Bob Wells - SVP, Corporate Communications John Morikis - Chairman and CEO Allen Mistysyn - CFO

Jeff Zekauskas - JPMorgan Chris Parkinson - Credit Suisse Arun Viswanathan - RBC Capital Markets Ghansham Panjabi - Robert W. Baird Steve Byrne - Bank of America Robert Koort - Goldman Sachs Vincent Andrews - Morgan Stanley Don Carson - Susquehanna Financial Duffy Fischer - Barclays PJ Juvekar - Citigroup Mike Sison - KeyBanc Capital Markets Scott Mushkin - Wolfe Research Scott Rednor - Zelman & Associates Stephen East - Wells Fargo Laurence Alexander - Jefferies John Roberts - UBS Christopher Perrella - Bloomberg Intelligence Dmitry Silversteyn - Longbow Mike Harrison - Seaport Global Securities

Good morning. Thank you for joining the Sherwin-Williams Company's Review of the Second 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, August 9th, at 5:00 P.M. 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 speak only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in 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 Jesse. 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, including a slide deck describing our new reportable segment on our website sherwin.com, under Investor Relations July 20 press release. I'll begin by highlighting overall company performance for the second quarter 2017 compared to second quarter 2016 then comment on each reportable segment. Consolidated net sales increased 16% or $516.3 million to $3.74 billion due primarily to the Valspar sales in June and higher paint sales volume in the Americas Group and Performance Coatings Group. The change in revenue classification increased consolidated sales 2.2% in the quarter. Consolidated gross profit dollars increased $101.2 million or 6.2% to $1.74 billion in the quarter. Our consolidated gross margin decreased 430 basis points in the quarter to 46.5% of sales from 50.8% in the second quarter last year. Selling, general, and administrative expenses increased 9.3% or $97 million over the second quarter last year to $1.15 billion. As a percent of sales, SG&A decreased 190 basis points to 30.7% in the second quarter this year from 32.6% last year. Amortization increased to $28.9 million from $5.6 million last year due entirely to the increase in intangible assets related to the Valspar acquisition. Interest expense increased $15.8 million compared to second quarter last year to $56.7 million. The vast majority of this increase was acquisition-related interest expense. Consolidated profit before taxes in the quarter decreased $30.2 million or 5.6% to $509 million. Our effective tax rate in the second quarter on income from continuing operations was 29.1%. For the full year 2017, we expect our effective tax rate will remain in the high 20% range. Consolidated net income decreased $59 million or 15.6% to $319.1 million. Net income as a percent of sales was 8.5% compared to 11.7% in the second quarter last year. Diluted net income per common share for the quarter decreased 15.8% to $3.36 per share from $3.99 per share in 2016. The $3.36 includes a $0.44 charge related to the Valspar industrial wood finishes divestiture and a $0.92 dilution from acquisition-related expenses, including a step-up in inventory and depreciation and amortization. We have summarized the year-over-year earnings per share comparison in a Regulation G reconciliation table at the end of our second quarter 2017 press release. Looking at our results by operating segment, sales for the Americas Group in the second quarter 2017 increased $196 million or 8.7% to $2.43 billion from $2.24 billion last year. The sales increase was primarily due to higher organic paint sales volumes across most end markets, the impact of the revenue reclassification and selling price increases. Comparable store sales in the U.S., Canada and the Caribbean, that is sales by stores open more than 12 calendar months, increased 4.9%. The change in the revenue classification is not reflected in comparable store sales. Regionally, in the second quarter, our Southwest division led all divisions, followed by Southeastern division, Midwestern division, Eastern division and Canada division. Sales and volumes were positive in every operating division. Segment profit for the group increased $33.3 million or 6.7% to $532.7 million in the quarter as higher architectural paint sales volumes and selling price increases were partially offset by higher raw material costs and continued challenges in the Latin America region. Segment operating margin decreased to 21.8% of sales from 22.2% in the second quarter last year. If you exclude the change in the revenue classification, segment profit margin in the second quarter increased to 22.6%. Turning to the Consumer Brands Group. Second quarter sales increased $74 million or 16% to $536.5 million due primarily to Valspar sales in June, partially offset by lower volume sales to most of the group's retail and commercial customers. Segment profit per consumer brand decreased $27.1 million or 26.3% to $76.1 million in the quarter due primarily to acquisition-related inventory step-up and increased amortization cost totaling $20.5 million and lower sales volumes, partially offset by improved operating efficiencies, good expense control, and selling price increases. Segment profit as a percent of external sales decreased to 14.2% from 22.3% in the same period last year. Most of the impact in segment profit margin was from acquisition-related expenses and higher raw material costs. For our Performance Coatings Group, sales in U.S. dollars increased $246.9 million or 48% to $761.1 million in the quarter due to Valspar sales for the month of June, higher coatings sales volume and selling price increases. Stated in U.S. dollars, second quarter segment profit decreased $8 million or 11.4% to $62.3 million due primarily to acquisition-related inventory step-up and increased amortization cost totaling $38.3 million. As a percent of sales, segment profit decreased to 8.2% from 13.7% in the same period last year. I'll conclude my remarks on the quarter with a brief update on the status of our lead pigment litigation. In the Santa Clara County case involving public nuisance claims brought by 10 California cities and counties, we filed a Notice of Appeal in March of 2014, which was fully briefed by February 2015. Last week, the Sixth District Court of Appeals for California scheduled the date for oral argument on the appeal for August 24th of this year. We believe a decision could be rendered by the Appellate Court within 90 days following oral argument. That concludes our review of second quarter results for 2017. So, I will turn the call over to John Morikis, who will make some general comments and highlight our expectations for third quarter and full year. John?

