宣偉 (SHW) 2014 Q4 法說會逐字稿

Good afternoon. Thank you for joining the Sherwin Williams Company's review of fourth quarter and full-year 2014 results and expectations for 2015. This conference call is being webcast simultaneously in listen-only mode by Vcall via the internet at www.sherwin.com. An archived replay of this webcast will be available at www.Sherwin.com beginning approximately two hours after this conference call concludes, and will be available until Wednesday, February 18, 2015, at 5 PM Eastern time. Following the Company's year-end financial results and outlook for 2015, we will conduct a question and answer session.

I will now turn the call over to Bob Wells, Senior Vice President Corporate Communications.

Thank you, Roya. Good afternoon, everyone, and thanks for joining us. We appreciate your interest in Sherwin Williams.

We are going to begin the call today with some prepared remarks by Chris Connor, our Chairman and CEO, and John Morikis, President and Chief Operating Officer. Following their remarks, we will open the call to questions, and Sean Hennessy, our Chief Financial Officer, and Al Mistysyn, Vice President Corporate Controller are with us this afternoon to participate in the Q&A session.

Before I pass the microphone to Chris, let me remind you that this conference call will include certain forward-looking statements as defined under US federal securities laws with respect to sales, earnings and other matters. Any forward-looking statements speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

A full declaration regarding forward-looking statements is provided in our earnings release transmitted earlier this morning. In the interest of time, as usual we have provided some balance sheet items and other selected financial information on our website, Sherwin.com under Investor Relations, quarterly results fourth quarter.

With that, let me turn the call over to Chris.

Thanks, Bob, and good afternoon, everybody.

I want to begin by thanking you for accommodating our very late change in the scheduled time for this call. A long-tenured senior executive of our Company and a good friend to all of us on the side of the line lost a 26-year-old-son unexpectedly this week. This morning was our only opportunity to pay our respects to this fine family, and participate in the memorial service, an opportunity we couldn't pass up. We thank you for your understanding and your willingness to alter your busy schedules to be with us on the call this afternoon.

With that, let me turn the call over to John to review our performance for the fourth quarter and full year 2014. I will be back after his comments to share a few thoughts of my own. John?

Thanks, Chris, and good afternoon, everyone.

Looking back on 2014, two prominent themes stand out in my mind. The first is the continued strength of our operating results during the year with record sales, record EBITDA, record net income and earnings per share. The second is that we accomplished these financial milestones, while continuing to make prudent investment in our future. As a result, we are entering 2015 very well-positioned to grow market share and to deliver even stronger sales and earnings.

Our consolidated sales in the fourth quarter increased 4.6% to $2.57 billion due primarily to higher paint sales volumes through our paint stores group. For the full year, sales increased 9.3% to $11.13 billion. Acquisitions had no effect on consolidated net sales growth in the quarter, and increased sales approximately 3.1% in the full year.

Currency translation rate changes decreased consolidated net sales 2.3% in the quarter, and 1.4% for the year. Consolidated gross margin in the fourth quarter increased to 47.4% of sales, from 45.8% of sales in the fourth quarter of 2013. The increase in gross margin in the quarter was primarily due to improved fixed cost absorption from increased sales volumes, the TIO2 settlement detailed in our third quarter 10-Q, and year-over-year progress from the Comex acquisition.

For the year, gross margin increased to 46.4% of sales, from 45.3% of sales last year. The increase in gross margin for the year was primarily due to increased sales volumes partially offset by acquisitions. Selling, general and administrative expense in dollars increased $23.1 million in the fourth quarter, compared to fourth quarter last year, but decreased as a percent of sales to 38.3% from 39.2% in the same quarter last year.

For the full year 2014 SG&A expense increased $355.3 million to $3.82 billion, an increase as a percent of sales to 34.3% from 34% in 2013. Incremental SG&A from acquisitions, new stores, and customer service investments accounted for the majority of the SG&A increase in the year.

Other general expense increased $28.2 million in the fourth quarter and $35 million for the year, due primarily to higher environmental accruals in both periods. Interest expense for the quarter decreased $1.5 million to $15.4 million. For the year, interest expense was $64.2 million, compared to $62.7 million in 2013. Profit before tax in the fourth quarter increased 26.6% to $188.9 million, and for the full year increased 15.9% to $1.26 billion.

Our effective tax rate for the fourth quarter 2014 increased to 29.7% from 22.2% in the fourth quarter of 2013. For the year, our effective tax rate was 31.2%, compared to 30.7% in 2013. Effective tax rate in the fourth quarter and full year 2013 were favorably impacted by the integration of Comex stores, and would have been 32.3% and 32.1% respectively without Comex. Consolidated net income for the quarter increased $16.6 million to $132.7 million.

For the year net income increased $113.3 million to $865.9 million. Net income as a percent of sales in the quarter increased to 5.2% from 4.7% last year. For the year, net income as a percent of sales increased to 7.8% from 7.4% in 2013.

Diluted net income per common share for the fourth quarter 2014 increased to $1.37 from $1.14 per share in the fourth quarter 2013. For the year, diluted net income per common share increased 20.9% to $8.78 per share from $7.26 per share in 2013.

Now let me take a few minutes to break down our performance by segment. Sales by our paint stores group in the fourth quarter 2014 increased 8% to $1.58 billion, thanks to higher paint sales volumes across all customer segments. For the year, net sales increased 14.2% to $6.85 billion. This full year sales increase was also driven by higher paint sales volumes across all customer segments, plus the Comex application.

