宣偉 (SHW) 2016 Q3 法說會逐字稿

Good morning. Thank you for joining The Sherwin-Williams Company's review of third-quarter results for 2016. With us on today's call are John Morikis, President and CEO; Sean Hennessey, CFO; Al Mistysyn, Senior Vice President, Corporate Controller; and Bob Wells, Senior Vice President, Corporate Communications.

(Operator Instructions)

An archived replay of this webcast will be available at Sherwin.com beginning approximately two hours after this conference call concludes and will be available until Monday, November 14 at 5:00 PM Eastern Time. 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 statement speaks only as of the date on which 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 the Company's earnings.

(Operator Instructions)

I will now turn the call over to Bob Wells.

Thanks, Jessie. Good morning, everyone, and thanks for joining us. In the interest of time, we have provided some balance sheet items and other selected financial information on our website, Sherwin.com, under Investor Relations, October 25 Press Release. I'll begin by highlighting overall Company performance for the third-quarter 2016, compared to third-quarter 2015, then comment on each reportable segment.

Consolidated net sales increased $127.2 million, or 4%, to $3.28 billion, driven by higher paint sales volume in our Paint Stores Group and the impact of a change in revenue classification related to third-party service revenue and related costs. The change in revenue classification increased sales 2.3% in the quarter. Unfavorable currency translation decreased consolidated net sales by 0.8% in the quarter.

Consolidated gross profit dollars increased $61.7 million, or 3.9%, in the quarter to $1.64 billion, compared to $1.57 billion last year. Consolidated gross margin was 49.9% of sales, flat compared to the third quarter last year. Selling, general and administrative expenses for the quarter increased $64.5 million, or 6.5%, to $1.06 billion. As a percent of sales, SG&A increased to 32.3% in the third quarter this year, up 80 basis points from last year. A portion of this increase was acquisition-related expenses.

Interest expense increased $27.1 million compared to third quarter last year, to $44.1 million. The vast majority of this increase was acquisition-related interest expense. Consolidated profit before taxes in the quarter decreased $15.1 million, or down 2.7%, to $535.6 million, due primarily to acquisition-related expenses.

Unfavorable currency translation reduced profit before tax in the quarter by $4.6 million, compared to third quarter last year. Consolidated net income increased $12.2 million, or 3.3%, to $386.7 million. Net income as a percent of sales was 11.8%, compared to 11.9% in the third quarter last year. Our effective tax rate in the third quarter was 27.8%; a comparable effective tax rate to 2015 would be 30.5%. For full-year 2016, we expect our effective tax rate to be in the low 30%s, excluding the impact of the accounting change.

Diluted net income per common share for the quarter increased 2.8%, to $4.08 per share, from $3.97 per share in 2015. The $4.08 includes $0.09 accretion from the change in accounting standard and $0.24 dilution from acquisition-related expenses. Unfavorable currency translation rate changes decreased earnings per share by $0.03 in the quarter.

Looking at our results by operating segment, sales for our Paint Stores Group in the third quarter 2016 increased $140.6 million, or 6.7%, to $2.23 billion, from $2.09 billion last year. Comparable store sales -- that is, sales by stores open more than 12 calendar months -- excluding the change in revenue classification, increased 2.1%. Paint Stores Group's sales increase was due to higher architectural paint sales volume across most end-market segments and the impact of the change in revenue classification. Price mix had a negligible impact on sales in the quarter and protective and marine coatings sales were a significant drag on revenue growth.

Regionally in the third quarter, our Canadian Division led all divisions, followed by Southeastern Division, Southwestern Division, Midwest, and Eastern Division. Sales and volumes were positive in every division. Segment profit for the Group increased $10.9 million, or 2.1%, to $518.3 million in the quarter as higher architectural paint and equipment sales volumes were partially offset by higher SG&A spending. Segment operating margin decreased 100 basis points, to 23.3% of sales from 24.3% in the third quarter last year.

For our Latin America Coatings Group, third-quarter net sales stated in US dollars was $156.6 million, up $618,000 due primarily to higher year-over-year selling prices that were partially offset by unfavorable foreign currency translation and volume declines. Currency translation rate changes decreased sales in US dollars by $12.8 million, or 8.2%, in the quarter. Segment profit in the third quarter, stated in US dollars, decreased $1.2 million, or 54.6%, to $1 million from $2.1 million in the same period last year.

The negative impact from higher raw material costs and unfavorable currency translation was only partially offset by increased selling prices. Currency translation decreased segment profit $3.6 million in the quarter, compared to the same period last year. As a percent of net sales, segment profit decreased to 60 basis points in the quarter, compared to 1.4% in the third quarter of 2015.

For our Consumer Group, sales decreased $8.7 million, or 2.1%, to $412.9 million from $421.6 million last year, primarily due to unfavorable foreign currency translation and declining sales to certain retail accounts, commercial customers, and in our European business. Unfavorable currency translation decreased net sales for the segment by $5 million, or 1.2%.

Segment profit for the Consumer Group increased $3.8 million, or 4.3%, to $92 million from $88.3 million last year, due to improved operating efficiencies and good SG&A expense control. Segment profit as a percent of external sales increased to 22.3% from 20.9% in the same period last year.

For our Global Finishes Group, sales in US dollars decreased $5.4 million, or 1.1%, to $480.7 million in the quarter, as unfavorable currency translation was partially offset by positive price mix. Unfavorable currency translation decreased net sales for the segment by $7.1 million, or 1.5%, in the quarter. Segment profit, in US dollars, increased $8 million, or 14.6%, in the quarter to $63.2 million from $55.1 million last year, due primarily to good SG&A expense control. Unfavorable currency translation decreased segment profit $0.5 million in the quarter. As a percent to net external sales, Global Finishes Group segment profit increased to 13.1% from 11.3% in the quarter compared to last year.

That concludes my recap of our results for the quarter, so I will turn the call over to John Morikis, who will make some general comments and highlight our expectations for fourth quarter and full year. John?

Thank you, Bob. Good morning, everyone. Thanks for joining us. Our results for the third quarter include a number of unusual items that affect our revenues, expenses, and tax rate. If you back out the impact of these items, our results on a comparable year-over-year basis showed modest improvement.

