Robert J. Wells - SVP-Communications & Public Affairs, IR Contact John G. Morikis - President, Chief Executive Officer & Director Sean P. Hennessy - Chief Financial Officer & Senior Vice President.

Ghansham Panjabi - Robert W. Baird & Co., Inc. (Broker) Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) Robert Andrew Koort - Goldman Sachs & Co. Duffy Fischer - Barclays Capital, Inc. Vincent Stephen Andrews - Morgan Stanley & Co. LLC Don Carson - Susquehanna Financial Group LLLP Arun Viswanathan - RBC Capital Markets LLC P.J.

Juvekar - Citigroup Global Markets, Inc. (Broker) Michael Joseph Harrison - Seaport Global Securities LLC Nils-Bertil Wallin - CLSA Americas LLC Dmitry Silversteyn - Longbow Research LLC Charles Cerankosky - Northcoast Research Partners LLC Ivan M. Marcuse - KeyBanc Capital Markets, Inc.

Rosemarie Jeanne Morbelli - Gabelli & Company Scott Rednor - Zelman & Associates Jay McCanless - Sterne Agee Gregory S. Melich - Evercore ISI John Roberts - UBS Securities LLC.

Good afternoon. Thank you for joining The Sherwin-Williams Company's review of First Quarter Results for 2016. With us on today's call are John Morikis, President and CEO; Sean Hennessy, CFO; Al Mistysyn, 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 www.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 Thursday, May 12, at 5:00 PM Eastern Time.

This conference call will include certain forward-looking statements as defined under U.S. Federal Securities Laws with respect to sales, earnings and other matters.

Any forward-looking statements speak only as of the day on which such statement is made and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions. I will now turn the call over to Bob Wells..

Thanks, Jessie. Good morning, everyone, and thanks for joining us. In the interest of time, we provided some balance sheet items and other select financial information on our website, sherwin.com under Investor Relations, April 21 press release.

I'll begin by highlighting overall company performance for the first quarter 2016 compared to the first quarter 2015, and then comment on each reportable segment. Consolidated net sales increased 5.1% to a record $2.57 billion, driven primarily by higher paint sales volume in our Paint Stores Group and Consumer Group.

Unfavorable currency translation decreased consolidated net sales 2.8% in the quarter. Consolidated gross profit dollars increased $129.3 million in the quarter to $1.26 billion. Our consolidated gross margin increased 280 basis points in the quarter to 49% of sales from 46.2% in the first quarter last year.

Most of the gross margin improvement in the quarter resulted from the positive mix effect of Paint Stores Group, our highest gross margin segment, outpacing the growth of the other segments, coupled with increased operating leverage from higher production and distribution volume.

Selling, general and administrative expenses increased $73.2 million over the first quarter last year to $1 billion. As a percent of sales, SG&A increased to 38.9% in the first quarter this year, from 37.9% last year. Roughly half of this increase was from acquisition-related costs.

Interest expense increased $13.3 million compared to the first quarter last year to $25.7 million. This increase resulted from the shift to long-term debt from short-term that occurred mid-year 2015 and acquisition related interest expense.

Consolidated profit before taxes in the quarter increased $23.1 million to $216.4 million, due primarily to improved operating results from our Paint Stores Group. Unfavorable currency translation reduced profit before tax in the quarter by $9.4 million or 4.9%, compared to the first quarter last year.

Our effective tax rate was flat at 32% compared to the first quarter of 2015. For the full year 2016, we expect our effective tax rate will remain in the low 30% range. Consolidated net income increased $15.7 million to $147.1 million. Net income as a percent of sales was 5.7% compared to 5.4% in the first quarter last year.

Finally, diluted net income per common share for the quarter increased 13.8% to $1.57 per share from $1.38 per share in 2015. Looking at our results by operating segment. Sales for our Paint Stores Group in the first quarter 2016 increased 10.5% to $1.62 billion from $1.46 billion last year.

Comparable store sales, that is sales by stores opened more than 12 calendar months, increased 9.4%. All of the Paint Stores Group sales increase was due to higher organic paint and equipment sales across all end markets. Price mix had a negligible impact on sales in the quarter.

Regionally in the first quarter, our Eastern division led all divisions, followed by Southeastern division, Midwestern division, Southwestern division and Canada. Sales and volumes were positive in every division.

Segment profit for the group increased $77 million or 43.6% to $253.5 million in the quarter, as higher paint and equipment sales volumes were partially offset by higher SG&A spending. Segment operating margin increased to 15.7% of sales from 12.1% in the first quarter last year.

For our Latin America Coatings Group, first quarter net sales stated in U.S. dollars decreased 24.7% to $125.2 million due to unfavorable currency translation and negative volumes that were partially offset by selling price increases. Currency translation rate changes decreased sales in U.S. dollars by 22.2% in the quarter. Segment profit in U.S.

dollars decreased to a loss of $900,000 in the quarter from a profit of $9.5 million last year. Segment profit was negatively impacted by higher raw material costs, and unfavorable currency translation, partially offset by selling price increases. Currency translation decreased Latin America's segment profit $6.2 million in the quarter.

As a percent of net sales, segment operating profit was a loss of 70 basis points in the quarter compared to a profit of 5.7% in the first quarter of 2015. Turning to the Consumer Group, first quarter sales increased 7.5% to $378.1 million.