The acquisition increased paint stores group net sales 4.5% for the full year. Comparable store sales increased 7.5% in the quarter, and 8.8% in the year. Regionally in the fourth quarter, our Southeast division led all divisions, followed by Southwestern division, our Midwestern division and our Eastern division. Fourth quarter segment profit for the paint stores group increased 46.9% to $247.5 million from $168.5 million in the fourth quarter of last year, due primarily to higher year-over-year paint sales volumes, and improved operating results from the acquired Comex stores.

For the full year, paint stores group profit increased 21.3% to $1.2 billion from $990.5 million in 2013. The increase in segment profit for the year resulted from higher paint sales volumes that were partially offset by higher SG&A expenses and a loss from acquisitions. Acquisitions reduced full-year segment profit by $32.3 million. Segment profit margin for the fourth quarter increased to 15.6% from 11.5% last year. Profit margin for the full year 2014 increased to 17.5% from 16.5% in 2013.

Turning now to the consumer group, fourth quarter external net sales increased 1.6% to $276.9 million, due primarily to higher volume sales for most of the groups' retail customers. For the year, consumer group sales increased 5.9% to $1.42 billion, as the result of acquisitions and increased order volume for most of the groups' retail customers. Acquisitions increased net sales by 3.4% in the year.

Segment profit for the fourth quarter decreased to $30.3 million from $36 million in fourth quarter 2013, primarily as a result of higher operating costs in advance of the HGTV HOME by Sherwin Williams program roll-out at Lowe's. For the year, segment profit increased 4.5% to $259.2 million from $242.1 million in 2013. This increase is primarily due to higher sales volume and improved operating efficiencies, partially offset by the higher operating costs related to the Lowe's roll-out. Acquisitions had no significant impact on segment profit in the full year.

Consumer group segment profit as a percent of sales in the fourth quarter decreased 11% from 13 -- to 11% from 13.2% last year due to the higher operating costs from the Lowe's program. For the year, segment profit margin decreased to 17.8% from 18% last year for much the same reason. For the global finishes group, fourth quarter net sales in US dollars increased 1.1% to $502.4 million, and for full year sales decreased 3.8% to $2.08 billion due primarily to selling price increases and higher paint sales volumes, partially offset by unfavorable currency translation.

Currency translation decreased sales in US dollars by 4.1% in the quarter, and 1.6% in the year. Stated in US dollars, global finishes group segment profit in the fourth quarter increased to $39 million from $37.7 million last year. The increase in segment profit in the quarter resulted from increased operating efficiencies and higher year-over-year selling prices, partially offset by unfavorable currency translation of $10.2 million. For the year, segment profit increased 17.9% to $201.1 million from $170.6 million last year.

This full-year profit improvement resulted from increased operating efficiencies, selling price increases, and a $6.3 million gain on the early termination of a customer agreement reported in the third quarter, partially offset by unfavorable currency translation of $13.5 million. As a percent of net sales, global finishes group's operating profit was 7.8% in the fourth quarter, compared to 7.6% last year, and 9.7% for the year, compared to 8.5% in 2013.

For our Latin America's coatings group, net sales decreased 6.7% to $207.4 million in the fourth quarter, and decreased 7.3% to $771.4 million for the full year, due primarily to unfavorable currency translation and lower volume sales, partially offset by higher year-over-year selling prices. Currency translation decreased in US dollars by 13.5% in the quarter, and 12.3% in the year.

Stated in US dollars, Latin America coatings group segment profit in the quarter decreased to $13 million from $17.9 million last year, due primarily to unfavorable currency translation, and lower volume sales partially offset by selling price increases. Unfavorable currency translation decreased segment profit $4.9 million in the quarter.

For the year segment profit increased to $40.5 million from $38.6 million in 2013. As a reminder, in 2013 we incurred charges of $31.6 million to satisfy tax assessments in Brazil. Unfavorable currency translations decreased profit $15.7 million in the year. As a percent of net sales, segment operating profit was 6.3% in the fourth quarter compared to 8.1% last year, and 5.2% for the year compared to 4.6% in 2013.

That concludes my review of our operating results in the fourth quarter and full year 2014. Let me turn the call back over to Chris Connor, who will make some general comments and highlight our expectations for 2015.

Thanks, John.

It is a pleasure to add a few comments to the strong numbers John just walked you through, more than $11 billion in sales, an increase of almost $1 billion, consolidated gross margin above 46% for the first time ever, profit before tax that eclipsed $1.25 billion, and EBITDA north of $1.5 billion. All that led to earnings per share up 21% in the year.

As John mentioned in his opening remarks, we also measure our success in 2014 on how well the Company is positioned going into this year. We made great progress during the year on the integration of the US and Canadian Comex stores, the largest paint stores acquisition in our history. We stabilized the sales volumes in these stores, and significantly improved product assortment and product availability, all of which will result in a positive contribution to paint stores group operating profit in 2015.

During the year, we also realigned our paint stores group and Latin American coatings group under a unified management team led by Jay Davisson. This move will enable us to share expertise between the two business units, and better leverage our operating, technical and supply chain resources which will benefit both organizations in the long run.

In December, we announced our first ever architectural paint program in Lowe's stores nationwide under the HGTV HOME by Sherman Williams brand. We are excited about this program which will begin shipping in early spring, just in time for the start of the painting season.

