Good morning. Thank you for joining the Sherwin-Williams Company's Review of First Quarter 2021 Results and our Outlook for the Second Quarter and Full Year of 2021. With us on today's call are John Morikis, Chairman, President and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; and Jim Jaye, Senior Vice President, Investor Relations and Communications. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com beginning approximately two hours after this conference call concludes. This conference call will include certain forward-looking statements as defined under the US federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in 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 Jim Jaye.

Thank you. Good morning, everyone. Sherwin-Williams delivered terrific results in the first quarter. The momentum with which we exited the fourth quarter continued in the first quarter. We entered the quarter with strong expectations and we finished stronger. We capitalized on extremely robust demand across both architectural and industrial markets, leading to sales in two of our segments that exceeded the guidance we provided at the beginning of the quarter. We generated double-digit growth once again in residential repaint as well as in new residential and DIY. We also generated double-digit growth in our industrial business with improvement in every region. Before getting into some of the specific numbers, I'll remind you that in February our Board of Directors approved and declared a 3-for-1 stock split in the form of a stock dividend to make the stock more accessible to employees and a broader base of investors. Trading of our shares on a stock-split-adjusted basis began on April 1, 2021. All share and per-share amounts in today's press release and conference call commentary have been adjusted to reflect the 3-for-1 stock split. Additionally, all comparisons in our prepared commentary this morning are to the first quarter of 2020 unless otherwise specified. So starting with the top-line. First quarter 2021 consolidated sales increased 12.3% to $4.66 billion. Consolidated gross margin decreased 20 basis points to 45.4% due to greater-than-anticipated raw material cost inflation. SG&A expense as a percent of sales decreased 300 basis points to 28.5%. Consolidated profit before tax increased $116.7 million or 29.8% to $509 million. The first quarter of 2021 included $75.6 million of acquisition-related depreciation and amortization expense and onetime costs of $111.9 million related to the divestiture of the Wattyl Australia business. The first quarter of 2020 included $75.6 million of acquisition-related depreciation and amortization expense. Excluding these items, consolidated profit before tax increased 48.8% to $696.5 million with flow-through of 44.9%. Diluted net income per share in the quarter increased to $1.51 per share from $1.15 per share a year ago. The first quarter of 2021, included acquisition-related depreciation and amortization expense of $0.21 per share and onetime costs related to the Wattyl divestiture of $0.34 per share. The first quarter of 2020, included acquisition-related depreciation and amortization expense of $0.21 per share. Excluding these items, first quarter adjusted diluted earnings per share increased 51.5% to $2.06 per share from $1.36 per share. Adjusted EBITDA grew to $848.7 million in the quarter or 18.2% of sales. Net operating cash grew to $195.7 million in the quarter. All three of our operating segments delivered excellent top-line growth, margin expansion and strong flow-through in the quarter. Segment margin in The Americas Group improved 240 basis points to 19.2% of sales, resulting primarily from operating leverage on a high single-digit top-line growth. Flow-through was 46.4%. Adjusted segment margin in Consumer Brands Group improved 440 basis points to 21.4% of sales resulting primarily from operating leverage on the double-digit top-line growth. Flow-through was 38.9%. And adjusted segment margin in Performance Coatings Group improved 60 basis points to 14.3% of sales driven by operating leverage on the double-digit sales growth, which was partially offset by higher raw material costs. Flow-through was 19.1%. Let me now turn the call over to John Morikis for additional commentary on the first quarter along with our guidance for the second quarter and full year 2021. John?

