Good morning. Thank you for joining The Sherwin-Williams Company's review of Fourth Quarter and Full Year 2018 Results and the outlook for the Full Fiscal Year of 2019. With us on today's call are John Morikis, President and CEO; Al Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; and Bob Wells, Senior Vice President, Corporate Communications. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at 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 Wednesday, February 20, 2019 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 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 Bob Wells.

Thanks, Jessie, good morning everyone. Before discussing our results and outlook I'd like to call your attention to the accounting change mentioned in our press release this morning. This voluntary inventory accounting change made in the fourth quarter of 2018 was driven by the company's integration activities. As a result of this accounting change and in accordance with Generally Accepted Accounting Principles, a retrospective one-time expense adjustment to cost of goods sold of $58.9 million or $0.47 per share has been made resulting in revised GAAP 2017 fourth quarter and full year amounts. This revision increased acquisition-related costs and reduced previously reported segment profit for Performance Coatings and consumers brands groups by $35.7 million and $23.2 million respectively for both the fourth quarter and full year 2017 compared to what was previously reported. To be clear, there was no impact on fourth quarter or full year 2018 from this revision. We've summarized fourth quarter and full year adjustments to operating segment profit in the slide deck on our website under January 31, 2018 year-end and fourth quarter financial results. With that let me move on to our fourth quarter and full year 2018 results. All comparisons in my remarks are to the revised fourth quarter and full year 2017 unless otherwise stated. Beginning with fourth quarter 2018, consolidated sales increased $84.7 million or 2.1% to $406 billion. For the full year 2018, consolidated sales increased $2.55 billion or 17% to $17.53 billion. As a reminder, the Valspar transaction closed on June 1, 2017; incremental Valspar sales from January through May of 2018 increased consolidated sales by 12.4% for the year. Organic growth for full year was 4.7%. Consolidated gross profit dollars in the fourth quarter decreased $56.6 million or 3.3% to $1.68 billion. Gross profit for the year increased $699.8…

Thank you, Bob. Good morning, everyone. Thanks for joining us. I'd like to make just a few additional comments on our fourth quarter and full year 2018 before moving on to our outlook for 2019. Our fourth quarter results that Bob just walked through fell short of our original expectations with a shortfall in revenue growth driving the majority of the weaker than anticipated results. We often view trends in the fourth quarter as indicative of the momentum we will carry into the following year. In this case, the improving cadence of our business late in the fourth quarter was encouraging, and January is giving us a solid start to the first quarter. In terms of the full year, 2018 was a record year for Sherwin-Williams by many measures. Sales and adjusted earnings per share were both records; sales increased to 17% to $17.5 billion compared to the prior year or 4.7% excluding the five month contribution from Valspar. Adjusted earnings per share increased by approximately 23%. Adjusted EBITDA or earnings before interest, taxes, depreciation and amortization, increased to $2.82 billion. Net operating cash for the year was a record $2.04 billion, an increase of more than $151 million compared to 2017, and 11.6% of sales. Free cash flow which we define as net operating cash plus CapEx and dividends was $1.46 billion compared to $1.34 billion last year. All of our operating segments contributed to this record performance. Within the Americas Group, full year sales increased 5.6% against a challenging prior year comparison of 8.8%. Residential repaint remained our strongest customer segment in the year, up by double-digit percentage. All other statements were positive for the year. Full year segment profit dollars and margin also improved year-over-year. We continue to invest in innovation and service introducing 25 new products;…

[Operator Instructions] The first question is from the line of Steve Byrne with Bank of America Merrill Lynch.

I wanted to ask about what's driving the strength in your view in [indiscernible] 2018 market of double digit and what are your expectations for…

Hi, for some reason you're not coming through very clearly.

Sorry about that guys. So I wanted to ask about the residential repaint; what's driving the strength in that market of double-digits and what your expectation is for 2019?

Yes, I think over the last few years we've seen really strong growth in residential repaint, not just company-wide but industry-wide We've been growing residential repaint double-digits for five consecutive years, we think the industry is probably growing in the high single-digits. And a couple things driving that; one is home value appreciation, although home turnover has been slower than we expected at this point in the cycle, values have inflated and that gives homeowners confidence in reinvesting in renovation and redecorating projects. The second thing is the decision by baby boomers at this stage in the cycle to agent place; they've been investing in a lot of things over the last decade or two including kids' education, college educations etcetera, and now they're kind of unleashing some capital to renovate the family home or so it appears. Those are probably the two biggest drivers.

Yes. I'd say from our perspective, we've been very deliberate in developing products and services that meet that customer's needs, and we take a very deliberate approach to this, we want to make sure that our products and our services help those customers make more money, we've got a terrific field organization through our stores to be responsive to these customers, and I think we're executing very well at the store level and rep level.

In terms of outlook, the -- by most measures I think our residential remodeling spend grew in the upper single-digits, the 7%, 7.5% range in 2018. We expect a little bit of moderation in that number in 2019 back to like the 6% to 6.5% range but still a strong year from a historical perspective.