Consolidated sales increased 1.7%, to $3.2 billion. Consolidated gross margin was 50.9%, an increase of 100 basis points compared to the third quarter last year. Operating profit improved 1.9%, to $591.8 million. Profit before tax grew 3.9%, to $572.4 million, a 30-basis-point increase as a percent of sales. Net income increased 6.2%, to $397.9 million. And earnings per share increased 6.5%, to $4.23 per share.

These results are consistent with the GAAP guidance ranges we provided for both revenue and earnings, but they fell short of what we envisioned at the start of the quarter. Revenue growth at the lower end of our low-to-mid single-digit range was disappointing. And the ongoing investments we are making in new stores, sales territories, retail merchandising, advertising, training, and store service weighed heavily on earnings, particularly in light of the slow revenue growth.

Our sales trend by quarter, so far this year, is similar to last year, with growth decelerating each quarter as we go through the year. At this point, it is unclear whether the mid-year slowdown in sales over the past two years is a result of labor constraints in the construction trades or an indication that the housing cycle is slowing, which is contrary to what most of the data would suggest, or something else entirely. Whatever the reason for the slowdown, our response is the same. We will continue to make prudent investments in the things that drive our long-term growth and profitability.

Architectural paint sales through our Paint Stores Group once again significantly outpaced revenue growth for the segment as a whole. High single-digit growth in the new residential and residential repaint contractor business was partially offset by a modest-but-unexpected year-over-year decline in DIY sales. Sales to commercial and healthcare customers also generated solid, year-over-year growth, while the Property Management segment showed modest gains.

The outlook for continued growth in residential markets over the balance of the year and into 2017 remains positive, supported by very healthy order book trends, reported by most of our contractor customers. On the other hand, the revenue headwind from our protected and marine business in paint stores worsened sequentially in the third quarter.

During the first nine months of the year Paint Stores Group opened 69 new stores and closed 14 redundant locations, completing our consolidation of redundant store locations acquired from Comex. Our plan for the year still calls for the store openings in a range of 90 to 100 net new locations. Today, our store count in the US, Canada, and the Caribbean stands at 4,141, compared to 4,048 a year ago.

Finally, the upward inflection in input costs and operating expenses that we have seen in the recent months, including raw materials, wages and benefits, rent expense, and more, warrant a price increase by our Paint Stores Group. Effective December 1, 2016, our Paint Stores Group will be implementing a price increase in the 4% to 5% range across most product lines.

We also anticipated a stronger sales performance from our Consumer Group coming into the third quarter. We saw widespread weakness across our commercial, industrial, and MRO customers. Our Ronseal brand business in Europe also had a soft quarter. Despite the weaker-than-expected sales results, the Consumer Group continued to show good progress on margins in the quarter.

Our Global Finishes Group did a commendable job of managing both gross margin and SG&A in the quarter, resulting in a 180-basis-point operating margin improvement on modest sales decline. We continue to see positive demand momentum in some of our industrial coatings businesses, primarily in Europe and in Asia.

Finally, our Latin American Coatings Group reported positive revenue growth in the quarter for the first time in 12 quarters. Despite this improvement in revenue and volume momentum, margin pressure from raw materials and higher SG&A spending continued to challenge our profitability throughout the region.

Third quarter was a strong quarter for cash generation. Net operating cash in the first nine months was $966.5 million, up about $64 million over last year, with third quarter accounting for about $456 million of the total. We are on pace again this year to generate net operating cash at a rate above 10% of net sales. We are at 10.7% year to date, despite higher working capital.

Nine-month working capital ticked up slightly, to 11.5% of sales from 11.1% last year. Free cash flow, which is net operating cash less CapEx and dividends, was $560 million, compared to $557 million last year. Our capital expenditures year to date totaled $173.1 million. Depreciation was $128.3 million and amortization was $20.2 million.

In 2016, we anticipate capital expenditures of approximately $240 million, depreciation of $170 million to $180 million, and amortization of about $30 million. Capital spending will run higher than normal in 2016 as we complete some facility renovations projects. During the quarter, we made no open market purchases of our common stock for treasury. On September 30, we had remaining Board authorization to acquire 11.65 million shares.

As indicated when we announced the Valspar acquisition, we intend to build cash on our balance sheet over the course of the year to reduce total borrowings required to close the deal, which will eliminate our share repurchase activity in 2016. As a result, our cash balance at the close of the third-quarter 2016, was $702.6 million, compared to $91 million on September 30, 2015. Last week, our Board of Directors approved a quarterly dividend of $0.84 per share, up 25%, from $0.67 last year.

The outlook for Paint Stores Group over the balance of the year remains positive and we expect to see steady improvement from Consumer Group and Global Finishes Group. These positives will be offset to some degree by continued weakness in Latin America. Over the balance of the year, the input cost tailwinds are likely to turn to headwinds and the slower pace of sales growth is unlikely to fully offset our investment in new stores, territories, and retail programs already in place.

For the quarter, we anticipate our core consolidated net sales will increase a low single-digit percentage compared to last year's fourth quarter. At this anticipated sales level, we estimate diluted net income per common share in the fourth quarter to be in the range of $1.45 to $1.55 per share. Fourth-quarter 2016 earnings per share include costs related to the anticipated acquisition of Valspar, totaling $0.71 per share, and an increase in EPS of approximately $0.03 per share related to the decrease in the income tax provision. Excluding these items, fourth-quarter EPS will be in the range of $2.13 to $2.23 per share, compared to $2.12 per share earned in the fourth quarter of 2015.

For the full-year 2016 we expect core consolidated net sales to increase by a low single-digit percentage compared to full-year 2015. With annual sales at that level, we are updating our guidance for full-year 2016 diluted net income per common share to be in the range of $11.30 to $11.40 per share. Full-year 2016 earnings per share includes costs related to the anticipated acquisition of Valspar, totaling approximately $1.35 per share and an increase in the EPS of approximately $0.40 per share related to the decrease in the income tax provision. Excluding these items, full-year EPS will be in the range of $12.25 to $12.35 per share, a 10% increase at the midpoint of the range over the $11.16 per share earned in 2015.

Before we open the call for questions, I'd like to comment briefly on the other press release we issued this morning. Last week, our Board of Directors elected Al Mistysyn to serve as our next Chief Financial Officer, a position held for the past 15 years by Sean Hennessey. This change will take effect January 1, 2017.

I'd like to close my comments with a few words about my great friend Sean Hennessey. My relationship with Sean spans our 30 years together at Sherwin-Williams. He has always been an excellent advisor, contributor, and importantly, friend. We've traveled around the world together on many occasions and Sean has regularly impressed me in so many ways. So it's no surprise that Sean has once again impressed me with his selfless decision to do what he believes to be right for his family.

