John Morikis - Chairman & CEO Al Mistysyn - CFO Jane Cronin - SVP, Corporate Controller Bob Wells - SVP, Corporate Communications

Chris Parkinson - Credit Suisse Arun Viswanathan - RBC Capital Markets Jeff Zekauskas - JPMorgan Ghansham Panjabi - Robert W. Baird Steve Byrne - Bank of America Matt Gingrich - Morgan Stanley Robert Koort - Goldman Sachs Don Carson - Susquehanna Financial Mike Leithead - Barclays Kevin McCarthy - Vertical Research Partners Scott Mushkin - Wolfe Research Scott Rednor - Zelman & Associates Mike Sison - KeyBanc Capital Markets John Roberts - UBS Dmitry Silversteyn - Longbow Mike Harrison - Seaport Global Securities Rosemarie Morbelli - Gabelli & Company Greg Melich - Evercore ISI Stephen East - Wells Fargo

Good morning. Thank you for joining The Sherwin-Williams Company's review of First Quarter Results for 2017. With us on today's call are John Morikis, Chairman and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; and Bob Wells, Senior Vice President, Corporate Communications. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at sherwin.com. 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 Wednesday, May 10 at 5:00 PM Eastern Time. This conference call will include certain forward-looking statements as defined under U.S. Federal Securities Laws with respect to sales, earnings, and other matters. Any forward-looking statements speaks only as of the day on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statements, 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 release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions. 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've provided some balance sheet items and other selected financial information on our website, www.sherwin.com under Investor Relations, April 20 Press Release. You will also notice as we go through our results for comparison purposes, our first quarter 2016 results have been restated to reflect the adoption of ASU 2016-09. I'll begin by highlighting overall company performance for first quarter 2017 compared to first quarter 2016. Then comment on each reportable segment. Consolidated net sales increased $187.4 million or 7.3% to a record $2.76 billion driven primarily by higher paint sales volume in our paint stores group. The change in revenue reclassification adopted last year increased consolidated sales 2.2% in the quarter. Currency translation rate changes did not have a significant impact on sales in the quarter. Consolidated gross profit dollars increased $81.4 million or 6.5% to $1.34 billion. Our consolidated gross margin decreased 40 basis points in the quarter to 48.6% of sales from 49% last year. Selling, general, and administrative expenses increased $13.8 million or 1.4% to $1.02 billion in the first quarter, but decreased as a percent of sales to 36.8% from 38.9% in the same period last year. Interest expense in the quarter was roughly flat to last year at $25.7 million. Consolidated profit before taxes in the quarter increased $90.2 million or 41.7% to $306.6 million due primarily to improved operating results from our Paint Stores Group and Global Finishes Group. Our effective tax rate decreased to 22% from 23.8% in the first quarter of 2016. For the full year 2017 we expect our effective tax rate will be in the mid to high 20s. Consolidated net income increased $74.3 million or 45% to $239.2 million. Net income as a percent of sales increased to 8.7% compared to 6.4% in the first quarter last year. Currency translation rate changes did not have a significant impact on net income in the quarter. Diluted net income per common share for the quarter increased 44.6% to $2.53 per share from $1.75 per share in 2016. The $2.53 includes $0.08 dilution from the acquisition-related expenses and $0.34 accretion from the reduction in income tax provision. Looking at our results by operating segment, sales for our Paint Stores Group in the first quarter 2017 increased 12.1% to $1.81 billion from $1.62 billion last year. Paint Stores Group sales increase was due primarily to higher organic paint and equipment sales volumes across all end markets and the impact of the change in revenue classification. Comparable store sales that is sales by stores open more than 12 calendar months increased 7.5%. The change in revenue classification is not reflected in comparable store sales. Implementation of the December price increase has also been successful thus far. Regionally, in the first quarter our Southeastern division led all division followed by the Canadian division, Southwestern division, Midwest, and Eastern Division. Sales and volumes were positive in every division. Segment profit for the Group increased $50.5 million or 20% to $304 million. Segment operating margin increased to16.8% of sales from 15.7% in the first quarter last year. Turning to our Consumer Group first quarter sales decreased $40.6 million or 10.7% to $337.5 million due primarily to lower volume sales to most of the Group's retail and commercial customers. Segment profit for the Consumer Group decreased $3.4 million or 5.3% to $60.6 million in the quarter from $64 million in the first quarter last year. Segment profit as a percent of external sales increased to 18% from16.9% in the same period last year. Most of the improvement in the first quarter segment profit margin was from improved operating efficiencies and good SG&A expense control. For our Global Finishes Group sales in U.S. dollars increased $16.2 million or 3.6% to $470.3 million in the quarter. Currency translation rate changes did not have a significant impact on sales in the quarter. First quarter segment profit stated in U.S. dollars increased $3.9 million or 8% to $52.4 million due primarily to higher paint sales volume and selling price increases that were partially offset by higher raw material costs. As a percent of sales, segment profit increased to11.1% from 10.7% in the same period last year. For our Latin America Coatings Group, first quarter net sales stated in U.S. dollars increased $16.2 million or 12.9% to $141.4 million primarily due to selling price increases and favorable currency translation. Currency translation increased sales in U.S. dollars by 5.7% in the quarter. Segment profit in U.S. dollars increased to $1.2 million in the quarter from a loss of $900,000 last year. Segment profit was aided by selling price increases which were partially offset by higher raw material costs. Currency translation had a minimal effect on our Latin America Coatings Group segment profit in the quarter. As a percent of net sales, segment operating profit increased to 80 basis points in the quarter compared to a loss of 70 basis points in the first quarter 2016. That concludes our review of our operating results for the quarter. So let me turn the call over to John Morikis who will make some general comments and highlight our expectations for second quarter and full year. John?