John you mentioned there is a lot of variables going on here with factors inside assurance control and factors outside assurance control; and the guidance that was established, the 2020 targets of 11% EPS, CAGR, it seems like the world has gotten a little more uncertain since then. I just wanted to know how you think about that longer term EPS outlook. Thank you.

You know, we made a comment on the last call on 15th about giving you an update on 2020 outlook at our June Investor Day. And I think we get about 6 months in under our belt and an outlook for the rest of 19, we can do that.

Thank you. Our next question is from Nishu Sood with Deutsche Bank.

Thank you. First question I wanted to ask was on the sales guidance for '19, the 2% to 6% in the 1Q, and then the 4% to 7% in '19. I think even if you take into account the slight definitional differences; total net sales versus core net sales and apply some acceleration. Given your commentary back it sounded like momentum had picked up back to normal -- sales momentum had picked up back to normal in January; so what is driving that sequencing of accelerated growth as the year goes on?

Let me begin by taking the January portion of it. Our comment that we're off to a very good start, January sales will come in high above our first quarter guidance, so we're feeling good about that momentum. And as far as the year -- Al, you want to…

So Nishu, when you look at the year, we always start with our U.S. and Canada paint stores that are still the growth engine of the company, we'll continue to drive to the higher end of that sales guidance of 4% to 7%. As you recall, we went out with a price increase on October 1 of 4% to 6% which should give you about effectiveness, a little close to 2.5%, and -- then the rest is really price mix. We really expect consumer to be at low single-digits and we're still seeing headwinds outside the U.S. in that group. We see some headwinds, continued headwinds in the retail part of that channel and we're -- as we've discussed, we're very excited about the Lowe's program. Even though we're not going to talk about it in particular in deference [ph] to our customer, we feel very good about where we're positioned and where we're at or a little bit ahead of our pro forma coming into '19 and with '19 included. And then I'd say Performance Coatings; we still feel like even with the short-term headwinds related to the tariffs that we had talked about, industrial, wood [ph] in China and in our coil business in North America, we still feel like mid-single digits is a good number for that group, it will be a little choppy by business by segment but overall, we've got a lot of momentum and a lot of good programs going and we feel very good about that. Couple of other data points would be; FX is going to be a little over 1% headwind for the year, and I think price we talked about 2.5% in stores but overall close to 2% on price.

And then, regarding store openings in 2019, what kind of pace would you expect in 2019? Some acceleration from roughly 75 in '18 or what are you thinking about for 2019?

I think we're going to continue to run the same pace here, that 80 plus to the 100 range, we feel good about that pace.

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

I wanted to focus on the Performance Coatings and the momentum, I guess, the underlying momentum that started to develop there from margin perspective. How do you guys see the cadence of those margins as we go through 2018 -- I'm sorry, 2019?

Bob, we certainly expect the margin expansion and we thought coming out of our second quarter, year-over-year improvement and then as you know, we took an accelerated increase in raw materials, that team is going out with price again. We believe that price is effective along with good tight SG&A controls and the synergies they are realizing, and to end the year flat on an operating -- essentially flat on an operating margin standpoint year-over-year, we feel very good about that.

And you guys obviously have articulated the cost synergies, and I know Wall Street is usually pretty reluctant to embrace revenue synergies but do you have any updated thoughts or anecdotes on what you might have been able to achieve from a revenue synergies standpoint with the Valspar integration?

Bob, we're not going to put a number on it but I would tell you that as we've mentioned before, our teams are very excited about the opportunities that we continue to harvest as we're working through this. Getting our teams together around the world dialing through this is creating more and more excitement. So every quarter that we've talked about it, we have felt good and I would tell you every quarter we feel better about what we've accomplished and what's ahead.

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

Thank you. Just sticking with PC; can you just -- could you give us a brief on what you're seeing on terms of top line growth, [indiscernible] coil versus GI packaging P&M? Just -- how are you thinking about your opportunities there would be appreciated.

It might be helpful; I'll break it down a little bit by region as well. Chris, the largest that we have, obviously North America, has been the best performing for all of our segments. The one standout I would point out would be coil; we talked about that last year, the tariff impact on our coil business here in North America has been significant but overall, our performance here in North America has been terrific. Asia, I'd say coil was strong and GI was strong as well, and the drag that we're feeling there is in our industrial wood business, and that's also tariff related as well. And that a lot of customers there that are feeling the impact, we have customers that are moving manufacturing throughout Southeast Asia, and our teams fortunately were positioned well to capture it but our customers are in a -- kind of a state of flux as they're moving manufacturing from one country to another to be responsive to their tariff issues. Latin America; I'd say our GI and our packaging were very strong performers, [indiscernible] position our automotive business down there, we had some softness in the fourth quarter but our team down there is terrific, we've got a great leadership down there, great position and they've got confidence about the year 2019 as well. Overall, Europe I'd say was the softest and I would say that's across all of our businesses, and that's something that's continued here as we've turned the corner in the year as well.

And just -- your teams also -- you've obviously have been executing well given the choppy macro environment, at least recently. How should we just seeing about your longer term margin potential; now that you're realizing most of the valve surgeries [ph] or at least the remainder of them in '19, just -- when we think about your historical margins and consumer, valves [ph] legacy margins and coatings; just -- where do you see your long-term opportunities outside of the whole price cost equation? Thank you.