As a reminder, in March, we annualized the start of the initial shipments of the HGTV HOME by Sherwin-Williams paint program to Lowe's stores, which was completed by May 1 of last year. Segment profit for the Consumer Group increased $8.6 million to $64 million in the quarter from $55.4 million in the first quarter last year.

The profit improvement in the quarter was due primarily to improved operating efficiencies and higher sales volumes. Segment profit as a percent of external sales increased to 16.9% from 15.8% in the same period last year. For our Global Finishes Group, sales in U.S.

dollars decreased 3.3% to $454.2 million in the quarter as unfavorable currency translation was partially offset by positive price mix. Unfavorable currency translation decreased net sales for the segment 4.7% in the quarter. First quarter segment profit stated in U.S.

dollars increased $9.7 million or 24.9% to $48.6 million, due primarily to decreasing raw material costs and good cost control, partially offset by unfavorable currency translation, which decreased segment profit $3 million in the quarter. As a percent of sales, segment profit increased to 10.7% from 8.3% in the same period last year.

That concludes my recap of our results for the quarter. So I'll now turn the call over to John Morikis, who will make some general comments and highlight our expectations for second quarter and full year.

John?.

Thank you, Bob, and good morning, everyone. Thank you for joining us. First quarter 2016 was a good quarter for Sherwin-Williams from both a revenue and profit perspective. Architectural paint volume growth in North America was the strongest we've seen in the past 10 years or longer.

Industrial coatings demand also picked up some momentum in North America and Europe. Even with a 2.8% drag from unfavorable currency translation in the quarter and continued soft market conditions in Latin America, our consolidated sales growth exceeded 5% for the first time since third quarter 2014.

To get a clearer picture of our profitability, you need to back out the acquisition-related costs we recorded in the quarter. Ex acquisition costs, diluted net income per common share increased 31% on sales growth of just over 5%. As a percent of sales, gross profit expanded 280 basis points year-over-year.

Operating profit improved 300 basis points and profit before tax improved 190 basis points. Our incremental margin on consolidated profit before tax was 48.6%. SG&A was the only line on the P&L that went the wrong way as a percent of sales, the result of higher SG&A spending by our Paint Stores Group and the acquisition-related expenses.

Both our domestic operating segments delivered strong results in the quarter. Paint Stores Group recorded double-digit revenue growth in four of the five customer segments we track, led by residential leasing, new residential and DIY. Comparable store sales growth of 9.4% was the strongest comp performance we've seen in the few years.

Our optimism is fueled further by our professional contractor customers reporting very healthy order book trends that extend well into the year. During the quarter, Paint Stores Group opened 20 new stores and closed seven redundant stores. But plan still calls for full year store openings in the range of 90 to 100 net new locations.

Today, our total store count in the U.S., Canada, and Caribbean stand at 4,099, compared to 4,010 a year ago. Consumer Group's 7.5% sales increase and 110 basis point improvement in the segment profit margin in the quarter, primarily reflected strong results from our national account customers.

Sales to commercial, industrial and MRO customers also showed good progress in the quarter. Strong sales growth and volume-driven productivity gains by our global supply chain organization resulted in a very healthy 32% profit margin on incremental sales from our Consumer Group in the quarter.

Unfavorable currency translation continued to weigh on sales and profit performance in our Global Finishes Group and our Latin America Coatings Group. Global Finishes Group did report positive volumes and positive sales in local currencies, driven primarily by improving marketing conditions in North America and Europe.

They also managed the expenses very well, resulting in an impressive 240 basis point expansion in segment operating margin. Sales volumes in most Latin American countries continued to decline, with Mexico standing out as the notable exception. The impact of currency devaluation once again was worse than anticipated in the quarter.

Our net working capital increased in the quarter due to the strong upward inflection of our business in the first quarter, evaluated over the trailing 12 months of sales.

This increase in working capital resulted in a net operating cash use of approximately $80 million in the quarter, compared to a use of about $55 million in the first quarter last year. Our capital expenditure in the quarter totaled $52 million, depreciation was $42.9 million and amortization was $5.8 million.

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

On March 31, we had remaining board authorization to acquire 11.65 million shares. As we indicated on our call announcing the Valspar acquisition, we intend to build cash on our balance sheet over the course of the year to reduce total borrowings required to close the deal.

This along with the cash required to service the debt after the close, will significantly curtail our share repurchases for the foreseeable future. Yesterday, our board of directors approved a quarterly dividend of $0.84 per share, up 25% from $0.67 last year.

As I mentioned at the beginning of my remarks, North American architectural paint demand is strong, driven by a steadily increasing level of residential construction and remodeling activity.

As we move into the prime painting season, we're also encouraged by growing signs of a more robust non-residential recovery and improving demand for many industrial products. This growth will continue to be offset to some degree by challenging conditions in Latin America and currency headwinds, particularly in the first half of the year.

Our outlook for second quarter 2016 is for consolidated net sales to increase low to mid single-digits percent compared to last year's second quarter.

With sales at that level, we expect diluted net income per common share for the second quarter to be in the range of $3.95 to $4.15 per share, a 9.5% increase at the midpoint compared to last year's record $3.70 per share. For the full year 2016, we expect consolidated net sales to increase over 2015 by a low single-digit percentage.