Sean's decision to step down from the day-to-day responsibilities as CFO in order to provide more time and flexibility to address family priorities is yet another example of the quality individual we have all grown to respect. We appreciate his willingness to stay on as head of M&A activities and provide support for the Valspar integration planning process and to ensure a smooth transition of CFO responsibilities.

This past year I've spent more time with Sean than any other executive on my team, traveling with many of you to immerse myself in this important aspect of my job and to gain as much information as I could from Sean, knowing this time was coming. While it's never a good time for a high-performing executive like Sean to leave such an important role, the timing of his decision sets us up well for the year ahead.

Al Mistysyn's promotion to CFO is the natural conclusion of a long, careful, and thoughtful development plan to prepare him for this position. Al has been Sean's right-hand man and the architect of many of our financial programs and successes. Al was my choice for this important position. He is a proven, seasoned executive and I'm truly excited to have him on my side as we move forward.

We have assembled a full Valspar integration team that has been hard at it for several months now, with Al actively involved on a daily basis. We're also in the process of building our operating plans and budgets for next year with each of our segment teams, and having Al at my side for these important meetings is crucial to his fast start.

With that, I'd like to thank you for joining us this morning, and now we'll be happy to take your questions.

Thank you.

(Operator Instructions)

Christopher Parkinson, Credit Suisse.

Perfect, thank you very much. Can you guys just add a little more color on the key trends throughout the quarter, both from an end market perspective and geographic perspective? And how that rolled through your PSG same-store sales comp? And then also, if you could comment just very quickly on any margin differential pertaining to the reclassification of revenues? Thank you.

Yes, so initially I would maybe answer it this way. We did see high single-digit growth in our new residential and our residential repaint business. We saw a solid year-over-year increases in our commercial and our health care businesses and modest gains in our property management.

As I mentioned just a moment ago, we did see a modest decline in DIY and our P&M worsened sequentially. So our outlook obviously remains very positive. We see the fundamentals of the business very solid and have great confidence in the investments that we're making that we're going to continue to be able to grow market share. We talked, actually Bob just covered geographically about the growth with Canada leading the market and talked about the different geographies. I think we captured that in the comments just a moment ago.

Yes, Chris, this is Bob. Importantly, we mentioned that the eastern division was down the most and it's likely that was at least some weather impact because they had inclement weather in the quarter.

Hey, Chris, this is Al Mistysyn, I'm going to talk about the revenue re-class and I'll just talk about it broadly then talk about the impact on the operating margin. But we use third-party contractors to complete a variety of things for our customers, previously these immaterial amounts were netted and included in SG&A. We determined these buildings to customers should be grossed up as sales with the payments to contractors included in cost of goods sold for a net immaterial impact on gross profit, while reducing gross margin and operating margin. So no impact on the consolidated dollars but excluding (loss of audio) up slightly.

Perfect. Thank you. And just very quickly, within the big boxes can you just comment on any key trends you saw during the quarter between DIY and DIFM and whether or not there are any major puts or takes [obvious] on your new products, specifically Infinity? Thank you.

Well, we prefer to let our customers talk about the trends within those areas. We do work very hard, work with them to support them. We are proud of that Infinity product, we think it provides a terrific technology for an important customer of ours but we'd prefer to let them comment about their specific results.

Fair enough, thank you.

Thanks, Chris.

Jeff Zekauskas, JPMorgan.

Thanks very much. You suggested that you are going to increase your paint prices to the stores as of January 1, 2017. Is that the limit of your price increases? Or are there other areas where you plan to nominate increases for 2017?

We've made it a practice, Jeff, to talk about our stores pricing. We prefer not to talk about pricing outside of the store's organization.

Okay.

And Jeff, Jeff, this is Sean. You mentioned January 1, I just want to put on your radar it's going to be effective December 1.

That's right.

I'm sorry about that. Is there also a revenue readjustment to come in the fourth quarter from your accounting change? Or is it taken care of in the third quarter?

Yes, Jeff this is Al. We did the adjustment because it's immaterial on a prospective basis so the third quarter only had the third-quarter adjustment. The fourth quarter will have an adjustment and then we'll make a first quarter and second quarter of 2017, so the full year 2017 won't have any impact.

Right. Okay, good. Thank you so much. And the fourth quarter adjustment is of the same magnitude as the third or it's different?

It will be similar.

And in general the revenues are offset by increased cost of goods sold?

Yes.

Okay, good. Thank you.

Thanks, Jeff.

Ghansham Panjabi, Robert W Baird.

Hey, guys, good morning. Sean and Al congrats and Sean, you'll obviously be missed by all of us.

Hey, thank you. Appreciate that.

So, I guess going back to same-store sales for PSG just kind of being erratic over the past few quarters, you're obviously bullish on the outlook. I guess, John, what are customers in particular sharing with you in terms of why growth has been so choppy quarter by quarter?

Your point is a good one. The confidence that we have, we believe is built on the fundamentals of the market and we continue to believe that investing in this business is going to be a key part of our success. The contractors that we've spoken to continue to believe that there are plenty of opportunities ahead.

I mentioned the residential business that we saw growing a nearly double-digit increase in residential repaint over 9%, and speaking to these customers about the constraints that they feel as a result of (loss of audio) the labor has had an impact on their business. We're confident in this model that we have. We're continuing to invest in it and we believe that the investment in our stores, reps, and products are going to continue to allow us to continue to drive that operating margin.

We're going to have a good operating margin improvement. This year, we expect to have a good operating margin and proven. Mixture, we think the fundamentals of the market support the contractor base that we are focused on.

Ghansham, let me throw in that based on our volumes by quarter, it appears to us that the third quarter is the busiest quarter for contractors so if there is labor constraints in the market, it would most likely show up in the third quarter or it would show up more the third quarter than even in the second.

Okay. And then for -- just sticking with PSG and same-store sales if you strip out protective and marine, can you give us a sense as to what the same-store sales would've looked like? And then on P&M, are we, John, sort of at least in your perspective, close to a realistic bottom for this business? Thanks so much.

I'll take the first piece on the bottom of the P&M. We do feel as though that we're nearing bottom. This has been a tough road here with the oil and gas predominantly under a lot of pressure.