Chris, we have talked about Performance Coatings Group getting into the high teens to low 20s, as we integrate and as you recall the Valspar business was in the high teens, low 20s already; and the synergies that would help bring up the legacy Sherwin businesses. The same goes on the other side for consumer, and we believe getting those high teens and low 20s is still a reasonable target, and we're going to help drive the legacy Sherwin is going to help drive the legacy Valspar low teens up to that mid teen, high teen number, and that's our expectation still.

Thank you. Our next question is from the line of Ghansham Panjabi with Baird.

I guess first off, obviously housing data in the U.S.; construction data in general has been very choppy, very public, very choppy. John, can you just sort of touch on customer backlogs, however, you define that for 2019 specific to the paint store sub-segment? What are your customers telling you in terms of contracted backlog etcetera?

Ghansham I'd say that it's -- when you speak with our customers it's a very bullish discussion that we're having, our customers remain very confident about the year, the bidding that they're doing and the backlog that they have had, as well as what they see going forward. So we're feeling pretty good about our position and we're excited about continuing to grow market share in this space. You mentioned new residential, and we feel as though we've done very well on the national builder level, we're having very good penetration in the regional and local builders. Our position in the commercial side is strong and getting stronger, and we continue to pound away at this residential repaint. The point I'd make though as you go across the various segments, it's hard -- you're hard pressed to find customers that are anything but excited about the market that we're in right now.

Got it. And then I guess just switching to consumer brands and the margin differentials, '18 versus '17. Can you just remind us how much of the differential relates to non-recurring investment expense related to the share gains from last year? Just trying to get a sense as to how to think about margins for the segment? And then, also related to that, what is going to be different in terms of the go-to-market strategy for consumer brands as you position in front of the paint season? Thanks so much.

Let me let me talk first about the year-over-year margins, and as you recall, we talked about a $0.40 hit, that's about $50 million, about 40% of that was onetime and we realized those in our third and fourth quarter. You also have the ongoing investment so that other 60% as we've been ramping up the program, adding reps to get our rep coverage down to three to four stores per rep versus where we were and the other incremental investments in a small quarter that we have with the seasonal volume adjustments and consumer, it weighed heavily on the margins in the quarter year-over-year. On the...

Let me take the back side of that. As far as what's going to be different; Ghansham, I look at our position in the marketplace and clearly, we're very excited about the relationship that we have with Lowe's and I'll just talk about the alignment we have with our reps, but I'd also say that alignment starts at the top of the organization, the leadership there has very high expectations and we're excited about helping them grow into a number of segments and bring in the simplified branding proposition to them is as exciting, as well as making sure that we have people to help their sales associates. But it doesn't stop there, we've got a lot of wonderful customers in Menards and Ace and some of these other customers who have very strong desire to grow; and our approach to this is we want to help them in their specific areas of growth in bringing the services, the products, and brands that can help them reach their goals. Overall though when you when you look at the future and you say, okay, so what's different; it's our continued focus on those differentiators that we think will help each of our customers reach their goals that we think will help separate us from our competition and our customers to win.

The next question is from the line of Arun Viswanathan with RBC Capital Markets.

I just wanted to understand that the sales growth guidance; it looks like you're guiding to 2% to 6% in Q1, 4% to 7% on the year. The 4% to 7% on the year is potentially a little bit higher than what I thought. And was that also imply that the tag could be at the upper end of that, and so if that is the case, let's say mid-single as 5% to 7%, let's say that would potentially imply volume of maybe 3% and price of about 2% to 3%. I mean A) is that right? And is that an acceleration from maybe what you were thinking on January 15? Thanks.

I think you're right in what you said about the tag being at the higher end and your breakout between volume and price. And I think it's right where we were thinking it would be on the January 15th call; even we talked about January starting off a little bit better but it's a small amount as John highlighted and we'll see how the first quarter goes when we get into March which is the most significant part of the first quarter.

Yes, I'd say the excitement is consistent. I'll mention, the new stores that we're adding, the new products that we're introducing; we just had our team together this week at those sales meetings to just share information about the opportunities going forward but it also gives us an opportunity to talk with our teams about what they see and we're feeling good about the momentum that we have.

And then just as a follow-up on -- you know, you're lower down in the P&L may be on the gross margin line as price cost improves through the year. It appears that you could see some potential gross margin expansion, especially in the back half. Is that right? Any way you can size that opportunity for us? Thanks.

Arun, I won't size up the opportunity per se but you're absolutely right. As John mentioned, our first half raw material costs year-over-year will be higher than our second half. And as you know, with a 12.8% EPS growth at the midpoint, we're going to have to see margin expansion. And I think we're going to make good progress on that in 2019. But we have ways to go to get back to the previous company gross margins that that we would expect.

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

Could you talk a little bit about whether or non-raw material inflation is going to be this year versus last year?

You're going to have -- our biggest is probably in the salary increases that we're putting through, and -- we're going to be at market, it's going to be low single digits. And I think you're still -- we're still going to see some headwinds on the freight side of our basket, it went up significantly in '18 and we do believe it's going to be up again in '19, not near to that magnitude but certainly some additional headwinds there. And I think those would be the two main buckets.