Thank you, Bob. Good morning everyone. Thanks for joining us. I know the purpose of this call is to review the past three months. However, I think it's only fitting to open my comments this morning with some perspective on our future. Sherwin-Williams and Valspar are now one company. As we said before, the combination of these two businesses will clearly differentiate us in the global paints and coatings market. It significantly expands our brand portfolio and customer relationships in North America; creates a stronger, more global industrial coatings platform than either companies stand-alone; and extends our capabilities into new applications and geographies, including a scale platform to grow in Asia-Pacific. Customers will benefit from our increased product range, enhanced technology and innovation capabilities, streamlined cost structure, and improved productivity. We have tremendous respect for the skill and dedication of the Valspar team and we're excited about the opportunities that this combination will provide to all employees of the new company. The integration work is off to a very good start and although there are some obvious challenges to work through, we're genuinely excited about our future. Some of the challenges I'm referring to are apparent in our results for the second quarter and they affected both sales and profitability. If you look at our results without Valspar, consolidated sales increased 4.2% over second quarter 2016, with a significant portion of the increase coming from the change in revenue classification. Core gross margin declined 140 basis points year-over-year and SG&A as a percent of sales declined 110 basis points. If you adjust for the revenue classification, gross margin declined about 50 basis points and SG&A was down about 60. Adjusted operating margin increased 10 basis points and adjusted profit before tax as a percent of sales improved to a record 17.8% from a comparable 17.5% last year. Revenue and volume momentum in our North American paint stores slowed somewhat from the pace said in the first quarter. We often say that a strong week in June can make up for a weak first quarter. The opposite also tends to hold true. While sales across all segments showed positive growth in the quarter, the sequential slowdown was almost entirely due to softer DIY sales both in the quarter and flat year-over-year exterior paint volumes in the month of June, primarily due to the volume declines in the last two weeks of the month. As a result, exterior paint volumes in the quarter grew at roughly half the rate of interior paint, which is highly abnormal. The combination of weak DIY sales and weak exterior paint volumes negatively affected both revenue growth and mix. DIY is the highest gross margin segment in our stores business and the average selling price of exterior paint is significantly higher than interior. On a positive note, sales to residential repaint contractors once again grew at a double-digit pace in the second quarter. Despite the softness in exterior paint, sales to all residential contractors combined, both new and repaint, grew nearly double-digits. Exterior paint sales momentum appears to be rebounding in July, and we anticipate normal exterior painting activity over the balance of the season, which should support stronger comp stores volume growth in the months ahead. The outlook for continued growth in both residential and commercial markets over the balance of the year remains positive, supported by very healthy order book trends reported by most of our contractor customers and healthy spray equipment sales in the quarter. Protective & Marine coatings sales also improved compared to second quarter last year, but grew less than our overall comp store growth rate. Our business in Latin America was a significant drag on the results of the Americas Group segment. While sales and profitability in the Indian region and Southern Cone countries are showing steady improvement, our largest market in the region, Brazil, continues to struggle. Sales through our company-operated stores in Brazil increased mid-single digits in the quarter, while sales through external retailers and distributors averaged double-digit declines. Our efforts to mitigate rapidly rising raw material costs, particularly TiO2, with price increases has gained some traction, which should stem some of the erosion in operating margin. During the first six months, we opened 27 net new stores and added 50 new sales territories in the U.S. and Canada and added six net new stores in Latin America. Today, our total store count in the U.S., Canada and the Caribbean stands at 4,207 compared to 4,117 a year ago. In Latin America, we currently operate 345 stores compared to 302 a year ago. Our plan for the full year still calls for the store openings in the range of 90 to 100 net new locations in the U.S., Canada and the Caribbean compared to the 94 last year. Consumer Brands Group, ex-Valspar, also posted another very disappointing quarter with declining sales across most product categories and market segments in most geographic regions. This weakness was particularly acute in Europe and in smaller retailer comps in the U.S. and Canada, but sales to all customer segments declined compared to second quarter last year. In the U.S. and Canada, many retail customers report slow sales of architectural paint so far this season and many have scaled back inventories as a result. From a margin perspective, most of the operating margin decline was from lower gross margin, which was partly the result of raw material inflation and partly due to absorption loss from lower volumes. Performance Coatings Group, excluding the Valspar results, was relatively flat year-over-year on both sales and margins. If you break down sales by geography, the strongest region by a wide margin was Latin America with strong volume growth in automotive finishes, wood coatings, general industrial and Protective & Marine. Sales in the U.S. and Canada were relatively flat, and Europe and Asia were down year-over-year. This group has done a commendable job of managing SG&A spending and implementing price increases where necessary to offset raw material inflation. As a result, the group is geared to earn high incremental margins when we get volume growth on a stronger track. So, the common theme running through all of our core businesses in the second quarter: not enough volume. Each of these businesses is well managed. Our expenses are in line. We have great pricing discipline and the most productive supply chain operation in the industry. Most of our shortfall in the quarter was related to weak volumes. Valspar sales in the month of June were approximately $380 million, an increase of about 12% over June last year. A large portion of the increase resulted from a favorable calendar comparison, which added two shipping days to the month. Operating margins for the Valspar paints business, which consists of architectural paint and related products sold in the U.S., Canada, Australia, China and the U.K., held up pretty well early in the year, but faltered in June. The coatings business, which includes packaging coatings, coil coatings, industrial wood coatings, general industrial, automotive and protective and marine, saw significant operating margin compression year-over-year. Margin declines in both of these businesses were due primarily to the lag in implementing price increases to offset raw material inflation. Given the spike in petrochemical raw materials early in the year, the large customer concentration of this business and the uniqueness of the situation over the past year, this lag is not entirely surprising. This issue is receiving a lot of attention and will take some time to address. But historically, these businesses have been successful at recovering raw material inflation due to the strong customer value propositions. In the first six months of 2017, we generated $539 million in net operating cash, an increase of $29 million compared to the first half of 2016, driven by higher six-month net income and lower working capital requirements. Year-to-date, capital expenditures totaled $84 million and we anticipate approximately $240 million in capital expenditures for the full year. Depreciation was $95 million and amortization was $35.1 million. Total company borrowings on June 30 were $11.5 billion and our 12-month interest expense is projected to be approximately $400 million. Incremental depreciation and amortization step-up related to the Valspar acquisition is projected to be $275 million on an annual basis. Purchase accounting inventory adjustments of approximately $110 million are being amortized over three months of June through August 2017. During the quarter, we made no open market purchases of our common stock for treasury. At the close of the second quarter, our cash balance was $210 million compared to $403 million on June 30th, 2016. This cash will be used to reduce debt. Yesterday, our Board of Directors approved a quarterly dividend of $0.85 per share, up from $0.84 last year. On the first quarter 2017 earnings call, I said our expectations for average year-over-year raw material inflation was in the mid-single-digit and that outlook hasn't changed. As expected, the price volatility in resins, latex, solvents and packaging, caused by an uptick in propylene and tight supply of key monomers early in the year has moderated. Low TiO2 inventories will continue to drive modest inflation in pigments, but not likely to be on the range anticipated in our overall raw material outlook. The price increases announced in our core Sherwin-Williams businesses continued to gain 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. There's also little change in our outlook for paint and coatings demand. Domestic architectural paint demand should remain strong throughout the year and worldwide demand for many of our industrial products, including protective and marine coatings, should continue to strengthen. These market factors create a positive backdrop, but our success will rely on accelerating volume growth through market share growth. For the third quarter, we anticipate Sherwin-Williams' core net sales to increase in the low to mid-single-digit percentage compared to last year's third quarter. In addition, we expect incremental sales from the Valspar acquisition to be approximately $1 billion in the quarter. At that anticipated sales level, we estimate diluted net income per common share in the third quarter to be in the range of $3.70 to $4.10 per share. This includes a charge of $1.10 per share for costs associated with the Valspar acquisition. It also includes $0.40 to $0.60 per share accretion from Valspar operations, net of acquisition financing expense of $0.40 per share in the third quarter. As a reminder, third quarter 2016 earnings were $4.08 per share and included $0.24 per share charge for acquisition related costs. For the full year 2017, we expect Sherwin-Williams' core net sales to increase by mid-single-digit percentage compared to full year 2016. In addition, we expect incremental sales from the Valspar acquisition to be approximately $2.4 billion in 2017. With annual sales at that level, we are updating our guidance for full year 2017 diluted net income per common share to be in the range of $12.30 to $12.70 per share. Full year 2017 diluted net income per common share guidance includes a $2.50 per share charge from costs associated with the acquisition of Valspar and an increase of $0.75 to $0.95 per share from Valspar operations. The increase from Valspar operations is net of acquisition finance expense of $0.95 per share for the full year. Full year 2016 earnings per share was $11.99 and included $0.86 per share related to the Valspar acquisition. 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'll be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Hi good morning.