Thank you, Jim and good morning, everyone. We're off to a tremendous start in 2021. Credit goes to all 61,000 members of our team who are serving our customers at a high level, aggressively pursuing and capturing new business and managing through transitory disruptions in the supply chain. There is no better team in the industry. Demand was robust across both architectural and industrial businesses in the quarter, particularly in March where sales were well above our forecast. We're seeing very positive trends as economies continue to reopen. As we've often said, volume is the strongest driver of our results and we leveraged the strong growth to deliver improved profitability in every segment in the quarter. In The Americas Group first quarter sales increased by 8.6% over the same period a year ago, including about 1.7 percentage points of price. The impact of unfavorable currency translation was not material. Same-store sales in the US and Canada were up 8.2% against a high single-digit comparison. In residential repaint, our largest segment, we delivered strong double-digit growth in the quarter against a double-digit comparison. We have grown this business by double-digits for five consecutive years. We expect this momentum to continue. Contractors are reporting solid backlogs and interior and exterior were both very strong. Demand remained unprecedented in our DIY business where sales were up by double-digit percentage for the fifth consecutive quarter. New residential also remained an area of strength for us with low double-digit growth in the quarter against a high single-digit comparison. New housing permits and starts have been trending very well since last summer and customers are reporting solid order rates. Momentum is gradually building in our commercial business where sales in the quarter were up low single-digits against a solid quarter a year ago. Projects continue to resume at varying paces and comparisons are favorable over the remainder of the year. Property maintenance was down slightly in the quarter, though turnover in multifamily properties is improving. The month of March was positive and we expect to see meaningful improvement as the year progresses. Protective & Marine was down by a mid single-digit percentage in the quarter, but improved sequentially and delivered strong growth in the month of March. Growth in smaller customer segments such as flooring, bridge and highway and pharmaceutical was more than offset by softness in the oil and gas segment. We continue to aggressively pursue opportunities in all these end markets and expect continued improvement as maintenance projects cannot be delayed indefinitely. From a product perspective, sales in both interior and exterior paint were up by double-digit percentages with interior being the larger part of the mix as is normal for our first quarter. Additionally, this is the third consecutive quarter spray equivalent sales increased by double-digits in the quarter. Contractors typically invest in this type of equipment in anticipation of solid demand. Our previously announced 3% to 4% price increase to US and Canadian customers became effective February 1, prior to the supply chain disruption the industry began experiencing later in the quarter. We realized approximately 1.7% from price in the first quarter and would expect 2% or better in the following quarters. We will continue to evaluate additional pricing actions as needed. We opened 11 new stores in the quarter in the US and Canada. Along with these new stores, we continue to make investments in sales reps, management trainees, innovative new products, e-commerce and productivity-enhancing services to drive additional growth. Moving on to our Consumer Brands Group. Sales increased 25% in the quarter, including 2.7 percentage points of positive impact related to currency translation, as DIY demand remained robust. Sales in all regions were above our mid-teens segment growth guidance, led by Asia and followed by Europe, North America and Australia respectively. We exited the Australia business in the segment at the close of the quarter. As you know our global supply chain organization is managed within this segment. I want to thank this team for their incredible performance in navigating the industry-wide raw material supply chain disruptions caused by Winter Storm Uri during the quarter. We are working collaboratively across our businesses to keep our customers in paint and on the job. Last, let me comment on first quarter trends in Performance Coatings Group. The momentum we saw in the third and fourth quarters of last year continued and accelerated in our first quarter, group sales increased by double-digit percentage. Currency translation was a tailwind of 2% in the quarter. Price was positive and all regions and all divisions generated growth. Regionally, sales in Asia grew fastest in the quarter, followed by Europe, both of which were up by strong double-digit percentages. Latin America grew by a high single-digit percentage. North America, the largest region in the Performance Coatings Group continues to gain momentum, where sales were up by low single-digit percentage. From a divisional perspective, I'll start with the Industrial Wood division which had the highest growth in the group. Sales were up by strong double-digit percentage in the quarter and were positive in every region. Strength in new residential construction continues to drive robust demand for our products in kitchen cabinetry, flooring and furniture applications. In General Industrial, the largest division of the group, sales were up by a high-teens percentage and were positive in every region. Sales were strong within heavy equipment, building products, containers and general finishing. While there's likely an element of inventory restocking by our customers in these numbers, we believe growing end-market demand is the larger driver given recent PMI and industrial production reports. Our Packaging team also continues to deliver great results. Sales were up high single-digits against a nearly double-digit quarter a year ago and were positive in every region. Demand for food and beverage cans remains robust and our non-BPA coatings continue to gain traction. This team has been remarkably consistent and has delivered solid growth in every quarter since Sherwin-Williams acquired the business as part of the Valspar acquisition in 2017. We and our customers continue to invest in this terrific business. Our Coil Coatings business has also been a remarkably consistent performer. Sales grew by high single-digit percentage in the quarter against a double-digit comparison a year ago. This team continues to do an excellent job at winning new accounts in all regions. We're also seeing the gradual resumption of selected commercial construction projects. Last, Automotive Refinish sales were up by mid single-digit percentage in the quarter. This level of growth is very encouraging given that miles driven and collision shop volume remains below pre-pandemic levels, particularly in North America. We're also pleased with new installations of our products and systems in North America which were very strong. This is a good indicator of future momentum in our business. Before moving on to our outlook, let me speak to capital allocation in the quarter. We returned approximately $930 million to our shareholders in the quarter in the form of dividends and share buybacks. We invested $775 million to purchase 3.3 million shares at an average price of $234.96. We distributed $151.8 million in dividends, an increase of 23.5%. We also invested $64.3 million in our business through capital expenditures. We ended the quarter with a debt-to-EBITDA ratio of 2.5 times. Turning to our outlook. We continue to see robust demand in North America residential repaint and new residential and continued recovery in commercial and property maintenance. Comparisons in DIY will be challenging over the remainder of the year, though we are excited by opportunities to work with our retail partners to grow sales in the pros who paint segment. We expect industrial demand will continue to improve as the year progresses. We'll continue to leverage our strengths in innovation, value-added services and differentiated distribution, as we expect to grow at a rate that outpaces the market. On the cost side of the equation, we now expect raw material inflation for the year to be in the high single-digit to low double-digit range, a significant increase from the low to mid single-digit range we communicated in January. In an already challenged supply chain due to COVID-19, the February natural disaster in Texas further impacted the complex petrochemical network causing significant disruptions. These production disruptions, coupled with surging architectural and industrial demand have pressured supply and rapidly driven commodity prices upward. Recovery has been significant in recent weeks and is improving, but it's still far from complete. At this time, we anticipate some moderation of costs in the back half of the year though they will still be elevated year-over-year. As we previously described, there is a lag of about a quarter from the time we see inflation in commodities to the time we see the impact in our results. Given this timing, we expect to see significant raw material inflation in our second quarter, which will be the highest of the year. The pace at which capacity comes back online and supply becomes more robust remains uncertain. We have been highly proactive in managing the supply chain disruptions to minimize the impact on our customers. We expect to be in a similar mode throughout the summer months as reduced raw material availability resulted in lower-than-anticipated inventory build during our first quarter. Our close working relationships with customers and the strength of our global supply chain give us great confidence in managing through any challenges that may occur. We've also been highly proactive in our pricing actions to offset the raw material inflation we are seeing. We've issued price increases in both the Consumer Brands and Performance Coatings Group, in addition to the previously announced price increase in The Americas Group. We likely will need to take further pricing actions if raw material costs remain at these elevated levels. While we are fully committed to combating rising raw material costs, we also recognize that the timing of price realization will likely result in some near-term margin pressure. Against this backdrop, we anticipate second quarter 2021 consolidated net sales will increase by a mid- to high teens percentage compared to the second quarter 2020. We expect The Americas Group to be up by a mid to high teens percentage. We expect Consumer Brands to be down by a low double-digit to mid-teens percentage including a negative impact of approximately four percentage points related to the Wattyl divestiture. And we expect Performance Coatings to be up by a high-20s percentage. For the full year 2021, we plan to provide you with an update to our sales and EPS guidance at our virtual financial community presentation event scheduled for Tuesday June 8th. We expect to have greater clarity of raw material availability and cost inflation trends at that time as well as further confirmation of the strong demand trends we are currently seeing. Our current sales and adjusted EPS guidance remains unchanged at this time. We expect consolidated net sales to increase by a mid to high single-digit percentage. We expect The Americas Group to be up by a mid to high single-digit percentage; Consumer Brands Group to be up or down by a low single-digit percentage including a negative impact of approximately five percentage points related to the Wattyl divestiture; and Performance Coatings Group to be up by a mid-single-digit percentage. We expect diluted net income per share for 2021 to be in the range of $7.66 to $7.93 per share compared to $7.36 per share earned in 2020. Full year 2021 earnings per share guidance includes acquisition-related amortization expense of $0.80 per share and a loss on the Wattyl divestiture of $0.34 per share. On an adjusted basis, we expect full year 2021 earnings per share of $8.80 to $9.07, an increase of 9% at the midpoint over the $8.19 we delivered in 2020. Let me close with some additional data points that may be helpful for your modeling purposes. We expect to see some contraction in full year gross margin given the lag between price realization and the rapid and greater-than-expected increase in raw material costs. As we capture price and inflation abates, we expect to see gross margin recover and then expand over time just as it has in the previous cycles. We expect to see expansion of full year adjusted pre-tax margin as we leverage strong sales growth while controlling SG&A. We will continue making investments across the enterprise that will enhance our ability to provide differentiated solutions to our customers. We expect to return to our normal cadence with around 80 new store openings in the US and Canada in 2021. We'll also be focused on sales reps, capacity and productivity improvements, systems and product innovation. We also plan additional incremental investments in our digital platform and the home center channel. These investments are embedded in our full year guidance. We expect foreign currency exchange will not have a material impact on sales for the full year. We expect our 2021 effective tax rate to be in the low 20% range. We expect full year depreciation to be approximately $280 million and amortization to be approximately $300 million. The CapEx and interest expense guidance we provided last quarter remains unchanged. We have $25 million of long-term debt due in 2021. We expect to increase the dividend by 23.5% for the full year. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit our strategy. We're off to a great start in 2021 with our excellent first quarter performance. Our team is operating with momentum and energized by the many opportunities in front of us as the recovery gains strength. We see demand remaining strong over the remainder of the year and nobody is better equipped to provide differentiated customer solutions than Sherwin-Williams. We're confident in our ability to manage through transitory raw material availability and cost inflation issues and we expect to deliver another year of excellent results. That concludes our prepared remarks. With that I'd like to thank you for joining us this morning and we'll be happy to take your questions.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question.

Hey, guys. Good morning.

Good Morning.

I just want to think about 2021 at this point, John from a volume standpoint versus perhaps what your thoughts were coming into the year. Are there any outliers on the positive or negative side relative to your initial view as it relates to the various verticals across your three operating segments? I'm just asking because 1Q sales was above your initial guidance. 2Q is guided above us and The Street as well, but your full year guidance is -- for sales is still pretty much intact and I realize that Wattyl is part of that. But just curious on your thoughts on the various verticals?

Yes. Let me take a run at it and I'll have Al jump in because we're getting a little bit into the forecast here, Ghansham. I'd say from a performance standpoint, we feel really good about the momentum that each of our segments are producing. I'd say the return if you will of the GI business and the Industrial Wood business at the pace that it's coming is a -- is pleasing to us. We expected that to occur, and it's coming in at a pretty robust pace. We've long spoken about how we've tried to position the business as both defensive and growth. In those markets impacted by COVID, we are we believe positioned very well to capture that. So to your point GI and Industrial Wood are growing. If you look at the segments in our TAG business, the residential, repaint, new res really doing quite well as well as DIY. I'd say, we are expecting continued traction in our commercial property management businesses. So I'd say, every element of the industrial business outside of the Protective and Marine business, which is showing sequential growth has been really improving well. And quite frankly every element of the architecture will sit on every cylinder. But let me ask Al to jump in regarding the forecast as well.

Hey, Ghansham, this is Al. And as I said on our January earnings call, we did have a weaker first half last year and a stronger second half. So it was important that we got off to a strong start in the first half. As you mentioned, we did start off the first quarter strong, and we're ahead of our guidance. Honestly, the second quarter sales guidance was closer to where we expected it to be based on the strong trends, we saw coming out of the fourth quarter into our first quarter those continued strong trends, especially in TAG and PCG. So those momentums carried and we're going against a weaker second quarter last year. But that being said, the first quarter is a small quarter for us. And as we typically do, we wait and get through the second quarter before we give an update on the full year. And as John mentioned in his opening remarks, which generally would be in July. So as John mentioned in his opening remarks, we're prepared to give an update on the full year sales and EPS guidance at our June 8 financial community presentation. So, not too far in the future, but gives us a good outlook and more data points to give you a better view of the year.

Yes. It's a little earlier update than we -- as Al mentioned, we normally would do that coming out of the second quarter. So a little bit earlier in June, but it will give us an opportunity given some of the challenges that are in the market right now to give you an update at that time.