And then just a follow-up; the 2% to 6% for the first quarter and you're obviously a month through, it seems like a wider range than normal. And you mentioned earlier that March obviously is the biggest month and that's ahead of us but what would get us to 6% versus 2%?

John in his opening comments highlighted the macroeconomic variables and the uncertainty around that. If you think about our first quarter, it's a small volume quarter so you get some relatively swings in volume cause larger percentage swings; and as we have talked about in the past, our first quarter and our fourth quarter are more impacted by weather. So, to get to the high end of that range it's going to come out of our stores in the U.S. and Canada being better than what we thought.

The next question is from the line of Kevin McCarthy with Vertical Research Partners.

Would you comment on the pace of growth in your protective marine business in the fourth quarter and the outlook for that business for 2019?

It was a good quarter for us and we had a lot of momentum in that protective marine business. We've talked over the last couple of years, we took a little harder hit when the petrochem share -- I'm sorry, the market went down because of our share in that market; that's come back and at the same time we've been working very hard in the adjacent markets. So, this is -- it's a good area of performance for us, terrific leadership here, a lot of new products coming out as well, and we're unique and that we're able to leverage our store distribution platform when needed, and as well as going direct on these larger projects as they're coming in. So we really like our position and really are -- we have very high expectations for that team here in 2019.

John, it sounds like your business is trending nicely in January and the tone seems positive overall. If it turns out that the factors you can't control such macro and other factors don't cooperate; what sort of levers can you pull as the year progresses in terms of opportunities to tighten the belt, productivity actions etcetera?

Kevin, one of the things that we would do is we'd look opportunistically at consolidating facilities, maybe faster than we thought or planned. We are controlling SG&A tight as we go, and I think as we see the year unfold and we have talked about this in the past; we really need to see how the second quarter unfolds, it's a large quarter and that will tell us kind of how some of these macroeconomic environment things work out, and we're just from there but certainly leading up to the second quarter we're going to control our SG&A pretty tight.

Kevin, I'd also adds to this that over the past historical view of the company, those choppy areas have also been areas of terrific opportunity for Sherwin-Williams. What you shouldn't expect is that we're going to stop adding stores or investing in innovation; you know, throughout those choppy years in the past we were the ones that have continued to invest in those areas that helped us kind of -- almost like a coil, spring back the market started to return. So we're going to continue to invest in our businesses in important areas but to Al's point; he reminds me every morning when I come in with a smile on my face talking about the sales flash that it's January. And so we're very guarded but we're optimistic.

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

So like I'm beating a little bit of a dead horse but I'm just trying to understand -- I mean, obviously we've had some very bad data coming on housing, and it kind of continues to dribble in that way; but you guys seem pretty bullish and your January is good and clearly, weather was a big, big factor in the fourth quarter. Tell me as you think it's just you're taking share and that's what's driving it; do you think there has been some fundamental improvement in -- I know January is a small month, but there is some fundamental improvement in the market or is it just simply, hey, we're taking some share here?

Well, I do think we're taking share, Scott, based on our growth rates, particularly in Residential Repaint. But I would also say these are kind of odd times relative to historical cycles. We've seen a decoupling of growth in existing home turnover and growth in Residential Repaint and remodeling activity. The latter, it continues to go up and up and up, while the former has languished for the last year. So I think the short answer is, we're seeing a lot more remodeling and redecorating activity done by homeowners who are planning to stay in place. And oftentimes, the decision to stay in place triggers investment in remodeling and redecorating. I'd also say that, to your point about uncertainty in the macro housing environment, we view that, a significant portion of that, as somewhat short term, much of which we'd attribute to the lack of affordable supply. And many buyers have been shut out of higher-cost markets, and the builders are almost unanimously working to develop lower-cost product finds. We think they're going to figure this out. And in the short term, we've seen a step-up in multifamily activity that's kind of filling the void of the incremental housing demand. But longer term, we think that the rate of household formation at this $1.3 million to $1.4 million level is sustainable. And to us, that translates to incremental demand for housing over the next 5 years.

My second question is regarding -- you've obviously increased the dividend quite substantially, and you're going to be buying back stock more than just what's being diluted by shares being issued. So I was wondering if you could kind of update us on where you're comfortable on your leverage and what your goals are for capital return to shareholders.

As John talked about, we're going to still pay down another $600 million in debt in 2019. That should get our debt to EBITDA leverage below 3. And we're still targeting a long-term leverage ratio of 2 to 2.5. As far as being specific about the share buyback, here's what I would say. As we've talked about, we're getting back to our policy of -- and our historic policy. We're going to keep CapEx below the 2%. We're raising the dividend 31% to get back towards the 30% of prior year EPS. We believe that's the right place to be. And then absent M&A, we're going to buy our stock back. So rather than giving you a definitive, we'll see how the year plays out.

The next question is from the line of Stephen East with Wells Fargo.