With annual sales at that level, we are raising our expectation for full year diluted net income per common share to be in the range of $12.50 to $12.70 per share compared to $11.16 per share earned in 2015. Again, I'd like to thank you for joining us this morning, and now we'll be happy to take your questions..

Thank you. At this time, we will be conducting the question-and-answer session. Our first question is coming from the line of Ghansham Panjabi with Robert W. Baird. Please proceed with your question..

Hey, guys. Good morning..

Good morning, Ghansham..

Hey, in recent quarters you called out some of the non-architectural end markets within PSG is being challenged.

Just curious as to how these markets performed during the first quarter? Just wanted to understand why there was such a meaningful acceleration in 1Q sales trends in that Paint Stores Group have been?.

We've spoken about the commercial side that we feel pretty good about that, Ghansham. The area that we've spoken of having some pressure would be the Protective & Marine business. Particularly in the Protective side here, if you break down the areas that are impacted by the oil and gas, that's probably had no significant impact.

We have seen other areas that we've increased our focus on start to pay greater dividend, and we are excited about the results that we are experiencing as a result of those impact, of the actions we are taking..

Okay. And then in terms of full-year sales guidance, I guess, why not raise that higher given your big first quarter and also strong sales guidance for the second quarter, particularly with FX easing as the year progresses.

You expect any sort of moderation during the year in PSG?.

No. I think that what we expect is the Paint Stores Group will continue to lead the sales gains for us. I think second quarter is going to be in the same situation we're going to see the Paint Stores Group. I think that the first quarter, many years, we don't even change the guidance after the first quarter because it is the smallest quarter.

We did raise the EPS. I think that we'll review it at the end of the second quarter. I think this year, if you remember, I think that Consumer had a very nice first quarter.

We'll finalize the load-in -- anniversarying the load-in of the HGTV program, and I think that – so we've got that sort of a headwind a little bit in the second quarter, specifically about the second quarter, but make no mistake about it.

I think the Paint Stores Group is where we've – as John said in his comments, I think the Paint Stores Group will lead us in the sales gains each and every quarter..

I would say the customer base that we enjoyed relationships with inside their stores organization are feeling pretty bullish about the outlook this year..

Perfect. Thanks so much, guys..

Thank you, Ghansham..

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

Perfect. Thank you. It obviously appears the spring season is already off to a solid start on reconstruction R&R.

But can you also comment on the competitive environment in the big boxes and also any preliminary expectations for Infinity?.

The big-box environment is always competitive. We expect that our role there is to continue to add value to all of the customers that we serve, and our job is to make sure that we're aligned with their goals and driving customers into their stores. Regarding Infinity, it's our practice to let our customers speak to what their expectations are.

We have very high hopes. It's a really terrific quality product in that can, and our expectations would be that's going to be very strong. But, we don't want to get ahead of our customers..

Perfect. Thank you. And then just a quick follow up. Obviously, it's still early, but do you have any new color on the Valspar approval timeline, now that the process has begun, just any reminder there will be appreciated? Thank you..

Well, we've begun the review process, and when we announced the acquisition, we committed to provide you with updates, and we had material – if we had material news, we really have no material news to update right now.

And I think it's only fair to say that, our thoughts are that when there is a material update that we'll provide that, but given the day-by-day or play-by-play will be a bit much. Our thoughts are to keep you up to speed with material actions..

That's appreciated. Thank you very much..

Thank you, Chris..

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

Thanks very much. I was wondering if you could talk a little bit about the gross margin? You mentioned the incrementals as they flow through the P&L statement, but the gross margin particularly is pretty fantastic.

What should we expect as you go through the rest of the year there?.

Bob, this is Sean. I probably should have said that last time I answered, but this is Sean.

And when you take a look at how our gross margin was last year, and if you look at the second quarter, third quarter, and fourth quarter, how strong it was, if you think about the way the raw materials were moving last year, we felt that at the beginning of the year was really where we were going to have to make most of our improvement in the gross profit as a percent of sales and the improvement.

We were – last year we were at 46% in the first quarter, we jumped all the way to 48.8% and then we got to 49% and then over 50% in the last three quarters. So, we feel good about where our gross margin is.

We think that the raws will continue to – the raws goodness will continue to shrink and we're going to hit at length somewhere later in this year where we expect that that will be negligible, so.

We felt that we had to have this kind of an improvement in the first quarter to have improvement throughout the year and we feel good about where we are with the gross profit..

And then, maybe related to that, I think last year you talked about in some of the contractor bids there was a little pressure, but you've articulated today some building momentum in those markets as well.

Can you characterize how the pricing dynamic is in the professional painter market at the moment?.

Yeah. I'd say it's very similar to what we've always expressed and experienced. We have spoken about those larger projects that typically go to bid and are a little more aggressive in pricing.

But outside of that I'd say it's always a competitive market and it continues to be and we continue to try to differentiate ourselves, not only with the quality of the product, but the services that we provide. But, we expect that our competition will be out there and we've got to earn every gallon that we sell..

Thanks, John..

Thank you, Bob..

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

Yeah. Good morning, fellows..

Good morning, Duffy..

Question just around raw materials.

Could you split them out a little bit, talk about the organic and inorganic side? Obviously with oil moving higher, has there been a material change in how you're thinking about raw materials throughout the rest of the year?.