In 2014 we generated more than $1 billion in net operating cash for the second consecutive year, thanks in part to the terrific working capital management by all of our operating segments. In spite of a fourth quarter inventory build to support the HGTV HOME roll-out at Lowe's, our working capital ratio dropped to 10.1% of sales from 10.5% last year. This improvement is further evidence of the progress our paint stores group and the global supply chain teams have made in integrating the Comex acquisition.

We used in this cash from operations, along with the excess cash on our balance sheet at the start of the year to fund capital expenditures, expand our control distribution, raise our dividend, and buy back shares for treasury. Our capital expenditures in 2014 totaled $207.9 million. Depreciation for the year was $169.1 million, and amortization was $29.9 million.

In 2015, we anticipate capital expenditures of approximately $240 million, depreciation of $170 million to $175 million, and amortization of about $30 million. Capital spending was higher than normal in 2014, and will be again in 2015 as we complete the conversion of Comex store locations to Sherwin Williams. We expect CapEx to return to more normal levels beginning in 2016.

In December, our paint stores group celebrated the opening of our 4,000th paint store. For the year, we exceeded our initial expectation of opening 80 to 90 new stores, and finished the year with 95 net new locations, and 4,003 total stores in the US, Canada, and the Caribbean. We remain confident that our goal of 5,000 locations in North America is realistic, and we intend to get closer to that goal by 100 to 110 stores this coming year.

During the past year we hired more than 1,400 new college graduates into our management training program to bolster our store staffing, improve our territory coverage, and fill our store management pipeline. Although these investments tend to drive SG&A higher in the back half of the year, new stores and service employees pay for themselves over a very short period of time.

At year-end, our total debt was $1.8 billion, and cash on hand was $41 million, compared to a cash balance of $745 million at the end of 2013. In 2014 we returned more than $1.7 billion in cash to shareholders through share repurchases and dividends.

In the fourth quarter, we acquired 1.6 million shares of the Company stock for treasury, bringing our full-year total to 6.93 million shares at an average cost of $214.97 per share for a total investment of $1.49 billion. At year-end, we have remaining authorization to acquire another 5.23 million shares.

We paid $215 million in cash to shareholders through quarterly dividends. 2014 marked our 36th consecutive year of increased dividends per share, a string we intend to continue. This year at our February Board meeting, we will recommend approval of an annual dividend of $2.68 per share, an increase of 22% over 2014.

Looking ahead to 2015, the paint and coatings demand in most domestic markets looks encouraging. Residential starts and turnover gained momentum in the fourth quarter, even in the oil patch areas of the South which bodes well for the coming year. Contracts for new nonresidential square footage were up 7% year-over-year in 2014, and the pace of demand growth in segments such as office, hospitality, warehousing and apartment buildings remains strong. Although the rate of growth in manufacturing activities slowed at year-end, December marked the 19th consecutive month of expansion, which should drive continued growth and demand for our industrial coatings.

Outside the United States, it appears likely that sluggish market conditions and currency devaluation in Europe, as well as many Latin American countries will remain a challenge. Our raw material basket has many moving parts, but in total we believe we are likely to see stable to declining input costs for this year. The drop in the price of crude oil, if sustained, will no doubt have a positive impact on the petrochemical side of our raw material basket.

But these commodities will not necessarily move in a linear relationship with crude. High grade chloride TIO2 pricing held steady over the back half of 2014, but soft order volumes and excess inventory suggest pricing should remain stable for the foreseeable future. Based on these factors, we would expect average year-over-year raw material costs, inflation for the paint and coating industry to be down in the low single-digit range in 2015.

Our outlook for the first quarter 2015 is for consolidated net sales to increase in the mid single-digits percentage range, compared to last year's first quarter. With sales at that level, we estimate diluted net income per common share in the first quarter will be in the range of $1.30 to $1.45 per share, compared to $1.14 per share earned in the first quarter of 2014. Embedded in this guidance is our expectation that we will incur some one-time expenses related to the roll-out of the HGTV HOME program at Lowe's stores.

For the full year 2015, we expect net sales will increase in the high single-digit percentage range compared to full year 2014. With annual sales at that level, we estimate diluted net income per common share for 2015 will be in the range of $10.90 to $11.10 per share, compared to $8.78 in 2014.

Again, we would like to thank you for joining us this morning, and now we would be happy to take your questions.

(Operator Instructions)

Ghansham Panjabi, Robert W Baird

First off, on your sales guidance for 2015 calling for a high single-digit increase, comparisons in the paint stores group get quite a bit more difficult as the year progresses. And then I think you have some headwinds from FX also. So first off, can you maybe parse out the various end-market drivers that will get you towards the sales growth level, starting with maybe your expectation for what [gallons] growth will be in the US for 2015?

Yes, Ghansham, it is Bob. As we have often said to hit our guidance range for the full year at high single-digits, paint stores group would have to be at or about that level, and that is certainly our expectation. We believe that, that will outpace gallon growth in the domestic market by again probably close to a factor of 2 times.

We would expect low to mid single-digit growth in the market, probably at slightly above the rate of growth in 2014, which we estimate to be more in like the 3.5% range. So it should pick up. Also embedded in the consolidated sales guidance is the impact from Lowe's which we have said would be low single-digit lift on consolidated sales.