This is actually Truman Peterson [ph] on for Steven. So first question I really wanted to focus on is your 2019 raw material outlook. Could you guys just break apart that basket and give me your views or give us your views on kind of the titanium dioxide versus the oil derivatives?

And before I get into that, Truman, it's worthwhile pointing out that, obviously, the majority of the inflation that we anticipate in 2019 is actually from annualizing raw material increases that we incurred in '18. So you recall that we saw a pretty meaningful step-up in raw material costs, particularly in the petrochemical side of the basket midyear last year, and so we're going to go 2 quarters before we annualize that. From kind of a pieces-parts standpoint, supply -- we think supply and demand in North American TiO2 is kind of at an equilibrium level that should result in fairly stable pricing. The decline in the cost of the petrochemical feedstocks that we've talked about should result in some sequential declines in the cost of resin, latex, plastic packaging, solvents and some of the additives. But it's difficult to predict when these commodities will show year-over-year declines. It's also important to keep in mind that, downstream from the feedstocks I mentioned to the monomers and the resin intermediaries, there are supply-demand dynamics that will affect price movement. So it's not just a matter of cheaper propylene translates to cheaper resins. Metal packaging has also been a real inflationary area over the past year due to the spike in steel and tinplate. And as steel prices reset lower, we should see some sequential improvement in the price of those products as well, but the timing is difficult to predict.

Just kind of following up on that; I guess, with Europe and China slowing and TiO2 being a bit more of a global marketplace, have you guys seen any change in behavior from the TiO2 suppliers? And jumping over, if I could just play out a hypothetical on oil, if it remains down 15% to 20% throughout the year for the remainder of 2019, I guess, how would that change your expectations of your oil-derived raw material basket? Would you guys expect that low single digit to actually drop fairly significantly?

Well, the longer oil and the oil derivatives remain where they are, the more easing of inflation we should see. It's more of a timing issue than a matter of if, assuming, of course, that the supply of the intermediaries remains sufficient. On TiO2, we have not yet seen softness in demand in Europe, and probably less so in Asia Pacific, translate to declining pricing in North America. And to the extent that, that does not create slack in the chloride market, that it really affects more sulfate product, you won't see a big move in North American chloride product. So right now, our outlook for TiO2 is stable, and our outlook for the petrochemical side of the basket is it will decline slowly as these feedstocks remain down.

If I could sneak one more in on synergies; I appreciate you guys breaking out kind of 2018 versus 2019 expectations. But could you just remind us where the synergies are really hitting Consumer, Performance Coatings, G&A. And I know you guys probably won't -- it will be difficult to quantify, but maybe could you just give us some qualitative analysis on it?

Truman, we've been reluctant to break out synergies by segment. But what I will tell you is, in 2018, approximately 40% of the $180 million was in cost of goods sold. The remaining in SG&A. In 2019, at the midpoint, $75 million, about 2 -- about 55% of that will be in cost of goods sold versus SG&A. And then, just as a cadence for 2019, about 2/3 of that $75 million will be in our first half compared to one-third in our second half.

Our next question is from the line of Don Carson with Susquehanna Financial.

A couple questions on Paint Stores Group. Just of that 2.9% same-store sales growth in Q4, how much was price versus volume? And how would you expect that to break out in 2019? And I'm just wondering, I assume that volumes were weak. Was it all weather related? That is, did it hit -- was it hitting just exterior? Or was there something off in interior as well?

So a few questions there. First, price was approximately 2.5% in our North American stores. Same-store sales in North America were up about 3%. When you talk about the interior and exterior, I would describe it this way: they were both up mid-single digits, but both were below our expectations.

Don, in terms of your question about weather impact, as we said on the 15th, when you see a decline kind of mid-quarter with a rebound at the end of the quarter, that doesn't -- that indicates to us that it's something other than fundamental demand that is affecting our business in the middle of the fourth quarter. So -- and, and one only need look at weather data, particularly for the Eastern half of the United States, to know that a good portion of the country was underwater during the fourth quarter. So it feels like it was some, at least, partial impact from weather.

And then as you look out to 2019; what do you expect for the overall growth in the market in U.S. architectural paints compared to '18? And I know, Bob, you've talked in the past about how you see a nice commercial outlook this year due to a high rate of completions. Would that, plus a weather rebound, lead to significantly higher growth in the market this year?

Probably, not significantly. I mean, as a reminder, if you're breaking down the market, the industry, only about 6% or 7% of industry gallons go into commercial new construction. So a pickup in completions will help our business because it's a high-share segment for us. But it doesn't drive market growth to a meaningful degree over all. It looks like kind of a mixed bag in U.S. architectural. Housing starts have been weak, but there was a jump-up in housing -- in new home sales in November. If that drives a little more order growth going forward, that would be a good thing. Residential Repaint activity, which is the largest segment in the pro market, has been very strong for the last 5 years. And based on very early indications, it continues to be strong. DIY, on the other hand, has been lagging over the last couple quarters. And whether that is continued migration of business away from DIY toward do-it-for-me or whether the DIYer is just taking a pause, don't know. All of that -- it's a little early to start calling rate of industry growth in 2019. But based on the macro drivers that we're looking at, we -- it feels like 2.5% is a reasonable estimate. We're not going to be off by too much at that rate of industry growth.

