of 2001 ...

Right.

... and the investment in the new color system.

Right.

That's an up front loaded program. To get all the fan decks that we had to get out into the painter's hands, the displays in all the stores, and those things will not continue through the year.

So, could you -- how much was the up front expense of the Martha and the refreshening?

We haven't commented on that.

OK. But that won't continue as we go forward?

Not at the level that we had it in the first quarter.

Part of the store refresh expenditures would continue, but certainly the expense related to the color system -- and that was front end loaded in the first quarter.

So, as we progress we should see sort of a better comparison on a year over year basis for the stores segment.

That would be a strong expectation.

OK. And I just wanted to clarify it was a $4 million gain from the real estate last year. Is that correct?

Yes.

That is correct.

Very well. Thank you.

Thank you, Harry.

We might keep -- to keep everybody on time, because we know you like to stay basically with an hour, we also want to make sure we answer everybody's questions. But maybe we could have a couple more questions and close the conference call off. And then obviously if anybody else has any remaining questions they'd be -- we'd like for you to call Lydia and myself. But we'll continue for several more questions.

Our next question comes from with Midwest Research.

Good morning.

Hi, .

A comment was made that I interpreted to suggest that the consumer segment margins in the quarter were -- I don't want to say unsustainable but unsustainable. Is there something through the balance of the year that will make the profit comparisons less compelling than they were in the first quarter or something that was unique to making the first quarter profit comparison look better? Can you just help me better understand what that comment meant?

Well, first of all, the first quarter, if we close a plant in 2001 the first quarter would start -- we'd get a full impact of plants not being there versus a plant being there. But, no, we just -- we think the consumer group's going to have a very good year. We -- but we just -- the question was, was the 15 percent sustainable.

The increase.

The increase. And we were just saying the increase at that large number will not be there for the last three quarters. Sorry about that. Does that help you?

Yeah, that does. Thank you.

Thank you, .

We'll take a follow-up from -- Deutsche Banc.

Actually, my question's been answered. Thank you.

Thank you, .

It appears there are no further questions at this time. Mr. Ivy, I'd like to turn the conference back over to you for any additional or closing remarks.

OK. Well, we thank you all for joining us today, and as I said previously, should any of you have any follow-up questions, Lydia and I will be, you know, available today, and, you know, as always, to answer -- and tomorrow -- to answer, you know, any other -- any other additional questions you may have.

And so, thank you all very much.

That concludes today's conference. Thank you for your participation.