On the petroleum-based side, we primarily priced off propylene and chemical-grade propylene has averaged around $0.30 a pound for a while now. Barring no major outages in propylene or monomer production, we anticipate a relatively flat polymer pricing market for over the balance of the year probably.

On the titanium dioxide side of the equation, we said on our year-end call that we saw prices kind of flattening, but we didn't see a lot of pressure in supply demand balance. Those fundamentals have pretty much played out as we expected.

There is obviously a December price increase announcement that we think may be gaining some traction amongst smaller customers, another price increase announcement has been stacked on top of that. We do believe that it's going to take tight market conditions, or tighter market conditions, for those price increases to gain significant traction.

But I think it's safe to assume that we're not going to see further declines in TiO2..

Great. Thanks.

And then just on the back of that, if let's say oil moves a little higher and you get a little pressure on raw materials, philosophically as we get into next year, would you guys be able to go out with price increases do you think if raw materials were moving higher?.

Duffy, our practice has always been to talk to our customers first. So, if we do that it will be – we'll talk to you about it after we've shared that with our customers. I think the band that gross margin chart that we often talk to that demonstrates our ability to operate in that band, I think is where I would point you.

In areas or times where we've had significant pressure, we've been out with price increases, and I think it also demonstrates the discipline that we have when there haven't been raw material increases for us, not to go out with price increases.

And so, our first effort is to mitigate or drive more efficiency and drive down the costs, anyway we can to avoid having to put price increases in. But if we find ourselves in that situation, I think we've also demonstrated our ability to put those effective price increases into the market..

Great. Thanks, fellows..

Thank you, Duffy..

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

Thanks very much. Good morning, everyone..

Good morning..

Just a question on weather. If you look at the last four quarters, particularly the first three, we had some challenges, and then 4Q last year was helpful. This first quarter seemed to be, the feedback we got, was somewhat mixed.

So, against all that sort of sequential rollercoastering, where do you think things are now? Do you think the quarter and the performance in the Paint Stores Group is really reflective of sort of state-of-the-art instant demand? Or do you think we're still making up lost gallons from last year, or is there any risk that we pulled some forward from later this year?.

Well, I think demand in our stores clearly improved from fourth quarter to first quarter. How much if any of that was due to the mild weather in the first quarter is really very difficult to determine. I would say this that we're very encouraged about the comments that we are getting from our customers. They're very bullish about the paint season.

As I mentioned in my comments that the discussions that we're having with them, they're feeling very good about the market, and that keeps us very excited and focused on growing with them. So it's hard to say how much if any, but most importantly, their outlook for the year is very positive..

Okay. And just as a follow-up, the guidance you gave at 4Q presumably included some share repurchases.

Is that correct? And if so, could you quantify how much do you think you took out in the new guidance?.

Yeah. I will just tell you that at the beginning of the year we did have share repurchase. I think, the guidance – when we take a look at – I'll go back to some of the comments John made in his comments. Our plan has changed. Our plan is to accumulate cash. In prior years, we always utilized that cash, our plan was to utilize 100% of the cash.

And this if you think about what we're trying to do with the acquisition and acquire and accumulate cash for that closing of the Valspar deal, implies very little cash is going to be used for buybacks and – versus you probably – we're looking at spending another $700 million, $800 million, $900 million on stock. So, it probably was significant.

And you can pick what you think the average purchase price would have been for the year..

Okay. We'll do that. Thanks very much. I appreciate it..

Yeah..

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

Yes. Thank you. John, I just want to go back to your views on the architectural paint market. I know, last year, we had subpar growth about 2%, 2.5%. So, as you look at what your customers are telling you, what kind of gallonage growth do you see for the industry in the U.S.

this year? And given that outlook, I'm wondering why you only have mid – low to mid single-digit sales growth expectations for Q2? I know you're running some tougher Consumer Group comps, but it would seem that, especially with the weather snapback in Q2, that that PSG should have a very strong performance?.

Yeah. And this is Sean and I'll let John talk about the market in total. And I just go back to some of the comments I made earlier about the guidance. I think when you look at the second quarter, we've got other things moving; currency is still going to be a little bit of a headwind.

We're going to finally have 100% of the load-in from the HGTV program completed. But, we want to make sure you know that Stores Group is going to be the driver in the second quarter, just like it has been for the last many quarters or so..

Yeah.

And, Don, just, so I'll make sure I get your question right, were you referencing first quarter or second quarter?.

I was referencing second quarter just low to mid single-digit revenue growth, but just wanted to also get your comments on your outlook for the industry architectural volumes for the year as a whole, how much – we had subpar growth last year, what kind of a growth are you seeing this year?.

Right. We don't forecast those gallons specifically, but I would tell you that in speaking with many of our customers around the country, there is a general sense of confidence and a bullishness that is very exciting to us. Many of them are looking at the book of business that they have and are excited about the outlook for the year.

So we're going to be very responsive to them and try to ensure that we're the benefactors of that, but our customers are feeling very good, very good..

Okay. Thank you..

Thanks, Don..

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

Thanks. Good morning..

Good morning, Arun..

Hi. I guess I just wanted to ask that question again. You had very impressive same-store sales growth in the first quarter.