Good morning.

Hi. In your Consumer Brands business, did the Valspar piece perform differently than the Sherwin piece? And is it reasonable to look at that segment as being down about 12% organically in sales in the quarter?

Well, let me take a stab at this Jeff and say that the weakness that we saw first in the quarter -- first quarter to second quarter was pretty broad based. And when you ask about how the performance is performing, there's obviously two components to it; our sales out our door and then to the retail customer themselves. So I would say that -- to your question about how they're performing, I'd say out the door, our expectations are they're running in a similar pace from the PoS data that we can see from our customers, although, admittedly, that's limited. But in the door, I would say that our gallons are running shorter or smaller than Valspar's.

And Jeff this is Al. I would add. And part of the reason that is, just the tight inventory control that we're seeing across the channel due to what we believe to be general softness in the DIY market.

Yes, I'd say many of our customers in this segment are struggling to grow, and some are going backwards. And as a result they're managing their inventory.

Are average prices in the Consumer Brands Group going up or down or staying flat?

Are you talking about our prices, Jeff?

Well, both your prices and then how you look at it with Valspar when you look at it pro forma year-over-year.

Jeff, I -- we -- I don't think we've historically talked about pricing specific to the Consumer segment. We generally stick to our Paint Stores Group when we talk about, as an example, price increases. So, I just -- with the mix of products in that, I don't think it's appropriate to talk about specific pricing in consumers -- in our consumer segment.

Okay, great. Thank you so much.

Thank you.

Thank you. Our next question is coming from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.

Thank you. While you've been working on Valspar over a year, can you just comment on any initial surprises, either positive or negative, now that you've had almost two months full of the books and just in terms of product marketing, raw material procurement, culture and anything else you may find as an opportunity on a go-forward basis? Thank you.

Yes. I would say that we're very pleased. In fact, I'm probably more bullish about Valspar right now than I ever have been. I'll start with the quality of people. We've had the opportunity to spend more time from leadership all the way down to those customers that are closest to our customers. And I have to say that I have a lot of respect going into it. I'm really impressed and very pleased with the quality of people that we see. We've not seen anything -- and you mentioned about synergies. We've not seen any in the first 45 days here that had me anything but excited and confident in our ability to deliver on the synergies that we've talked about. And I would say that as we've dialed in more and more into product quality and technology, it just feels like we're finding more upside as we go through that. Now the one side I -- one point I will say that, to be completely transparent on the downside, is that I wish they would have been a bit more proactive in their pricing. If you look at the historical performance of Valspar and their ability to demonstrate the value to their customers and move with inflation, they had been very successful. And this is the same team that will be executing these price increases now. I wish they would have been a bit more proactive. I can also understand after a year and a half of going through an FTC process that a lot of things get maybe pushed aside. But I'd say that we've got great confidence in the team, the value proposition. These are not commodities, these are terrific value to our customers and I wish they would have been a bit more proactive in that activity.

And just a very quick follow-up. You just said on some key trends on pro versus DIY. But just within the pro market, can you just hit on any just broader comments in the performance of your customers across anything from resi and repaint, property management or even commercial? Thank you.

Sure, I'd say let's start with residential repaint. As we mentioned, we had a nice quarter. Again, that will be 13 to 15 quarters that we've had double-digit gains in our residential repaint. And as I mentioned, that's with -- what was going to be a terrific quarter. Last couple of weeks in June just crushed our exterior sales. And as I mentioned, those come along with a higher average sale price. So, we're really pleased with the momentum of our stores organization and the momentum that they have in that residential repaint team. We've got phenomenal leaders, great products, great service and, most importantly, the right people close to the customers. So, we've got a lot of momentum and a lot of confidence there. On the new residential side, we're really pleased with our momentum there as well. We have -- I don't know if I've ever -- we've ever shared this with anyone publicly here, but we've got exclusive agreements with 15 of the top 20 national builders here in the U.S. And yes, and I know the follow-up question, we are working on the additional five. We have that discussion on about a monthly basis. But we've got really good progress there and the value proposition and introducing new products and services to the new residential customers is going well. And our commercial base is one where we've just got really good work course systems and our sales organization works very closely with that customer base. So, we're feeling very bullish about the momentum in the architectural business and really thrilled about our position, but not complacent. We're always challenging our team on how we're going to be better and more aligned with our customers in a differentiating way.

Hey, Chris, this is Bob. And just because we're on the subject of painting contractors, let me break in. And because there's been a lot of debate on whether the labor supply issue is improving or staying the same. From our perspective, while it may be approving -- improving marginally in some regions of the country, I think in most of the country, we're still seeing pretty chronic labor supply shortages. In the Southeast, Southwest and West in particular, those are the tightest regions and certainly, the impact on project count is pretty significant. Our contractor surveys in every region tell us that contractors would bid more work if they had more help. And most say they'd be willing to pay more to get more qualified labor. So the labor shortages that we've talked about for the last year and a half to two years don't appear to be behind us.

And I'd say the fact that they've got labor issues in some of these markets, they lean more on our people and our stores. So, it really fits well to our model.

It's great color. Thank you.

You bet.

Thank you. Our next question is coming from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Great. Thanks. Good morning.

Good morning Arun.

So, I just had a question on the guidance. So, I guess, just trying to understand the mid-single-digit comment for Q3 and the full year. So, does that kind of -- maybe you can parse that out on your expectations for Paint Stores Group and Consumer where historically, my understanding is that Paint Stores will be at the upper end of that and then Consumer potentially lower. Are you still expecting consumer to lag through the rest of the year and potentially show negative growth for the year?

I'd like Al to answer that, but I'd like to just begin with a question, your point about the consumer side. I think it's important to understand, we're working on these solutions that we think can help our customer and we're going to do that customer-by-customer. And as unsatisfying as this answer is to both you and us, and there's really no quick fix here. The short-term solution of throwing promotional money at this problem is not a solution that we're pursuing. So, the long-term solution is to help our customers drive traffic and convert these footsteps into their -- in their stores into sales and help them to drive footsteps into their stores.

So, Arun, this is Al. The low to mid-single-digits in the guidance in the third quarter certainly has the impact of our tempered view of both the Consumer Brands Group, core business and the Latin America region. And when you look at the full year at mid-single-digits that would tell you that the stores group does have to perform up in that range. And we didn't come off the year on EPS on our core at $0.14, $0.15 and that's really driven by the flow-through we saw in stores. So, if you look at our first half with our U.S. and Canada stores business, 7% same-store sales growth and -- I'm sorry, yes, 6% same-store sales growth and over a 30% flow-through. That would tell you that their second half has to be at a similar pace to achieve the $0.14, $0.15 with the tempered view of Consumer and Latin America.

