Good morning. Thank you for joining The Sherwin-Williams Company’s Review of First Quarter 2020 Results and our Outlook for the Second Quarter and Full Fiscal Year of 2020. With us on today's call are John Morikis, Chairman and CEO; David Sewell, President and COO; Allen Mistysyn, CFO; Jane Cronin, Senior Vice President, Corporate Controller; and Jim Jaye, Senior Vice President, Investor Relations. 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. It will be available until Wednesday, May 13, 2020 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 date 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 disclosure 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 John Morikis.

Thanks, Jesse. Good morning everyone. I hope you and your families are remaining safe and healthy during the pandemic. Given the extraordinary circumstances over the last quarter, we've changed our typical format a bit today to provide you with some additional perspective. After my opening remarks, I'll turn the call over to Jim Jaye, our Senior Vice President of Investor Relations, for some short comments on our first quarter results. David Sewell, our President and Chief Operating Officer, will follow Jim and provide you with details on how we're responding to the pandemic. After David's remarks, I'll share some color on what we're seeing across our various end markets before turning it over to our Chief Financial Officer, Allen Mistysyn, who will provide you with our revised outlook for the year. Let me begin today by thanking the more than 60,000 employees of Sherwin-Williams for their courage, determination, and resilience in the face of the COVID-19 pandemic. Their extraordinary effort to serve each other, our customers, our company and our communities during this challenging time truly has been inspiring. This wonderful team has my deepest appreciation and my deepest respect, and I'm confident in their ability to meet the challenges ahead of us. Clearly, we're in a much different economic environment than anyone could have imagined when we provided our 2020 outlook back in January. More than 26 million have filed for unemployment benefits in the U.S. alone since mid-March and other geographies also remain under significant pressure. Sherwin-Williams is not immune from these realities. We are seeing major near-term impacts to demand in most of our end markets. We have a long-tenured and experienced management team that has successfully managed the Company through a number of challenging times, including the recession in the early 2000s, the 2008-2009 financial collapse, and the integration of Valspar, the largest acquisition in the Company's long history. Our entire global team remains undaunted and has taken actions to navigate this crisis. We remain very confident in our ability to manage the near-term impacts we're seeing, while positioning ourselves for continued long-term success. We've developed and are executing a comprehensive response to the pandemic, focused on the safety and wellbeing of our employees, our customers, our company, and our communities. We're implementing multi-phased contingency plans across our businesses to adjust to the near-term business environment. We are well positioned from a balance sheet and liquidity perspective. We've adapted in order to stay connected to our customers through this crisis, including modified operations in our stores and increased use of e-commerce and other technology. We believe we're seeing a pause in demand in many of our end markets rather than destruction of demand. We believe the long-term fundamentals remain intact. We intend to continue strategic investments that support profitable growth. These include continued investments in our stores, our products, our e-commerce platform, and other initiatives as we look for opportunities to expand our business. But before moving ahead, I'd like to thank our team again for remaining focused and delivering on our first quarter plan, even as the COVID pandemic began to impact us. Let me now turn the call to Jim Jaye for some additional comments on the quarter.

Thank you, John, and good morning everyone. In addition to this morning's press release and our commentary on today's call, we've provided a slide deck on our website with additional information. All comparisons in my remarks are to the first quarter of 2019 unless otherwise stated. Overall Sherwin-Williams delivered a strong first quarter that was in line with our expectation, with year-over-year improvement in sales, gross margin, profit before tax, EBITDA, diluted net income per share and net operating cash. First quarter 2020 consolidated sales increased 2.6% to $4.15 billion, and consolidated gross margin increased to 45.6% from 42.9%. Consolidated profit before tax increased $93.4 million to $392.3 million. Diluted net income per share for the first quarter of 2020 increased to $3.46 per share from $2.62 per share. The first quarter of 2020 includes acquisition-related amortization expense of $0.62 per share, and the first quarter of 2019 includes acquisition-related costs and other adjustments of $0.98 per share, as described in the Regulation G reconciliation table included in our press release. Excluding these items, first quarter adjusted diluted earnings per share increased 13.3% to $4.08 from $3.60. Adjusted EBITDA increased $48 million to $623.1 million or 15% of sales. Cash from operations was $54.9 million, an increase of $91 million year-over-year in the quarter. As is typical for us in the first quarter, we used cash to build inventory levels in advance of the busier spring and summer selling season. We continue to monitor the demand environment closely. From a segment perspective, the Americas grew same-store sales by 7.4% and improved segment margin by 140 basis points. Consumer Brands Group and Performance Coatings Group also delivered improved segment margin performance. Additional details on our segment performance are included in the slide deck I referenced previously. Let me now turn the call over to David Sewell for some specific comments on how we are responding to the pandemic. David.