Okay. And then just second question, I mean, on the pricing side for TAG. Obviously, you got a price increase through effective February 1. But your raw material guidance is basically more than 2x what it was three months ago for the year. So I guess what would you need to see to sort of adjust pricing in TAG as the year unfolds? And also remind us when was the last time TAG saw multiple price increases in one given -- in any given year? Thanks so much.

I'd say, this Ghansham -- I'll take you back. We I believe have demonstrated that conviction and determination to put pricing in. Your point is a good one. As we entered the year, we put some pricing in and then this natural disaster came in in February. What would we see? Well, we continue to focus in on efficiencies through our own facilities, our own approach. Positive mix shift, which we're seeing right now at a pretty aggressive rate with customers moving up in quality helped to offset some of that. But I would say this that we're not taking additional pricing off the table. We'd prefer quite frankly not to go out in the midst of the painting season. We've got painting contractors that are out there quoting projects right now and we'd prefer to work through those prices -- those projects with them on those prices. But I think we've demonstrated in the past a willingness to do that if we need to. I'd say the other piece comes with the loyalty that we build and the way in which we handle these situations. We've often talked about, while we're not hoping for compression in margin as Al just mentioned, we accept a little margin compression. And it's part of the relationship that we've built we think it's unique. When our customers see us out with pricing, they know it's real. When we're out with pricing, we need it. If we find ourselves in this situation unable to offset it in pricing that -- raw material pricing that remains at an elevated level we'll be out with additional pricing.

Yes. Ghansham let me just add to that. As John talked about in his opening remarks, our focus is on operating margin expansion. And volume is the number one driver of that and you're seeing that in our first half. And our expectation is that we'll see that momentum going into our second half, but also selling price increases that have been planned. And I've brought in that to not just TAG, but across all the segments. And my expectation is that we will offset full year raw material increases dollar for dollar. We expect to get leverage on SG&A. That will more than offset that gross margin contraction. And that's typical. As you know gross margin -- short-term gross margin contraction is typical in an inflationary environment. We've shown our discipline to get pricing increases. To your question, you go back to 2010, 2011 and 2012 and we were out with six price increases in 22 months. And coming out of that you saw our gross margin not only recover, but expand from almost 600 basis points from 2013 through 2016. So the discipline is there and it's still there. And as John talked about we're providing solutions to our customers that they value. And this is why it's really important that we offset that raw material increases 85% of our cost of goods sold. And to provide those services and solutions at the high level our customers are expecting, we need to offset those raw materials. And as John said if raw materials inflation persists at these high levels, we will need to go out with another price increase later this year. And then we believe we're in that same environment. As raw materials moderate, we'll start to see our margins recover and then grow long-term, as we see our continuous improvement processes take effect and we're able to hold on to a majority of those price increases.

Yes. Ghansham, I might add one additional point to that and that is that while we're not cavalier about it, we're very sensitive to pricing and what it means to our customers. It does represent a relatively small percentage of their total cost of goods. Al mentioned that raw materials represent 85% of our COGS. If you look at a painting contractor, it represents about the same percent of their cost of paint on the project. Majority of their costs are -- I'm sorry 85% labor, the remainder cost. So it's a relatively small percentage of their total cost of goods. So we're disciplined in it. We're sensitive to it. But we also know to Al's point, if we're doing our job providing solutions to our customers, helping them make more money, disciplined in our approach to their understanding and when we're out there with the need for it.

Very clear. Thanks so much.

Thank you.

Thank you.

Next question is coming from the line of Bob Koort with Goldman Sachs. Please proceed with your question.

Thank you very much. Good morning. I wanted to ask – you gave some moderation maybe in the rate of growth in TAG in the second half, and I think you sort of explained why a second ago. But I was wondering, if you could help me think about implications on the DIY component there. I think that's maybe what 15% or 20% of your sales through the stores. What do you see on that comparison as you get into the second half? And would it be any different than what you would report in the consumer group? Thanks.

Thanks, Bob. I'd say, as you mentioned DIY was very strong. And as we've previously indicated, we do expect DIY eventually to revert back to a more normal low single-digit rate as stay-at-home orders – I'm sorry, yeah, stay-at-home orders begin to ease and people begin returning back. So comparisons will be more challenging beginning in the second quarter of this year. Our belief is that as a company, we've really been working hard to position the company strategically to be able to capitalize on whichever way the market tilts. So, if in fact DIY reverts back our position as it relates to the pro segments, our industrial business, we think that we're going to be the winner if you will as it shifts one way or the other. We've worked very hard to position the company to be able to capitalize on the market, whichever way it turns. On the DIY side through our stores then while we might see some of that revert back, the pros will be higher on the CBG side or Consumer Brands Group side. It's a largely driven DIY business, but we are working hard with many of our customers on the pro who paints in there as well as an initiative for the company. You've heard us speak about the commitment that we have there, the investments that we have there, and quite frankly, the determination that we have there. And so whichever way the table tilts Bill – Bob, we believe we're going to be on top of it. And we quite frankly, don't discriminate to which segment it comes from. We're just very determined to be the one leading in each of those segments.

Yeah, Bob. And I would expect, if you looked at those two businesses combined, so as John talked about moderating DIY and stronger in the other segments, we still expect our second half to be up mid- to high single digits in those combined architectural businesses if you will.

And I think if you look at the comparison – maybe Al you can talk about the 2019 versus 2021. I think if you look Bob, not just at the comparison to the most recent year, if you look back to the previous year, we're still growing at a pretty impressive rate.

Yeah. I think you'd be looking close to a low double-digit increase over that second half period as well.

So we're not giving it back. We're fighting along with our customers to keep it.

And a quick follow-up, you mentioned in your prepared slides growth – pretty impressive growth in the interior paint segments. Can you give us some characterization of willingness to have the do-it-for-me contractors back in homes?

Yeah. Actually, it's a good observation you make because we did see strong double-digit growth, actually both in interior and exterior. But the interior is such a large percentage when that beast moves it's really terrific for us. In the res repaint, it's a second straight 20% quarter growth we've had. And as I mentioned in the prepared remarks, over five years of consecutive double-digit growth, this is a team that's just really focused in executing on a lot of the terrific efforts to be able to capitalize on that. We've got a new leader there in Heidi Petz, a very aggressive leader. And we're excited to see what she brings to this business as well, because I would tell you these contractors are bullish. They're returning back into this interior work with a greater pace and greater comfort by their customers. The macro data is strong, when you look at existing home sales up 12% year-over-year for March. The LIRA projecting mid-single-digit growth. Even the NAHB Remodel Index, I think it hit a record this period 86 greater than the record previously of 82. So contractors are clearly confident and bullish. We expect this is going to be another record year for us in residential repaint. There's good momentum, and you should expect us to be pushing that pedal all the way to the floor in this segment.

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

Yes. Thank you.

Hey, Steve.

We're just looking at your – yes, good morning and thank you for taking my questions. If I look at your full year guide, it kind of implies second half in TAG being kind of mid-single-digit sales growth at best. Is it fair to assume that that's just stale? It would seem that you would – your pricing actions could approach that if you push more price and that wouldn't leave any room for volume growth. Is this just conservative and thus fairly stale?

Yeah, Steve. What I said to Ghansham, we're going to look at updating our full year sales and EPS guidance at the June 8th, FCP conference. So – and it didn't make sense to me to try to take a look at one segment adjust the sales and not the whole company. So we're going to give you an update for all the segments and the full year at that meeting.

Let me be very direct though, Steve. We're feeling very good very strong about our architectural performance and we expect a very strong performance going forward here.

Okay. And then help me better understand your thinking on taking more price actions. It seems that you're kind of waiting to see whether these raws remain at these levels. I'm not – I'm a bit surprised you wouldn't take advantage of this, clearly, inflationary situation and push price now given the comments you just made about your pro contractors, the cost of your paint is a relatively small fraction. It is the concern about maintaining that loyalty enough to really absorb this and not push price? Help me understand that, a little better.