You guys have been comping kind of 1.5 times to 2 times the industry, so would you say the industry was up 5% or 6% in the quarter? Or was there something specific that drove you guys well above the industry? And then, do you expect your numbers to kind of continue in that range?.

Arun, this is Bob. When we do – when we estimate industry volume, we typically do so in part by listening to the reports of our publicly traded peers, and along with our volume growth, and triangulating to get what we estimate to be the market growth.

For one quarter – for first quarter, it's a little too early to tell because we haven't seen enough market data yet, how much the market grew in the first quarter. Going forward, our expectations are based not on any macro assumption for market growth.

But as John indicated on the feedback that we're getting from our contractor customers on their order book volume..

Right. We're working very closely with them on the projects that they're looking out and estimating, and many of them have already booked, and they're feeling, as I said, very positive about the year..

It appears that the industry growth accelerated in the first quarter, but I think it's – ours certainly did, but it's a little too early to make a call on the industry at this point..

Okay. Great. And maybe you can also just give us an update. Are you seeing the price increases in TiO2? I know you described it's safe to assume that prices aren't going to go any lower. But, why are the producers actually having any success with increases if supply demand is still in your favor? Thanks..

I think the simple answer to that is because they may be getting some price increases justified solely on the poor financial health of the industry. We do not believe the supply demand fundamentals support the increases that are in the market today.

But I – at the very least I think it's safe to say that the increases in the market – the announcements that the producers have made have stopped the downward trajectory in TiO2 pricing. We said a few quarters ago that it felt like TiO2 was approaching a bottom and clearly there is a bottom in the market and we think we're there.

We would expect flat pricing as probably the best case scenario and whether these price increases gain traction as we go forward, time will tell..

Okay..

Our TiO2 costs are still down significantly year-over-year because of the downward trajectory over the course of 2015..

Great. Thanks. If I could just one more just on the non-paint sales in your Paint Stores, could you just describe what you're seeing there in the spray equipment and so on? Thanks..

Very positive numbers. We're having – in spray equipment, ladders, applicators, across the line we're having a very good performance. It gives us the confidence about the future..

Great. Thank you..

Thanks, Arun..

Thank you. Our next question is coming from the line of P.J. Juvekar with Citi. Please proceed with your question..

Yes, good morning..

Good morning, P.J..

John, you mentioned that the contractor order book is quite strong.

Is that driven by a residential business with repair and remodel or is it more driven by commercial side of things?.

It's actually both sides..

Can you drill down a....

I'm sorry P.J. I thought you were done..

No, no, I'd just say, can you drill down a little bit on the commercial and industrial side? Thank you..

Yes. I'd say that it's on both sides of the business, both the residential and the non-res. The confidence in our contractors and the discussions that we have going with them are very positive on both sides..

And just as a reminder from previous calls, while it certainly appears that non-residential starts are slowing in late 2015 and early 2016, we are – our business tracks more closely with project completions. So, we're painting project that were started more than a year ago and the pace of starts in 2014 and the first half of 2015 were very healthy.

Those are the projects we're on now. And looking forward if you believe the Dodge forecast, non-res starts should be healthy this year and for the next couple of years..

Okay. Thank you. That's helpful. And a quick question for Sean. Sean, you always said that your costs tend to lag oil prices by two quarters to three quarters. So with this recent move in oil price, do you expect maybe later in the year that you begin to see your costs sort of begin to inch up? Thank you..

Yeah. And I think that was what I was trying to imply when the question came up about the gross profit and the incremental profit in the first quarter versus the remainder of the year. Again, we – gross margins in the first quarter was benefited from the paint volume and our North American supply chain and the mix towards paint service group.

The raw material deflation was a material factor, and we think that material factor will continue to diminish as we go throughout the year, and I think a lot of – the basket in total, which the oil is part of..

Thanks, P.J..

Thank you..

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

Hi, good morning..

Good morning, Mike..

I was curious if you could comment on what impact the timing of the Easter holiday may have had on your sales? Presumably that would have been a drag year-on-year on contractor sales, but maybe a positive for DIY?.

I think that's a pretty good thought. The DIY I think was probably strengthened by the change from the second quarter to the first quarter, and the contractor and that period we had a couple of days where it was probably depressed because of the Easter holiday..

And then, I was also wondering if you could comment on the efforts that you're making at Lowe's to get the paint department employees a little more familiar with the HGTV HOME product line? Can you maybe give a little bit of detail on what your expectations for underlying volume growth will be adjusted for the load-in that we're lapping here?.

I can certainly talk about our efforts there in Lowe's. We're choosing not to talk about the gallons or forecast or our customer. I think it's only appropriate that we let them speak to those expectations. But that said, our efforts are I think right on track.

We have continued to work on training the Lowe's associates and making them familiar with our products. We had a terrific opportunity with the introduction of the Infinity product that you mentioned to get some of the product out into the hands of the Lowe's associates applying some of it, and making them familiar with the product.

The process of training them on our entire product line as well as colors continues, and we're feeling pretty good about the momentum that we have there.

Our goal is clearly to – and has always been to focus on driving customers into all of our customers, and you're asking specifically about Lowe's, our goal is to drive customers into that department, make sure that the employees there are very familiar with every aspect of our product and our color systems, and we think we're well on our way..

Thanks very much..