Got it, that's very helpful. And then I guess, as a follow-up. Just curious with some of the other lag you've had over the last couple of years, protective and marine. You talked about the labor shortage and then price costs. Do you -- so your expectation as far as the question improves as the year unfolds. Do you still expect to achieve about 75% of the 5% price increase for the year?

Yes, we do and our practice of working with our customers through that process is continuing. And we often speak about the fact that we're not out there trying to jam a price increase in immediately. We work with our customers, and those phase in over in the Sherwin-Williams side in the six to seven-month period. It might be a little bit longer on the OE side for Valspar. It might be a six to nine-month with some of the agreements that they have. But it is clearly our intention that these products, services and the total value proposition are going to allow us to continue to push those two. But we'll do it at the right place to retain our customers.

Hey, Arun, a quick point of clarification. The range of price increases that we took in our stores was 3% to 5%. The average was about 4%, not 5%. So, 75% of 4%.

Got it. Thanks. And any thoughts on Protective & Marine, the outlook there?

Yes. We're actually feeling pretty good about our Protective & Marine, and we had a nice turn here in the quarter for our -- and particularly, our North America petrochem had some nice swing. As I mentioned in my prepared remarks, slightly below our core business, but clearly moving in the right direction. And we're -- we've been talking in the last couple of quarters about the shift or pivot, as we call it, into some of these additional segments. We're getting very good traction there. There were a couple of segments that we see projects. We see them on the Board, but they've not been released primarily in the infrastructure. If you look at bridge and highway and water/wastewater, there has been some projects that are in discussion, I'd call it, but have not been released. The pressure -- and I also mentioned in Latin America, we saw a nice turn in our P&M business in Latin America. The two areas that we continue to see pressure in Protective & Marine, and albeit they're smaller businesses in relationship to our stores business, would be in Asia and in Europe. We continue to see pressure on our P&M business there.

Great. Thanks.

Thanks Arun.

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

Hey guys good morning. First off, going back to the weakness in exterior paint the last two weeks of June. Was that weighed upon by any particular region? There were parts of the country that were extremely hotter than the month of June. I guess, what are customers telling you in terms of the weakness there looking back?

Yes, the largest division that was impacted was our Southeastern division. These divisions take a lot of pride in competing with each other. And Southeast is -- has been one that has been leading the pack here for quite some time. And I would say, going into the final lap here, if you will, of the third quarter, they were in a pretty good position, but they clearly felt the impact in the last couple of weeks. And our Southwestern division did a wonderful job in capitalizing on that opportunity and leading the pack for our stores organization.

And because it was Southeast has been consistently one of the strongest demand regions in the country, we do not believe that the slowdown in exterior sales had anything to do with lack of demand. There is high demand for exterior projects in the market right now.

Got it. And then even with the weakness in the consumer channel, you're still going to have to deal with higher raw material costs, I would imagine, going into 2018. Can you first give us a sense as to when the U.S. do-it-yourself paint channel realized a price increase? And then second, how do you plan on offsetting this -- the inflation that we're starting to see? Thanks.

Well, we're going to offset that by working with our customers on the need for our pricing and the timing. Al just spoke to the fact that we're bringing a little more clarity to our stores' pricing given that they are, in fact, our own stores. We prefer not to talk about pricing as it relates to our consumer business. But suffice it to say that the basket of raw materials are moving and we're talking with our customers about the needed price increases to offset that raw material basket shift.

Got it. Thanks so much.

Thanks Ghansham.

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

Hi. Bob, your recent comments about pricing increases and so forth, is it fair to say out of that 5% same-store sales growth, 3% was price, 2% volume?

About 200 basis points, price; the balance, volume, Steve.

And is there some drag on that from just a year-over-year mix shift having less exterior paint?

Well, the exterior and DIY, we had a soft DIY performance in our stores and, we believe, in the entire market.

And are you still lagging the raw material cost push? And do you expect that you'll be in a position to keep pushing price into 2018?

Just talking to the Paint Stores Group, I think the effectiveness that we've talked about in our price increase has been very good. I think as you talk about looking out, we're monitoring the raw material basket. And as we get a better line of sight to that, we would certainly talk to our customers first, like we have in the past. We'd also absolutely try to push back on our vendors or find our cost offsets in our own organization before we go talk to our customers. But then absent of those offsets, then we will talk to our customers first and then let you all know.

And then lastly, your 3% volume growth, how would you compare that to the overall architectural volume growth in the states?

It's difficult to tell at this point, Steve, because we haven't heard enough public reports from the second quarter. It feels to us like DIY has been very slow. And the other comment I'd make is that while our exterior business was soft, we doubt we're the only one that felt the impact of slow exterior sales in the latter half of June.

I'd also say that the exterior business is oftentimes a contractor-applied product. There are certainly many DIY customers that apply their own exterior coatings. Let's say that many customers, when it comes to tackling a DIY project, would prefer that to be an interior versus exterior. So, we may feel a little bit -- and again, this is on the shorter term, we may feel a bit more of a pinch on the exterior gallons, given our mix heavily towards the contractor. But we've got -- as Bob mentioned, we have a lot of confidence in the trend here and we don't feel this is a demand issue.

Okay. Thank you.

Thank you.

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

Thanks very much. Good morning.

Good morning Bob.

John, I was wondering if you could talk a little bit about the synergy opportunity in front of you. You mentioned you've probably had a little longer than you like to look things over and potentially have less divestitures maybe than you could have feared from the regulators. So, can you talk a little bit about what you're finding now on the synergies and what the pace of that synergy capture will be?

Yes, I'd say, Bob, here in the first 45 days -- and to your point, while we had more time than we would have preferred, there were certainly limitations to what we were able to dial into out of respect to the proper process to the FTC. And so truly, we've had about 45 days to dial in. And we're very confident in the numbers that we've posted on -- prior to the close about our ability, from a synergy standpoint, to drive those synergies through the organization and, importantly, as we believe, position the company for growth. And so we feel as though we're trending well. We feel as though there's good engagement by both Valspar leadership and Sherwin leadership and making good decisions that allow us to extract out the -- what we call value capture and, at the same time and more importantly, position ourselves for growth.

And I would say, Bob, we have about $50 million of synergies in our forecast for Valspar core. And when you look at that compared to what we talked about when we announced the acquisition, we had about $140 million in number in our first full year, so that's an annual number. You talk about $50 million -- around $50 million at a run rate. That's probably $100 million. And as we get more clarity and are able to get more discussions across the selling organizations and looking at formulations in that, we'll have a better picture that we'll update guidance accordingly. And we'll give you a clear picture at the FCP conference in October.

Okay. And then if I might ask, on the architectural side, Valspar had different strategies, whether it was the embryonic business in Europe or what they're doing and China or even in Australia or maybe it was the combo of big-box and paint stores. You see any opportunity to harmonize the go-to-market in architectural businesses outside the U.S.? Or what can they do differently under your ownership than they've been doing?