Yeah. Steve, I want to be clear on that as well. When you talk about absorb, I want you to really picture this, right? We've been out with pricing. We're working through that pricing. The effectiveness of that pricing is important to us right now. When you say absorb, I want to put that in context. We're talking about that we will as we have in the past temporarily accept some minor compression as we work and build through that loyalty and communicate to our customers our intentions and our plans. And so as Al mentioned, we expect to recover dollars this year. My view on this is very simple. I would give up a little press – I would say accept a little compression in the short term, when I know that in the long term, I'm going to come out of this with the customer and the price. And that's been our model in the past and it's worked very successfully. And it's a cadence that our customers have learned to expect and appreciate from us. And I challenge anyone to give any exception to the idea that not trying to run for a perfect quarter versus the years or decades that we've built this relationship with our customers shouldn't take priority over trying to go out immediately and adjust. We'll get it. We know we will. We'll work with our customers. And by the way we'll come out of it with a more loyal customer as a result of the way we handle it.

Yes. And Steve I'd just add to that where we could on the industrial side which really saw a rapid increase in the raw materials over the last 30, 60 days we just delayed the pricing maybe 30 days, so we can go out with a higher increase than we had planned. And so we saw some of our groups or businesses out April 1. But we are out across all businesses and all divisions. And we talked about expecting to see a kind of growth in the selling price realization from around 1.7% in our first quarter a little over 2% in our second quarter. And then we'll evaluate as we normally do month-to-month and take action where we need to. And certainly we would tell our customers first and then communicate to The Street.

Okay, very good. Thank you for that.

Thank you, Steve.

Our next question is from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Thanks very much. When I look at your SG&A costs sequentially, maybe they're down I don't know $145 million. And that seems unusual given your historical pattern. And you had very, very nice sales growth. What's keeping the SG&A costs so low? Is there something unusual in the first quarter?

Jeff I would say -- and our SG&A was actually consolidated all in up about 1.4%. And the costs are related to new stores reps continued investment in Consumer Brands and the customer programs and additional services and reps in our Performance Coatings Group and then the e-commerce initiative continued investments there. We do have a decrease -- a continued decrease in travel year-over-year. That hasn't -- we haven't really fully turned that back on. But as these economies start reopening we'll see some of that. I would say in the environment we're in we're going to focus on continuing to put investments in. And where we can offset non-value activities and/or some of our back-office functions we'll do the savings there to help offset those investments. But we're going to continue to invest in this environment. And you should expect to see increase in -- modest increase in our SG&A going forward.

Was there unusual management compensation last year? And if you think about management comp in 2020 related to -- relative to 2021 should it change much?

Yes, I think Jeff we set full year targets at the beginning of the year and the comp will be dependent on our achievement of those targets. If you look sequentially from the fourth quarter to the first quarter and -- fourth quarter last year to first quarter this year, we would have more comp in our fourth quarter last year. As we typically do we true-up our accrual towards the end of the year. And with the strong fourth quarter we had we did have more comp expense in our fourth quarter including stock comp.

Okay. Thank you very much.

I might just add just because I think it's an important part of your first question. I understand you were asking kind of the decline or management of the SG&A. But I think it is important going back to the question that Steve asked earlier about pricing, the investments that Al mentioned we'll continue to make because we believe that's an important element in our strategy. So, while we're managing expenses in many areas we're also investing in many critical areas. And that's what in fact allows us to execute on the strategy and which allows us to stand in front of our customers having provided a solution that allows them to make more money and ask for more money when we need to. So, I think your question is a great one. But I want to be clear that while we're managing the expense we're also investing in critical areas as well.

Thank you so much.

Thanks Jeff.

Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question. P.J. Juvekar: Yes, hi. Good morning. I had just a clarification question on the Consumer Brands. Sales were up 25% in the quarter, which was a large number. And a year ago sales were down 5%. So, was there something going on with inventories maybe last year as pandemic approach into 1Q that big boxes took inventories down and they're building it now, or is there something else going on like you had exited the Ace business? So, what are the puts and takes in this 25% growth number in Consumer Brands?

P.J. that's -- if you go back to the first quarter of 2020 that was certainly -- the Ace impact was part of it. Really we had a difficult because of COVID Asia-Pacific was down really big and impacted our first quarter and even some of the moderation we saw in our other international businesses. We really had a strong first quarter with our international businesses up. When I say strong double digits we're talking 50%-plus. We saw a nice flow-through there. And the sell-through on the DIY side was still strong with our retail partners both here and outside the US. P.J. Juvekar: Thank you for that clarification. And now with your net debt-to-EBITDA close to 2.5 times should we expect Sherwin to get more aggressive in M&A? Especially as the recovery continues, what kind of acquisitions would be at the top of your shopping list?

Well, P.J., I'd say you should expect us to see a lot of activity, mainly in the industrial piece. And our pipeline looks very robust. So, we've got a number of projects that we're working we hope to have completed this year. I'd say that it's important to again understand our strategy. As a reminder we're very focused on unique and differentiated solutions and the solutions that can help our customers achieve their success at a greater rate. And when -- thinking about that is pretty simple. We believe that the greater success our customers have the more they view us as a valued partner. So, we're not focusing on trying to be everything to everyone, everywhere. We're not focused on commodities. We're focused on those elements of unique differentiation high value infrastructure is an example, areas that we can help expedite a production line lower, energy costs, improved color loss, whatever it might be as well as technologies that we can buy and broaden through our distribution. So, we are determined to do this. But we also believe, we're unique in this sense as well that we're positioned very well given the Valspar acquisition as well as just the positions that we've had and are growing not to require acquisitions for growth. Our focus right now is on prioritizing our growth opportunities. And so, it's an exciting time here at Sherwin-Williams, where you're looking at where do we invest, where do we go, and not because we don't know where to go. It's just, there's so many opportunities for us to grow. And that's what our PCG team, our Performance Coatings Group leaders, Justin Binn, our new group -- Justin Binns, our new Group President there and our leadership teams there are really focusing in on. So, we're excited about M&A as an important lever. We expect more activity going forward here, but a very disciplined approach, not only in the financial modeling but where we're going to go. We're not, like I say, just trying to buy a book of business. We're looking at good strategic values, and not what's necessarily available driving our strategy. It's what we see going on and pursuing it and making it happen. P.J. Juvekar: Great. Thank you.

You bet.

Thanks, P.J.

Our next question is from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

Yeah. Thanks for taking my question. The first one would just be on the Consumer Brands Group. Can you speak to where you see the industry in terms of inventory? And is there any necessary catch-up just given the strength that you've been seeing in the markets, but also some of the supply chain disruptions? And maybe how that may flow through as we're looking through the rest of the say the next couple of quarters?

Well, I'd say that there are some challenges, as you mentioned. I think there's a pretty good inventory level in the channel for the most part. But, I'd also say that this natural disaster is just that, it was a disaster. And I also believe that this is a way in which you respond to demonstrate your DNA to your customers. And in our 155th year of doing business, we still utilize these challenges such as this natural disaster to demonstrate why a relationship with Sherwin-Williams is valuable. And so in the face of adversity, we love that our teams are running into the center of the fire working to collaborate with our customers to position them for success, responding, and quite frankly, trying to minimize the disruptions. We think we're unique in our asset base. We think we're unique in our experience. We think we are unique in our ability to respond. And we're trying to utilize every aspect of our assets, our facilities, our people to be able to do that. And I really believe, John, that we'll exit this closer to our customers than ever. And we -- I say that because we're utilizing these assets. It could be -- we've got a very robust fleet of tractor trailers and delivery vehicles. And so, even on the home center front, when product becomes available we're not waiting for someone to come begging a transportation company to come pick up our products or to be responsive to ours. We own those. Those are ours. Those are our people our assets. We can dictate those same with our 4500 stores. I know you asked primarily about the home centers, but same stands true with our own stores, located in the communities they serve with well-trained highly qualified leaders in those stores with inventory close to the customers. We've got reps on both the store's front and the home center front. And so what we're trying to do is be as responsive as we can. And so, while there is some choppiness, if you will, from an inventory standpoint and we're working through those, it's getting better every day. We clearly see this as a transitory issue that we're dealing with. We believe we'll get on top of it. And our goal is to be on the other side, have customers point to Sherwin-Williams and say, we want the rest of you to be just like this.

Got it. No, that makes sense. And then I guess maybe just as a follow-up on the cost side. I think there's obviously a lot of focus on the pet chem side of it. I guess can you speak to some of the other cost baskets, whether it's on the TiO2 and pigment front, or tinplate? It does seem like there's just a lot of general inflation. So, it may not just be the spike up and back down that we're seeing in pet chems, but there maybe more consistent inflation in some of the other buckets. Can you help us to quantify that or think about that as you're progressing throughout the year?