Thank you, Mike..

Thank you. Our next question is coming from the line of Nils Wallin with CLSA. Please proceed with your question..

Good morning. Thanks for taking my question. I'm curious about Consumer, I know there's been some moving parts in there besides Lowe's in the past.

But when you break out Lowe's and the load-in and the new products, is there a reason that it's not seeing any sort of organic growth?.

Actually our experience in organic growth, if you – in Consumer, we had January and February sales this year with no history from Lowe's. As I mentioned in my opening comments that we are experiencing a good traction in many segments within that business unit. So, we're actually feeling very good about the momentum that that business unit has..

The entire national account category is doing very well. And John also mentioned industrial MRO customers are up year-over-year..

Got it. Thanks.

And then, in your 9% or so same-store sales in Paint Stores Group, how much of that was the new SKUs being pushed through the legacy Comex stores?.

We feel very good about those stores, and what we said and have said is that, we believe we're going to have a 100% of our purchase price cash and all that would be cash neutral. And actually I think we're going to beat the third quarter.

We probably said in the third year anniversary, which would have been this September, we're going to have a 100% of our cash back. We're probably going to be quicker because those stores are doing very well.

It's – but now they're fully integrated, and it's hard for us to breakout results, Comex stores and non-Comex stores, but I can tell you, when you look at the markets they're in, they're doing well..

Yeah. And I would add to that though, I think it's getting specifically to your question, bringing those high-end products into those stores has been a definite win to those stores in the market and our customers.

In many cases, the portfolio of products that they were offering to many of those Comex stores were more focused on the new residential side, less on the DIY side.

So, to your point, as we introduce the residential repaint and DIY customers into those stores at the higher end band of our product line, it's certainly helping us as Sean has discussed there..

And one final point on that Nils. Just keep in mind when you're asking the impact on comps, you're talking about roughly 275 stores on a base of 4,100. So it's not really that significant..

Yeah. Fair point. Thanks. I'll pass it along..

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

Good morning guys, and congratulations on a solid start to the year..

Thank you, Dmitry..

Couple of questions that I want to follow-up. First of all, when you talk about your Latin American business and obviously it's challenged by all kinds of things. But, I'm interested in sort of which raw material pricing has been going up, I knew that impacted margins.

And also, sort of what's your outlook like for the volume performance of that business, it's been comping down volume for a couple of quarters now.

Is it sort of industry related or are you deemphasizing growth in that market, sort of kind of what's going on with the volumes there as well as raw material costs?.

I'd like to just talk about the deemphasizing growth question, and then I'll turn it over to Sean. The answer is no. We're not ever deemphasizing growth.

There are some things to your point in the market that we can't control and there are a lot of things that we can control, and we're working very hard on those things that we can control to better position ourselves in the market. I'll turn it over to Sean to answer the rest of your question..

So, back to the – one of the parts you asked about the raw material cost and the cost of goods sold going up in Latin America, it's 100% currency and I'll tell you why. The Global Finishes Group is doing a great job looking for efficiencies and we're doing fine there on the conversion cost.

But, Latin America buys the majority of its raw materials in U.S. currency and dollar denominated, and when you look at it, the currencies devaluation has the same effect on the raw materials as inflation. So the raw materials really are negatively affected by that currency.

When you ask about in total what are you thinking about on the conditions down there. We don't expect to see improved economic conditions in the region in 2016. I think we've been consistent with this for a long time. I mean, we think that applies to currency and volume demand. We're starting to see currencies change a little positively.

The Brazilian real went from about R$4.10, we thought it could get close to R$4.25, now it's down in the R$3.50, R$3.60. But in U.S. dollars, are very close to the breakeven levels.

And so, our plan for 2016 calls for this segment to report a profit, but lot is done outside the realm of possibilities, and there's a risk of negative results for one or two more quarters just like the first quarter..

Got you. That's helpful, Sean. Switching quickly to Stores Group. Since you've increased your Canadian exposure there, there's been a little bit of a foreign exchange headwind there.

Can you talk about sort of what the magnitude of that was in the first quarter?.

I can tell you exactly. I think that – just give me a second here, Dmitry. I thought I had it right here. All right, yeah. It was – it's very small, it was just over $4 million, three-tenths of a percent of sales, but....

Okay..

So we're pretty happy the way Canada is going, Bob in his remarks, so Canada is coming on for us pretty good..

We've got a good team up there, dedicated on Canada, Western Canada with the influx of the acquisition of General [Paints] has given us a new platform up there, a lot of competition up there as well. But we're working hard in earning our space there..

Got you. Thank you very much, gentlemen. That's all the questions I had..

Thank you, Dmitry..

Thank you..

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

Good morning, everyone. Great quarter..

Thank you, Chuck..

I'd like to just revisit the Paint Stores Group performance a bit, 9% comps growth.

Any help in price per gallon there either from a few price increases getting through or the average price per gallon sold, improving maybe because the industrial is getting stronger?.

You know, Chuck, when you look at it, just want you to know we haven't really had a price increase in Paint Stores Group since 2014. So the price did not help us at all. The deterioration of what was happening to us last year because of the Protective & Marine, John's comments earlier told you, we didn't have as much of a headwind there.

But it was just solid volume growth there..

All right.

Do you think any of that's market share growth, could the market have been growing that strongly?.