Thank you, Bob. Good morning, everyone. Thanks for joining us. First quarter 2017 was a good quarter for Sherwin-Williams from both a revenue and profit perspective. But there was one obvious exception and as our nature, I'm going to address it first. Our Consumer segment had a bad quarter. There are two reasons I feel it's important to address this upfront. One because I don't want you to think that our strong consolidated results diminishes the urgency we feel to address the challenges this group faced in the quarter. And two, because you need to know that nobody is more disappointed in how this quarter unfolded than the women and men responsible for driving this business. Consumer sales in the quarter were weak in most product categories across most market segments in most geographic regions all three months of the quarter. This was not the result of soft sales to one customer or one product line. We were comping against the first quarter 2016 load-in of the INFINITY product line at Lowe's and I wish the explanation for the weakness this year was that simple. I believe Consumer Group saw the flip side of the obvious strength in the professional paint market reflected in soft DIY demand in the first quarter, but they will remain focused on expanding our retail presence and driving sell through. You also need to know that I have the utmost confidence in this group. I know they will rise to the challenge. You should expect better results from our consumer segment over the balance of the year. The positive momentum we saw in our Paint Stores Group in the fourth quarter last year accelerated in the first quarter. Sales to residential repaint contractors continued its double-digit growth trajectory followed closely by sales to new residential painters, property management contractors, and commercial contractors. Equally encouraging our pro customers continue to report large project backlogs. Protective and marine coating sales and volume turned positive in the quarter, but lagged the pace of growth in architectural paint. During the quarter, paint stores group added 10 net new stores while this pace is slower than first quarter 2016, the difference is entirely attributable to timing issues. Our plan still calls for full year store openings in the range of 90 to 100 net new locations compared to 94 opened in 2016. Today our total store count in the U.S., Canada, and the Caribbean stands at 4,190 compared to 4,099 a year ago. Latin America Coatings Group delivered high-single-digit revenue growth in local currencies in the quarter, although down volumes were still recovering in most countries in the region. As market demand fully recovers, our management teams will continue to make progress on managing operating expenses and mitigating raw material cost inflation. Global Finishes Group delivered solid top-line growth in the first quarter with revenues up across all businesses and volumes up in most. Once again, the group did a commendable job of managing both gross margin and SG&A resulting in a cycle high 11.1% first quarter operating margin, 30 basis points better than first quarter last year. We continue to see positive demand momentum in many of our industrial coatings businesses in North America, Latin America, and Europe and this team is well-positioned to flow through revenue growth to profit improvement. To get a more accurate picture of our profit performance in the quarter, you need to back up the effect of the two accounting changes we adopted last year plus the acquisition-related expenses. Excluding these items, consolidated gross margins increased 50 basis points to 49.6% of sales. SG&A improved to 37.2% of sales compared to 37.7% last year and PPG margin was 11.8% this year compared to 9.8% last year. Our reported tax rate in the first quarter of this year was 22%. If you back out the tax benefit from the adoption of ASU 2016-09 our effective tax rate would have been approximately 33%. Net income would have been $214.1 million, an increase of approximately 25% and earnings per share would have been $2.27 per share, up 25.4%. Net working capital increased slightly year-over-year as a percent of sales to 11.5% compared to 11.2% first quarter last year as accounts receivable and inventory both increased to support the strong sales momentum early in the year. In dollar terms, the increase in working capital was $97 million in the quarter compared to an increase of about $80 million in the first quarter last year. Despite the higher March 31 year-over-year working capital, we generated $231.8 million in net operating cash, an improvement of more than $290 million compared to the first quarter 2016 due primarily to the increase in net income and reduction of cash used during the quarter to service accounts payable compared to first quarter 2016. Our capital expenditures in the quarter totaled $41.5 million. Depreciation was $44.6 million and amortization was $6.2 million and in 2017, we anticipate capital expenditures of approximately $230 million, depreciation of $175 million to $185 million, and the amortization of about $30 million. Capital spending will continue to run higher than normal in 2017 as we complete investments and IT infrastructure, capacity, and new stores. Our cash balance on March 31 was just over $1 billion compared to $890 million at the end of 2016. We will continue to build cash on our balance sheet over the coming months to reduce total borrowings required to finance the completion of the Valspar acquisition. Therefore we made no open market purchases of our common stock for treasury during the quarter and we'll suspend share repurchase activity throughout 2017. On March 31, we have remaining authorization to acquire 11.65 million shares. Yesterday, our Board of Directors approved a quarterly dividend of $0.85 per share compared to $0.84 per share last year. North American architectural paint demand should remain strong throughout the year, driven by steady increasing level of residential remodeling activity and to a lesser degree new residential construction. As we move into the prime painting season, we are also encouraged by growing signs of more robust non-residential activity and improving demand for many of our industrial products. While growth in the U.S. Do-It-Yourself market will likely continue to lag the professional painter market, we expect positive sales growth in our consumer segment in the quarters ahead. On our year-end 2016 earnings call, I said our expectations for average year-over-year raw material inflation was in the low-single-digits. Given the recent uptick in crude oil, relatively high propylene pricing in the first quarter, tight market conditions in certain key monomers used in the production of latex, and low TiO2 inventories, we now expect raw materials inflation to be in the mid-single-digit range. The price increases we have announced to the market thus far in the year appear to be gaining traction and we have not made any additional announcements. We will however continue to monitor changes in the raw material environment and will respond appropriately to changes as we go through the year. Our outlook for second quarter 2017 is for consolidated net sales to increase mid-to-high-single-digits percent compared to last year's second quarter driven in part by the revenue reclassification. With sales at that level, we expect diluted net income per common share for the second quarter to be in the range of $4.15 per share to $4.35 per share compared to last year's record $3.99 per share. Our guidance range for second quarter includes acquisition-related expense totaling $0.25 per share. As a reminder, second quarter 2016 earnings included $0.16 per share in acquisition-related expenses. For the full-year 2017, we expect consolidated net sales to increase over 2016 by mid-single-digit percentage. With annual sales at that level, we are updating our full-year guidance to be in range of $13.65 to $13.85 per share compared to $11.99 per share in 2016. Our updated full-year 2017 earnings guidance includes $0.40 per share charge for acquisition-related expenses which is $0.40 less than the charge included in our initial full-year guidance. And an increase in the income tax provision benefit of $0.25 per share more than forecasted in our original 2017 EPS guidance. These two items account for all of the change in our full-year 2017 EPS guidance. As a reminder, full-year 2016 earnings per share included $0.86 per share related to the Valspar acquisition and $0.40 accretion from the adoption of ASU 2016-09. Again, I'd like to thank you for joining us this morning and now we'll be happy to take your questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is coming from the line of Chris Parkinson with Credit Suisse. Please proceed with your question.