In terms of the guidance increase of versus your mid-December update, I guess, is that primarily due to the low raw material costs that you are now forecasting?

Good afternoon, this is Sean Hennessy. How are you doing? I would say that the raw materials when you looked at the $10.75 end point to $11 mid point, it was mostly driven by raw materials. There was, we also had a little more foreign currency, and the sales went from [7%] to [11%] to high single-digits, so you have a little more effect on the foreign currency. But there were raws, and there were other factors, but raws were a major part.

[Arun Viswanathan], RBC.

So I guess, maybe can you give us an update on what you are hearing from your customers so far? I know it is still early in the year, but on the backlog side, contractors, as well as maybe non-paint items within the stores?

I would say that our customers are feeling pretty good about their future. Many of them are looking at bookings that they have said they have not seen in quite some time. And I would say quarter after quarter here recently, it seems as though they are becoming more and more bullish. So I think it is looking very well through the lens of our customers (multiple speakers).

As far as the non-paint sales, those are performing very well. We are seeing strong performance in our sundries and our spray equipment sales.

And any --? (Multiple speakers).

We use that gauge of the spray equipment sales as a bit of an indicator for us, as the confidence of the contractor. So those bode well for us.

Okay. So you have seen some building backlogs there. And then, is there any kind of difference between trends that you are seeing in res versus non-res especially in the US? Thanks.

In terms of the macro data that we are looking at, we are seeing non-res actually outpace res in starts for 2014. Going forward, we think that the housing activity should pick up, we will see solid growth out of both of those segments. It's a little early to tell which one is going to grow better in 2015, but we would expect solid growth from both of them.

Vincent Andrews, Morgan Stanley.

Could you talk a little bit about your store concentration in some of the areas or states, that from a real estate perspective might face some difficulties with the reduction in oil prices?

Our store concentration we have shared that density map with the investment community. I think it is up on the website, you can pull it down and take a look at it. Obviously, you will see Texas is a strong state for us, as is Oklahoma. Those are two markets where oil matters.

I think in our comments we made the notion that even in the oil rich states we are seeing good demand for our products. The residential repaint activities which are still not running at normalized level, we think will continue to carry through even though there might be a little softness in some of these oil numbers. But as Bob has commented it is a little bit early to see the full impact of that. But we are not expecting or anticipating any fall off on the kind guidance we are giving for those reasons.

Okay. Just as a follow up, year over year with the winter we had last year versus what we had this year, is there anything we should be thinking about in terms of comparisons? Not knowing what the weather's going to be for the next several months, but is there anything we need to be thinking about there?

Well, if you are living in New York or Boston today, you need to be thinking about a snow shovel I would imagine, and pretty ugly in Cleveland right now so (laughter). Our comment on winter has been pretty consistent for the last several decades is, there are going to be pockets in our country that are going to have really ugly stretches here.

We will have stores that will be closed. We will have customers that aren't able to get out and do the amount of work that they planned to do, but that is just embedded in the fourth quarter and our expectations. We're blessed with an industry which really catches up well in the second and third quarter. So we are not giving any kind of indication that winter weather will ever have an impact here.

Jeff Zekauskas, JPMorgan Chase.

When you look across your customer base, which parts of your customer base are more aggressive about trying to capture some of the falling raw materials, and which parts of your customer base are less aggressive about trying to capture those lower values?

Yes, so I think it's fair to say, Jeff, that all of our customers are smart business people. They pay close attention. In the case of the professional painting contractors, their focus has primarily been on ensuring that they have enough labor to complete the strong demand that they have for their products right now. So we are holding pricing this year.

We have made that announcement earlier that we were not raising prices. That activity has been well received by them. And we don't expect, as we have in the past, that these raw material fall backs occasionally like we're seeing right now will impact our selling prices at all.

What about in the consumer segment? Are the attitudes or are the attitudes of the retailers much different than the attitudes of the paint contractors?

We don't comment on any one specific customer in that segment as you know Jeff. We would just say the same thing. They are paying close attention. They want outstanding products and outstanding service at a fair value, and we are working hard to provide that every day.

[PJ Juvekar], Citigroup.

It is Dan Jester on for PJ. So if I remember correctly, typically your store openings have been back-end loaded throughout the year. But I think in early 2014 you had stated that you were going to try to maybe make it a little bit more even throughout the year, but in the end it was still a little back-end loaded. So as we think about this 100 to 110 new stores this year, is it still going to be back-end loaded in 2015? Or any chance that it is going to be a little bit more even throughout the year?

No, Dan, I wish you could see the smile on my face. We try to level load those every year, we push hard to do that, and we will be pushing again this year to do that. We have got a terrific real estate team and a good market out there. We are working hard to spread those out a little more evenly, but we will get them in as best as we can, in the right locations at a great price.

Okay, great. And on foreign exchange and Latin America specifically, it still looks like foreign exchange is going to be a big headwind going into the first half of 2015. So is there anything you can do to accelerate improvement in that business, or is that something we just have to wait out until currency moves in a better direction?

I think that when it comes to improving our cash flows and doing hedges, we can do that on the balance sheet side, and the cash flow side. But on the sales side, there is nowhere to run. When you start to see Mexico right now when it is [MXN14], [MXN14.5] times. And then last year, we were in about the [MXN12.60], there is really nothing, nowhere you can hide when it comes to sales.