Thank you, Jim, and good morning everyone. Let me also add my sincere thanks to our entire global team. Without a doubt, our incredibly talented and dedicated employees remain our most important asset and we have implemented a wide range of temporary policies and protocols over the last two months to protect their health and safety. These actions include enhanced paid sick and/or family leave, alternative flexible and remote work arrangements, visitor and employee screening protocols, social distancing best practices, additional PPE and sanitary procedures, and we have established a global crisis response team among many other measures. We also took the unprecedented step of temporarily closing our paint store sales floors to further protect employees as we move to serving customers with curbside pickup and delivery options. As for our customers, we provide essential products and services that are helping painters create and maintain clean and healthy living environments and healthcare facilities, manufacturing plants, residences, and other vital infrastructure. Many of these contractors have expressed their gratitude to us for keeping our stores open and enabling them to keep their businesses running, doing their jobs, generating income and supporting their families. We're also supporting industrial customers in mission-critical areas, such as food and beverage packaging, healthcare equipment, food manufacturing, water treatment, and energy infrastructure. During the crisis, we have delivered critical coatings products to producers of ventilators, oxygen tanks, and hospital bed frames. At this time, all major architectural and industrial plants and distribution service centers are in operation. The utilization rates vary based on manufacturing site and customers served. We have had no significant issues with raw material availability or supply. We've had a very small number of North American stores closed intermittently during the crisis related to varying government mandates. The vast majority of stores remain open. All of our businesses have developed and are executing on multi-phased contingency plans to adjust to the near-term business environment. We have taken targeted action to reduce costs, pause or eliminate certain programs, cut general expenses and delay filling open positions. We've also made adjustments to a small percentage of our workforce through involuntary leaves and reductions in force. We have additional levers we can pull, if necessary. Through all of this, our employees continue to support the communities where they live and work. To date, we have donated hundreds of thousands of masks, gloves and lab coats to those on the frontlines fighting the virus. We have also manufactured and donated hand sanitizers to many hospitals throughout the country. Our entire team remains focused and determined as we manage through this crisis, and we're confident we will emerge from this as a stronger company.

Thank you, David. As I mentioned in my opening remarks, we believe we are seeing a pause in demand rather than destruction of demand, and we continue to feel confident in the long-term trajectory of our end markets. While some economies cautiously begin taking steps to reopen, the pace and scale at which this will happen is far from clear. We believe April will be the most challenging month of our second quarter from a comparison perspective, with some gradual improvement as the quarter progresses. Whether the recovery gains momentum in the second half of 2020 or not until 2021 remains to be seen. We believe providing additional granularity on our end markets and how they might begin to emerge from the current environment may be helpful to investors. Let me begin in the Americas group with our North American stores. Again, first quarter trends were very strong with same-store sales up 7.4%, reflecting robust underlying demand. We've seen a dramatic near-term pause brought on by the pandemic, with all end markets except DIY being significantly impacted. In residential repaint, customers are delaying interior work related to social distancing concerns and having painting contractors in their homes. We expect this demand to return gradually as the pandemic subsides, and customers and contractors implement appropriate protective measures. We expect texture repaint work to gain momentum near-term, which will help to offset some of the interior softness. In new residential, starts were strong double digits to begin the year; as workers return from stay-at-home orders, work on these homes should resume. Our national homebuilding customers remain positive long term, though cancellations have increased and order rates have softened near-term. Activity should eventually improve as mortgage rates are low and the supply of homes is limited. As a reminder, there's about a 90 to 120 day lag from the time construction begins to the painting phase. In new commercial, many of our customers were reporting strong backlogs and our first quarter sales were up mid-single digit. Construction has been deemed essential in most locations and jobs in progress will be completed. Work is largely continuing albeit at a slower pace due to increased job site restrictions and labor challenges. We started to see delays in the second quarter. So we're optimistic that they will pick back up as the economy begins to reopen more broadly. In property maintenance, overall renter demographics are favorable though apartment turnover has slowed dramatically near-term. Management companies remain positive and expect renter movements to begin quickly once the economy reopens. Maintenance related to hotels and restaurants is likely to return more slowly. Some CapEx projects have been put on hold in some areas due to local mandates. Our DIY business is strong as consumers are nesting and using stay-at-home time to work on affordable home improvement projects such as painting. We expect our DIY business to remain solid in the second quarter before returning to more normal low-single digit rates as stay-at-home orders are lifted. In protective and marine, approximately 40% of our sales are tied to oil and gas, which has fallen sharply over the last quarter. Major oil and gas companies have suspended or delayed capital expenditure projects, which have and will continue to impact our results. Conversely, our sales in other end markets such as water and wastewater treatment, pharmaceutical, flooring, rail and marine remain as planned, which will help to offset the softness from weaker oil and gas. While we're seeing short-term disruptions and headwinds, the long-term drivers we've cited in the past remain intact, including household formations and demographic trends. Given these long-term drivers, we intend to continue to invest in our business. We anticipate opening approximately 50 new stores this year, while continuing to focus on sales reps, management trainees, innovative new products and productivity-enhancing services. Moving on to an update for Consumer Brands Group. DIY demand in North America continues to be strong as stay-at-home mandates have increased home improvement demand. Sales through our retail channel partners continue to perform well and we are encouraged by growth prospects with multiple customers in this channel. Looking at our international businesses, we expect our sales to be under considerable pressure through the second quarter. Our expectation is for these businesses to slowly return to more normal activity in the third quarter as the economies of the world begin to open. Lastly, let me comment on trends in Performance Coatings Group. Overall, we anticipate industrial demand recovering more slowly than architectural demand. From a geographic perspective, North America remains the largest region for Performance Coatings and was our strongest performer prior to the pandemic. We would expect that to remain true going forward. We have started to see some recovery in China at a slower pace than anticipated. We expect continued pressure in Europe and Latin America. In packaging, demand for food and beverage cans remains robust. We anticipate continued strong demand and additional business wins driven by sustainability trends, and our non-BPA ValPure V70 coatings. In coil coatings, we're seeing a temporary pause and a slower pace from commercial construction projects. Jobs in progress will eventually resume and coupled with the continued capture of new business, we expect this business to remain one of our best performers. In general industrial, we're seeing substantial demand weakness in various end markets, including heavy equipment, agriculture, transportation, and general finishing. We expect this recovery will be slow and we'll see continued pressure throughout the rest of 2020. In industrial wood, softness across various end markets including furniture, kitchen cabinetry and flooring has continued. It is difficult to forecast the timing of improvement though many of the same drivers influencing new housing could benefit this business. In automotive refinish, the business has been impacted by the various state stay-at-home mandates that have been instituted across the country. The decrease in miles driven has led to a decrease in collisions. The pace of recovery in this business will depend on how quickly stay-at-home orders are lifted, and people begin to return to their normal routine. Let me reiterate that while we are seeing near-term pressure across most markets we serve, we're confident in a long-term trajectory. Now, I'll turn the call over to Allen Mistysyn, our Chief Financial Officer, to talk more specifically about our revised 2020 guidance, our cash and liquidity position, and our approach to capital allocation. Al?