The next question is from the line of John Roberts with UBS.

You don't break out Latin America earnings anymore, but the FX effect that you disclosed on The Americas segment seems like they took a pretty big hit to margins, probably, because of the translation. I don't know if you can comment on results qualitatively down there.

Yes, John, you're absolutely right. We took a -- probably a close to 20% or a little over 20% FX hit that really impacted both their top -- their sales. But that being said, that team has done a very good job of raising price. As you know, a significant portion of the raw material basket is U.S. dollar-denominated. So as the currencies devalue, costs go up, and we've been chasing that with price and with controlling our SG&A. And I would say their profit was positive year-over-year. Or I should say positive...

We're making progress down there, the teams are working hard. And to your point, we had a currency issue that we've had to deal with. But progress on the ground is -- it's moving in the right direction.

Our next question is from the line of Mike Harrison with Seaport Global Securities.

Wanted to go back to the comment on DIY activity. Just wondering, with the government shutdown and a lot of folks not working, did you have any indications that some of those people grabbed their paintbrush and got to work on some home repainting projects during that time?

Not really, but we strongly suggest that they do. Now I'd say it's hard to really pin that down, Mike. We do feel very comfortable, as we've described, a lot of things going in the right direction but I don't think we can point to that as a driver or a speed bump.

We haven't seen a change in buying patterns across the segments in January -- a significant change from fourth quarter to January.

Maybe that's an idea for your next marketing campaign?

There you go, that's right.

Then wanted to ask about the Huarun [ph] business within China. You mentioned the outlook for consumer kind of low to mid-single digit, but outside the U.S., would be softer. Can you just comment on kind of the trends you're seeing within the China consumer business? Any sense that the lunar new year downtime is going to be worse or better than last year?

I'd say our business in China, Mike, is going through a little bit of a transition as it relates to the Huarun [ph] brand on the architectural side. They've been predominantly a brand that's focused on a lot of the wood -- interior wood that's been applied in-home. And much of that is shifting to a factory-applied product. The benefit of Sherwin and Valspar coming together includes our ability to bring technology to them to help them differentiate. We don't want to just go over there and try to be the lowest supplier, by any stretch. We want to bring technologies and brands and different features that we can help that team separate themselves from the competition as well. So we're going through that transition right now, and the strategy development is well underway, and we're executing pieces of it, but there's a long way to go.

Our next question is from the line of Mike Sison with KeyBanc Capital Markets.

When you think about your outlook for '19 in terms of the range, any thoughts on which variables are most impactful in terms of getting to the high end to low end? Meaning, is it -- will sales get you there, raw materials or synergy?

Yes, it's always volume, Mike. That's always the lead. And as we see U.S. stores grow and some of these short-term headwinds get annualized, we'll have a better feel for that. But demand is always the lead driver. Raw materials turnover certainly helps, but volume always drives the bottom line faster than anything else.

And then, if you get the pricing that's embedded in your guidance for this year, it sounds like stores, certainly, will have closed the gap. But just curious in terms of Performance Coatings and Consumer Group, whether they will be able to close the gap in raw materials this year.

We have work to do in Performance Coatings, for sure. And when you say close the gap, I look back to 2017 and the increases we took throughout '17 and the fact that the Valspar businesses did not get the price increases that were needed. So we're still chasing that, and we need to get it as we continue to offer the services that we do to these customers.

And I think that last piece is a really important component. The services, the products and technology, as we continue to introduce more, as these companies come together and we're able to leverage the benefits of both companies and bring those to our supplier -- or our customers in a way that positions us as a stronger supplier, a better partner, helping them reach their goals, that's an important component in our ability to get the pricing as well. So it's all coming together very well. But to Al's point, it's going to just take a little bit of time. We want to work with our customers. We want to keep the customer but also work with them in a way that allows us to get the price as well.

Our next question is from the line of Garik [ph] with Longbow.

And just a follow-up on the pricing outlook, the 2%. How much of that is already secured from 2018 actions versus how much new incremental pricing you need to secure to hit the guidance?

We've talked about the U.S. stores. The effectiveness improves over time, and we'll get to up to 75% over the 9 months. So we're still working through that. And the effectiveness is on track with where we expected to end with similar price increases. When you move to our other businesses, and we don't talk about those in detail as much, just because they're more choppy and the timing and amounts. And as you can imagine, the different businesses and different geographies have different load-in rates. So we believe we're getting the effectiveness we need. We see that in our Performance Coatings performance in our fourth quarter in particular. And we'll see continued effectiveness as we go through 2019.

And my follow-up is just on some of the launch cost and supply chain adjustments that you saw. 2018 lingered into Q4, are any of those expected to continue into 2019?

No. The program cost that we'll talk about in the first quarter is just your ongoing cost, and I'll just take the opportunity to, as a reminder, our first quarter in consumer is a small quarter still. So we're going to see the impact of the margin on those program costs that are -- I don't want to say 100% fixed but are pretty fixed. So in a small quarter and volume, we're going to take a hit on operating margin year-over-year.