But we are doing everything we can to mitigate the cash flow. But operationally, we continue to work on that. And I think when you see more of a flattening of the foreign currency, that you're going to be able to see the improvements there.

Duffy Fischer, Barclays.

Good afternoon, fellows, and congrats on the 4,000 number. That is a pretty neat benchmark to hit.

Thanks, Duffy.

A question around each of your architectural competitors here in the US, so Masco, Valspar, PPG have all had a fairly sizable announcement around contractor business through one of the big boxes in, call it, the last 18 months or so, which seems to be a bigger push that we have seen historically. Do you see any difference in the way they are approaching that market where they may have more success, than efforts like that have had in the past? Or is there a splintering of that contractor subsegment that may make them more likely to use the big boxes going forward?

Duffy, we have seen a number of initiatives over the years, and quite frankly, our focus is on really executing our strategy. We love our model. We love the relationships that we have, and we are continuing to build on what we believe are the right things. And most importantly, is just understanding that customer, and building a relationship and the products and services that they need, having the right people, the best people in the industry that are partners with those people.

So I am respectful of all of our competitors. I think they keep us honest. We're blessed to have good competitors, but we've got a lot of confidence in what we are doing, and we're going to continue to do it, and try to get better every day.

Great. And then, just two questions about the international market. One, with what happened in Mexico with Comex, has your existing business down there suffered at all from any of the [maturations] that happened did around that, number one? And then two, just with where currencies have gone, would purchasing foreign assets be more attractive today, than maybe it was a year ago it was for you guys?

So Duffy on the Latin American business, we made the comment that in local currency we actually generated sales gains both in the quarter and for the year. I think that the relative softness in that, while they were positive, they weren't robust really speaks more to the broader economic environment in the big economies of Brazil, Mexico, Argentina and Chile than perhaps many things that were happening in the industry. Those are the issues that we need to get on top of, and address and fix going forward.

So when you ask about the acquisitions, what we do is, we look at it after-tax discount and cash flows. If we get our cash back operationally and it is a good business, we really don't worry about the instantaneous or the current exchange rate. And I will tell you why.

A lot of times when we go into these countries, we don't put our cash in there. We actually, we will borrow on local currency to create a natural hedge. We try to do that as much as possible, and let the operation pay that note off. So we are more interested in what we can do with that business and with the long-term business, not the instantaneous foreign-exchange conversion rate.

Aram Rubinson, Wolfe Research.

Hey, guys. Great results. Thanks for taking my question.

Thanks very much, Aram.

Sure. So I wanted to ask you just on the math around inputs. So we know that your gross margins are 46%, which means your cost of sales are 54%. If 85% of that is raw materials, that is about 45% of the house of revenues, that is raws. I think you said in the past that a 10-point move in oil is about a 1% change in the underlying input.

So if we have got a 40% change in oil, I am getting about 150 basis point accretion to the total, which would be over a $1 in earnings. So just wondering, what I am missing in the math, or where we are reinvesting along the way?

Aram, we mentioned when we cited that 10% versus the slightly less than 1% relationship between crude and our raw material basket that, that was an older analysis. And what we have done is gone back, and not just looked at the input of crude or the impact of crude, but the impact of crude oil derivatives like propylene and ethylene. Propylene and ethylene are really the key inputs for the resin basket, which is about 40% of the raw material basket.

What we have found is that in broad terms, a 10% reduction in propylene would result in about -- I'm sorry, a $0.10 reduction in propylene would result in about a $0.015 decline in the price of a pound of latex, $0.015 to $0.02 decline. The same relationship with a $0.10 decline in ethylene, you have about a $0.01 decline in the price of a pound of latex. So we have updated the guidance. It is not as quite as sensitive to crude oil as it was when we did the last analysis.

We also get some benefit in the alkyd resin basket and in solvents, so which, too, would be roughly -- 10% move in crude, would be a 0.2% move in the raw material basket from those two inputs. The point being, there is a lot of moving parts. It is not just a quite as sensitive as it was when we did the old analysis, largely because we don't use as many petrochemical inputs as we used to.

Aram, when you talk about the dollar, and you look at -- we moved the guidance mid-point from $10.75 to $11, we had raw material goodness in the $10.75. We didn't have zero, and now what we are doing is putting 100% of it to get to $11. The $10.75, so when you look at $8.78 to the mid-point of $11, that is $2.22 over 25%, one of the largest increases we have ever put out here as a company. So we weren't saying that 100% of the raw material goods was taken up from $10.75 to $11. What we said is $10.75 to $11 was driven by the difference of what our view is in raw materials from December 12 until today.

Was that flat to now down low singles, was that the change?

Well, I don't think we're going to get to that detail of going from our guidance on December 12 until today to show you all the puts and takes in each one of the gross margin or SG&A, or even conversion rates, foreign currency.

My follow-up, if it is all right, is in the paint stores group. We try to back out Comex, just to see what the legacy stores were doing. It looks like you guys are kind of pushing about 19% segment margins in the core Sherwin-Williams paint stores group. And I just wasn't sure if that trajectory still has some legs to it? Or if you had designs on kind of capping that at some point, any thoughts on that?

No, we really don't have any ideas on capping it, and one of the things about it, what we have said, Aram, is, with the larger the gallon gains, the more flow through we're going to have. So we are in a very good gallon year.

Well, keep up the good work. Thanks, again.

Thank you, Aram.