Thank you. Can you just talk a little bit more about the implementation of your PSG price increases and just a rough breakdown of how you think it's going between both short and long-term contractors, I'm assuming most short-term contractors have immediately accepted it. And then also is your expectation for the resin solvents and latex baskets sort of moderate in the second half and if not, it sounds like another price increase would be under consideration? Are we thinking about that correctly?

Hi, Chris this is Al Mistysyn and I'm going to take the first part of your question related to the price increase in our Paint Stores Group. As a reminder you know the last price increase we went out was the first quarter of 2014. We announced the price increase in December 1, 2016 about 3% to 5% and while none of our customers like seeing their prices go up, they understood the cost environment, we are operating in and they're accepting that price increase and I would say that the rate of realization or effectiveness of that increase is slightly ahead of where we expected it to be.

And Chris, this is Bob. Let me handle the question on raw materials, we often talk about the many moving parts of the raw material basket and as John indicated, we've seen a fair amount of movement in a number of areas since our year-end call. While our outlook for TiO2 in fact hasn't changed much. We still expect mid-to-upper-single-digit inflation for the year in TiO2. We are seeing more pressure in some of the petrochemical based materials. This is a result of a number of factors, most importantly; higher propylene cost in the first quarter higher than we expected in fact and tight market conditions, which we think are transitory tight market conditions in certain monomers in particular MMA and VAM. And while the effect of these petrochemical factors may be somewhat transitory and aren't likely to result in a runaway raw material basket, they have pushed our expectations up from low-single-digit to mid-single-digit. In the first quarter, we think we were probably at the top end of that low-single-digit range may be in the 3% to 3.5% range. We do expect to see some incremental inflation in the second quarter. And we think that the year-over-year inflation is likely to peak in the second quarter. Then we start rolling through the price increases taken in TiO2 last year which the year-over-year inflation should ease somewhat in the second half.

That's great color. And just a quick follow-up, can you give a little more color on your expectations for the Consumer Group on a go-forward basis, including any incremental growth spend you see key trends you're seeing in the big boxes and/or any benefits potentially from a full year INFINITY we should be considering. Thank you.

Yes, so we don't talk about any specific customers so I'm not address the INFINITY directly. I will say that, as I mentioned earlier that the overall performance for the quarter fell short of our expectations and while we found ourselves in a situation where we felt there was weakness across the board. And it was a very challenging market. We just, we don't accept that. And so the answer your question, our expectations moving forward to be the best partner possible to our customers. And that means helping them get product off the shelf it's not our desire to fill their shelves is to help them get product off the shelves. I don't -- I don't want to get into a lot of specifics on our strategy to be able to do that. I will say that our teams. We have great confidence in our teams. We've got and I think the terrific strategy. We are looking forward to the combined business once we close on Valspar we think added to assets together or the people, the brands everything will make us better and we're focused on every one of our customers and helping them to be more successful.

Thank you. The next question is coming from the line of Arun Viswanathan. Please proceed with your question.

Good morning. First, I guess I just wanted to ask if you could elaborate on some of the comments you made on volume. You said that you are starting the see some improvements and in some of your markets. So maybe you can break that out on resi repayment and new construction and non-res and so on. Thanks.

Yes, I would say that we're very pleased in the stores segment's performance while we don't give specific numbers. I will tell you that the residential repaying once again had a double-digit gain. This will be the 12th of 14 quarters that we've had double-digit gains and we feel as though there is a terrific momentum. I've got that's great respect for that team and what they're executing on right now is just been terrific. I would like to take you back to the second and third quarter of last year when we started talking about the challenges that some of our customers were talking about at that time which was their view of the world included a great confidence in the projects that they were working on and the bidding that they were doing, and if there was any concern in their comments, it was typically that they had more work than labor. And so while our residential repaying business has been growing for 12 to 14 quarters I have more confidence right now probably than ever because our team is really responded. We're not exactly sure what the second and third quarter has in store for us as it relates to labor and any constraints that they, our customers might experience but we're not waiting and our teams have been working very aggressively and filling the pipeline with new accounts to try to offset any slowdown that our customers might have in growing their business. It's a matter of are they at capacity or not. The residential repaying we're very excited about and momentum. The others commercial, new residential, I mean it is, is really a very strong quarter of stores organization, in fact even protective and marine we had a couple years of softness in protective and marine through our stores. We had a positive quarter in sales of protective and marine and that some of the bottoming out of the oil and gas, but we've been talking about pivoting into different segments and trying to accelerate in those segments. We'd like it to be faster without exception but we're starting to see some momentum there.

Great, thanks. And just as a quick follow-up given the strong volume I would have expected a slightly higher margin but I understand that the odds were definitely a pressure. So maybe you can just discuss how you're thinking about gross margin relative to your typical ranges and how that should progress through the year. Thanks.

The gross margin, I think in our first quarter, we were pretty happy with that result on the core we saw a 60 basis point improvement. As the year unfolds as Bob mentioned, the second quarter, we expect year-over-year, raw material inflation to be -- to peak we're confident that we can recoup the inflation in the market. It just doesn't happen in real time and as we see that the rest of the year unfolds on the effectiveness of our price increase, where raw materials trend out at the end of the second quarter, we'll have a better line of sight to our gross margins and update accordingly.

Thank you. The next question is coming from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Hi thanks very much. In the Paint Stores business, did your price increases offset your raw material inflation?

Yes I believe in the first quarter our effectiveness was better than we thought and more than offset the raw material increase.

And are your raw material increases in the United States greater on a percentage basis than your raw material increases in the offshore markets?