Yes. John, I'm happy to take that one. Let me just begin by reiterating a little bit what John and Al have been saying. This whole area of raw material inflation is a transitory issue for us. It's not new for us. We've demonstrated an ability to manage through this many times in the past and we'll get through this as well. You're absolutely right. In our first quarter raws were up by mid-single-digits year-over-year. The biggest driver there was on the petrochem side: monomers resins, solvents, packaging materials. And as you would imagine that hit our Performance Coatings Group a little bit harder with their greater exposure to the pet chem side. That trend is continuing here into our second quarter. If you look at propylene, ethylene, epoxy, HDPE, all of those commodities, they're the highest we've seen in many years and some are at record levels. You take a look at what's driving that across the chemical industry, we've seen a number of things. It was already a challenging environment related to COVID-19. John mentioned Winter Storm Uri. We had 168 production facilities that were offline and disrupted production for an extended period. There's still 60-plus of those facilities offline. Refineries have been operating at below-average utilization rates due to depressed demand for transportation fuels. You've got the demand, as we've talked about screaming both on the architectural and industrial side. So, I mean that's the petrochem side. I know you asked about some of the others. We're seeing similar dynamics there as well. Steel is -- we're seeing increases, supply tightness due to unplanned mill shutdowns, coronavirus outages high demand. So, that's impacting our costs on steel pails and drums. On the TiO2 side, I would say the market's getting a little bit tighter there as well, driven by high demand. You've got the stimulus packages, construction demand, recovery of industrial demand. You've got low inventories and logistical constraints. So, I think TiO2 is moving as well. For all those reasons is why we took up our guide for the year there moving up to that high-single low-double-digit percentage for the full year. 2Q should be the peak. That's how we see it right now. That capacity will come back online. Some of these costs we think will start to moderate. But, as Al mentioned, we'll give you a better view of that at our June 8, FCP event.

Thanks very much for the color and the detail. Appreciate it.

You bet, John.

Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you. John, Al, in Performance Coatings, it looks like in Q2, you'll be above 2019 levels, pretty meaningfully. Why – how is that being driven by?

Yes. David, you're absolutely right. We should be up high single-digits, low double-digits versus 2019. And I think it's all the things that John talked about in his opening remarks by division. I'll let him jump in on that.

Yes. Love to, because I think we're really optimistic about our entire industrial business. All divisions in all regions delivered year-over-year growth in the first quarter. If you look at the market manufacturing, PMI is positive in every region, customer is positive. We do believe that the vaccines should drive stability and comparisons will be favorable moving forward. But this is a terrific leadership team that's leaning forward aggressively and should bode well for us the balance of 2021. As I run through the businesses and I talked about them briefly in my prepared remarks, but if you look at some of these that have really been terrific performers and I'd start with the strong double-digit gains in our industrial wood, we've got really good momentum here. If you look at furniture, kitchen cabinets, flooring, many of these correlate to new residential. We expect that momentum to continue through the first half. And note that the second half, while it may become a bit more challenging as the year goes, this is a team that's really planting a lot of really good seeds with our customers, growing not only through existing customers, we like to say share of wallet but also in new customers. And it's a really good leadership team here. We have high expectations. Talk about our GI business and coming in second with a high teens number is a good place to be. Every region here was up double-digits as well except North America, and North America was up mid-single digits and it continues to show momentum. Again, PMI here is very positive and we expect demand to improve. Good share gains here. We're driving the business in a very positive way. Packaging is another one where demand for food and beverage and cans remains very robust. I've spoken repeatedly about our non-BPA coating. That is continuing to gain traction. Both we and our customers in packaging are investing in additional capacity. We've got terrific partners, good partnership and we anticipate strong demand going forward here for quite some time. I'm really proud of what this team has accomplished. They've delivered for us every quarter since we've acquired Valspar. And between the packaging and coil, not only have we seen terrific growth but we've long been asked about diversifying our business. This really helped us to diversify our business both the packaging and coil. And in coil we see really nice growth. Resumption in commercial projects is picking up, growth in appliances. And again, I've talked about the – new business wins in this business have really been strong in all regions. So this is another terrific leadership team. And then our automotive refinishes I think has really been something that I've been talking about very positively for a number of quarters. And again this is another terrific quarter for this team. Like others in the market, we experienced significant growth in Asia and to a lesser degree but still significant in Europe. But our strength is here in the Americas. And we believe we're continuing to gain share here through our focus on new accounts and installations, innovation. I mentioned installations in my prepared remarks. We've got more systems and products going here in North America, more installs I believe than we've ever had. I think it's the highest rate we've ever had for this business. And that clearly bodes well for us going forward. And that's in the face of miles driven and collision shop volume that's still off pre-COVID levels. So this industrial business is proving to be everything that we had hoped to do and be. We still have some work obviously in the area of operating margins. Pleased with the momentum that the team has. But there's still a lot of upside. We still think there's upside in the operating margins as well as cash and got, as I mentioned a leadership team that will deliver that. So we're looking forward to it.

And John that sounds – that's very impressive and one of the reasons why you'll be raising your segment sales guidance I guess in June 8. But doesn't that imply that the full year guidance could be also conservative as you really – Performance Coatings itself should be up meaningfully versus current guidance?

Well, like I said, we would normally give you an update at the end of the second quarter. We're going to move that up into early June and we'll give you an update then. But if you're sensing a little bit of bullishness or confidence in all of our voices, I'd say that's probably appropriate.

Thank you very much.

Thank you, David.

Our next question is from the line of Mike Sison with Wells Fargo. Please proceed with your question.

Hey, guys. Nice quarter.

Hey, Mike.

Just one quick one on Consumer Brands Group. If you were able to hit sort of the up part of the outlook for full year, you'd need third and fourth quarter to be flattish to up on really tough comps. So if that were to occur, is that really just driven by trends in DIY sustaining, or are there things that your team is doing there to create some growth and maybe have some – gain some shelf space so on and so forth?

Yes. I'd say – I mentioned earlier, the PROs who paint is an important initiative one that we expect. Mike I feel really good. We had a terrific year and we continue to post some terrific numbers in our CBG business. We've got terrific partners here and they're committed to growing and we're committed to growing and investing in our businesses together. I think the way it exactly plays out from a timing perspective and kind of shifts in the market, that's yet to be seen. But we're committed to this business and we're committed to our customers. And one way or the other we're going to help them be better at what it is they're doing. And we're willing to execute on that, invest in it and deliver on it. And you can count on that leadership team, wonderful leadership. Already you could see some of that work as Al mentioned in different parts of the world. But got a leadership team here in Brian Patton and Todd Rea that are doing a wonderful job, getting close to our customers and really delivering for them. And we expect that to continue. We're holding them accountable to do that.

Great. Thank you.

You bet.

Thanks, Mike.

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

Thank you and good afternoon, everyone. Just wanted to ask you maybe Al on the inventory level. You mentioned in your prepared remarks that it's down $100 million or so year-over-year, despite sales being up $500 million and raws are obviously up. So just curious about two things; one, is there any risk of any sort of supply constraints on your side that might curtail some volume upside? It sounds like maybe moat risk maybe in the second quarter or potentially later in the year particularly if they're -- we have another bad hurricane season or something like that? And then secondly, I'm just curious if you're seeing -- maybe this is more in The Americas Group, but I'll ask it for the rest of the segments as well whether some of your smaller competitors are at all volume-constrained as far as you can tell? And is that providing opportunities for you?

Yes. Vincent why don't I take that? Because I think the raw material supply issue is something that I tried to touch on before. And I would say that, as Jim mentioned that 168 facilities in the petrochem industry going offline. It had an impact on not just the paint industry, but many industries. And as diversified as we are in supply base and geographically, when something like this happens it's a significant natural disaster. It's going to impact many industries. It has impacted us. And so, we're working hard with our suppliers. To be very clear we want to be the ones that stand out amongst our customers with the greatest supply, but there are challenges right now. And a natural disaster like this is going to be challenging. As I mentioned and we have mentioned repeatedly, we believe it's transitory. We think that we'll get on top of this. I think the fact that we have the tenure in our leadership team in our global supply chain, as well as procurement gives me great confidence the asset base that we have and the responsiveness and quite frankly the willingness to do whatever it is. Where we can get product in, we'll ship it from wherever we can make it the fastest to get it to our customers to serve them properly. And we're doing a lot of that right now. And so, it is a real issue. It's getting better, but it's one that we've dealt with. And as far as our competitors, yes, I'd say, as I mentioned all of our competitors are feeling the same pressures. What I'm really proud of and I've mentioned these leaders Heidi Petz, Justin Binns, Brian Patton every one of them when we talk, there's not one of them that are sitting there talking about, Boy there are challenges. The challenges that we're talking about are how quickly we can grow, how fast we can be in front of our customers, how fast we can be in front of our competitors' customers. And so while some might be in a similar situation from a raw material, very few have the ability to respond like Sherwin-Williams. And yes, we're trying to take advantage of that. We're trying to turn those into customers. So you should expect that we're aggressively in front of those customers right now talking about our products our services and how we can help our customers make money.