We believe, I think we believe if you take a look at it, I think we'll know later in the year. Bob mentioned when some of the other public companies may – we'll get there and look at their results, but we feel pretty good about the way that Paint Stores Group has developed with the products, the distribution and people.

We feel pretty good that we're taking market share..

There's some pretty good programs, Chuck, that we're executing on very well. And I have to hand it to our leadership team there as well as our team in the field. They're doing a terrific job of really by market finding those customers that offer opportunity and really earning their business.

And we're proud of that team and expect that it's going to continue, that momentum will continue..

John, are you speaking of the field reps, and is that reflected in the somewhat higher SG&A spending, I think Sean mentioned earlier?.

Well, we do have some stores that have an annualized and reps. So, we're investing in there because we're feeling very good about the momentum that we have. So, yeah, I'm speaking to the new reps and new stores, but that's a big base.

We've got a lot of stores and sales reps that have been out there for some time, and they're really embracing the new programs and initiatives that we have to grow market share as well as introducing our new products to our customers, who are responding favorably..

All right Thank you. Best of luck for the rest of the year..

Thank you, Chuck..

Thank you, Chuck..

Thank you. Our next question is coming from the line of Ivan Marcuse with KeyBanc Capital Markets. Please proceed with your question..

Hi. Thanks for taking.

Real quick, what were the gross profit changes in the segments?.

Give me a second, I got it right here. Paint Stores Group was up $122 million. Consumer was up $15 million. Global Finishes was up $5.2 million and Latin America was actually negative $12.7 million..

Great. Thanks. And then environmental costs were bumped up.

Is there anything special in there or is it just sort of the timing of how these things flow through?.

Actually, we had an accrual for the Passaic River, it was specifically the Passaic River, there was, I think, negotiations going on between the EPA and the consortium of companies that will be involved in the clean-up. We're a very, very, very small piece, and there was a major change in what the clean-up on the Passaic River is going to be.

So even though we're less than 5% player in this Passaic River, all of a sudden we have increased our accrual by $17 million. So you could imagine the total cost went up dramatically. And so the plan is now in place and we'll start doing it, and we believe we have the majority of the expense for the Passaic River now covered..

Great. And you may have said this in the beginning of the call and I may have missed it, I apologize if I did, interest expense.

Are you planning on issuing any debt before Valspar closes, and do you expect the interest expense to sort of maintain where it's at right now, or how do you expect debt to go up and down?.

Right. I think that we do not plan on issuing debt before the close. We've put our bridge in place. We've put a term loan in place; so our acquisition financing is in place. The first quarter, you see the expense was really more involved with the bridge financing. But the second quarter and beyond, we're going to have the term loan in there also.

So that's why acquisition financing is in place. What we have done is put some interest rate swaps, I mean treasury rate locks and so, in the Q, you're going to see that we've entered into a series of treasury rate locks on a confined notion amounts of $1.7 billion. We will go higher than that.

So we have taken some of these interest rate changes risk off the table and throughout the year depending on the say, you'll see us take some more off the table..

Okay. Thank you..

Thanks, Ivan..

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

Thank you. Good morning, everyone..

Good morning, Rosemarie..

If I – Sean, if I understood you properly, you have made up the gap in the gross margin in the first quarter, and if we keep the following three quarters at a flat level with last year, then we should be higher for the full year.

So do you – is that more or less the trends you're expecting or do you think that Q2 gross margin will still be above last year?.

I think that we should have a slight positive, we will be positive in the second quarter.

I think for full the year, I think that we – your characterization of flat to – we in that area, I think that after the second quarter, after we see some raw materials I think we can give you a better picture on what we think the gross margins, we'll narrow it down. But, I think, your characterization of the full year is probably pretty good..

Okay. Thanks. And you mentioned that you were focusing on other areas outside of the oil and gas industry and were successful.

Could give us a better feel for what you are doing and where?.

I would just say that we look at the industrial business regularly and we try to find those opportunities that offer us both the – opportunity to move gallons, but also bring solutions to our customers and we've really identified some of those that that we really have some unique technologies too that help provide solutions in getting the assets back in service quicker, to provide protection against various ambient conditions and we have good momentum.

Rosemarie, I'd rather not get into any of the specifics of where they are, we'd rather just put the points on the scoreboard right now..

Sure. And if we look at your existing customers in that category and, I'm thinking the Deere, the Caterpillar type of companies.

Are you seeing an improvement there or are we still in the doldrums?.

I'd say our relationship with them is improving with many of those heavy equipment. The business itself I'd say their outlook, I think they have spoken to us to how their business is performing..

All right. So no change? Thank you very much..

Thanks, Rosemarie..

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

Hi, good morning, or close to good afternoon.

Just real quick, any notable difference between your exterior gallons and interior gallons in the Stores Group this quarter?.

Exterior had – I mean we had a good interior and we had a very good exterior. So, exterior were strong..

So, Sean, within the guidance maybe just help us to see that, that – potentially that normalizes, how do you guys think about that? Is there still easy comparables through the balance of the year or is there some risks that some of that got pulled forward?.

We've been talking about this and it's interesting.

You go back to after last second quarter last year, if you remember, because of the weather in the second quarter and so forth and we saw a really nice comp gain in the fourth quarter, and people talked about the weather there, this quarter, you've heard different customers say that they had the opportunity to catch up and including builder.