Latin America will be higher, higher but across the rest of the globe, I'd say the U.S. the impact of titanium dioxide that has on our U.S. business is probably a little higher in the U.S.

Okay. And could you provide the gross profit changes in your division?

Yes. So Paint Stores Group increased $82.5 million, Latin America Coatings Group increased $4.9 million, Global Finishes Group increased $6.6 million, and Consumer decreased $10.2 million.

Thank you. Our next question is coming from the line of Ghansham Panjabi with Robert W. Baird. Please proceed with your question.

John, just going back to -- good morning Bob. Just going back to the protective and marine sales turning positive is that just a function of easier comparisons after several tough quarters or do you actually sense some more activity and optimism at the end market level? How should we think about that?

No, it's certainly some easier numbers, but I would definitely say that it has an equal if not more result of the efforts that our teams are putting forward. I think that we are seeing some benefit in the market, we're seeing some easier comparison and we're certainly witnessing some benefit of the pivoting into some of the other segments I spoke of.

So that being said and going back to the first quarter an upside on earnings relative to your initial guidance what actually drove the bulk of that upside was it just P&M sort of a little bit better than you thought, pricing realization being a little bit better, or was it just the volumes in Paint Stores Group?

Volumes in Paint Stores Group were very strong and as I mentioned I could go on every segment just as much passion as I started with resi paint but each one of our segments have really shown terrific growth and we're feeling really good about it and protective marine wasn't the headwind that it had been in the past.

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

Yes, thank you. How would you rank these potential drivers of the strength that you saw in volume in your Paint Stores Group potentially better than expected whether the backlog that your contract customers have a shift towards more of the pro contractor versus DIY versus just kind of backlog in resi repaint demand.

Yes Steve this is Bob. I think if I would rank those items, the number one would be, as we've discussed on a number of quarters our customers, our professional customers are labor constrained in the high season quarters second and third much less so in the first and fourth. So we saw a rebound of comps in the fourth quarter that rebound actually accelerated in the first quarter, it tends to be their smallest volume quarter. So I think the fact that we're seeing a flattening out of volume in the industry from the traditional bell shaped curve to more volume in the out quarters that that would be number one. I think number two is the shift from DIY to contractor. I think we are with rising home values, rising equity markets, increasing consumer confidence, a stronger employment backdrop all those things, the homeowners are really getting confident in hiring contractors as opposed to doing project themselves. One of the things that is driving incremental volume for us is by our own doing. It's not a market force, it's more our focus on new account activation on growing share of wallet amongst our small share customers is certainly driving volume growth in that segment and leading to what we believe to be a probably 2X plus rate of growth -- volume growth in paint stores of the 2X plus the market rate of growth. We don't think weather had an impact on the first quarter.

And then on the retail and commercial customer side of the business, would you say your volumes lagged overall volume growth in those channels and if so why?

Are you talking about in our stores organization, Steve?

No, through the retail and independents.

Through the consumers, yes consumer did lag and that's the comments that I made earlier, as far as we found some challenging markets and customers there is not one that I would point you to say that there was one customer, one geography, as I mentioned earlier, there was -- there were some challenges that we faced throughout nearly every market with many customers facing some tougher sales and our focus remains on helping them to be more successful.

I guess my point on that one John is, were you in line with the overall market or not?

It's hard to say, I don't. I will say that we didn't experience any shelf loss, we've not found ourselves in situations where we feel as though we've lost shelf to our competitors we're just really trying to focus on helping our customers sell more product off the shelf.

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

Thanks, this is Matt Gingrich on for Vincent. I was just wondering if you -- how the Do-It-Yourself sales in the Paint Stores Group trended in the quarter?

A little softer than our pro business positive.

Okay. And then in terms of the monthly cadence of the Paint Stores Group performance?

In Do-It-Yourself as well or?

No, just broadly.

I don't think there was a significant difference throughout the quarter.

If you adjust for days.

If you adjust for days.

Right.

Thank you. Our next question is coming from the line of Robert Koort with Goldman Sachs. Please proceed with your question.

John can you help us scale the non-architectural book of business through PSG and maybe the big components of that, so we can sort of think about those markets bottoming and what they might contribute as you come out of that down cycle if you will?

I would say the non-paint categories remain strong. And I'd say the growth rates are in line with paint demand; we're seeing good momentum in those -- in those categories.

I guess in the industrial coatings that you sell through your Paint Stores?

P&M you talk Protective & Marine?

Yes whatever else you would consider non-architectural paint?

I'm sorry; I thought you meant non-paint sorry. No, I think that as I mentioned Protective & Marine sales were up but not in the same range as our architectural category, so it's certainly in our expectation that they wouldn't go from a direct headwind to a strong tailwind. And so we feel as though, as I mentioned, it's bottoming out in the industrial businesses inside our stores and through a lot of effort and some of the markets improving, we feel as though it's going to help us. It won't turn into a terrific tailwind for us immediately though.

And Bob that the Protective & Marine is really the only material non-architectural business in Paint Stores Group, the rest of that would fall in the Global Finishes.

And then you mentioned just timing on the store count, but obviously if you're going to get up to 90 or 100, you got to start adding quickly in the prime paint season in front of you. So should we expect 30 or 40 units added in the second quarter?

Yes it's funny we had this discussion every quarter and we like to see those numbers little smoother. But as you would expect with just different construction regulations and ordinances it's just a little bit of challenge to smooth those up. Bob, yes, we're going to load up, we're confident in the year. And no one should read anything into the number little softer in the quarter than what we would have liked but it was truly just a matter of in some cases getting permits, occupancy permits we're on, we're on the same point, we should be

Thank you. Our next question is coming from the line of Don Carson with Susquehanna Financial. Please proceed with your question.

Thank you. John, I want to go back to the Consumer Group with are you seeing any destocking or inventory reduction at the big boxes, given that they're seeing lower overall levels of demand. And have you been able to get any price increases this year in from, from your Consumer Group customers.