John McNulty, Credit Suisse.

Looking at the numbers, it looks like Comex was less dilutive. It looks like it was actually break-even in the fourth quarter, and I think your previous guide kind of implied it was about a 10% or excuse me, $0.10 headwind. So I guess, what came out better than expected? Was it just the costs weren't there, or are the assets actually performing better than you thought? And I guess, how should we be thinking about the Comex add as we look to 2015 then?

John, we lost $0.10 in Comex in the fourth quarter. I think the reason you might be looking at it that way is, if you think about the comments that John made about the full year, consumer was relatively flat. I think that you have to take a look at some of that loss was in the consumer group from some of the product lines that they have acquired there. But in total, the Company lost $0.10 a share, right on the forecast.

Okay, fair enough. Thanks. And then, just one last question, on the Lowe's ramp up and the cost around that, do you recoup those or do you catch up on them at any point this year? Or is it more of a 2016 time frame when you get the margins in consumer back to normal?

I would tell you this, that again we're going to have expenses in all four quarters for Lowe's. We are going to have sales, mostly in the last three. We do catch up for the calendar year 2015. It's very slightly accretive, but it's really 2016 is when we feel we'll see the lion's share of that accretion.

Kevin McCarthy, Bank of America Merrill Lynch.

I think you spoke to this partially, but I was wondering if you could perhaps walk us through some of the macro assumptions that you are embedding in your 2015 EPS range of $10.90 to $11.10, in terms of perhaps existing home sales starts, non-res, and maybe most notably FX, where you are marking that?

Yes, Kevin, this is Bob. We didn't really tie our guidance to any particular metric in existing home sales or starts. We start from the standpoint that 75% to 80% of the residential market, paint sold into the residential market is used to repaint existing structures. Only part of that is sold by existing -- is driven by existing home turnover. We do think turnover will be higher in 2015 than it was in 2014.

We certainly saw an upward inflection in existing home sales in the fourth quarter, and we think that bodes well for the coming year. We also saw that in starts, a little stronger new home sales, and starts numbers later in the year. So we feel we have a lot of momentum going into 2015.

Importantly, if you look at the inventories of both new and existing homes, they are at 5.5 and 4.5 months' supply respectively, which are well below where both of those metrics should be. So we have some catch up on the inventory side in new homes. We think that as inventory comes into the market in existing homes, it is going to drive that, drive sales stronger. And then in addition to that, there is the whole nonresidential piece, which we see as picking up as well.

And presumably on the currency, you are just marking at recent days, is that fair?

Yes, I think when you take a look at it, especially the way currency really drove down in the fourth quarter, I think that we do hit -- our forecast is we're going to have a headwind, a significant headwind especially the first three quarters.

And then, a second one, I apologize if I missed this. But did you size the expenses in the quarter in consumer related to the operating cost on HGTV HOME?

No, we did not. Again, we're not going to do a P&L by customer or break anything out to that finite, when it comes to any one single customer.

[Nils Wallin], CLSA.

On SG&A, it grew a little bit more year on year than it has in the past, and just curious if this is a new level to expect? Or do you expect the SG&A growth to moderate in 2015 and 2016?

Right. I think that this year our SG&A was up 3/10%, really driven by Comex stores and the Comex acquisition. We were pretty upfront saying that, that was going to happen as the integration continues to happen. We also did, we've done some work, we have been pretty public about some IT investments that we are making. But going forward, we see a reduction in our SG&A expense as a percent of sales.

Got it. And then, just on LatAm, I am noticing some, this year some closures, and historically Sherwin has, even in downturns, has grown its store base. So curious as to, is this a function of a different view on LatAm macro, or is it right-sizing your asset base? Just why there has been a retrenchment in stores versus the normal Sherwin strategy to grow?

That's not our strategy. I'm not quite sure where you're getting the data closing --

Yes, we did have a couple of closings of some -- down in a few countries such as Brazil. But it was -- it had more to do with just what we are going to do in that local, very local market, not a strategy by the country.

Okay, very regional. Thanks very much.

Bob Koort, Goldman Sachs.

Chris, I think a quick and easy one, because most of the good questions have been taken. But have you guys noticed yet, detected any sense of enhanced or improved consumer buying behavior in light of the [past] relief on fuel costs?

No, we wouldn't see that in the fourth or first quarter, Bob. As you know, those are the slow quarters for the industry. We've seen pretty strong consumer purchasing throughout the year, driven by pent-up demand, better home values, all the other metrics that we have been talking about. When we get into the start of the spring painting season, if oil prices are still here and costs a little less to fill up your car, maybe that will have a little bit of a lift impact as well too. But regardless of that, we are giving guidance that we expect this to be a good year.

And Sean, I think you had said you are getting the expense burden for the HDTV, and most of the revenue benefit rolls in, starting in the second quarter. Do you actually get a sell-through when you place that inventory, or is it only as the retailer books the consumer sale?

(Inaudible) right, I mean, when they have a sale, and they reorder, then we definitely have a sale.

We book the sale and we ship to Lowe's.

Okay, that is what I thought. Thanks very much.

Dennis McGill, Zelman & Associates.

Sean, I realize you don't want get too specific on this, those load-in costs in the first quarter. But how should we think about the segment margin there, either relative to the fourth quarter or relative to year over year?