So, we're sort of interested in that situation. I think the second quarter is going to draw – give us a complete vision of that..

But I would say, going back to the comments I made earlier, Scott, that the takeaway that I have, or the confidence that I have revolves around the book of business that these customers are referencing as to going forward.

So, to Sean's point, we may have had some that got pushed back, we may have had actually some that got pulled forward, but they are feeling good about what they're looking on the pipe and they're saying, it looks good..

Great. Thanks, guys..

Thanks, Scott..

Thank you. Our next question is coming from the line of Jay McCanless with Sterne, Agee. Please proceed with your question..

Good morning, everyone. Just one quick question.

With the flooding that we've seen in Huston and some of the heavy rains we continue to see in Texas, what impact have you all seen from that yet, and could you maybe quantify what Texas in that part of the world means for the Paint Stores Group?.

Well, it's impacted our business as we've had stores and customers impacted naturally. Texas is a good part of our business. We've a good representation there and good distribution of stores. I don't know right now what the – how to quantify that for the years.

There will be some slowdown in the near term, and then there will be a pick up on the other side as repairs are done. So it's hard to say in a year how that will impact us.

Obviously, in the very short-term when you have stores closed, Jay, the obvious that those stores being closed will impact it, but on the other side, we'll pick up some business as repairs are done..

Got it. Okay. Great. Thank you..

Thank you..

Thanks, Jay..

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

Hi. Thanks. A couple of questions. I just – if you could update us on your guidance for raw materials. If I remember how – at the beginning of the year, you thought for the full year, the industry will be down. Do you think that's still the case and have you changed at all as part of your updated guidance? And then I have a follow-up..

Greg, this is Bob. We have not changed our outlook for raw materials. As a reminder, to put a little finer point on it, we expected raw materials for the full year to be down low mid-single-digits. So below – less than 5%, but in the mid-single-digit range. That's for the full year.

And 1Q was at the high end of the mid-single-digit range, because we're annualizing full year declines from 2015. So, actually most of the savings year-over-year are already locked in based on the history that we're going up against last year.

We think the price of many of the raw materials that we've used have stabilized, but the benefit – and so the benefit will diminish as we go through the year, but the benefit is already locked..

Got it. And then the – I guess two other questions, one on Global Finishes, and a little bit of housekeeping.

Remind me how you do leap day? Is that in the comp, not in the comp, is it in the total sales? And then Global Finishes, I know you took some great cost out there, but how much longer can sales not grow and profits grow?.

I think, first of all, you know the comp stores are the Paint Stores Group that we don't report any type of comp metric for the Global Finishes Group. I think that again we feel very good about, operationally, what we're doing there.

I think that what helps there, and I think it goes back to John's comments, we've – if you compare it to the Latin America group, our volume has been good. When you look at the total, the volume has been good, and so when we get volume, we get the opportunity to basically increase that margin.

So, I would say it's not going to be – we definitely and we've talked about over the years, we need some more market share in the Global Finishes Group to really get it kicked and going, but because of the volume gains, they've been able to get margin improvement..

And so basically FX took sales down a little bit, but you had some sales growth, and that was enough to get that nice margin expansion?.

Yes. Yes..

Okay.

And just to be clear, was there an extra day in the quarter because of May or February 29?.

When you put everything together, the February 29, was there, but we also had Easter and we – going back there was an extra day, but Good Friday, just because of the way things are, never, never that week is Friday is never the same as a normal Friday. So moving that Good Friday into the first quarter here is why I answered the question earlier.

Yeah, we got a day, but it just felt like it was negated by the Easter move..

I got it. Thanks a lot. Great job..

Thank you, Greg..

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

Thank you. I had a longer-term question. The Valspar SEC filing indicated that there was a second company that whoever acquired Valspar might also be interested in acquiring the other company as well, but it indicated Sherwin-Williams wouldn't be able to acquire the other company.

Would that simply be size or do you think maybe after you pay down some debt from the Valspar deal, you might have an opportunity to do another significant transaction?.

I don't think – first, we don't know who that company was and that's not something that we would want to comment on without having that information, John..

Okay. I was fishing, obviously, but since it's out there, I apologize, I'll give it a try....

Thanks for your honesty..

All right. Thank you. Good quarter, guys..

Thank you, John..

Thank you..

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

Thank you, Jessie. Let me close with two items. The first being, we're frequently asked actual diluted share count outstanding on December 31 – on March 31, it was $92,495,113 for those of you who are still on the line.

The second item is a reminder that our annual financial community presentation is scheduled for Thursday, May 26, it's at our headquarters in Cleveland. The program will consist of our customary morning presentation with a question-and-answer session, followed by a reception and lunch with company management.

Then in the afternoon, we're going to head down to our Breen Technology Center, which is home to Sherwin-Williams' global architectural paint research and development, where we'll have a showcase for many of our latest technologies in both architectural and industrial products.

If you've not yet signed up and would like to attend, registration is still open. Please send me an email at rjwells@sherwin.com and I will reply with a link to our registration site. As always, I'll be available over the next few days to handle any follow-up questions that arise as you digest this morning's call.

I'd like to thank you again for joining us today. And thanks for your continued interest in Sherwin-Williams..

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