On the inventory piece that's always something that we're trying to work with, with our customers. We want to as part of being their best supplier; we want to be the ones that can offer them the best service, so that they don't have working capital tied up in that. And so there is always in those discussions and I wouldn't say that to any greater extent, then we would expect or quite frankly that we would want. We want to help our customers in those terms. In regards to pricing, we don't comment on the pricing on that side of the business. We've spoken to our stores and we've spoken to the raw material basket but we, because of the competitive nature of those customers, we don't speak to any specific customers outside of our stores.

Okay. And a follow-up on the overall market, you talked about how not only is architectural demand strong but you're seeing strong non-residential and industrial demand. I think last year you said the market grew 2.5% would you, it sounds like you're expecting higher growth in the overall market this year is that an accurate reflection.

Hey Don are you talking about the U.S architectural market of the overall paid incumbent?

U.S. architectural market because it sounds like you're seeing some positive things on the commercial side of that as well.

Yes and we've learned over the last couple years that the tale of the tape for market growth is going to be -- is going to be determined in the second and third quarter. It really depends on the labor supply in the professional painter market. We know that labor supply is growing, is it growing at the rate of demand growth doubtful. So to what extent market wise, labor is a constraint to volume growth this year time will tell. We think that the demand in the market is sufficient to drive industry growth well ahead of low-single-digits, well into the mid-single-digits.

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

Hey guys it's actually Mike Leithead on for Duffy this morning.

Hey Mike.

Hey Bob. Just want to come back to the commentary you made on strong paint stores volumes in the quarter. Is it fair to say you're seeing somewhat of a shift? I guess in your customer behavior to kind of compensate for the tight labor market in 2Q, 3Q. So may be the seasonal fall off in paint stores during 1Q and 4Q should maybe a little bit less so as contract just try to get projects on that are either pushed out or pulled earlier.

I think you're right, Mike, I think you'll see some flattening of the bell curve certainly not an all exterior projects but where possible there is certainly going to be some products or projects that can get pushed out into the fourth quarter they may have been completed in the third.

Got it. And then a bit of a technical one here for my follow-up, so I apologize that, on the income tax provision accounting change you realized $0.34 benefit this quarter and now the new full-year guide assumes $0.45 benefit for the full-year. Where should we think about that remaining $0.11 being I'm assuming there is none in 2Q because you guys have been called out of your guide is that correct?

Well, Mike, what we've done in it typical practice in the past as we've annualized, these types of changes we start including them in our core and that's why we didn't call it out on our second quarter. I think what you see is if you look at how the adjustments rolled out in the quarters last year they maybe a little bit muted from a timing standpoint, but they're smaller and probably typical of what you'll see going forward. I would say our first quarter was, was higher than what we are certainly expecting higher than last year and it was just a pure function of the amount of options that were exercised and the run-up in our stock price after the first -- our year-end call.

Thank you. Our next question is coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Yes good morning Thank you. You indicated that your SG&A ratio to sales was down about 210 basis points year-over-year. I was wondering if you could address what you're doing broadly to control costs and achieve that and specifically the extent to which you can address costs in anticipation of the Valspar deal and whether or not that is -- that is part of the tailwind there so to speak.

Sure, Kevin if you go back and look at the sales out of our coming out of our third quarter last year, rightfully so the teams took action on SG&A with a reduced sales with an eye towards the risk of that and the de-levering we saw and we're seeing the benefit of -- benefits of those actions in our first quarter. And the expectation is that we'll manage our SG&A type until we get through the second quarter, we see the initiatives that John had talked about, about the new account activation, and how those are progressing and with an eye towards making sure that if labor constraints occur again in our third quarter like they had in the past two years we will be positioned well to overcome those. As far as an eye to Valspar that is absolutely a consideration. But I think we have a responsibility to manage our core and the operating margins related to our core and we'll manage the Valspar integration as soon as it closes and we're well prepared for that.

And Kevin, a quick point of clarification the SG&A as a percent of sales improvement was -- was magnified by the change in revenue classification the revenue reclassification apples-to-apples comparison it was actually down 50 basis points.

Thank you for the clarification, Bob. And then second question I had was on pricing. You mentioned that your pace of realization exceeded your prior expectation. I guess two facets number one was all of the December 1 increase implemented by March 31 or is there a residual to come. And then second, given your expectation of higher raw's, again relative to last quarter. Are there increases recently announced or on the table outside of architectural in the balance of your portfolio. Thank you.

So, on the first piece, no, I wouldn't say that it's been fully executed. We're working with customers across all businesses on stepping those price increases in. On the second question --

On the second question that we, we have gone out in with price in our other businesses. We don't typically talk about those on magnitude in that, but we have where we're certainly seeing pressure from a raw material standpoint.

Thank you. Our next question is coming from the line of Scott Mushkin with Wolfe Research. Please proceed with your question.

Hey guys, thanks for taking my question. I had two. Want to dig into a little bit more on the consumer groups issues where you sort of backorder, obviously you're going to fix it. I guess I'm trying to understand. I think also says across geographies, across retailers that it was kind of across the board. I think you referenced some softness in DIY but looking at it a little bit deeper I was wondering you can give us a little bit more color on what you think you exactly led to such broad based conditions in that segment and how you fix it.

Yes, I mean little hesitant to do that, and only because from a strategic standpoint, I want to play my cards a little close to our best. I do feel though that it's fair to say that the teams that we have around the world, but particularly here in the U.S. because of the size of this business. Our focus on those areas as I mentioned earlier, I'm trying to help our customers to be more successful by selling more products rather than getting products in the shelf lane out the specifics on how we plan on doing that's something I'd rather show you the results and explain to you as we're working on these what we're doing.

But how about what went wrong I mean do you think with specific to you guys or do you think it's just the weakness in the market. I mean where maybe some light there on what went wrong?

I mentioned that we have not experienced any shelf loss. I wouldn't say that we're -- we're feeling as though we're on the backend of any deals that went the other way but at the same time we're far from complacent, assuming everything is okay. We have -- we have very high expectations of our team and I do think that they found themselves as I mentioned in a challenging market. That said, we have higher expectations for ourselves and our investors should have higher expectations of us.