Yes, so we want to look at that, Bob. That's a great point. We want to start with a customer and work back, though, not just what we could bring to that. We do believe that there are terrific opportunities, if it's technology and from a supply chain standpoint, combined with what we think will be a far more efficient. But the most important element here is the customer and so we're going through the process right now of working with our new team members from Valspar on the needs from the consumer and working back to what it is that we bring. And so we're excited about this. We think there are some opportunities. We're anxious to explore them. We've often referenced, you mentioned -- what might be the smallest market, but just because you mentioned it the Australian businesses we've -- they operate, I believe, 64 stores in Australia and we like -- we're anxious to bring some of the expertise that we have in running stores to that business. But we're the first to admit that we're not experts in Australia. So, we're connecting dots here to make sure that what's needed in the market and the opportunity in the markets that the resources, the assets and skill sets that we have in our company.

Great. Thanks very much.

Thank you, Bob.

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

Thanks and good morning everyone. A couple of questions on the Valspar business. As we were watching the company report during that sort of purgatory period of the transaction, the results were coming in weaker than everybody forecasted, particularly on the consumer side of things. So, as you went back and once you were able to look under the hood, what was going on there? Was there destocking taking place? Or were they losing more shelf space, or what's the postmortem there?

I'd say that the thought of their losing shelf space, I mean, first of all, you mentioned the paints business, we were competing obviously with Valspar and one very large customer. And so there was -- there may have been some shift in there. I think as we've got -- been able to pull back the curtain, if you will, I'd say that the opportunities for growth are clearly there. I don't know that the -- as I mentioned earlier, from a pricing activity standpoint, that they were as active as we would like to have seen. But from a volume standpoint, I wouldn't point to market share losses. I might say that they were experiencing, like we were, some softness in the market.

Okay. Just as a follow-up to that, as you look forward with that Valspar paints business, I mean, do you think you'll keep the Valspar brand? Or do you think you'll try to tie that volume into what you've been doing with Sherwin, with HGTV and with Infinity or maybe another application? But what would be the pros and cons of maintaining two brands -- a dual-brand strategy?

Well, it's a terrific asset. I mean, we wanted to build on that. We think there are customers of the Valspar brand that are eager to grow, and we want to help them, and we think that the Valspar brand is a terrific asset to help them do exactly that. I mean, our goal would be to bring the technology and the combined services to each and every one of our customers to help them execute their strategy. And every customer is a little different. They've got different expectations and targets. And we think that combined the Sherwin-Valspar portfolio of resources, people, skills and technologies will allow us to separate from the competition. And so I would expect that we're going to build on those. But I'd also say that we don't make decisions for our customers. We're going to work with them and help them to make the right decision to help them reach their goals.

Okay. Thank you very much.

Thanks Vincent.

Thank you. The 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 your Valspar synergy comment. You said your confidence in your original $280 million assessment. But what were some of the main areas you couldn't look at until you close the company? As I look at manufacturing and distribution, that's only 8%. And looking at previous transactions you've done like Comex, logistics and consolidation and manufacturing plants tended to be a much bigger part of your synergies.

Yes. So, two. I mean, the first and largest would be the raw material costs. We're unable to look at raw material costs formulations. We're not able to look at formulations. And so when you talk about, are there possibilities for consolidation? You can't just look at a map and say, there's two facilities nearby. One is a candidate to be closed. We try to understand the specific needs of every customer, which we were not -- unable to talk about, the specific technology that's manufactured in a plant, which we're not able to talk about, the raw material costs, the suppliers that they're using in those raw materials. There's quite a bit that we were able to do and we're moving aggressively because they were within bounds and there were many areas that were out -- clearly out of bounds that we didn't get near.

And then a follow-up on capital deployment. There's still a lot of consolidation going on, on smaller industrial properties. Are you out of that market for now as you integrate Valspar? Or are you telling the Valspar people that if they see appropriate opportunities that they should continue to pursue them?

We're telling them that if they see opportunities we want to know them. We want to have those discussions. We've been very clear about -- in the short-term our focus is on paying down our debt. But often times -- it's not like we're going to the grocery store and buying something off the shelf. I mean, these are discussions that we have for -- often times, we've had deals that I've worked on for five years. So, we want to know from each business leader, on a regular basis, those opportunities that they feel will help them by enhancing their value proposition to their customers and we want to engage in those discussions now.

Okay. Thank you.

Thanks Don.

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

Yes, good morning. Eventually, we'll kind of subsume Valspar in the reporting, but over the next year, we've got kind of work off their public numbers. If we just look at their last 12 months of revenue and going forward over the next 12, how fast do you see topline growing from them? And then maybe kind of help get faster in one of the segments versus the other.

Yes, it's -- it really does vary, Duffy, by region, by segment. We're excited about that. I don't want to give the false impression that it's going to happen overnight. I mean, we've got opportunities to -- in many parts of the world, we have a broader assortment of products and technologies. But we're going to have to have a supply chain to be able to transfer some of those products. We're going to have to get our sales organization up to speed and aware of the technology. And so there's a whole lot of work going on right now and trying to accelerate that as quickly as possible. And then those were some of the things that we talked about before the close of how we were going to go about that. So we're executing on those plans right now, but it really does vary very much by segment and by customer.

And Duffy, I would say if you look at our guidance, the $2.5 billion for the June through December. You got to remember, they're on a 4-4-5. So, we tried to make their last year comparable to ours, and with that, we think we'd be flat to up slightly, which I think is right in the range of what they've been running.

Okay, great. And then just rolling LatAm into the Paint Stores Group, is that doing anything structurally to how you're running LatAm?

No, I think what we talked about a few years ago was that Latin America, we moved under the Paint Stores Group management team and created the Americas Group back then. We just didn't report it that way. So, with a larger company, Latin America gets to be about less than 5% of our sales and profit, much less than that even, unfortunately. But it didn't make sense leave them as a separate segment.

Great. Thanks guys.

Hey Duffy.

Thank you. The next question is coming from the line of PJ Juvekar with Citigroup. Please proceed with your question.

Good morning John.

Hi PJ.

So, your Consumer Group continues to underperform, sales are down 11%, and I think you said it was broad based. So, I guess, my question is, what is all of this weakness in DIY? Is it that consumers are spending less on paint? Maybe they're spending more on Amazon or something like that?

No, I would say that there's certainly a shift from do-it-yourself to do-it-for-me that's likely accelerated. It's -- often times, when you talk about a consumer, little difficult to put your fingers right on what it is that's driving the slowdown in do-it-yourself. What we're focused on here, PJ, is ensuring that our customers are at the best position to be able to capitalize on the business that does exist out there. There's terrific market share, as we said in review with each of our customers, their goals and providing the lineup of products, brands and services to help them is what we're focused on to be able to do that.

At the risk of belaboring the obvious, PJ, we -- while we don't like to see our DIY business in our stores slowing down, we are the beneficiaries of this shift from DIY to do-it-for-me. John mentioned in his opening comments that we've seen 13 in the last 15 quarters of double-digit growth in our Pro residential repaint business. We think that's a reflection of more people hiring professionals as opposed to doing it themselves.