Thank you, John, and good morning, everyone. We anticipate the negative impact of COVID-19 on the U.S. and global economies will most likely continue through the second quarter. We do not expect immediate meaningful improvement ahead in most end markets we serve and we're unable to predict when any noticeable improvement in those end markets will occur. Given the near-term trends and indicators we see at this time, we anticipate second quarter 2020 consolidated net sales would decrease by a low- to mid-teens percentage versus the second quarter of 2019. Looking at our operating segments for the second quarter, we anticipate the Americas Group to be down by a low double-digit to mid-teen percentage, Consumer Brands Group to be down by a high single-digit to low double-digit percentage, and Performance Coatings Group to be down a high teen percentage. For the full year 2020, we are revising our sales guidance to reflect uncertainties in the timing and pace of improvement in the U.S. and global operating environment. If economic conditions begin returning to normal in the third quarter of 2020, and continue improving through the fourth quarter, we anticipate full year consolidated net sales to be flat to down a low single-digit percentage. If economic conditions do not materially improve until the first quarter of 2021, we anticipate full year 2020 consolidated net sales to decrease by a mid- to high single-digit percentage. This revised full year 2020 consolidated sales guidance is compared to our previous full year guidance of an increase of 2% to 4%. On an operating segment basis for the full year, we anticipate the Americas Group to be flat to down by a mid single-digit percentage, Consumer Brands Group to be up or down by a low single-digit percentage and Performance Coatings Group to be down by a high single-digit to low double-digit percentage. Considering our revised range of potential sales, we are revising our diluted net income per common share for 2020 to be in the range of $16.46 to $18.46 per share, compared to our previous guidance of $19.91 to $20.71 per share and compared to $16.49 per share earned in 2019. Full year 2020 earnings per share guidance includes acquisition-related amortization expense of approximately $2.54 per share. On an adjusted basis, we expect full year 2020 earnings per share of $19 to $21. One key assumption embedded in our outlook is the raw material deflation we expect to realize for full year 2020. We expect the raw material basket to be lower year-over-year by a low single-digit percentage. Switching to our balance sheet which along with our liquidity position remained a strength of the Company, at March 31, 2020, we had $239 million in cash and $2.5 billion of unused capacity under our revolving credit facility. At the end of the first quarter, our leverage ratio improved to 3.1 times on net debt to adjusted EBITDA compared to 3.5 times a year ago. As Jim noted earlier, during the first quarter, we used cash to build architectural inventory levels in advance of the spring and summer selling season. However, our teams reacted quickly, slowing demand in various businesses and regions where it occurred and aggressively reducing inventory which helped reduce our year-over-year working capital by $151 million. We have completed a number of actions over the past year to reduce our risk and improve our financial flexibility. We recently completed a bond issuance in March for $500 million of 10-year notes at 2.3% and $500 million of 30-year notes at 3.3%. These are the lowest coupon rates in the history of the Company. The proceeds of these issuances were used to complete a tender offer for $500 million of 2.75% notes due in 2022 and will also be used to pay off the $429 million, 2.25% notes that are coming due in May. Our next long-term debt maturity in 2021 is $25 million. In the first quarter, we repurchased 1.7 million shares of our company stock and increased our quarterly dividend by 18.6% to $1.34 per share. We are committed to maintaining this dividend increase through the rest of 2020. As David mentioned, we are executing contingency plans to reduce spending and conserve cash. As part of those plans, we are lowering our full year 2020 capital expenditure forecast from $320 million to $180 million and temporarily delaying our share repurchases until we see improvement in the end markets we serve. Finally, we have put a pause on spending related to our new headquarters and R&D facility project but continue to work various planning processes. That concludes our prepared remarks. With that, I'd like to thank you for joining us this morning and we'll be happy to take your questions.