Right. And just switching gears and goes to my next question is in the Paint Stores Group as we've seen -- saw last summer things slow down, some of that was labor but also there was this idea I think it came up in the third quarter that Do-It-Yourself is really just not all that robust and of course we're just having other discussion whether it's DIY market mostly. I mean how confident are you as we get to the second and third quarters you are particularly at third quarter which even the Paint Stores Group has more of a DIY component to it that we won't see the same slowdown, we have seen we saw last year?

Well as I mentioned and as Bob mentioned as well and we're now waiting to see last year's second quarter when we started to hear from our customers that they were concerned with their ability to grow their business. We started right then mobilizing our sales organization to effectively increase the number of accounts that we have an account activation program. So the good news that we see is that the fundamentals of the market are very, very strong, it's a matter of how much our customers can apply product and so many of them as we've said found themselves at capacity. Well when you find your customers at capacity and you want to grow your business, you got to find new customers and so we've been working very, very hard at both the share of wallet customers that are currently in our store that offer more opportunity as well as customers that are in other locations buying product and we've had some success there. So we're not waiting for the second and third quarter to play out. We're taking steps right now to control our future and we'll see how effectively we're compared to what the constraints in the markets are. But we're not just waiting for things, good things to happen to us.

That's great news. And then just one technical how big is DIY and Paint Stores Group in the third quarter is it proportionately a lot bigger and then on yield?

Scott we've described DIY has been between 10% and 15% of the segment. It would be less than that; it would be smaller in the first and fourth quarters.

Thank you. The next question is coming from the line of Scott Rednor with Zelman & Associates. Please proceed with your question.

John and Bob whoever wants take it. Just a question on that, given that you posted growth at DIY at the stores and that's a pretty big gap relative to what you're calling from mark in the consumer, how would you explain that differential?

Well few things, Scott first the DIY number that Bob just quoted as far as our percent of sales was a total year it's a first quarter is a relatively small quarter for us in DIY. There is a shift clearly there is a shift from do-it-for-me to do-it-yourself to do-it-for-me. But there is still an awful lot of opportunity for us to continue to grow our business. Inside our stores we talked to DIY consumer because it's an important component not only in trying to grow our business but the DIY is a relatively small piece, we want that homeowner accepting our product coming in the door with the painting contractor. So in the first quarter, while it was up slightly, I'd say it's a relatively small percentage of our business it is the first quarter.

And then I just wanted to ask about the approach to guidance, I mean even with that headwind on consumer and you think it's getting better stores came in better than you saw in the first quarter and you guys beat by $0.20 on a kind of a core basis. So recognizing you have ROTH coming up, can you may be just explain the approach so holding the full year stable even though you're coming out of 1Q better than you thought?

Yes, you're right, we are pleased with our results in Q1 and again pointing to stores and even our Global Finishes Group momentum, we feel good about that. We've got great confidence in our strategy and great confidence in our team, so that as I feel like I have repeated a few times here, it's important part of our culture here and Sherwin, there is no complacency despite the fact that we had a good first quarter. But that said, and if you'll pardon a sports analogy I know you're a Yankees fan, but I'll use our beloved Cleveland Indians which we're very proud of. First inning of the game they may put a lot of runs on, on the scoreboard, but they don't start packing our bats after the first inning and so Scott, I'd say we're not packing our bat after the first quarter, we typically earn about I'd say between 15% and 20% of our full-year EPS in the first quarter and I'd say probably what else 65% to 70% in the middle two quarters.

Yes.

And so in other words we make our year in those middle quarters so not to overuse it but after the first quarter we're not ready to pack up our bags and go home. We've often said here at Sherwin that here is a strong weak in July can make up for a weak month in the first quarter. So while we're confident in our outlook and we have plans in place to sustain our momentum throughout the year we prefer to wait until we get this second quarter under our belt before making any adjustments in either direction to our full-year guidance, lot of confidence but we just think it's prudent to, to see this through.

I appreciate that John. I hope the hot start for the Yankees continued to but and then just lastly, maybe just on the cash flow obviously is very strong and 1Q atypical that you generate any cash is there anything we should be aware of as we think about the full-year timing or some normalization.

Yes, if you look at our cash benefit in the first quarter net income obviously grew very nicely. We did get the benefit of the cash flow hedge settlement in our first quarter that was about $88 million. And then if you remember, coming out of our year-end 2015 our working capital as a percent of sales was really low was 8.6% and then when you look at the impact of working capital on cash flow the change first quarter versus year-end so we saw a much bigger change in our first quarter 2016 than we saw in our first quarter 2017 due to the timing of payments. And so you won't have, you'll have that rollout, but it will be much more muted as the year goes on.

Thank you. The next question is coming from the line of Mike Sison with KeyBanc Capital Markets. Please proceed with your question.

Hey guys, nice quarter. In terms of your outlook for industrial demand, it sounds like it's incrementally gotten better as the quarter unfolded. What are your thoughts there as you head into 2Q and Valspar closed here any general thoughts you feel even more excited on what Valspar could given they've got more industrial exposure.

Yes but we better, right we've sort of lot of money to get those yes, we're very excited about what they bring very complementary in nature. We have gotten those, some of the people inside Valspar deeper into the organization and we're just absolutely thrilled with the team their approach, their attitude. We're anxious to be able to exchange more information and, but we know that's right around the corner. You're right, our feeling about how our team in the industrial side of our business has been doing has us feeling more bullish than we have in the past and that comes from a number of different areas. One is they have there was a question earlier, I think Greg asked about SG&A and our management of SG&A on the Global Finishes Group side, they've been managing that business very well. So, they're positioned quite frankly to be able to flow a lot of -- a lot of profit through our incremental sales. And the pipeline of customers that they've been working on line trials and the confidence that they have going forward has definitely improved. So we're feeling pretty good about that team and what they're trying to accomplish and likelihood that they'll get there.

Great and then one quick follow-up for the Consumer Group if your team and plans are successful for -- would you expect sales to turn positive this year at some point in the given quarter -- earlier than expectation?