We have, as I've mentioned in previous calls, worked to pivot our efforts into accelerating in other segments where we've been focused on for many years, but we expect to be able to accelerate our sales in those areas. The fact is, is that the oil and gas is a big part of our business. It's been an area that we've been focused on for many years and we've had significant success and it's had an impact on our business as it's slowed down. But we're continuing to grow in areas within oil and gas as well as some of these other areas within protective and Marine.

And if you look at the comp stores, I don't have it exactly but it would be in the mid-single digits.

Got it. Thanks for confirming.

Thanks, Ghansham.

Don Carson, Susquehanna Financial.

Bob, a question on the overall market. We've seen lower growth from some other companies who have reported in the architectural space as well. Just wondering, snapback that we're all expecting this year, easy weather comps from last year. Did that not materialize or were there are some volumes that were brought forward in the very strong first quarter you had? Just wondering what comments you would have on the overall market growth?

Don, in John's prepared remarks he talked about the sales trend or the sales trajectory by quarter being similar this year to last year and we think that's a reflection of the market overall. We're seeing that year-over-year growth tends to slow as we go from even second to third quarter sequentially and we are not sure if that's a function of market capacity or -- it doesn't feel to us like it's a change in demand trend. Our customers are still reporting very strong order book volume and so it doesn't feel like third quarter jobs were pulled forward into first and second. It just feels like we're seeing some constraints in the rate at which contractors can get on those jobs.

The overall tone from our customers remains very positive on architectural side.

And to follow up on your guidance reduction, is that driven primarily by volumes? Or how much of a role did raw materials play? Are raw materials now going to be up more than you expected for the industry in 2016? And what's your outlook for 2017?

I'll take the fourth quarter I think it was driven by the volumes. I don't think that the raws are materially different than what we took a look at.

On the raw material side, Don, we think it's likely that the raw materials will swing from a low single-digit tailwind in the third quarter to a low single-digit headwind in the fourth quarter, but we've kind of been guiding to that all long. We've said that the benefit from raw materials will diminish as we go through the year.

The headwind, if there is one in the fourth quarter, will be primarily driven by modest inflation in TI02. We think the TI02 producers got some traction on both their second quarter and third quarter price increases during the year. So -- or during the second and third quarters. So, we haven't put together an outlook for 2017 yet, but fourth-quarter 2016 it's going to be flat -- raw materials are going to be flat to up low single-digits.

Thank you.

Arun Viswanathan, RBC Capital Markets.

Good morning, thank you. Congrats.

Morning, Arun.

Thank you.

I guess I wanted to follow up on the growth question. Over the last several years we've seen paint stores group kind of grow 1.5 to 2 times the market. This quarter it looks like the 2% growth is kind of in line with the market. Is that a fair assessment? Is there anything that changed that led to this kind of performance? And also in Consumer, it looks like the 2% decline is kind of a bit below, you discussed a modest decline in DIY, maybe you can help us understand what drove that?

I think it's a bit early to tell, there's -- the issue with market, I don't think we have enough data right now to know how our growth in the market compared to our competitors. Our third quarter last year showed the same sequential softness as Bob mentioned, before rebounding in the fourth quarter and the first quarter. And as I mentioned, we believe that the growth that we saw in the architectural side and residential repaint and new residential very high, strong performance. The solid year in commercial and healthcare that I mentioned, as well as the modest gains in property management, we still feel as though we're growing share.

And most importantly I would say would be the fundamentals. The position that we have in the marketplace with the contractor continuing to outpace the market and our positioning there and our continued investment there is what gives us the most confidence. These stores that we're adding, the reps that we're adding, the new products that we're adding as well as our core locations we believe will allow us to continue to grow share.

When you ask about the Consumer Group, again, our Consumer Group this quarter was negatively affected by the European businesses as well as some of the commercial, industrial, and MRO that are also embedded in there. If you look at the North American architectural business we were pleased with those result.

If you back out the European business, our North American business was positive.

Okay, that's helpful. And just as a quick follow-up on the price in raw material side, usually you take pricing, I guess, in the beginning of the year. Is there a reason you kind of pulled that forward? You discuss the low single-digit headwind, but presumably if you're announcing it December 1, you won't see that in Q4? So is it safe to assume that will start flowing through in Q1, or what's the cadence on realizing that pricing?

I think it speaks to what we've spoken about frequently which is when we know we typically go, and the fact is that the last price increase as you know that we took was in the first quarter of 2014. Many of our operating expense categories have risen since then, our wage and benefits, our store rent, and presumably as Bob just mentioned, we're going to see some raw material increases; and so we knew it was time for a price increase and we decided to go ahead and move on it.

Right. Thank you.

Vincent Andrews, Morgan Stanley.

Thanks and good afternoon and good morning. Within Paint Stores Group, obviously the results were below your expectations and you outlined the different sub segments of it but it wasn't clear which one came in below your expectations? You talked about high single-digit residential doesn't seem like it would be that. So was it DIY, was it the healthcare, Protective and Marine? What went wrong?

Well, I think obviously our DIY with a modest decline was clearly below our expectation. Our Protective and Marine, we still have high expectations for this team. We recognize that a big percentage of the business has grown in this oil and gas, but we are focused on a number of these other segments and we have been involved in these other areas and our expectations for all our teams are to continue to improve. I would tell you that even our residential repaint up nearly double-digits, our expectations are that we want to grow faster. Clearly some of those underperformed to a little greater degree in the DIY and P&M, Protective and Marine that I mentioned. But it's safe to say that our expectations are we want to go faster and every one of those segments.

Okay and then a follow-up, internally if you guys assess the weather impact on any given quarter, do you have any particular means by which you do that? I think about a hurricane going up the Gulf Coast, sorry, up the East Coast in September and we had another one in October for the fourth quarter. How do you guys think about assessing the impact of lost painting days or even July 4, moved a day during this quarter from a Saturday to a Monday? What is the impact of that type of stuff and is it worth thinking about in advance to the extent that we know about it?

We don't like to talk about it, to be truthful with you. Our discussion internally, as you mentioned, is that we've got shareholders with high expectations and we've got to find a way over the hill. Yes, we had closed stores in areas that were affected, but we're not leaning on that. We have a determined effort on this side of the call to continue to drive and improve and it's quite frankly something that we don't want to point to. We know it was there, we have high expectations of ourselves.

I appreciate that, I'm not looking for excuses, I just want the explanation and it might be helpful going forward just to understand the change in the results, particularly as they get more lumpy. But I will pass it on. Thanks very much.