Thank you. We will now be conducting a question-and-answer session. The operator will provide instructions for submitting questions over the phone and via the webcast. Our first question comes from Chris Parkinson with Credit Suisse. Please proceed with your question.

So, I'll leave this fairly open-ended, but do you speak to some of the key trends in the Americas group, such as the sustainability of the DIY boost? Any color on the magnitude of the divergence between exterior and interior paint trends? And just how to think about things on a sub-regional basis for what you're seeing in April? Are there any differences between for instance, the Southeast versus the Northeast?

Thanks Chris. First, I would say regarding the DIY business, as we mentioned in our prepared remarks, the nesting phenomenon, if you will, is largely the result of customers spending more time at home. And we believe that that will continue largely through the stay-at-home orders. Historically, if you look at the underlying principles that have us believing that this gradually shifts back to the do-it-for-me as opposed to DIY primarily, we think those are still intact. Those are the aging demographics, home appreciation, the aging housing stock. If you look at the last recession, DIY grew, not in huge amounts, but it was not protracted either. Here, we have a much more significant jump in DIY business and we're experiencing it in our stores, for those customers that are still preferring a more specialty store experience, and through many of our customers in our Consumer Brands business and we're working hard to serve them as well. As it relates to your next question regarding interior versus exterior, both were up double-digits in the first quarter, and we expect that as the season starts to turn a little bit here that we'll start to see more lift in the exterior business as a result of more contractors getting the go-ahead from homeowners. In many cases right now homeowners are preferring not to have painting contractors enter their homes. Regionally, I'd say that we are starting to see more estimating activity and the close rates on those estimates are growing, largely in the Southeast and Southwest right now, and they're lagging in the Northeast and the Midwest, which you would expect given what's happening in New York, Illinois and Michigan. So, going back to the point that we referenced a few times in the prepared remarks: structurally there's not been much shift. We expect this do-it-yourself surge to continue short-term and gradually shift back to do-it-for-me, and we love our position with those customers to be able to capitalize on that.

Also just as a carrier of that, can you just very quickly just break out the trends in P&M across the Americas group and Performance Coatings, just if you go through the oil and gas, protective, corrosion, and then just the small marine? Just anything changing there in terms of your thought process?

Yes. So, I'd say in P&M, oil and gas represents about 40% of our P&M business. We have a very strong position there. The oil price decline has had an impact primarily in the upstream business, where you're in offshore and shale, etc., and in midstream and storage. Downstream, in refining and cracking, there is still quite a bit of investment going on. What I'm really pleased with is the shift that our teams are putting into place to pivot to areas where the business is not as pressured. We have wonderful talent, wonderful products, and we're doing a very good job, I believe, in moving into some of those areas that are underserved by Sherwin right now in the oil and gas as well as other areas that we mentioned: water, wastewater, food and beverage and even pharmaceutical and flooring. This is a pretty experienced team we have here. We're taking advantage of those experiences and the 'scar tissue,' if you will, from past experiences. We're not waiting for things to happen; we're trying to capitalize and drive things to make them happen.

Thank you. Our next question comes from Ghansham Panjabi with Baird. Please proceed with your question.

Hey, John, just kind of picking up on the live few comments, right. So your comments are being that it's sort of a pause in demand versus necessarily a disruption in demand, but some of the metrics in terms of U.S. unemployment and state market change dramatically over the past couple of months. I guess what gives you confidence that apart from the dislocation that you and others will see in 2Q that this is in fact a pause versus something that's going to have a tail with it?