Okay. And maybe just as a quick follow-up. I think in TAG you talked about property management being down. So maybe if you could just give us a little bit more color on how the trends are moving there both sequentially and year-over-year and what you expect for the rest of the year?

Yes I'd say recovery would be choppy would be the best way that I would describe that. It's improved sequentially, but was down by mid-single digit in the quarter. As we went through the quarter, the results got better. Now some of that came from comparisons that were a little bit easier. But we believe that, there's a meaningful recovery underfoot in this business. I'd say that aligns with Dodge whose non-building starts are forecasted to rebound in the mid to high single digit range. We continue to gain good momentum here by diversifying this business. And I'd say that -- when you look at our property management I'd say, we're in a leadership position here. We've got great determination to continue to grow. But I'd say, also I think it's important is we're seeing more activity in our Southeast and Southwestern divisions where there are fewer, I'll call them governors -- or COVID governors compared to the Midwest and Eastern areas. I'd say that comps are more favorable over the rest of the year. But again, just as we've talked earlier we're not waiting for comps to get easier to be a way to demonstrate. We're on attack. We're attacking right now. And a lot of these customers, some of this might fall a little bit between property maintenance and a little bit of the commercial side. But if you look at the tourist industry, many are starting and expecting for that to pick up. And we expect some of those facilities as they start to get better utilization rates to again begin investing more in that business as well. So we're positioned really well. We're -- we've got I believe a good strong leadership position here great relationships and a lot of determination.

Thanks so much. Look forward to the event in June.

Thanks Vincent.

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

Yes, good afternoon. Within the US would you speak to the regional trends that you saw in the quarter in your US architectural business and whether or not there was a topline impact from Uri? And then looking out maybe over the medium term, I'd be curious to hear your thoughts on demographic trends? More people seem to be moving to Florida and Texas. Is that an issue that's hit your radar screen from the point of view of strategy or capital allocation as it relates to your store base for example?

Yes. We love people moving regardless of where they move and we like them to paint and change their mind on the color a couple of times while they're doing that. So we're positioned very well. The Southeast and Southwestern divisions are terrific markets for us. The density of our stores is high there, but there's still plenty of opportunity. We talked about resuming our store count new stores up into the 80-plus range. We're excited about that. I think we have good coverage in the divisions that are the benefactors of some of that movement, but there's still opportunities and we love the shift that might be taking place if it be permanent or temporary. If you look at -- you talked about the demographic or the performance by area. The largest growth that we had was in our Canadian division. This team has been working really hard at executing up there over the last few years. We've been making a lot of investments. So quite frankly our expectations are high for this division, but they're delivering. I'd say as I mentioned the Southeastern division is another area a terrific leader in Todd Wipf down in that area that has been down there for quite some time and is doing a terrific job leading his team. Midwestern Southwestern and the Eastern divisions came in, in order and I'd say, all of them have terrific leaders and are executing. So I was trying to be cute there, Kevin about the move. But the reality is, is that as there's shift in demographics we think we're really well positioned. And we'll capitalize on it wherever it goes largely because of our relationships with the contractors that are going to be on the receiving end.

Understood. And then just on the housekeeping side, how would you characterize the level of earnings dilution associated with your divestiture of Wattyl?

Yeah, Kevin, if you look at the remaining three quarters, the impact on consumer would be about close to 5%. And then the profit is immaterial. Hence the portfolio reviews that we complete on a regular basis looking at customer’s brands, businesses we set midterm -- it's got to be not just sales targets but scale and growth targets. And we have to look at our operating margin, RONA, and cash flow. And we don't believe these businesses or programs can meet those targets, we decide they could be better served with somebody else.

Okay. Thank you very much.

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

Yeah. Good morning fellows.

Hey Duffy.

Hey Duffy.

Hi guys. Just one question for me. I just want to triangulate a couple of Al's comments. So you talked about volume being the biggest driver of margin expansion. But if you use your EBIT number and just look at the incremental margins, TAG came in at 46% year-over-year, consumer was 39%. But consumer grew a lot more than TAG did. So can you just talk about the puts and takes of why TAG was able to have meaningfully higher incremental margins than consumer even though it didn't have the volume growth?

Yeah. I would say Duffy the -- a couple of reasons. Strong volume in TAG, the high same-store sales increased 8.2% versus a strong 7.4% last year. And the product mix within TAG was favorable. Residential repaint was strong. DIY was strong. New res was strong. We saw double-digit growth in exterior. So -- and the price increase effectiveness was strong in our first quarter, all leading to that high flow-through of 46%. Consumer flow-through at 39%. I'll just say it happy -- really happy with that strong flow-through. And the team has been and we've talked about this investing in the Pro who paints in our home center channels, driving those investments. We also had a little bit of a mix shift as Asia Pacific and Europe grows faster than the U.S. Even though we're seeing nice improvement in the operating margins there, it does dilute our consolidated margins. So those are kind of the high-level factors that would impact that. And the last thing I would say is the consumer’s price increase did come in a little bit -- on a little bit more of a lag in the first quarter -- towards the end of the first quarter to our second quarter. And then they also get the benefit of the Ace business being -- us walking away from the Ace business.

Perfect. Okay, thank you guys.

Thanks Duffy.

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

Thank you. I want to make sure we beat to death this raw material and inventory issue that's there. Did you have to shift your production mix at all due to any limited availability of raws? Did you maybe have to make more vinyl instead of acrylic or more urethane instead of epoxy?

Yeah. I'd say, we're shifting all the time though John. The timing of arrivals of raw materials or the plants that is going to be manufactured – manufacturing, we might have seen a little bit more of that than usual here given the obvious situation. But I'd say that's something that we do. And when I mentioned earlier about the strength of doing business with Sherwin-Williams that's the benefit of a company like ours, the capacity that we have, the assets that we have, quite frankly the purchasing power that we have. There's a lot of opportunities on an everyday basis. Here now with this situation as products become available, we're able to utilize our assets the best ability -- to our best ability.

And then are you still seeing strong spray equipment sales in the stores as a leading indicator consistent with some of the growth outlooks that you've projected?

Yes we are.

All right. Thank you.

Thanks John.

The next question comes from the line of Edlain Rodriguez with Jefferies. Please proceed with your question.

Thank you. Good afternoon guys.

Good afternoon.

One quick one. Like in terms of the businesses that are still under some pressure like commercial paint, Protective and Marine, and a little bit of auto refinish, like are you seeing any real fundamental improvement in those businesses? And when do you expect to start seeing maybe pre-COVID levels in some of those businesses?

I would say that we're seeing sequential improvement in all of them and we expect that to continue. The timing on pre-COVID levels, we'd like to see that obviously sooner than later. We're working hard with our teams to be able to reach those levels. A little hard to give that projection by division in this format, but you should expect that that is absolutely our intent.

Okay. Thank you.

Thank you.

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

All right. Thanks for taking my question here guys. I guess, I just wanted to circle back at a lot of the strength that you've seen and your expectations maybe in future periods. So, obviously, you've seen double-digit growth in resi repaint for many periods. That seems like it's actually going to continue. But you've also seen a recovery on the new side. If you were to just think about those two dynamics, do you feel that paint stores will continue to grow next year at a say 1.5 to two times the market clip?

Yes.

Okay. That was easy. And then I guess maybe on the industrial side similarly, we have a nice recovery going on now. But you saw some nice strength in refinish. You've discussed packaging at length. What areas of that business are potentially still below normal that you may expect to see recovery in future periods as well?

In the industrial business you're asking?

Yes.