I think that you're going to see our -- in the first quarter, our consumer group margin will be lower. And it will be lower because of the load-in -- the costs that we have. For the full year, we think it is going to be as I said, you are going to see very little effect of the Lowe's business being depressive on the margin for the consumer group.

When you say lower, Sean, you are saying sequentially lower or year-over-year lower?

Year over year. I'm sorry.

Okay. And then, Chris it seems like other than maybe some of the international uncertainty in currency, the domestic market you feel pretty good about it. Is there anything domestically that on the margin you are -- you see as a higher risk for the [business], or something that you are keeping a particularly close eye on?

I think Bob has taken you through a couple of the important end-market data points we look at. We have talked on this call, Dennis, for number of years about the lagging in commercial or institutional construction market, which looks better to us heading into this year than it has for the last seven years. We have commented on residential, and no one knows that better than you, of what that potential will look like, and the existing home maintenance schedules look strong as well.

Finally just piggybacking on John's earlier comments about the anecdotal conversations we are having with our painters, who have got this book of business as strong as they have had in a while. So from a domestic architectural platform, 2015 should be a good year.

Okay. Always helpful. Thank you.

Dmitry Silversteyn, Longbow Research.

Just one quick bookkeeping question, what is the tax rate guidance for 2015 as far as on the P&L, not -- the effective tax rate, not the cash tax.

Right, the effective tax rate should be in that low 30%s. We had a pretty good, the last two years, and that's why in John's comments, he told you what the tax rate was, it was in the 32%s without the Comex acquisition, and we are going to be in that ballpark.

Okay. So about 32% or 33% something like that. You talked a little bit about Latin America and how you are viewing things there. Can you talk, I know Europe is not a big market for you yet, but I'm sure it is something that you look at carefully, both from an M&A perspective as well as growth of the businesses that you do acquire over time.

We have heard some companies talk about second half of the year maybe being a little bit stronger on lower gas pricing, and more money in the pocket of consumer so to speak. And maybe a little bit more competitive industrial economy, given the deflation in both the currency and the crude oil. So what is your view of the businesses, particularly on the industrial side of the coatings business where you [have] in Europe on that region for 2015?

Hey, Dmitry, as you know our exposure to Europe is almost entirely industrial coatings, and weighted towards industrial wood-finish coatings. A lot of those customers are manufacturing products that then get exported out of that region as well too. So we have commented historically about our low share position, despite some rougher economic environments we expect to make progress given that position.

We have got good technology, and a good team on the ground. We've worked hard to solidify and improve our operations. You have seen that in the global group margins. Coming up, a lot of that has been worked on in Europe, and our expectations are that we will have a positive growing year in Europe as well.

Okay. One of the segments that has been depressed for a long period of time really since the 2008, 2009 recession, and showed some signs of coming out in 2014, and I was just wondering what your outlook on that would be for 2015, was the marine and protective business.

There was a couple of companies with exposure to it, in the group of companies that I cover that look to be sounding a little more bullish about marine and protective especially. You have grown through this downturn with your business. How do you view it going into 2015?

I'd say it's going to be choppy, which is appropriate for a marine response I suppose. But as we look forward, we play a niche market, play in the niche market there. We carve out our space. And again, just as we have described in other markets where our market share overall is lower, we have got plenty of opportunity to grow regardless of the markets. So I think overall there is going to be some ups and downs there, but we feel as though there is still opportunity for us to grow.

Greg Melich, Evercore.

I have a couple follow-up questions. Looking at the paint stores group, you mentioned I think volume for the industry, you thought was up [3.5%], and you were [2 times] for the year. How did the fourth quarter play out in terms of volume versus mix in price?

It was pretty, I would say, it was very comparable to that. We saw the numbers -- we are starting to see the Comex stores come into the comp stores in the fourth quarter, and you're seeing that. That was a little depressive. But in total we still, we sit there and feel that we were probably still growing twice the market in the fourth quarter.

Is it fair then to say that there was 1 point or 2 of mix and price as well in that [7.5%]?

Yes.

Perfect. And then the second, and it's a little bit of a housekeeping one. When you have the $0.16 share charge, or does that include -- is that the net effect including the titanium dioxide settlement, or is that different than the $0.16?

(Multiple speakers) it was $0.22 for the titanium dioxide -- or I'm sorry, pardon me (multiple speakers). I am trying to remember where that -- we had the titanium dioxide, which was $21 million, we had to [net that for taxes], so that is where the $0.16 comes from.

Got it. And then lastly, at the risk of going back to this one more time, so I make sure I heard it clearly. The start-up costs for the HGTV, Lowe's program was basically the only reason for the consumer margin decline in the fourth quarter, and it sounds like you expect a similar pressure in the first quarter.

Yes.

Okay. That's perfect. Thanks, guys. Good luck.

Chuck Cerankosky, Northcoast Research.

Good afternoon, everyone, and great year. Could you, Sean, just repeat to start off with the 2015 CapEx number? I missed that before when you were giving us those numbers.

Yes, in the $240 million, and again that's really being driven by the refurbishment of the Comex stores.

Okay, great. And my next question is about Comex. Sean, how do you expect their contribution in 2015 to phase into the quarterly earnings space? So they lost some money in the fourth quarter, are they suddenly profitable in the first, or how do you see that shaping up?

When we look at it, we talk about the $0.10 a share. I would say that we're looking at in the first and fourth quarter we will be slightly negative, and in the second and third quarter, we are going to make probably [$0.10]-plus in those two quarters. And I would say it is about even between the second and third quarter.