Okay. So, you don't think there's an issue about dollars being spent on paints or painting in general?

No. Actually, we think that painting activity is pretty strong right now. As strong as it can be, given the labor shortages in the contractor market.

Okay. And then on your synergies -- just on your synergies, are there any true revenue synergies between the two companies? And what I mean by that is are there any Valspar products like cabinet stains that you are beginning to sell through your stores?

Well, we wouldn't want to comment on that specifically. I don't think that's happening. But the point here is that we do see opportunities on the synergy side for us to capitalize. And while we're excited about them, PJ, those are not issues that we're going to lay out right now. But I will tell you that by business unit, as we're bringing these teams together, we went in with some idea and some mindset of where those opportunities are. And I would say, right now, we are very excited about as these teams have come together, the opportunities that they've identified that we haven't even thought of yet. So, we're feeling very good about those opportunities and the momentum. It's going to take us a little time to capture those, but we feel good about what we're finding.

Okay. And lastly, can you give an update on how did HGTV paint do in the second quarter?

Well, we reported our consumer numbers. The HGTV paints specifically, we don't speak to, out of respect to our customer. We allow our customers to report their results. But we did report our consumer results and have clearly indicated that while we feel as though the market is a tough market, we want to see better performance from our team. And they're working very hard, and we have high expectations for them to outperform the market.

Okay. Thank you.

Thanks PJ.

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

Hey guys. Thanks. John, you kind of opened up talking about the long-term potential for the combination. When you think about the drivers for 2018 and which is generally, a little bit long away. But when you think about those drivers to generate earnings growth, can you maybe talk about what you're excited about? And what type of growth we could see?

Yes, I'm excited about every business that these Valspar and Sherwin-Williams teams have come together and touch. I mean, if you look at the complementary nature of these businesses, they offer technology and resources. In many cases, they may be strong where we're not and vice versa. There's areas of strength that we have that they lack, either scale or facility. The combination of the product lines, the relationship with customers. We're excited to be a more meaningful part of the relationship with many customers, where they may have had an OE direct relationship and our focus has been on the tier suppliers into, ultimately, the OE customer. And so we think the combination of people, technologies, the resources, the assets, the facilities that we have, I mean, every single business, when we sit and talk in these meetings and Allen and I are working with them on a regular basis. And we walk away really, really excited about where we're headed here. And we're pushing hard to get it as fast, but we have a common theme that we're constantly repeating, which is we want to push hard to get it right, not just fast. And so we don't want to making commitments to our customers or to the financial community, but more importantly, to the customers that we can't keep. And I'll add 1 thing to you that is if you look historically at the performance of Sherwin-Williams and our ability to integrate in these facilities and technologies, I don't want to give the impression that it's just out there somewhere. I mean, we move quickly. We're moving aggressively. We just want to make sure we get it right. So, I don't give you the wrong impression there.

Right. And just a quick, quick question on Valspar. You gave a sales for 2017, $2.4 billion. And I think you mentioned that would be kind of flattish up year-over-year. Is -- will earnings, ex synergy, for Valspar be up, flattish or down?

No, Mike. I would say that the earnings would be a continuation of what you saw in the first half on that trend that was reported. Just to be clear on what we reported for Valspar operations is their operations, less their legacy, their legacy debt would be included in that and then less the new debt acquisition financing. But ex the synergies and the financing, I think it'd be down. And primarily because you saw that in the gross margin in that the pressure they saw in the raw material costs. And there was typically a lag in their business in getting price and we're seeing that lag and then some. So, certainly, we're challenging our groups to get out and develop what that pricing action has to be with the customers.

Great. Thank you.

Thanks Mike.

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

Can you guys hear me?

Hey, Scott. Yes.

Great. Can you guys hear me now? Yes, okay. So, I just wanted to -- and I know the call has gone a long time, but I guess you didn't, maybe I missed to catch why you guys thought we had to slowdown in exterior in the Southeast for two weeks? And why you're so -- it seems like you're pretty confident it's just going to go away, and maybe it already has in July. But I'm just wondering the why.

It -- as we said, it was in the Southeast and a little bit in the East. And the why, all we've said is the why was not lack of demand. And we have a practice of not talking about things like weather on conference calls, but you can't paint outside in the rain. And I think I'll leave it at that.

Yes, I'd say we were going in the last two weeks of June and came out in July very strong. We had two very difficult weeks and primarily our Southeastern division that really -- and as we mentioned this sell price and volume and everything, the contractor purchases of exterior, it really had a significant impact on our business.

Okay, great. That's good color. So, then my next question, and maybe I'm traveling today, so maybe I'm missing it, seems like you guys have a lot of confidence in your back half with your core Sherwin business, is that true? And I guess, the thought process I have, I -- we -- DY -- do-it-yourself has, I think, a big impact on the summer quarter even for you guys. I think it's where you sell the most. So, I was just wondering if you can kind of talk us through why it seems like there's a decent amount of confidence going into the back half? And am I right about that? And what's driving that?

Yes, I would say it's safe to say that you should sense a level of confidence. And you talked about our stores organization, again, not to be too repetitive, but we're finishing 13 of 15 quarters in this residential space with a double-digit gain and we feel as though we're really growing share there. And we're really trying to put our foot on the pedal and go even faster. And our teams are really executing there and I think the alignment that we have in developing products and services and working with our customers is really allowing us to grow share. And I'm not -- we're not talking about is that going to slow down? We're talking internally that how we accelerate. We want to go harder and faster and further separate ourselves from our competition. I mentioned the penetration that we have in new residential. And so if you're like us and have confidence in the need for housing and starts and you reflect back on the fact that we've got these exclusive agreements with 15 of the top 20 builders. Yes, we're feeling good, and we're trying to grow that number, the number of builders on both the national and regional level. That we've got the right products that work for the national builders and we're trying to further leverage that for the regional builders. So, I mean, I can go segment-by-segment, but yes, we're feeling really good. But as I said, great people in the field, taking care of customers and we want people feeling as though our people and our stores and our reps are an extension of their business, and our people are doing a terrific job at that. We're very grateful for their efforts.

I would add to that, though, because you specifically point out DIY. On the DIY side of the market, which would include a component of our Paint Stores business and our Consumer Brands Group, probably less confident. We think we're seeing softness in the DIY market. So, that growth is going to be a little more challenging there.

Okay. May I let it go and have another question. I'll just take it offline. Thanks guys.

Thank you, Scott.

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

Hi good morning.

Good morning Scott.

Good afternoon at this point. Just had a curiosity relative to -- I know you guys haven't explicitly disclosed, but relative to any headcount synergies between the two companies. Can you maybe just give us a framework for what percentage of the way through or completed you are? And maybe, John, can you just kind of give us a sense for what the morale is now that the two organizations are officially brought together?