Thank you, Vincent.

Duffy Fischer, Barclays.

Good morning, fellas.

Morning, Duffy.

Question, just as you think through the incremental margins, sales were down in both Consumer Group and Global Finishes but yet income was up, so what was happening there that you were able to drive better income results than revenue results?

You know, Duffy, this is Sean, it really goes back to the lumpiness, the question that we asked earlier, I think as John said, when you look at the year-to-date I think that just the way different sales and SG&A comes in, in these different areas. So I think when you take a look at the full year in Global Finishes back in 2014, the operating margin was 9.7%, last year it was 10.5%. This year, through the first nine months it's 12.3%. So we look at it more that way.

And I'd add this to it, Duffy. That organization, that team is doing a terrific job as well, I think, at looking at opportunities, back office expenses where we can take some synergies through the organization. They've also got a strong focus on customers and positive mix of product. We knew that this was going to be a challenging year for them and they went into it with the right frame of mind. We had to show improvement and we had to pull a number of different levers to be able to get there. And they are working hard to do just that.

Then on Consumer Group, a similar trend. If you look at 2014 operating margin, at 17.8%, going to 19.6% last year, and up 40 basis points year-to-date, they are doing a nice job of controlling SG&A and getting operating efficiencies with the volumes that we're generating through Paint Stores Group.

Okay. And on oil and gas, when was the peak of your oil and gas sales and what's the magnitude of the headwind you faced revenue-wise since that peak?

I don't know the exact timing of --

I think it strongly correlates to the price of oil.

I was just going to say.

And I don't know the exact date but I think as the price of oil came down, the CapEx spending began to decrease and I think that's why we're in the situation we are.

Yes, so obviously impacted by the CapEx spending that Sean talked about and as we mentioned the opportunity to pivot into some of these other areas. Infrastructure is an area that the team is focused on as well as some of the other segments within our focus there. So plenty of opportunity here, some heavy lifting to do.

Great. Thanks, fellas.

Thank you, Duffy.

Bob Koort, Goldman Sachs.

Thanks, good morning. Gentleman, I don't know if you can talk about are there prior precedents where you've taken a price in the stores but there's been pressure in the DIY channel? And I guess I ask that in the context of your major DIY competitor talked about increased promotions and rebates and those sorts of things, so it looks like maybe there is some pressure on price through DIY. So what's your thoughts about historically being able to push through the store's prices if the broader DIY market might be under some pressure?

Well, Bob I've been this industry now coming up on 32 years and every day of my experience has been competitive. We work hard in what we do to add value to our customers. And as I mentioned, a piece of this we expect will be raw materials.

The other component is that have invested in to be able to supply our customers with a greater value are key drivers for our ability to put a price increase in. We don't take that lightly, we know it to your point, we know it competitive. We've got to be able to demonstrate our value to our customers and so the combination of our products and our services have to make our customers more money at what they do or we don't deserve the business. And we understand how competitive it is out there. We're investing in the right things to better position ourselves to better help our customers.

Got it. Make sense. Let me ask, if I could, Bob Wells, you'd talked about low single-digit raws inflations, John you mentioned 4% to 5% seeking price in your stores business. How should we think about the gross margin path into 2017?

I think that 2017, when you look at it, we're very focused on operating margins. As you know you've been with us for many, many years, and I think over the last three years plus the gross margin has been driving those margins. I think that we all know that the gross margin is not going to be as robust when it comes to year over year. I think that we're going to continue to do things for efficiencies in the plants, the warehouse, the price increase to make sure that the gross margin is somewhat positive, but it's not going to be the driver it's been for the last three years. But that operating margin is going to be also helped by the work that we're going to do in the SG&A.

Every year is different as you know, Bob, and we set out with a plan on January 1 and by January 2, it changes depending on what's happening in the market. And the one thing that will be true, to Sean's point, is our focus on this operating margin improvement. So the efforts that we'll be taking will get us there. We'll figure out a way to do that. It may, as Sean mentioned, not be the margins in the past, it may be greater leverage on the SG&A while driving sales. Our commitment is the improvement in operating margins going forward.

Got it. Thanks for the help.

Thanks, Bob.

John Roberts, UBS.

Thanks. Sean, you've been a great CFO but I still think your stock would take it this hard that you're going to be phasing back.

Yes, I know what you mean.

[Mixed messages] going forward. You're going to open up about 40 stores in the fourth quarter here which I think you've done before. But you're usually backend loaded, but could you talk a little bit about the labor market for staffing 40 stores in a quarter and lease rates and things like that? I'd assume store openings are costing you more now than they probably ever have?

I don't know that there are costing us more than they ever had and our ability to recruit on campus has been terrific. We hire, as you know, John, having traveled with us, between 1200 and 1400 management trainees a year. The performance of our Company and the brand has allowed us to recruit the highest caliber trainees. I'd say that just continues.

The more time I spend with our training class the more I'm impressed with our ability to recruit such high-caliber people. So we've got confidence there. We've being able to negotiate good rents and leases with our track record and we're becoming more and more a choice in these markets because of our ability to ensure the financial strength of the Company and what we bring to the market. So we're actually in a very good place right now and our focus continues to be on accelerating the performance of those new stores.

And then secondarily, do you think the down DIY volume has anything to do with the channel positioning in advance of the Valspar closing?

No. I don't think so. I think that we'll see what happens in the market on DIY specifically. I don't think that has an impact on it at all.

Okay. Thank you.

Thanks, John.

Ali Lindeman, Evercore ISI.

Good morning, guys.

Morning, Ali.

We got the comps throughout the quarter, did we see a very similar progression throughout the quarter that we saw through the year, so the beginning of the quarter stronger, then tailing off?

No I think we were pretty consistent on the cadence of sales throughout the quarter.

Okay, got it. And then you mentioned that on the total sales it was 2.3% held under revenue reclassification. Was there a similar impact on the comps in PSG?

No. The comps in PSG were not impacted by the change in revenue reclass.

Got it. And then lastly, just the reduction in the full-year guidance was you left the sales guidance up low single-digits, basically unchanged. So is that more of a function of gross margins or SG&A?

I think it comes back to I think the -- probably had to do more to do with the sales volumes in the third quarter than anything else.

Got it. Thanks very much.

Thanks, Ali.

Dimitri Silversteyn, Longbow Research.