John Roberts, UBS.

When I look at the Brazilian real last year, it actually rallied in the late spring and into the summer. Is the most difficult currency comp going to be in the second quarter? The fourth quarter was $0.09, are we looking at materially above $0.09 when we get into the second quarter this year?

Right. When you were talking about the Brazilian real, if you look at it, it was in the [BRL2.20], [BRL2.23] to $1, that is really going to be the biggest hurdle for us in the year 2015. In the first quarter it was closer to the [BRL2.40], so the [BRL2.65] versus BRL2.40. If it stays at [BRL2.65] it is [BRL2.65] versus that [BRL2.22], [BRL2.23] in the second quarter last year.

The earlier question about low gasoline prices potentially stimulating consumer demand. I mean, the outdoor market is what seasonally picks up later in the year which would be much less consumer that's there. The consumer market would be mostly indoor, and I would think you would see some signs of that here during the winter as well, if that was going to happen?

Yes, that is accurate that the indoor market is -- or the interior paint market is more of a 12 month than the exterior one for sure. But if you look at our traditional sales bell curve, we are going to see even in pick up in interior gallons in the second and third quarter. I think the reality is that we are having terrific gallon performance this year through those stores. So is the reaction because oil prices are lower, or because people have more confidence, home values are up, or it is just time to be paint? We are not smart enough to put our finger on exactly what it is. We are just out there working hard to get everyone of those incremental gallons we can.

Good answer. Thank you.

Eric Bosshard, Cleveland Research Company.

One question on Comex, could you remind us of the earnings impact of that business in 2014, and then 2015 and 2016? And you did [great on earnings or] a margin basis, but curious as to where that is pacing? You also seemed to indicate that it is still comping below the core. I am curious on your expectation on how that would work its way through the system, and what your outlook is for that?

Eric, we lost $0.02 in the third quarter 2013. We lost $0.11 in the fourth quarter 2013. So we lost $0.13 in the calendar year 2013.

This year we lost $0.28, $0.10 of which was in the fourth quarter, so we lost $0.18 in the first three quarters. So really when you look at the $0.11 in the fourth quarter of 2013, $0.10 this year was relatively flat. We have said that we are going to make $0.10.

Now we have annualized this acquisition, and that's pretty much the amount of color that we are really going to give. I think as it becomes a higher degree of integration, it's harder to actually pinpoint the exact numbers. But to give you any more color around sales going forward in 2016 or 2017, we are just not going to be able to do it.

I think, Eric, as you know our strategy moving forward as they become a Sherwin-Williams store, those products are going to be available. Those customers are using those accounts already in different stores, so our strategy is to make that more of a customer-efficient store. And that means more Sherwin products available in any of the stores including those that acquired through Comex.

And that is helpful. I think the vision, or in the past the thinking was that it would get to a comparable margin. As the stores grew in the upper teens margin, it felt like that was a 2016 event. Is that still the way we should think about it, or and I understand it is now consolidated within the business, but how should we think about where the margin is going?

Yes, I think that is a very good way to think about it. By 2016, these stores will have been in our family now for 2.5, 3 years, and that is when they are running at a core level.

Christopher Parella, Bloomberg Intelligence.

How many of the Comex stores are left to refurbish at this point, and how should I think about run rate CapEx next year?

Yes, we have about -- of the 306 we acquired, we have 294 still. That looks like a good number going forward. We had about a third of them converted this year, so just shy of 200 yet to go.

All right, thank you. What should CapEx be when it returns to normal, I guess as a percent of sales in 2016?

I think we have always run this Company around 1.5%. I think that 1.5% to 2% is probably a pretty good long-term number.

Richard O'Reilly, Revere Associates.

Talking about the consumer savings from lower fuel costs, would any of that show up in the finishes group? I am thinking, wood treatment, cabinets, home appliances, would you see any of that?

Sure, if we were able to have the laser vision to see through the consumer's incentive for purchasing, if they felt a little more confident to make furniture purchases to your point, floor covering purchases, expansions to their property, all of those things would have an impact on the coatings demand.

Okay. And second thing, I guess I am confused about the Comex, because my press release says that it lost $0.18 a share in 2014, and I guess, I am confused.

Yes. That was the first three quarters, and I think in the press release, I remember is the $0.18 also. I think that was an incremental $0.18. So when you were looking at that $0.28 versus last year, I guess because the share count changes, I gave Eric the number of [2] plus [11], that was at one share count number, and this year it was the $0.28 at a different share count. So the difference was $0.18 one year over the other.

Okay, fine. So $0.28 versus [2013]. Okay, but the press release uses an $0.18 number for the full year.

Right.

Thank you. We have no further questions at this time. I would like to hand the call back over to Bob Wells for closing remarks.

Thank you again, Roya. I would like to wrap up today by asking you to save the date of Thursday, May 28 on your calendars. That is the day we will host our annual financial community presentation this year at the [Langham] Hotel in Boston.

The program will consist of our customary morning presentations with questions and answers, followed by a reception and lunch. Again that date is Thursday, May 28, and we will be sending invitations and related information and a link to our registration site in late March. So please watch your email.

As usual, I will be available for the remainder of today and tomorrow to answer any follow-up questions. Thanks again for joining us today, and thank you for your continued interest in Sherwin-Williams.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.