Yeah. I would absolutely say that we're pleased with the momentum in our automotive refinish. There's a lot of seeds that are being planted. Our expectations for that business are very high. I think even with the growth that we are experiencing in GI and industrial wood, we expect that momentum to continue. I'd say coil is going to continue to grow. You know what, let me just save some time here. We have expectations for every one of those divisions to continue to grow. There's a lot of upside. Our position in the market there's -- we're not sitting here with an enormous amount of market share here where we can't grow. I mean, there's opportunities in every one of those businesses. We believe we have the product technology, the assets and most importantly the people to be able to execute on that. And so our expectations are very high for each one of those businesses, both on the sales and operating margin from both perspectives.

Thanks, John.

You bet.

Thanks, Arun.

Our next question is from the line of Garik Shmois with Loop Capital. Please proceed with your question.

Great. Thanks. Just one question for me. Just looking for some clarification on TAG pricing and just recognizing there could be some upside later this year. But of the -- you got 1.7% in the first quarter. You expect 2% or better the following quarters. Is that 2% total, or is that 2% on top of the 1.7% you just got? I'm assuming, it's the same as your last outlook but I just wanted to be sure.

Yes. That's 2% in total and it's maybe even a little bit better than the prior effectiveness of price increases that we've done.

Great. Thank you.

Thanks.

Our next question is from the line of Mike Harrison with Seaport Global. Please proceed with your question.

Hi, good afternoon.

Hey Mike.

I wanted to dig in a little bit on this opportunity with PROs who paint at Lowe's. And it sounds like they've talked about some success in bringing these people into the stores. Do you have any metrics that you can share on what kind of benefit you've seen in the paint aisle? And maybe talk about what specific product lines at Lowe's you're gearing toward the PRO market or how you're positioning to better serve them.

Mike, we do have metrics, none that we can share. I mean, these would be our customers' metrics that we feel, it's very important in that relationship for them to discuss and to share. And I would also say, even from a product offering targeting those customers -- and I'll talk about our stores and maybe use that to reflect on the business that you're asking about. If you look at our high-end products, many of those are sold to the DIY customer, but many are also sold to the residential repaint contractors. So, I don't know that you would find customers in our stores that are professional, that are not buying some product at nearly every price point that we offer. And so the work that we're doing on the PROs that paint, targets the same type of breadth of product. There are customers that are maybe very high-end or upscale homes that want to use the very best. And there are others quite frankly that might be in different price points, but have also recognized that the largest cost of their goods -- cost of goods is in labor and they make more money using a higher-quality paint. So, we're not only designing products for PROs or DIY customers. We're designing products for the end application with the idea of the applicator in mind. So, we do build some PRO products, largely on the commercial side that are maybe more geared towards that application. But when you go into a home center, you're going to find those PROs typically shopping throughout the entire product line.

All right. And also wanted to revisit the Wattyl divestiture. Just wondering kind of what this says about your international expansion plans or strategy on the architectural side. Maybe comment on why Wattyl wasn't a good fit. And it's been a little while since we talked about China on the architectural side. Any comments there?

Yes. I'd say, Mike, it's a great question and one I'd like to touch on because, I think it demonstrates the discipline as well as strategy. So my message is -- to a shareholder would be, we are committed. We are committed to growth and we're making investments in those areas that we believe have the opportunity to reach the long-term targets that Al just walked through. We're not interested in just a book of business. We're not interested in practice. We know how to make paint. Our shareholders expect a return on their investment and that's what we're out to do. So we're looking at programs. We're looking at geographies. We're looking at customer programs themselves to understand, which ones are viable and meaningful to both our customers and our shareholders. And in those areas, where we can see the long-term investments paying off, we're going to invest. We're going to get in there and grind out, what needs to be done to win. But we're not going to be in some part of the world -- other part of the world, expending our time and our treasure in areas that doesn't offer the return that our shareholders deserve.

Thank you. Our next question is from the line of Truman Patterson with Wolfe Research. Please proceed with your question.

Hi, good afternoon everyone. Thanks for taking my questions. I'll try and be quick because I know we're getting late. First question on TAG and Performance Coatings Group. Clearly different pricing dynamics, different raw material baskets and potential inflationary pressures. You all mentioned some gross margin compression near term. Is either segment at risk of just kind of greater compression over the next quarter? And then, either segment, will it take a little bit longer to recover all the inflationary pressures?

Yes. Truman, I would say just because of the size of the petrochem side of the basket moving higher than the others short term, we would see more of a compression on PCG. But as you know and as I talked about for the year, we're not focused on gross margin compression or expansion alone. It's a combination of things. We're focused on operating margin growth and that comes in many ways starting with volume. And we are showing strong volumes in Performance Coatings Group in TAG, the selling price increases and as I talked about PCG has incremental selling price increases coming into our second quarter and getting leverage on SG&A. And where we fall out on the operating margin improvement is really driven by that volume first. But you can have confidence in our discipline and resolve about getting price increases, if we need them later in the year to offset dollar for dollar the raw material increases across all businesses.

Okay. Okay. That's really helpful. So in PCG, primarily a bit more compression just due to raw materials rather than an inability to dip pricing at least moving forward. Okay. And then just -- this has been asked a couple of different ways, but I just want to ask a bit more directly and make sure, I'm not missing anything. DIY in the US through April, you all aren't seeing any slowing whatsoever? And the reason that I'm asking is, it looks like in consumer, the second quarter sales guide looks a little soft, but I think that might include the Wattyl divestiture. So just wanting to understand that.

Yes. Truman, it does include about 4% in it for Wattyl.

Okay. But you're not seeing any deceleration in DIY in April?

Let me say it this way. April sales are within our guidance.

Certainly.

You’re a good man, Truman. It's within our guidance.

All right. Thanks, guys. Good luck on the upcoming quarter.

Thanks, Truman.

Our next question is from the line of Justin Speer with Zelman & Associates. Please proceed with your questions.

Thanks, guys. Appreciate it. Just a few questions here. One on, just following up that DIY paint, maybe not through your retail partners, but through your stores. How did the DIY point-of-sale trends look through the quarter to exit the quarter maybe even to April? And maybe, if you could help us maybe understand, in terms of its guidance for the second quarter, how much of that may be tied to managing your retail customers, managing inventories, or perhaps just the supply chain disruptions versus underlying demand slowing?

No. I'd say that -- is it -- I'm not quite sure I understand your question. Is it --

I would say, Justin, it's not demand slowing. I think we're showing a strong top line sales guidance. So, it's not related to anything restocking or inventory level holder pushes within the retail channel. But up mid to high teens on a consolidated basis and strong improvements across each of the segments or TAG and PCG in particular, that's driven by the underlying demand trends. That's not anything related to the inventory. CBG down low double digits to mid-teens. We have the Wattyl impact. But even with that guidance, we're still going to be up mid- to high teens relative to the second quarter of 2019. So we're not giving it all back and we're maintaining some momentum there.

With an effort on trying to grow, as I mentioned earlier, on the -- through those retail customers with the PROs that paint as well.

For sure. Yes, I recognize there's just tremendous growth. And I know that you're looking at maybe toggling back to low single, but maybe there's some phasing and some timing where maybe we tilt negative and that's what you're guiding to. But it sounds like that's a view towards maybe end demand versus inventory situation, it's more of a view that end demand for whatever reason, the second quarter is going to be a little bit softer year-over-year for your business through retail, but not necessarily -- and then maybe, but I guess the question I have, is that a reflection of the actual end demand to the customer that you're expecting there?

Well, what we are saying is that, as people go back to work, they're not going to be home painting. And if that occurs then there is a little less DIY business. We think Sherwin-Williams is uniquely positioned to capture it in other areas of the business. So if people are going back to work and more painters are coming to their homes while they're at work, we're going to pick that up. If the people are going back to work in their plants, the production of those plants are going to be up on -- and going online, we're going to pick it up there. So I can go through in great detail, Justin. But I know you know this business very well and we've had this discussion a number of times. Our view is that we've been working hard, quite frankly, for years for this moment. Whichever way the business tilts, we're there, and we're going to capitalize on it. And if it's in DIY, we're there. If it's in res repaint, we're there. If it's in new residential, property maintenance, commercial, property management, whatever it is, we're there and we're going to capitalize on it.

It makes sense. And, yes, you have a great portfolio to adapt to the dynamics. The last question I have is on the free cash flow margin expectation for this year. You had a very, very strong last year on that front. How are you thinking about the phasing of free cash flow margins this year?