Our next question is from the line of Greg Melich with MoffettNathanson.

Got through a lot, so I just want to make sure I got the cash flow sort of targets and leverage right. If I look at your guidance and take the midpoint, it seems like free cash flow this year should be maybe a touch under $2 billion. And even as the dividend went up a lot, say to $550 million and you paid down $600 million of debt, does that mean buybacks would probably be $800 million or $1 billion? Or is there another moving piece in there that we're missing, like the accounting change on leases or something else?

No, there's not another moving piece. It will depend -- like I said, the share buyback will depend on M&A activity, but I think you're directionally accurate with the pieces.

And I think you mentioned before that the accounting change on leases was maybe half a turn of leverage. Any update on that and when you're going to adopt the new standard?

Yes, we'll adopt the new standard in 2019. And we'll see an increase in assets and liabilities of about $1.7 billion to $1.8 million.

$1.7 billion to $1.8 billion. And the impact on the leverage ratio?

The leverage ratio, when you look at it from the rating agency standpoint, they're already factoring in a portion of that. But yes, you think about a $3 billion-plus EBITDA, it's 0.5 or 0.7, somewhere in that range.

The next question is from the line of Dmitry [ph] with Buckingham Research Group.

Just wanted to sort of go back to your outlook for the year. And I know you guys aren't big in construction exposure in Europe. But if there was one sort of theme that's come through this earnings call season is that the European construction and building construction market is probably as bad as anybody's seen that. Outside of your U.K. and maybe some other regions present in terms of paint, are you exposed to the construction market in Europe in any meaningful way through either General Industrial or coil or industrial wood type of businesses in Performance Coatings?

Yes, coil would be a component, Dmitry, to your point, but if it remains down significantly, that it could have an impact. But there, we've got a pretty diversified business, and to be truthful to you, the market share that we have versus the opportunity, I'm not too worried about that right now. We've got a lot ahead of us to accomplish there. So we're pedal to the metal here in Coil Europe.

We also have some industrial wood exposure in Europe that's been soft as well. And when we acquired those businesses back in 2010, they made a point about the fact that they have a pretty solid joinery business, which would go into primarily residential construction.

So there's a little bit of exposure, but certainly not anything that is untoward in terms of impacting your ability to grow?

No, but in the spirit of transparency, I did mention earlier that the European market for our Performance Coatings business was the softest, and -- in 2018, and that's continued as we've -- the first to lap here with January.

And then, just staying with Performance Coatings, they put up a flat year-over-year margin in terms of operating profit line in the fourth quarter. It sounds like, still, you expect a little bit of maybe negative margin delta for the first -- and maybe even first 2 quarters next year. So can you explain, or can you provide some visibility on sort of what drove the margin parity in year-over-year? Was it sort of getting the last chunk of Valspar synergies for the year, hitting the fourth quarter? Was it some raw material movements or prebuying or the price increase that you put in? I'm just trying to understand why I shouldn't be modeling continuing progression in margins in terms of year-over-year improvement for this business, given how strongly you finished in the fourth quarter.

Yes, Dmitry. But as I said, the pricing comes in differently than it does in our stores. It's not as uniform. So certainly, we saw some price impact our fourth quarter sequentially from the third quarter and, certainly, year-over-year. I think the team has done a very good job at managing their expenses. They have done a very good job of integrating and getting synergies faster than what was planned, and there's more work to do. But as we get in further into the integration, we start getting in the formulation changes, facility consolidations and the like. And they take longer, and the savings are harder to predict on timing. I would say, just sequentially, you're right. Our first half, from a raw material standpoint, is going to be higher year-over-year, and we're continuing to put price in to offset that. How well, we -- and effectively we can implement that, I'll tell you if we can start seeing margin expansion in our first half versus, I agree with you, for sure, in our second half.

The next question is from the line of Rosemarie Morbelli with G. Research.

I was wondering, one area we didn't really talk about is packaging. And if you could give us a little more details in terms of the non-BPA and then businesses which are not non-BPA related.

We're very pleased with the performance of our packaging business, one of the strongest that we have. We have a very unique technology in our product. It's a V70 product that is leading application and coverage product. So we're excited about the growth that we're gaining here because of the ability for this product to run smoother and more efficiently in the plants of our customers. And so we are out. We're getting more and more approvals from the various influencers and owners. And we've had tremendous success getting the product online and demonstrating the value that can be generated even though the product might be slightly more expensive. But overall, the applied cost of this product is a savings and efficiency enhancement to our customers. So really excited about where this team is going.

So if we look at Europe and the slowdown and the decline in almost every category, packaging still grew beyond what the market did.

Yes. I think it's fair to say better than the market; but in Europe last year, they had some dynamics in packaging that affected the overall market that we were impacted by as well.

What was that?

Well, if you look at things like the harvest of product or food and the impact that it's had on our customers that has a direct impact on us.

So we are talking about vegetables, and we are also talking about fishing, I presume?

Yes, I'd say as a group, overall. We try to avoid having discussions about weather and vegetables on our earnings calls, so...