No, Mike, I think if you look at our sales guidance again in our second quarter, mid-to-high-single-digits in that guidance, you have to expect that our Consumer Group will perform better than it did, certainly in our first quarter.

Yes, we've not lowered our expectations of that team.

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

Good morning. I guess I got one last minute to say that.

Good morning, John.

On the Valspar purchase price premium I assume that you'd like to assign as much as possible to writing up finished inventory to market. Should we expect that you and Valspar are producing and holding as much inventory, inventories you can prior to closing so you can expense more of the premium in the first year.

No, John, I would that is not the case. I think what you probably saw in our results we carry more inventory in our first quarter and the reason we did that as with the strong sales of our Paint Storage Group coming out of the fourth quarter and the momentum they carried into our first quarter. We wanted to make sure we continue to service our customers that a high level. So we ended up carrying more inventory on the Sherwin side and that’s why you saw the working capital up a little bit year-over-year, but I would not say that's a driver of the inventory.

And John I know from our past discussions that you know this, but we couldn’t coordinate anything like that with Valspar anyway. I mean that's on the other side of the wall. So we're not allowed to have those types of discussions.

Do you have any update to the amortization expense for 2018 or first 12 months?

I do not we're still, we're still working through that valuation and again on that side it's really Valspar's working on that. And we'll see that as soon as the detail related to the valuation as soon as we close. But we're not in able to see all the detail related to step up and assets and the like as soon as we know, John, we will be out and giving you that information.

Thank you. Our next question is coming from the line of Dmitry Silversteyn with Longbow. Please proceed with your question.

Well, I guess mine is the first good afternoon question.

Good afternoon, Dmitry.

Couple of questions, first of all just, trying to understand your margin performance by divisions, you've had very strong growth obviously in volumes in the store group and that seems to -- with the offset price increase in the raw materials, it drove the margin up year-over-year, which I guess. What I'm struggling to understand a little bit is your Consumer Group where your revenues were down, your volumes were down. I don't think you've got price increases in there. Your raw materials were up and your margin were still up better than the point year-over-year. So can you talk about sort of what you're doing on the cost side or the mix side to allow you to get that margin lift.

Sure. Dmitry first off, I think the team has done a nice job at reducing their SG&A in this environment. But the other thing you have to remember is our global supply chain runs through that segment and we're seeing nice operating efficiency improvements with the gallon that Paint Stores Group is producing in flowing through that group.

Okay so that so volume impacts from the paint stores. Okay.

Right.

Okay. And then my second question is that you really have spent a lot of time talking about your Global division, which is more industrial and more global as name implies. So can you provide a little bit more of sort of a granular color on perhaps some of the regions or some of the business lines or industries that have done well for you. I mean the mid-single-digit growth you delivered is a little bit higher than your averaged the last two, three years in that division.

Yes, you're exactly right now Dmitry and across the board, and all three of those areas. We saw an improved run rate. And I'd say we're feeling good as I mentioned just a moment ago about the pipeline of tests and trial runs that we've had continues to move in the right direction. We've been aggressive in the SG&A side on that business. And at the same time, we've been investing in new products and people that we feel can help drive our business forward. And so I'd say that across the Group through the three different businesses we saw sales gains across all three. We're feeling good about the momentum that they're gaining as they as they go forward. And as I mentioned the number of qualified trial runs that we've been on, has improved. So we're feeling better going forward.

Okay, thanks. And then one last question, you mentioned the foreign exchange didn't have much of an impact on revenue growth in the first quarter. But I'm imagining it wasn't zero impact. So what was the foreign exchange contribution or the headwind in the first quarter on the revenues?

I mean it was less than 0.1%

Thank you. The next question is coming from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.

Wondering if you can address your marketing spend in the first quarter. Obviously, we've already talked a little bit about the SG&A declining as a percent of sales, and I'm wondering if there were any changes related to timing or spending on the marketing front?

No, there were really no significant changes in the spending or timing, Mike. I'd say there were; as we look at SG&A, I think we've we have looked at those types of efficiencies where we might have had two different business units buying different products from -- from different suppliers or partners. I mean just the basics that you would have expected. But given some of the size of some of our spend it can be fair savings so and then we're looking at trying to be as smart as we can with our spend without impacting the face to the customer.

I was also hoping you could talk a little bit about the as you're moving towards closing on the Valspar acquisition, how do you plan to handle the Valspar brand at Lowe's obviously that's one that Lowe's and Valspar spent a lot of money on and that was a big marketing push but probably less efficient for both you and Lowe's to support both of those brands going forward Any thoughts on that?

Well, sure we have a lot of thoughts about the value of that brand I mean that's tremendous asset and one we want to get behind. We help -- we think it helps us with all our customers certainly not just Lowe's but it helps us with current Valspar customers as well as customers that are currently buying Sherwin-Williams branded products as the technology that we have -- we purchased can be moved into other different brands or other different customers. But all of those -- all of those decisions always come back to what I mentioned earlier, which is working with our customers on helping them to develop the best plan to help them grow more -- grow more product going out of their stores. So you asked specifically about Lowe's that but it could be with every customer that we're going to have combined we'll sit down with each one of them and develop a plan and how to best utilize all the assets that we have.

All right. And then last one I have is on the Latin America business you opened 23 new stores in Q4 then you only opened three in Q1 can you provide any sense on where you expect the store count to be at year-end 2017 relative to the 342 that you had at the end of Q1?

I think what you'll see is we opened 47 new stores last year. I think -- I think you'll see a slightly lower number than that and it's based on timing in the markets and similar type of issues we run into in the U.S.

Thank you. The next question is coming from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed with your question.

Thank you. Good afternoon, everyone. I was wondering if you could talk about the potential impact from big infrastructure bill coming up potentially.

We love big infrastructure bills. Our Protective & Marine team has a good position in many aspects of the structural steel, the bridge and highway, water-wastewater, pretty much across the board. So we have -- we believe a terrific product line an outstanding distribution model, which we can utilize various stores that are properly equipped to take care of our customers that terrific technical people and a wonderful sales organization. So we've got a good position there and we'd love nothing better to see spending in this area.