So, I think in each market, when we look at the drivers of those segments, we look through and understand there's a pretty good line of sight on what's going to happen. For example in new residential, we feel there is a pause and that there is a fundamental need for housing in the country. While the short-term traffic in models and the feedback we're getting from our large new residential customers clearly indicate some concern in the short-term, we're not running the Company to have a great second quarter here. We're doing the best we can with the cards that were dealt in the second quarter. But we're looking at the fundamentals and we believe that if you go by segment, we have various sound fundamentals in areas where there is some softness. We're not waiting. We're moving into those areas that offer opportunity. And segment by segment we're dissecting our business, ensuring we have the right people doing the right things to capitalize on those opportunities.

Got it and I just add to that. And that's partly why, given the unpredictability about how our segments come out of this and timing of that, that's why we bifurcated the guidance to say, okay, if we see things start improving in the third quarter and then continue to improve in the fourth quarter, we think flat to down low-single digit. But if the true recovery doesn't start until the first quarter of 2021, we're looking at that mid-to-high single digit down scenario. So we perfectly understand the uncertainty, and that's why we are giving a range of the timing of when we expect the businesses to come back.

And then just on the DIY piece that you're benefiting from in the stores group, the power of consumers engaging with your associates—generally your stores offer very high service levels—how are your associates pivoting towards this new reality of social distancing? And then related to that, are you seeing any specific trends that are visible in terms of maybe DIY being a bit more price-sensitive in terms of the choice of pick? Thanks.

Thank you for that question because it gives me a terrific opportunity to recognize a wonderful team. We've got a terrific leadership team and Peter Ippolito and other division leaders and all our division presidents. But more importantly, as strong as those leaders are, we've got just a wonderful team in our stores who are close to customers and sales reps that are doing a terrific job. It has changed things. We are curbside only in many locations, which has given us an opportunity to leverage some of the investments that we've made in our digital platform. We have orders coming in via the digital platform that we've been investing in with much greater utilization, so we're excited about that. We've been inundated with emails, notes and even phone calls from customers who have gone out of their way to comment and recognize our employees and their willingness to work with people. We're utilizing color fulfillment so customers can order colors online and have them delivered to their cars in a relatively short period of time. Our people in the stores are eager to help customers over the phone to make sure that they're taken care of. The transaction is a contactless transaction when these customers pull up into our stores and their product is placed into the back of the car. I don't know how many points of contact I've had with people recognizing that's a wonderful service and approach that we're taking. On our Consumer Brands side, we were blessed with a number of really strong retail customers, and the leaders running that business have helped us to be as responsive as we can to that important segment and channel to our customers. We're trying to instill learnings from our store sites into those customers and vice versa and really providing solutions to our customers. So, we're really excited about this trend we're seeing in our DIY business on both the consumer side as well as our stores.

And the pricing sensitivity piece?

Yes, I'd say that on pricing we continue to see a positive mix in our business. Contractors recognize that roughly 90% of their project costs are labor, and many homeowners, particularly those that are shopping at a Sherwin-Williams store, are typically willing to pay a little more to get the finish they're looking for and to have it be as productive as possible. So, we are seeing a positive mix shift in both the pro contractor business as well as the do-it-yourself market.

Your next question comes from John McNulty with BMO Capital Markets.

I guess two points. So, on the raw material side, down low-single-digit, just given what we've seen in oil prices and propylene, it seems a little bit on the low side. Can you give us a little bit of color into what you're seeing in the various baskets for raw materials, and how you're thinking about how they trend throughout the year?

Sure and good morning, John. Given the significant decline in crude as you point out, we do expect to realize lower year-over-year raw material costs throughout the remainder of 2020. The full year will be down by a low single-digit percentage as we talked about compared to our prior estimate of being flat for the year. I think the rate in the second half of the year will depend largely on how the downstream derivatives like propylene and ethylene react to the declines in crude. I would also note that if demand is not improved through the second half of the year, then we could potentially see a more meaningful benefit. The majority of the benefit year-over-year is going to be on the resins and solvent side. If you take a look at the TiO2 side, we've seen strong demand there in the first quarter and the second quarter, but it's probably too soon to fully understand the supply-demand impact and the effect on pricing there. At this point we do anticipate stable to potentially lower prices for TiO2 in the back half. Historically weaker global demand has resulted in lower pricing. But again, I think the decline that we're expecting to see in the basket is tied more to the petrochemical side and it's really going to depend on how propylene and ethylene respond.

And then I guess in the stores business, so if I understand it correctly, you shut down the front part of the store kind of in late March. Is there a way to think about how much sales dipped when you went just to curbside pickup so that we can think about when these required closures and that type of thing and how to think about the snapback? Can you give us a little bit of color or anecdotes on that?

Yes. It's hard to say exactly how much of a decline we're seeing, but in our second quarter guidance, we're talking about the Americas Group down low double-digit to mid-teen. As April progressed, the weekly sales on architectural have improved week to week from a dollar volume standpoint. As a reminder, April was our toughest comp a year ago, as North American same-store sales progressed through last year's second quarter. So we were fully expecting April to be the toughest comparison. That makes it a little bit harder to gauge how much is related to the shelter-in-place and the changes to our sales floor.