I'd say that the morale is very good. We're very transparent and open with our employees and our teams about the process that we're going through. We're not going to -- and I hope you respect, Scott, we're not going to speculate about percentages of where we are or where we are not in the process, respect to our teams and our people. Those are discussions that we have directly with them. We're anxious to get this behind us. We have good momentum, but those aren't discussions that we're going to have.

Scott, I would say if you look at the $50 million that we have in our guidance and the run rate that implies that $100 million you'd say on a three -- 120 gross run rate in year three, we're a third of the way there. So, we feel pretty good about that progress.

And when you think about the strategy, particularly at Lowe's, now that you have two of the power brands there, can you maybe just talk broadly about any changes in kind of the go-to-market strategy?

Our strategy for Lowe's?

Correct.

No, -- yes, we're not going to talk about that, Scott. I mean, again, that's a very important customer of ours and I hope you'll, again, respect that those discussions between us and Lowe's and their strategy, I mean, that's -- it's important to that each and every one of our customers respect that those are confidential discussions and our job is to help them execute on their strategy.

Okay. I guess, just lastly then, John. I think you made a point about pricing and in the Industrial Coatings business is an area that has kind of trailed expectation, but reasonably so, just given that the deal has taken some time to close. I think previously, when you guys have gotten into businesses that were a little bit different than Paint Stores you've been very slow to implement price increases if I go back to, Sayerlack or Becker. And over time, you created a lot of value, but that took some time to come through the P&L as maybe the financial community saw it. Is this a different situation? Is that the right blueprint? I'm just kind of curious if this means you could do something more immediate than what we saw as that kind of blueprint.

Well, I'd say that you're exactly right, Scott and very observant. You know our company well. And historically, we've always taken that approach, which is we're going to work with our customers through that process. And the acquisitions that you described were, in fact OEM suppliers mainly. And so we worked with those customers. Our goal is to always come through the tunnel with our customer and the price. And so we work appropriately with our customers to ensure that the value proposition is there for them and their ability to enhance the value of their products through that process. So, you're right, it's going to take a little bit of time. As I mentioned earlier, we've typically looked at a Sherwin cycle of maybe taking six to seven months to implement a price increase. And on the Valspar side, it might take six to nine months. But the value proposition is strong. The same teams are the ones executing, the same products and technologies. And so we've got confidence in our ability to do that, but we're not going to lose our heads and go out there and try to do it overnight. We want to keep our customers.

Great. Thanks for time.

Thanks Scott.

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

Thank you. Good afternoon guys. John there's been -- you've had a lot of questions asked about price and trying to reaccelerate your back half of 2017. Before the merger actually occurred, a lot of talk about raw material purchasing benefits, et cetera. Haven't really heard any conversation on that. So as you look at the second half of 2017, how big a part -- how would you sort of rank order where that raw material purchasing synergy would be in improving your volumes or your up margin as you go forward?

Yes, Steve, it's a good question. I might answer a little differently and that is referencing back to the previous question. We have confidence and we've not seen anything that keeps us from being anything but confident in our ability to reach the synergy targets that we have. They're going to lay in -- Al mentioned that run rate that we're at. I don't think it's in our best interest to parse out where we are on each of those individual synergy buckets as we're pursuing them, but you should expect raw materials was a big one. You should expect that we're being very aggressive in pursuing those and our goal is to try to capture those as quickly as possible.

Great. Okay. Fair enough. And then I know we've beat consumer like a dead horse here, but I'll ask you one more. The segments didn't hunt down as much as you all have been the first half of the year. What do you think is going on? You've talked about not just using promo dollars to try to recapture but to drive. So, what do you think was going on in your business that maybe wasn't happening in some of your peers that you got to correct?

Well, we're always interested in improving our performance. I do have to -- I think it's important to make a statement here that I believe that, again, with limited PoS data, we don't see all the data from our customers. I would tell you that our sell-through at retail is in line with what we believe to be the rate of the DIY market. I do think that the inventory connection -- correction may have been a little stronger on some of the products as we've walked into some of these programs. And at the same time, while we're learning about the program, our customers are experiencing a little softer market than what we would like to see. And so I think there's been some adjustment accordingly. But as far as the market goes, I think our out-the-doors are performing similar to what we expect the market is performing.

The other point I'd point out, Steve, is that segment includes a business unit in Europe. So, it may not be an apples-to-apples comparison looking at our volumes versus our peers. Europe, the second consecutive quarter, was the weakest performing part of the Consumer segment. So, we're getting a drag from overseas.

Okay. All right. Thanks a lot. I appreciate it.

Thank you.

Thank you.

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

Hi, this is Matt on for Kevin. I just have two one's for you. Your management teams across the space have indicated kind of 2Q is probably the peak for raw material pressure on the year. As we look into 3Q and 4Q, just given the lags, kind of how much of an actual decline do you expect to see of this Q2 peak?

Matt, this is Bob. The change in raw material cost year-over-year probably peaked in the second quarter. That's only because we're starting to annualized price increases from last year. We did see chemical-grade propylene settle back after a pretty significant spike in the first quarter and we don't expect any major swings over the balance of the year. So that's probably good news. But MMA remains very tight. TiO2, we're probably going to see more traction on pricing in the TiO2 market. So, I don't expect raw material -- the basket to decline. In fact, the basket, we're going to see a little incremental inflation going forward. It's just that the compare gets easier as we go forward. So, our outlook for the full year is still mid-single digits, but we don't see a lot of goodness in the back half in the way of deflation.

Okay. And Valspar had another business, which housed corporate costs and adhesives businesses. Kind of where the earnings from that adhesives business is going now? And can you quantify how much earnings that business generates versus what the prior corporate cost was on an absolute level?

Matt, the -- their -- with their resin and colorants business that was in that Admin [ph] segment is now in our Performance Coating segment. But no, we won't be breaking the specifics of the segment profit out for that business.

Okay, and corporate costs just got tallied into your own? It's that what I'm guessing.

That's correct.

Thank you.

Thank you. The next question is coming from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Two very quick ones. Just on the regional same-store sales comments you made in the beginning, can you talk just a little bit, can you characterize the dispersion between your best regions and your worst regions? And is that dispersion, any wider than normal? And secondly, with respect to share gains that you're going after in the back half of the year and going forward, are there any areas where you are reversing a trend rather than building on momentum you already had?

Let me answer that last one. I'd say the area that we started to see some positive that would still may be characterized as reversing, I would say, would be the Protective & Marine. That has been under pressure for a couple of years now. And this -- we clearly saw a shift in the petrochem, and there's still more opportunity there. And I'd say that there's -- I'd characterize that in that manner. Regarding the -- I'm sorry, the division question you had was.

Geographic dispersion of results from -- in the five regions.

Yes. So, you talked about the gap between them?

Yes.

I don't --

Well, high single-digits in the strongest region to low single-digits in the weakest, all being positive on revenue and volume.

I guess, where I was getting at is, is that any different than what you normally see?

It's -- that's -- there's always a little bit of a gap, I'd say.

Might be a little bit wider--

A little wider maybe.

Than usual.

Okay. Thank you.

Thank you.

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

Thanks guys. Were any synergies in wood coatings in the original $280 million? Or were you assuming you're divesting that all along?