Sorry. If I understood properly, the level of buyback is going to depend on whether or not you are going to have any M&A. So when -- I'm sure you have a long pipeline, but when you look at it, is there something that you could say could be imminent or pre-year-end 2019 that you could close or announce?

I would just say that we're in discussions, some stronger, and we're more optimistic than others. But there's a long way to go. And a lot of I's to dot and T's to cross, so I don't want to get ahead of ourselves here. And we're having good discussions, so I'd leave it at that.

And if I may just sneak one in. If we are looking at the same store comps, 2019 over 2018, are we looking at a similar 5% growth?

I'm sorry. Can you repeat the question?

Sure. Same-store growth 2019 versus 2018, similar growth at the 5% level more or less?

More or less.

Yes.

Next question is from the line of Justin Speer with Zelman & Associates.

A couple questions, one, for housekeeping. Can you tell us what the pretax dollars are associated with that $0.48 transaction integration cost, where those reside in the P&L, and what that is on a pretax basis would be helpful.

On a transaction and integration cost, about $40 million of it is cost of goods and 20 -- I'm sorry, $36 million is cost of goods and $21 million of SG&A.

And then a couple questions on the fundamentals. Just looking at your -- as it pertains to the first quarter and thinking mapping that out, can you remind us what the monthly comparison was for growth last year, January, February, March in the core Americas business?

We won't break it out by quarter, but we had a pretty strong first quarter last year.

I want to say the comp was 5.2%.

5.2% is the comp. Yes.

But that's a step-down from like 8.2% in the fourth quarter of '17 down to -- I recall the weather was pretty cold last year in the first quarter, which I don't know how that affects your comparisons this year. We'll see. But I recall that growth stepped down in the first quarter last year versus the fourth quarter.

That's correct. But you also had the effect of 2 price increases essentially in our fourth quarter of '17 because we went out October 1 in '17 versus December 1 in '16. So that moved it a little bit as well.

On that price cost front, in terms of the price cost dynamics that you're thinking through, particularly as you're kind of baking in assumptions for implied margins for '19, thinking about price cost for raws and non-raw cost inflation, if you're to snap a line today, how much margin tailwind are you achieving from what you already have in hand in relation to that cost bucket in terms of margin accretion for '19?

We're just not going to break out what we think our margin growth is going to be. But as I mentioned, the 12.8% increase EPS at the midpoint. It tells you we're going to have margin expansion in the year.

The next question is from the line of Eric [ph] with Cleveland Research Company.

The 4% to 7% total sales growth guidance for '19 seems to imply an acceleration relative to the 2018, which I think was 4.7% that you said. And I know the 4% to 7% is a range, but in the midpoint of that range, what businesses grow faster in '19 than they grew in '18?

Well, our stores will have to grow -- they'll carry it, Eric. As you know, they're the engine of the company, so we have high expectations there. But if you go across the industrial businesses, we feel as though -- the Performance Coatings business would be, as a group, probably the second fastest-growing, and then our consumer group in the lower single digits.

And the improved growth in '19 relative to '18 from it sounds like, stores and Performance Coatings. Is that market growth? Is that price? Is that market share? Which one would stand out the most within that for both of those?

They would all be key levers that we're using. We do believe that our market share growth is an important lever, but we certainly see opportunities across all of those that you mentioned.

Our next question is from the line of Christopher [ph] with Bloomberg.

Quick question on the debt this year. Is the plan to retire the outstanding debt that's due in 2019?

Yes. The $300 million that's due in June, we'll retire that. Plus we'll retire another $300 million in short term that we had outstanding.

And then, a technical question; in terms of the weather and in terms of actual application of paint, is there anything that precludes indoor painting at a certain temperature threshold? If it's below 50, have you seen slowdown in interior application in the past?

No. The only impact, Chris, would be that if the projects themselves are pushed back, right, due to weather, temperature, rain, whatever it might be, but the application indoor, if it's a protected environment, the ambient conditions are typically such that they can apply what they need to apply.

It appears we have no further questions at this time, so I'd like to pass the floor back over to Mr. Morikis for any additional concluding comments.

Thank you, Jessie. I'd like to close this morning by taking a moment to acknowledge the contributions of a valued member of our management team over the past 17 years. Since 2002, Bob Wells has been the voice of Sherwin-Williams to the investment community. Over the years, Bob has built a stellar reputation on Wall Street for his industry expertise, candor, integrity that has served both the company and our shareholders well. What you may not know is that Bob has also been a tireless public policy champion for our company, a community ambassador and a trusted adviser to me and the members of our management team. For the past year and a half, Bob has been grooming Jim Jaye to assume responsibility for Investor Relations for the company. I know many of you have met Jim, spoken to him by phone, or perhaps knew him before he joined Sherwin-Williams. He's a seasoned and talented executive, and I have the utmost confidence in his abilities. On June 1 this year, Jim will take over the Lead Investor Relations role, and Bob will shift his focus to some important organizational development projects. Between now and June 1, Bob will continue to serve in his current role, attending conferences, participating in roadshows and, along with Jim, returning your calls over the next few days. Wanted to make this announcement today to give you the opportunity to wish Bob when you see him. With that, I'd like to thank you for joining us today and thank you 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.