John, I would add that David Sewell and his teams have all our businesses leaning forward in a very positive way. So, I'm a bit more optimistic in the sense that we came into this business with a pretty strong performance and a strong comp store sales number. David has our teams, every one of them including our stores, taking proactive activities that will help us grow even faster coming out of this. The activity that we have in new accounts, product demos and information—this is probably some of the most impressive time we've had because we've had customers on the professional side that had interior projects that were delayed and not able to get on exterior projects. So it has provided our teams more accessibility to some of these customers. Our new account activity is actually up as a result of this. Our demos of new products are up. So, David and our teams—not only in our stores but across the company—are doing a great job. Our desire is to come out of this much stronger than even what we were before.

Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

I wanted to go back to the comments you made earlier. I guess you referenced potential for opening 50 new stores this year. Maybe you can just discuss how you see that playing out? Are there particular regions that you're targeting? And if you could relate that to some of the performance that you saw in Q1 or Q2 that you're seeing right now, are you targeting areas where maybe you're seeing some weaker performance regionally or is it just underpenetrated areas?

It varies by division. We are looking in some areas at still markets where we have underserved customers and areas where we might have more penetration but are missing some gaps. A lot of areas where we're not yet happy with our performance in terms of market share and our position. So it's kind of a balance between the two. We'd like to take advantage of our position in the market while providing more accessibility to our customers, and at the same time get after some of these markets that are underserved.

And then just as a follow-up, I just wanted to ask about the refinish business as well. Miles driven dropped significantly. Maybe just give us your thoughts—you've had some growth recently over the last couple of years through a bigger business for you now. So, did you comment on that business and what you see for the outlook there?

Sure. You're right, miles driven are down considerably, and we expected that impact could last for another 30 to 45 days following the end of stay-at-home orders, so it's a little bumpy right now. No pun intended, but our teams are really doing a nice job there. I mentioned last quarter a bold statement and I stand by it: our position in the auto refinish business is as strong as it's been since I've been at the company. There's a lot of confidence in our leadership in automotive and a lot of confidence in our Performance Coatings team and what we're doing. We've got a lot of determination in this business to outperform. We're going to have to get some cars back on the road to see some of that. Also, the connectivity and virtual learning and the virtual demos that our teams are initiating have allowed us to accelerate many initiatives. We believe it's helping to convert some customers who were on the fence before the pandemic. We expect to be able to capitalize on this as we come out.

And just lastly, I know you've talked about evaluating your business in Australia. Could you just comment on where you stand there and the progress that's been made?

Sure. The virus impact on Australia has been significant as well. We're having to address it. We've started to take actions in SG&A in that region prior to the pandemic. I would say our judgments not only in Australia, but in Europe and Asia too—where we have focused on right-sizing some of the business—led us to make some difficult decisions in some areas and invest in others to capitalize on growth. We're taking what we believe to be aggressive steps to drive operating margins. We're constantly looking at programs, brands and businesses—every element of our business—and making difficult decisions where necessary.

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

Yes, thank you for taking my questions. Just curious about your North American consumer business; your guidance for second quarter is quite robust. Is the trend that you're seeing in April representative of your outlook for the second quarter? Are you seeing that strong of a volume growth during the month of April?

I would say unprecedented growth in April.

I'll agree with that Steve. We really started seeing it kick in about mid-March and that trend has not only continued but accelerated in April.

And David Sewell made some comments about trimming the sales force or the personnel in the stores group in his remarks. Can you just comment on what you expect SG&A to be in the second quarter versus the first?

Yes, we are not trimming our stores personnel. In fact, we'll continue to invest as John talked about in new stores. We will see SG&A decline in the second quarter in absolute dollars because of the sales shortfall, but we probably won't see percent-of-sales improve. The steps we talked about in our contingency planning are material and as demand trends develop, we have other levers ready to go if needed, but we are not cutting our stores organization.

Steve, maybe just to make sure: we're always looking at our investments and there are times in our normal business that we might reallocate resources in one area and invest in another. The important point is our stores business is a sound fundamental business that we expect to put more gas in the tank whenever we can.

And if I can squeeze one more in about housing starts, are your contractors indicating to you that it's a slowdown driven by delayed permitting? Or are they also seeing any problems with labor?

I don't know that we're seeing broad labor issues right now. Regarding permitting, we don't think the fundamentals have changed and neither has our position in that market. We feel the gap in Sherwin-Williams' value proposition is wide and growing. Mortgage rates are low and housing supply is limited. While there's some short-term impact, we feel the fundamentals are still there. We have exclusive relationships with many top national and regional builders, and last week we had discussions with multiple top builders who reached out wanting to ensure our supply chain and capability to serve them. I can assure you we're ready—more than ready—to serve. That's part of what gives us confidence. There will be bumps in the road in this quarter and maybe rolling into the next, but the relationships and the responsiveness we provide to customers position us well.