Good morning, guys. Thank you for taking my call. Couple of questions, first of all just wanted to follow up on the paint store comps. You had 2.1% same store growth and you had 2.3% from the reclassification of revenue, which still leaves about 2.5% or 2.3% sort of unaccounted for. Is that the price mix benefit or how should I think about classifying that especially since you've talked about a little bit of a FX headwind?

You also have to factor in the new stores in that built in and the rest would be price mix.

Price mix, okay, very clear [enough]. If you look at -- you mentioned a couple of times that higher SG&A expense in the stores group and in Latin America group, was that around just store openings or -- I mean promotional activity or are you staffing external salespeople more? Can you talk about what sort of what's driving the higher SG&A and why we should not look for that to continue into 2017?

The majority of the SG&A increase was related to the new stores and reps. I think the teams are doing a nice job of controlling the other SG&A around the fringes based on the sequential slowdown in sales.

I mean your store growth this year is not that different from what it was last year and yet you called out SG&A expense, that's why I'm asking I guess?

We also had, if you recall in the second quarter we talked about the investments we're making in the Consumer Group. And some of those have continued through, so between the new stores and the continued investments in Consumer Group that's what keeps driving the increase in SG&A.

Okay. And just a quick question on tax rate, you talked about it being in the low 30%s for 2016. If you kind of look at Sherwin in isolation and forget about the Valspar pieces being added and what that can do to your tax rate, if you just look at Sherwin, is kind of the low 30%s tax rate is what we should be thinking about; or the changes in taxes that you made that we're excluding from this year's earnings? How should we think about tax rate going into 2017 [as] Sherwin-Williams as a standalone entity without thinking about Valspar yet?

I think the core tax rates excluding that accounting adjustment would be in the low 30%s. If you look at our year-to-date effective tax rate is 31.7% versus 31.6% last year.

Okay, so basically you just continuation of the tax rate that we've seen?

Yes.

All right. Thank you very much.

Thanks, Dimitry

Kevin McCarthy, Vertical Research Partners.

Yes, good morning. I recognize Europe is not an enormous region for you but to the extent that you are exposed there, I was wondering if you can comment on trends that you are seeing by product line and also on an individual country basis? If you're seen anything material there? Sounds like it hit consumer a bit. I'm wondering, if you think that it is macro or broad-based in nature, or more idiosyncratic? Thanks.

I think when you look at the business we have in Europe, I think we're not broad-based at all. I think that we don't have any architectural business in Europe so we're not probably a good barometer of what's happening there. On the industrial side, we are probably heavy in industrial wood but that's in the global finishes group. That's actually been strong, stable I'd say. I'll use the word stable. I think to try to get some type of barometer of Europe, we're not a very good indicator of that.

Fair enough. And second question, if I may, possibly for Bob. I think you mentioned your commercial business was up. I was wondering if you could speak to non-res more broadly on your third-quarter experience and near-term outlook? Thanks.

Yes, Kevin and as a reminder, there is a pretty long lag between a nonresidential start on average and when that project is painted. So we are benefiting from fairly strong start activity, 18 months to 2 years ago. And as a result the commercial business is holding up quite well. It's not as strong as the residential segment, John indicated the residential businesses are up in the high single-digits. It's not that strong, but it's really solid year-over-year growth. The dark lining around that silver cloud is that starts this year are actually down year over year so we're seeing some weakness in new projects started that if that persists, was going to impact our commercial business a couple of years out.

Okay.

But for the time being, it's good.

Mike Harrison, Seaport Global Securities.

Good morning.

Morning, Mike.

Was wondering if you could talk a little bit about Latin America? It was nice to see you get back above break even you've added about 25 stores this year. Can you talk a little about the strategy going forward, what the outlook might be? Should be expect it to remain above breakeven, or could some of those investments start to weigh on the performance on the bottom line?

Yes. So our approach in Latin America is really market specific, not even country specific. We understand that there are locations in the market throughout the Latin American region where a direct store model might be best and there might be others that are best utilized through home centers or through dealers. And our team down there is working very hard to upgrade our position in the marketplace. And by doing what we believe to be the heavy lifting now while the market is maybe choppy, might be an understatement, but while taking those steps now that we'll be better able to participate at a greater rate once the market does improve. We do feel as though that it has hit a trough. It's too early to tell if the improvement in the market is sustainable there. The choppiness in sales and profit is likely to continue over the next few quarters.

But we really do believe that the steps that we're taking right now are going to better position us by better employee base that we have down there, better product lines, more consistent products, and a much more efficient path to the customer than what we've had in the past. Our expectations of what we're doing down there are clearly to outperform the market as we move forward.

And I would add that looking -- going forward, the quarters, you'd expect them to be closer to breakeven.

Then you've also talked about some of the SG&A expense control. I was wondering if you could talk at all about your marketing and advertising expenses and how those have trended during the year? At this point are we running meaningfully above or below what we might think of as normal advertising expenses?

I don't think we're meaningfully above or below. I think we're right around the same pace as we've been in the past, we're trying to be as smart and efficient with what we're doing with media, but I wouldn't say that we've jumped or cut to anything in a meaningful way.

All right. Thanks very much.

Thanks, Mike.

Scott Redner, Zelman and Associates.

Good morning.

Hi, Scott.

Quick question. Your feedback that you're relaying from the field despite slower sales growth than you expected is pretty positive on this call but I think in your prepared remarks, John, you noted that you're not sure if the housing cycle might be slowing or we might be in the later inning. So I was wondered if you could bridge those two comments because it sounds a lot more bullish on the Q&A than what you may have said on the prepared remarks?

My point was that we certainly saw a slowdown in the third quarter, Scott. Our feeling continues to be that the fundamentals still support the market in a very positive way. I know you've heard Bob talk about those in a number of occasions. If you just look at household formations, new home sales, single-family start permits, resales, the underserved entry into the new residential by builders, the fundamentals continue to be there and we expect that the contractor is going to be the benefactor of many of these opportunities. And our position with that contractor is something that we are continuing to improve on.

By the way, Scott, maybe it wasn't worded as well as a could've been but John's opening remarks basically said if it's a slowdown in the housing cycle, contrary to what all the data would suggest. So he was kind of qualifying it by saying we're not seeing it in the data, but if it is, we're still going to invest in the things that drive our growth.