Yes. Justin, we are expecting to be even a little bit above the 12.5%, 13% net operating cash targets we've set for ourselves. And then with our CapEx, our core CapEx below 2%, but we also have the building our future $100 million that we talked about. So if I look at net operating cash, less CapEx, we've talked about being above that 11.5%. And I think, we might be a little bit below that just because of the extra $100 million, but I do expect strong net operating cash for the year.

Excellent. Thank you, guys. Really appreciate it.

Thanks, Justin.

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

Thank you. Good afternoon, everyone and thanks for taking my question. I have just one quick question on the potential infrastructure bill. How much of your Performance Coatings would benefit from it? And what technologies do you need in order to have a bigger impact?

Rosemarie, it's a great question. It's something that has us very excited. Our Protective & Marine business is a terrific business, positioned very well. I think a big part of it -- and I think, you know as well as most that have tried to follow what this infrastructure bill might look like, I think, we all recognize that there's a lot of variability in what might be coming down the pipe here. So maybe just the pieces and parts. If it's -- we have a terrific position in water and wastewater. We have a terrific position in -- we say, bridge and highway, but it's -- ours is on the high-value end of the bridge work. If you look at airport investments, virtually any infrastructure that goes in we'd be very well positioned to be there. And I say very well positioned and I might say, because it's -- you asked about technology. We do have very unique technologies from floor to ceiling. And our goal there is to ensure that the coatings that we provide, not only offer tremendous protection, but we have very unique systems that allow our coatings to have the assets put back in place quickly, a rapid return to service we refer to them. So polyaspartic coatings that can be coated/recoated quickly and put back in place, so that bridge lane closures down considerably or floors can be recoated and put back in place quickly. All of these are part of the product offering that we bring, that our customers have learned to expect and quite frankly we work very hard to get [Indiscernible]. So depending on what comes out in that bill, we think we're going to be very well positioned to capitalize on it.

Can you quantify how much of your business could benefit? Let's pretend for a second that the whole thing goes through.

I don't know how to quantify that until we see the reality of -- I can appreciate for your modeling, but that'd be purely speculation on our part right now. I will say this, Rosemarie we're very well positioned to capitalize on it.

Okay. And do you need additional technologies? Obviously, it sounds as though this is what you are going to be looking for in terms of M&A. Can you share with us, the gaps in your technology portfolio?

We would not do that publicly now. We do recognize that there are opportunities. We're out looking at some of those, but we wouldn't want to flag those areas that we're pursuing M&A targets right now.

And …

[Indiscernible]

I am sorry. And still on the M&A, I presume that you are not looking at anything the size of a Valspar? We are talking more about bolt-on type of acquisitions?

Yeah. I think there -- we've spoken openly about, how long we coveted that Valspar business. I don't think there's another Valspar out there. There are opportunities for us but not something like a Valspar.

Okay. Thank you very much and good luck.

Thank you.

Our next question is from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question.

Hey. Good afternoon everybody. Thanks for squeezing me in. Al, I just wanted to follow up on -- you mentioned the expectation of pricing offsetting raw material inflation this year. And if I did some back-of-the-envelope math raw is 85% of COGS; expected inflation 10% at the midpoint. That seems to imply something like 4% to 5% pricing for the total company for the full year. And assuming the pricing will ramp throughout the year that's probably higher than that in the back half of the year. And you've already addressed, TAG kind of 2% pricing plus going forward. And we'll see if when -- if or when you, do another price increase there. But can you kind of talk about pricing in the other segments? And how -- is that the type of pricing you're expecting based on the actions that you're taking there? And then, we'll kind of see what you guys end up doing with TAG?

Yeah. Kevin, I think what you can expect is, we'll continue to monitor the raw material basket as we normally do. And if it persists at these levels then, yeah, typically if -- to offset the dollars you got to get about 50% of the raw material increase just because of the way the sales COGS dynamic works. So -- and to be fair, some businesses within industrial are going higher than others, just because of the dynamics within that specific business. So I would say that, my expectation is still that we'd offset the raw dollars -- dollar per dollar wood price. And to be clear, if we don't see that happening Kevin, we'll offset it with other internal savings and SG&A, and other levers that we have to pull. So, I don't want to leave here, thinking that, boy, if I don't give -- if they don't get price they're not going to offset the raw material increase. That's absolutely not the case. We'll look at all levers that we have available, because again our focus is growing operating margin.

Yeah. Okay. And one other quick one on -- in the retail -- with the retail partners, I think last year there wasn't really much in the way of promotion. But now that we're entering the paint season and there tends to be, promotions around some of the holidays. Curious, if you're aware of what the promotion activity will look like this year.

We are. But it's not something that we would discuss out of respect for our customers.

Okay. All right. Thank you very much.

Thank you.

Thanks Kevin.

Thank you. Our final question is from the line of Greg Melich from Evercore ISI. Please proceed with your question.

Well, thanks. I'll keep it to one. Surprised, I still have it. Just want to make sure that the raw material high single-digit, low double-digits, is that an industry forecast as opposed to a Sherwin forecast? And...

Yeah.

Yeah, sir.

Yeah? And then, if that's the case, is this one of those odd years where just given the chasing of inventory to stay in stock for your customers, that your raw material bill might be up as much as the industry or even more?

It's an industry forecast, Greg is what I would say. I don't know Al if you have any other, comments on that.

Yeah. I mean, Greg to your point, if you look, at -- because we're on a last-in first-out basis in North America is the largest portion of our sales. We -- I would say it this way we would be higher because of the rapid increase this year, than we might be in other years where it's maybe more muted. That would be the way I kind of frame that.

So it would be -- I mean obviously you guys are going to buy well. But we shouldn't assume that, you would be less than the industry this year, given just the uniqueness of it?

Okay. I wouldn't make any assumption around that. I don't know what our peers are buying and what prices they're at. I just -- I understand, where we're at and we're trying to explain hey if a year-over-year on a rapidly increasing like it is in this year versus a more stable, our costs are going to be up higher because of that last...

We might be in the spot a little bit -- spot market a little bit more or doing those things that we need to keep our customers in business. And so, there might be a little more volatility this year than other years.

Makes total sense, thank you. And I guess, on volume, I just want to make sure, I got it right. You don't think there was any material volume impact from being out of stock. It sounds like there may have been some but it may have been 50bps of volume demand not hundreds of bps?

Nothing material.

Okay. Thank you. Good luck. Great job.

Thanks, Greg.

Thank you. At this time, we've reached the end of our question-and-answer session for today. I'll hand the call back to Jim Jaye, for closing remarks.

Yeah. Jim before you jump in here let me just -- there were some really good questions. I just want to circle back on just a couple of points. One I think that -- I think it's important to understand how confident we are. We have a proven ability to grow in the most difficult markets I think top line and bottom-line. I believe we're executing our strategy and that's uniquely positioned us to outperform the market and we believe our peers. We had a couple of points here that I think are important to reemphasize and that's the commitment we have to making strategic investments in stores and innovation in reps both, technical rep, sales and specification reps as well and all driving towards solutions and those solutions that help our customers to be more successful. And those services and products we think are an important element, not only in the ability to help our customers be more successful, but in our building that relationship with those customers. And I think managing through these periods of times highlights, the proven record I think of the company and the leadership team, I think most importantly the terrific Sherwin-Williams team members that are closest to our customers every day. We've got great confidence in our position. And more importantly, I think great confidence in our future. I've said this before, I believe, we're just getting started. And I think that best frames the mentality of this leadership team. We're proud of what we've accomplished. We're not complacent. We think we're just getting started. And we're looking forward to the future. So Jim, I'll kick it over to you to talk about the FCP.

Yeah, just a couple of housekeeping items on the virtual financial community presentation. That's going to be at 2 p.m. Eastern on Tuesday, June 8. Again, that's Tuesday, June 8. Registration for that will be available on our Investor Relations website very shortly. As you heard multiple times today, we'll give you an update the full year. We'll also have some newer things this year with other members of our management team around technology and ESG. So that should be a great event. If you need more information, you can reach out to Natalie Darr and my team. And with that, I want to just thank everybody for joining our call. As always, myself, Eric Swanson, we'll be available to answer any other questions you might have. So, have a great day. And thanks for your interest in Sherwin.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.