Thank you. Our next question comes from Robert Koort with Goldman Sachs. Please proceed with your question.

I wanted to ask about the CapEx reduction, pretty dramatic decline. I know you've mentioned, John, about 50 new store openings—is that the bulk of that decline or where else are we seeing the CapEx reduction?

Yes, Bob. Within our global supply chain, we are paring back some of the capacity projects that we had scheduled at the start of this year going into next year. That accounts for a significant portion of the reduction. The $140 million reduction is kind of a maximum case; as demand trends develop, we may turn some of those projects back on. We will monitor demand and invest back in distributions, automation and other continuous improvement projects as appropriate.

And I'm sorry if I missed it, but you gave some guidance on second quarter stores sales. Did you comment on what the daily receipts in April suggested? We were thinking down 30% or something pretty huge and then moderating— is that reasonable?

Our receipts have held up relatively well. As we move into early May, we may see some pressure but then improvement as we move into mid to late May and June. As I mentioned, weekly sales have been improving week to week in April. We're staying close to customers and we're not seeing a lot of concern about bad debt or solvency of our customers right now. I do expect a little bit of slowdown in early May but then improvement as the quarter progresses.

Our next question comes from P.J. Juvekar with Citigroup. Please proceed with your question.

Hi John, Al and the team. Good to hear from you. How much of your online ordering is up in the quarter from contractors or DIY? And how much of these orders are curbside pickup versus delivery? And longer term, do you think that's a new trend that will remain in place post-COVID?

So, you're probably not going to like these answers other than online is significant. Curbside versus delivery, I'd say on the contractor side it's pretty evenly split. On the DIY side, curbside and delivery are common. Regarding the future, yes, we want our customers using this system. We believe it helps in our customers’ efficiency and ours. It allows us to be a better partner to them and allows customers to move seamlessly through our business and begin utilizing the tools and resources that we have much better.

P.J., it remains to be seen if curbside has full staying power. I think by and large, residential repaint contractors like the interaction with our stores and our reps. On the DIY side, customers like some color counseling they get while coming into our stores, and currently they're not getting that interaction. So we'll see; curbside may have some staying power, but there is still a lot of interaction and support customers get from our stores on color recommendations and other guidance.

But I might add P.J. that the curbside aspect has legs and will likely continue as one of the outtakes customers enjoy—the ability to get in and get out. The majority of customers that come in to start their business or have their crews at our stores can still do that, and those that want to zip in and out we'll offer the best of both.

And just related to that, let's say in the future it's an online order followed by delivery. Does that lower barriers to entry in the business or is it an advantage for you because you have a local store and you can get there faster?

It's a huge advantage to us. It's really no different when you think about it from a service perspective: a customer calling in and requesting an order and having us deliver is similar to an online order with delivery. The store platform we have and our multipoint distribution capability—being within 30 minutes of most customers—allows us to deliver with quick responsiveness. More importantly, those customers that visit our stores daily build partnerships with our employees and loyalty grows both ways. That relationship—problem solving, training, job management—evolves from a transaction to a strong partnership. I ran a store 35 years ago and I built relationships with contractors then that persist such is the essence of what we do in our stores.

Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.

Just want to ask on the Americas Group guidance for the second quarter and the rest of the year. You've really been gaining a lot of market share. By my estimation the second quarter you kind of lapped that step up in share again that really started to take hold in the second quarter last year. So when you think about what you're telling us about 2Q and the balance of the year, is that reflective of how you think the overall do-it-for-me or just general paint industry is going to do? Or are you still baking in that you're going to continue to gain share even though the comps may be getting a little harder?

We're going to gain share. We've been very clear on that. We're just getting started. I look at what's happening and what our leadership team is delivering and we have the best people in the field—the best store managers and reps—with great resources. We're making investments during these times that we expect will allow us to come out pretty strong.

Vincent, when you look at the long-term, as we keep adding reps and stores, investing in product innovation and e-commerce, our confidence is that we will exit this environment positioned better to grow faster in the end market. To highlight that, similar to what we saw coming out of the 2008-2009 recession, the three-, five- and ten-year compound average growth rate of architectural sales in our North American stores grew at a high-single-digit rate in each of those categories, which we believe was a multiple of the end market. We believe the same dynamics are likely in this situation.

As a follow up, one of the other things we've talked a lot about over the last few years is that when you had a low unemployment environment it was a bit challenging, and in periods where there was pent-up demand from bad weather to prosecute that demand. But as we go through the summer we're unfortunately going to have some pretty unattractive unemployment numbers. I'm just wondering, have your customers talked to you about being able to go out and hire more painters now, and so maybe we will see a benefit from that, at least for some period of time over the next few quarters?