Okay. I appreciate you guys clarifying that and just to kind of reiterate, does this, I guess more uncertainty to the cadence of how the business is growing, hany impact on to how you are thinking about incremental investment back into the business and/or on the synergy guidance for Valspar?

I believe that our investments will continue as you've seen. This is a year that's going to have record sales, record profit, record operating margin. We're going to continue to invest in those drivers that we believe will allow us to drive that operating margin further. And that's going to be in new stores, new reps, new products and we believe the contractor's positioned, as I said, very well in the market and our positions, we're going to be working very hard to improve that. We've got confidence in that model, we've got confidence in our ability to execute it.

Thank you.

Thanks, Scott.

Ivan Marcuse, Keybank Capital Market.

Great, I have a couple quick ones. In terms of your sales growth for the fourth quarter for the year not really changing all that much, is that more of a function of the reclassification? So if reclassification fourth quarter is going to be 2% impact, I guess, sales would be flat to down excluding that?

I think that the low single-digit is on the core. It's just a movement within the core -- within that range.

Okay, great. In terms of Valspar, is there any sort of change to your expectation that it's going to close in the first quarter or expectation of when we'll hear something about the ruling?

No at this time we still believe it's going to be in the first quarter. We're down to just a few countries and we're feeling positive about the momentum that we have.

Okay and last, does the currency Latin America, does that turn into a tailwind during the fourth quarter?

No. I think it will still be a headwind like you saw -- similar to what we saw in the third quarter.

Okay, great. Thanks.

Thanks, Ivan.

Eric Bosshard, Cleveland Research Company.

Two questions for you. First of all, Bob or Sean or Al, if you could review what we should be thinking about in terms of price, understand the increase becomes effective December 1, which I think is a little different language than you've had in the past. Curious what we should be assuming in terms of the time to implement and the amount of that, that should be expected to be realized?

I think that we, in the past, have said we have been 75% effective when you take a look at the increase, so 4.5% to 5% -- 4% to 5% you're talking use at 4.5%, times 75%, you're talking just over 3%, I think that we've constantly said that we're working to try to get that quicker. I think that you'll see some effect in December, but it will be muted. And I think that the first quarter you'll see hopefully somewhere in that 50% effectiveness, and from then on I think you'll see 75%.

That's helpful. And then secondly, would just love a little perspective, I think the statement was made that the store comp would be 5% ex-protective and Marine. And I'm curious within that or if you want to speak to the expectation of the architectural business, how that compares to the prior couple of quarters and what the expectation should be of that moving forward?

I think that the architectural, if you look at the quarters there's no doubt the first quarter was the strongest quarter architecturally, second was the second strongest and then the third. But I do believe when you take a look at it, some of these, the third quarter was probably way down because of that DIY component that we talked about. So I think again, I think John's comments about the strength of the market and why we continue to invest and feel good about what kind of results we can produce in this painter stores group, are still driven by those thoughts on the architectural side.

Excluding DIY are you capable of looking through the numbers or sharing with us, excluding DIY? It sounds like the resi repaint was up high single-digits versus perhaps low double-digits, other than DIY seems like other pieces of architectural slowed a bit in Q3 relative to its Q2 growth, is that accurate?

Yes.

Any thoughts on the driver to that?

I will tell you -- I think that labor we're seeing things such as labor constrain some of these results that we're having in some of these quarters.

There again, it's not uncommon at all to hear contractors talk about their ability to do more work if they had more qualified labor.

Okay, that's helpful. Thank you.

Thanks, Eric.

Scott Mushkin, Wolfe Research

Guys, thanks, and a lot of questions have been asked so I appreciate you letting me sneak one in here. So I was just wondering, from your perspective, obviously we have this dichotomy between the pro-market, contracting market, and do-it-yourself. If you guys think back over the years the Company, have you ever seen this kind of divergence in the two? And in your opinion what do you think is causing it? It seems like the consumer for some reason is a little weaker? We are seeing that across a lot of different sectors. I'm just trying to understand from your perspective what you think is kind of going on, if you've ever seen this before? If you can shed any light?

This is Bob. We've talked for a long time about this long-term secular trend away from DIY toward the contractor. And we saw that kind of step back in the direction of DIY during the 2008, 2009 cycle. And since that time, we think that there's been a pretty strong migration back toward the pro.

What we've observed in past cycles is that when we see a period of rapid home value appreciation, in many cases it will accelerate the move back to the pro. People are more inclined to hire a professional when they're feeling more positive about the equity that they have in their home. So the last three years, pretty rapid home value appreciation that we've seen may have accelerated this migration away from DIY and toward the pro. That's the best we've got. There's no empirical data as to why that's happening.

Could I do a follow-up, quick is that all right?

Yes, you bet.

So there's obviously been a lot of thoughts regarding millennials, younger households are probably more do-it-yourselfers, do it for me, still a lot of buzz that millennials are finally kicking it into gear. But what you're saying to me maybe argues against and I wondered if you have any thoughts on that piece as well? Thanks.

Well, we certainly agree that millennials will be a stronger driver in the housing market, going forward. There's forecasts of between 13.5 million and 17 million new first-time homebuyers coming into the market in the next five years, which is really exciting to us. And all due respect for the younger generations, we disagree with the notion that millennials are strong DIYers. They have not shown to be at nearly the levels that their parents were. Baby boomers were far more DIY involved than their offspring and it certainly has a lot to do with schedules nowadays being very tight and lack of free time. But we don't necessarily see the millennials coming into the home buying market as driving DIY the way the baby boomers did a generation ago.

That's perfect. Of course argues for your business model too, so that good news for the long-term. Anyway, thanks, guys. Appreciate it.

Thank you, Scott.

Nils Wallin, CLSA.

Good afternoon, thanks for taking my question. You noted that keeping a strong control on your SG&A cost is going to help your operating income line going forward and of course that was represented in most of the segments. But you also did note some headwind in the Paint Stores Group, so I'm curious where will the incremental discipline come on the SG&A? Is it going to be in the Paint Stores Group and if so how that will affect your investment there, and if not the paint store group where would it be because things are pretty disciplined across the board?

So it's going to be across the board and I think as you look at our opportunities going forward, the ability to leverage SG&A in every organization exists there. I mentioned earlier about the Global Finishes Group taking a look at a number of the areas in the back office to become more efficient. We have those opportunities throughout the organization. What we're committed to though are those areas that are customer facing and continuing to invest in this model.