Have you included any potential gains in your current expectations for the year or it will be a bonus on top of whatever you're expecting now.

We have not included any specifics to any kind of an infrastructure bill.

Okay, thanks. And then if I may, you have given the June 21 as the date to close the Valspar transaction could the timing of that closer trends can it be sooner than the June 21?

It certainly can. Our expectation would be that it is most likely to close before the June 21 date, it doesn't, we have not given that as the date of close. So the agreement that we that that we had signed originally with Valspar provided for to a provision a three-month extension, it happened to land on June 21 that was the three-month extension. So our hope and expectation as we move through that process is that we'll be able to close before then.

And do you have the total CapEx number for the combined companies?

Not quite at this point, Rosemarie. I think I mean we are both running around to a little bit over 2% in short-term. I would say that's probably going to hold but mid-to-long-term, we see that come down as a percent of sales.

Thank you. Our next question is coming from the line of Chuck Cerankosky with Northcoast Research. Please proceed with your question.

Chuck?

Chuck your line is live; you may proceed with your question. We will move onto our next question which is coming from the line of Greg Melich with Evercore ISI. Please proceed with your question.

Could you -- I think you said price, volume, mix were all positive. But could you give us a little more insight as to how much of that the Paint Stores Group comp was volume versus price mix?

Yes, Chuck, we talked about getting good traction on pricing. I'm sorry Greg, we have talked about getting good traction on pricing so far in Paint Stores Group but the vast majority of Paint Stores Comp was volume.

Okay. So I could assume that's like better than 5%.

Yes.

Will be the vast majority, great. And then a follow-up and maybe it's certainly around you touched on a little bit in Latin America and we were finally I think I heard in the prepared comments that we got top-line growth but the volume is now improving but less negative, did I get that right? And if that's so are there any markets where actually is up or maybe okay.

I'm sorry, go ahead please.

So just if you could talk a little bit about that, like volume in Latin America was still down but down less and just sort of highlight some of the markets that were outliers will be great?

Yes, so we have had a couple of markets there that have moved in the right direction from what both a sales and volume standpoint. We've had mix that we've had couple that have not broken to that line yet. I would say that even in those areas that we're a little under pressure, we still saw improvement in specific segments. And so we're -- we're feeling better about Latin America as a whole. We're now to the point after release screwing down the expenses there, we have invested a little bit of money in some of the things that we think will continue to drive business clearly will keep that on a short leash. But we don't break out by country or business unit down there Greg, but I would say that it's safe to say that we've had positive momentum in all of them, some of them are in fact, positive volumes.

Great. But the volumes overall are still down, but just down less than they have been in a while.

They're just slightly negative, just slightly.

Thank you. The next question is coming from the line of Stephen East with Wells Fargo. Please proceed with your question.

Thank you. John, I'll apologize to you before I ask another consumer question. But as you looked at the monthly progression through the quarter, what it looked like and following on that, how much as you look in the forward quarters, how much of this is market recovery versus what you all are doing with specific actions?

I would say from a quarter-to-quarter, I'm sorry month-to-month within the quarter is there was choppiness; there was no trend that I could speak to that. And quite frankly that's a little why we were able to manage the SG&A as we did because we didn't see any traction earlier on in the quarter and so since the November, October time last year we've been really trying to manage the expenses on this business. Going forward, I'd say that the expectations that we have would have to include catching up on some of the business that we had expected to see already and it's going to be hard to say how much of that is market improvement and how much of that is some of the product that we had hoped would have been shipped prior to this moment actually getting shipped. So it's going to be a little difficult for us to have that clean line of sight. Again I'd reiterate that and we're feeling good about the relationships that we have with our customers and not having experienced a specific loss of any space. We truly believe that working with our customers and this is what we have been working on to make them better is going to be the answer.

Okay, thanks. And then in the spirit of the first 100 days of the administration, your first 100 days with Valspar where do you all sort of rank order your focus areas very early on in the combination of the two companies?

Customer is number one always number one. We want to get in front of as many customers as we can. We've got a very detailed plan on how we approach this and we're anxious to get in front of those customers as quickly as possible. Number two employees. We've got because of the line of sight of our customers is somewhat muted, we don't have specific customers to see we can't exchange that information. We have plans to be in certain business units to visit with those key customers but we do know where the employees are and so getting in front of those customers, employees, and working with them to really put them at ease on the exciting future that they're going to have with Sherwin-Williams would be second. From there, there is a great deal of effort that has gone into the blueprinting of the businesses, how we're going to move forward in areas such as removing complexity, value capture, exchange of information, exchange of technology, and each business unit has mapped those out in great detail. Again there are limits in what we can exchange but there's a lot of things that we can and so we've had the right people engaged in the room in talking about what those priorities are and we've got that down business to business, line by line and we're very excited, if there's been any positive at all to this business taking a little longer to be combined than what we would have liked, it's been our ability to work in greater detail on some of the things that we may not have gotten to until month two or three. But with the additional time, we've been able to get deeper, where legally allowed.

All right. I appreciate the in depth on that. Thanks.

Thank you, Stephen.

Thank you. It appears there are no additional questions at this time. So I'd like to pass the floor back over to Mr. Wells for any additional concluding comments.

Thanks, Jessie. Back on April 3rd, we announced that we are rescheduling our financial community presentation from our original May 25 to October 3. Our intent all along this year was to focus the meeting on the details of the Valspar transaction and integration progress and needless to say with the delay in closing the acquisition, these details aren't going to be available on May 25. We think postponing the event to fulfill our original intent will be more valuable to you and the presentation will still be held at the Marriott Marquis in New York, we hope you can join us. Registration details will be emailed late summer and we look forward to hosting a great meeting and we thank you for your flexibility. As always, I will be available over the next few days to handle any follow-up questions that arise as you digest this morning's call. I'd like to thank you again for joining us today and thank you for your continued interest in Sherwin-Williams.

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.