There -- in the original, there probably was some, John, but not significant enough on a $225 million business on a $4.2 billion company to matter.

Okay. And then the inventory write-up sounds like you'll completely flushed by the August period. Is the fourth quarter going to be -- as you see it right now, there's no unusuals in the fourth quarter, at least in your full year guidance. It's there. Maybe something might change by then, but at least in your guidance right now, is there any year end significant accruals for compensation or something that might affect comparability in the fourth quarter?

No, not right now.

Okay. Thank you.

Thank you.

Thank you. The next question is coming from the line of Christopher Perrella with Bloomberg Intelligence. Please proceed with your question.

Hi, good afternoon. Quick follow-up, housekeeping. When will we see more pro forma data? What's the timing on that?

I think, Chris, what we're prepared to do is at the FCP Conference, we'll give you more color and more guidance on the performance of Valspar and the combined entity and the synergies that are occurring. I think after 45 days, it's a little tough to have a lot of confidence in some of the things that we just thought. So, we're shooting for the FCP Meeting.

Okay. Thank you very much.

Thank you.

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

Good afternoon guys. A lot of my questions have been answered, but I'd just like to follow-up a little bit. I know it's a small segment for you, but Latin America saw negative -- or negative operating profit in three of the last six quarters and a pretty big step-down in the profitability this quarter. Is it all sort of timing of raw materials? Are there other some issues with volume growth or declines? Can you talk about sort of why that business performed as poorly as it did on the margin line in the second quarter? And what should we look forward to in the second half of the year?

Dmitry, the -- when you look at our Latin America region, Brazil is the largest portion of that business. And as you well know, that it's just been in turmoil. So, you see a lot of short-term choppiness. We expect that to continue over the short-term. Over the long-term, that market, it's the ninth largest economy. As they work their way through the turmoil and regain their footing, we expect that to be a good market for us and expect to see growth and a return to the profitability of that region.

Yes, I'd say Latin America, outside of Brazil, we see a good trend. We're growing our share and financials are pointing in the right direction. And to Al's point, Brazil is such a big percentage of -- the weight of Brazil on our overall South American operations is pretty heavy.

And can I follow-up? I think you mentioned that in your Coatings segment in your Industrial Coatings business, you identified Latin America as sort of a good guy in terms of delivering strong growth. So, kind of why the discrepancy between the Industrial segment and the Consumer segment in that economy? I would imagine that both would be impacted by the political turmoil.

Yes, you're exactly right. And let me add one more. Our store performance, our own store performance in Brazil is actually positive performance as well. Such a big part of that business, Dmitry, is third-party through home centers and distributors, and they're calling on consumers. And the consumers' confidence in that market is clearly shaken. But you're exactly right. If you look at our automotive, our wood business, our general industrial and Protective & Marine businesses in Latin America, they were all positive. It's the architectural consumer business that's under pressure.

Okay, that's helpful, John. And then just as a quick follow-up on Industrial Coatings business, particularly the Valspar piece of it, which has been decelerating pretty meaningfully in terms of margin in the last couple of quarters and through the last reportable segment that they had or the reportable period that they had. You mentioned sort of lack of productivity on price increases. Was that the main driver of lower margins? Or was there some mix impact there? And how do you feel about that in the second half of the year? Can you at least stem the declines and kind of stabilize them at these levels before price increases kick in what sounds like in 2018?

Yes, I'd say we're going to continue to feel pressure through the end of the year. I'd like to say they we're going to be able to turn this around quickly here, Dmitry. But I think, this is a process when you're involved in these acquisitions. First of all, it was a very long FTC process, and sometimes people get a little distracted, and I respect that. And quite frankly, you have competitors that are in there trying to create opportunities. And so we always see this as well. The competition kicks up for a short -- for a little bit and they're aggressive and so we feel some pressure. And they've done the right thing. They've hung on to the business. The volume is actually hanging in there. It's the gross margin that's under pressure. And so as I mentioned earlier, and again, I don't want to be repetitive, but we've got great confidence in these leadership teams that are now part of our team. And these are the same leaders and same product services, as I mentioned earlier. And it's up to us to continue to demonstrate the value proposition to our customers and to earn that incremental margin to offset the raw material costs and we've got confidence in our ability to do that. Historically, they've been able to do that. Everything's consistent and we're going to continue to work towards that. We're going to do it at the right pace.

Got it. Okay John thanks for the color.

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

Hi good afternoon.

Hey Mike.

John, I was wondering if you could comment a little bit on how you and the regulators arrived at the Valspar wood coatings business is the piece that would need to be sold. And can you maybe talk about the approach to the industrial wood coatings market going forward? Is that something that you can attack in North America with just the legacy Sherwin position?

Well, your first question about how did that we arrive with the regulators, I mean, that's a normal process review, which we're very respectful for the process that the government goes through, and we responded to all their requests. The did their due diligence, including not only our information, but Valspar's, but also customer information and they made a decision. And while we may have had a different opinion in many areas, and that is part of the process, you're able to express your thoughts, ultimately, they made a decision and we had to respect that. And so we find ourselves now exactly where the FTC would want us, which is in a competitive situation with the new entrant. And yes, you're exactly right, we're going to compete for that business and I don't think the FTC or any other government agency would have it any other way. The competition is good for the consumer and we're going to be out there looking for that -- those customer relationships. We have a good industrial wood business or they would not have required us to divest the one that they required. So, our teams are going to be working hard to try to grow their business. And some of those customers will certainly be legacy Valspar customers. But I'll say this tongue-in-cheek, we don't discriminate. We'll take customers anywhere we can get. So, we'll be working hard with all customers' opportunities.

All right. And then was just curious, in the consumer brand's business, have you received any clarity from some of the retailers that you sell through about how they're going to address multiple brands potentially in the same product category now being under the same ownership? Is that the situation where you could expect to potentially lose some incremental shelf space?

Or gain -- or gain share. We're having those discussions every day. And again, it goes back to the same value proposition. It's upon us to help our customers be successful. That's our goal. That's how we measure our success. Our success is making our customers successful. So, we're making those discussions every day. And we've talked openly about the need for volume. And so while we talk about value capture, raw material costs, all those things, the day starts and ends with discussions about growing volume and growing sales and we do that by aligning ourselves with our customers.

Thank you.

Yes, thank you.

Thank you.

Thank you. It appears we have 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 Jesse. I'll wrap-up quickly by remind you all that our annual Financial Community Presentation is scheduled for October 3rd, in New York at the Marriott Marquis. The program will consist of a brief business review by our segment leadership teams, followed by a more detailed update on our Valspar integration plans and progress. We'll host our customary Q&A session followed by a reception and lunch. Again, that date is Tuesday, October 3rd. Please look out for registration information sent via e-mail in mid-August. 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. If you'd like to be placed in the queue for a follow-up call, please call Kristy Johnson at 216-566-3001 and she will add you to the callback schedule. Again that number is 216-566-3001. I'd like to thank you again for joining us today and thanks for your continued interest in Sherwin-Williams.

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