We just talked with the previous question about the long-term model and why it fits and why we believe in it. So you're going to continue to see us invest in new stores, territories, new products, the things that allow us to differentiate ourselves from our competition and you should expect us to continue to be animals on expenses. We had a discussion last week about our budgeting process.

I mentioned Al coming on board, the same discipline that we've had with Sean in the past. We're going into our operating plan process, we're starting at ground zero and we're ripping every expense out that we can that doesn't affect sales and so we want to be that disciplined about what it is we are doing. We don't want to point to past success and justify future expense. We want to be investing in those things that are going to drive our business and we're committed to doing that in the models that will drive the operating margin that we've talked about.

Fair enough. And just as a follow-up, you note the weakness in oil and gas on the Protective and Marine, but there are a fair number of chemical projects coming up in the Gulf coast. Is it just that the size of oil and gas is so high that it offsets whatever is going on in chemical in that part of your business? Or do you just not have the type of mix that you want or exposure to the chemical industry for your protective business?

It's a little bit of both, we've had success in oil and gas and areas that are not investing right now and we're still growing market share in some of those areas, even with the decline we're still fighting and growing we believe share in a very challenging market. But to your point, and that's the point that I tried to make earlier, there are still areas for us, there are opportunities in the space. You mentioned the chemical area where there are assets coming online, we're fighting for every one of those projects.

We know that the infrastructure is an area that eventually is going to have to be an area of focus for our country and countries around the world and we're furthering our penetration in those areas. So what I don't want to give is the impression that we're just sitting here waiting for the oil and gas market to fix itself. We're out there fighting in existing markets, in adjacent markets, and in new markets and we believe that there is considerable amount of opportunity for us there and we're determined to capture it.

Great. Thanks for your help.

Thank you, Nils.

Christopher Pirela, Bloomberg.

Good afternoon guys, thank you for taking the call. The antitrust regulatory environment you've been doing deals for a while now, have you noticed a change this year as you've gone through the Valspar deal?

I think they are doing their job. They are asking the questions that are appropriate and we're trying to be as responsive as we can. I think going into this we knew the deal and the facts and feel confident that the facts will carry the day. We've got a government agency that is empowered to look at these things and challenge and they are doing just that and we're trying to be as responsive as we can.

All right. And then a quick question, inventory was up, are you carrying more volume of inventory due to the slowdown here? And on the back of that, do you typically run promotions in through October at your paint stores?

I'll address the inventory and our working capital was up slightly in the -- through September. The way we look at it is, as a reminder, we target a 10% of sales for working capital, last year came in at 8.6%. We expect this year to come in around 10%. I don't believe we're carrying more inventory than we should be.

And we do occasionally run a promotion in October.

All right. Thank you, guys.

Thanks, Chris.

David Long, Morningstar.

Hi, thanks for taking my question, I was pretty late on the call. I just had one on same-store sales and resi repaint for professionals. Home sales looks like they were basically flat or down year on year compared to third quarter of 2015. But you guys saw high single-digits in the professional segment there. Do you think that -- I guess what would you attribute this to? Is it a stronger business model? I know we obviously saw weakness in DIY, but I'm trying to get a sense of why the professional segment was so strong?

Well we've had a team that has been focused on that segment for many years. It goes back to the comment that I made earlier about our commitment to providing the products and services, locations, the people that will help us differentiate us from our competition. And we're blessed with good competition out there, so we're not satisfied, we're not complacent, we're not sitting here feeling as though we've got it all figured out.

We're trying to get better every day and with our direct model which is unique and the ability to really partner with our customers and understanding what their needs are. And sometimes satisfying needs that they don't even know exists has allowed us, we believe, to grow a little faster than the market; and we're committed to doing the things that can help differentiate us from our competition by allowing our customers to be more successful in what they're trying to do.

And David, while you're right that existing home turnover does drive residential repaint activity, remodeling activity in total year to date is up pretty substantially it's up almost 6% in spending year on year. So in the absence of a lot of growth in existing home turnover we've seen growth in remodeling activity.

One last thing I would add is the point that Bob made earlier which is the shift to more and more contractor based. I think we have to acknowledge that there's a shift going on to the contractor and we happen to be positioned very well for that contractor, but I also believe that's helping us as well.

Great. Thank you.

Thanks, David.

Chuck Cerankosky, North Coast Research.

Good afternoon, everyone and congratulations to both Sean and Al.

Thank you, Chuck.

Thank you.

We've talked with contractors have mentioned this labor shortage, John, and I think it's even impacted how aggressive they want to be on bidding at this point. Does that bode well for projects going into next year once the paint season gets underway? We're coming into some tougher weather now seasonally, so what are your thoughts on that?

I think it does, Chuck, and that's the point that I made. I know I keep beating the same drum, but it's what gives us confidence about the model in 2017 and our ability to continue to drive operating margins going forward. You're exactly right.

Okay. And if you're looking at the Consumer Group, Sean or Al, you might want to address this one, the margins were up on lower sales, does some of that reflect what went on last year with the load into loans and introductory promotional spending?

No, I think the spending has been pretty consistent like we talked about in the second quarter, it was maybe different programs. But with -- around the other edges of SG&A they did a nice job of controlling their cost, and we talked about the mix in that business that helped, so I think that's what is driving the margin.

All right thank you very -- oh I know this is the end of the call, I got cut off somehow for a bit and I think I joined just as you were explaining that reclassification, if now is a good time to just quickly explain that, it would be great, otherwise I will catch you off line.

Chuck, we use third-party contractors and they do a variety of things for our customers. These previously immaterial amounts (inaudible), we said net them in SG&A, we determined that the billing for the customer should have been grossed up in sales, but the payment to the contractors including the cost of goods sold in it for net immaterial impact on gross profit. It does reduce our gross margin and does it decrease our operating margin and what we talked about is, we did it prospectively in the third quarter, so we only booked it for the third quarter. We'll do that in the fourth quarter, that will have a similar small impact and then in the first and second quarters of 2017. So 2017 full year won't have any impact.

Thank you.

You're welcome.

Thanks, Chuck.

Thank you. It appears we have no further questions at this time so I'd like to move the floor back over to Mr. Wells for any additional concluding comments.

Thank you, Jessie. As always I will be available over the next few days to handle any additional questions that arise as you digest this morning's call. As call volume is already very heavy I appreciate your patience. I will make every effort to get back to you on a timely basis. I'd like to thank you again for joining us today and thanks for your continued interest in Sherwin-Williams.

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