We might. It's a little early to tell, but we like this type of environment where we can shine. If customers hire painters who are less experienced, our products—improved rheology, touch-up qualities, color systems—help make less experienced painters more productive. We work with those customers to improve productivity. That's an environment where Sherwin-Williams can perform well and continue to gain share.

Thank you. Our next question comes from Mike Harrison with Seaport Global Securities. Please proceed with your question.

Wondering, John, if you can quantify how many of your stores are closed in North America right now? And are those all situations where you've been restricted by the government or are there situations where you have a handful of stores and you've decided to consolidate business from that handful into one or two locations?

Let me have David answer that one.

Hi Mike. Right now we probably have close to 30 stores in North America that are closed. Those closures are all due to government mandates. The team is doing a really nice job fulfilling orders and deliveries from other locations that are open. As restrictions ease, we will immediately reopen stores when the government allows.

Also, a little bit about the cadence of demand from contractors as commercial projects may be deferred. Your competitor yesterday talked of a coming air pocket in some of that commercial business in particular. Is that something you see as well or do you think it's going to be steadier?

I think project pacing is impacted. There will likely be some delays due to stay-at-home restrictions and job site limitations. Our customers report that many projects in progress will continue and there are still strong signals in requests for specs, color inquiries and data sheets—data points we track that are strong. Short-term there will be bumpiness in this quarter. We get that, but as contractors, specifiers and architects work on projects, we'll be right there helping them complete them.

You introduced a microbicidal paint a couple of years ago, PaintShield. Has that been tested for effectiveness against this coronavirus and are you getting increased interest in that product for either commercial or residential applications right now?

PaintShield is not a coating that kills viruses. It is microbicidal and will reduce certain bacteria, but it will not kill viruses. That said, overall health and well-being concerns and ensuring as safe an environment as possible have increased interest in products like this, and we have seen additional interest.

Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

I was wondering if you can speak to the price contribution embedded in your same-store sales growth. I think you had an increase of 3% to 4% on January 1—perhaps you can enlighten us as to how much of that has been realized at this point?

Yes, Kevin, that change has gone as expected and we've realized just under 2% of the pricing effectiveness in the quarter. We do expect that to improve a bit into the second quarter but it's progressing as planned.

And then secondly, Al, with regard to capital allocation: as we paused share repurchase activity, is it safe to say that M&A activity is likewise paused for some period of time or how would you characterize the level of interest for full-timer larger acquisitions at this point?

We have a lot of interest in acquisitions and we're continuing to work with teams on generating targets and filling our pipeline. Obviously, in this environment it's more challenging. That said, I feel very good about our liquidity and the amount of cash we generate. With $2.5 billion in available liquidity and the steps we've taken to push near-term maturities out, we have capacity to do M&A as we come out of this and potentially see some targets come to the market. So I feel very good about our position.

Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.

John, Al, how should we think about decremental margin in your various businesses in Q2 here?

When you say decremental margin, with all the businesses except for Consumer Brands being down, I think you see the actions these groups have taken in continuous improvement. I point to Performance Coatings Group who, as demand slowed in the second half of last year, did a nice job controlling costs and improving operations. You saw nice pickup in their first quarter operating margin. So, I would not expect a dollar-for-dollar decrement. I think you're going to see better than that. How much depends on volume, but we've taken the right actions.

If you look at that business, particularly Performance Coatings, strong leadership has been driving expense reductions so we can leverage fixed costs. There's a lot of good work and it will continue.

And John, just on Consumer Brands, very strong results—are you gaining share in this business or is it just underlying market growth?

It's early to tell. Right now we're working to be the best supplier we can be and as data comes in we'll know more. But right now we're focused on building the brand, products and service to best serve our customers.

Our next question comes from Truman Patterson with Wells Fargo. Please proceed with your question.

In the Americas Group, you're expecting second quarter sales to be down low-double-digits to mid-teens, and for the full year flat to down mid-single-digits. Could you walk us through how you get from Q2 to that full-year range—some of the assumptions that even at the low end you're going to improve versus Q2?

As states start opening up and shelter-in-place orders are removed and job sites start opening up more and we can get back to work, we expect to see improvement in weekly sales rates through the quarter. Going into the third and fourth quarters, we expect that improvement to continue. Exterior demand, even in the second quarter coming into the third quarter, presents opportunities. There are commercial projects and housing units that need painting and we expect those to proceed—it's just timing. As we carry the additional stores and reps that we put in last year and are putting in this year, you would expect ramp up as we get through the third and fourth quarters.

On Performance Coatings demand, you're expecting it down high-single-digits to low-double-digits for 2020. Are you seeing any of the pricing contracts start to soften, especially in the face of a lower raw material environment?

The amount of sales we have indexed or tied to an index is probably less than 10% within Performance Coatings and less than 3% overall. Historically industrial seems to be a slower recovery than architectural. Asia-Pacific, which is largely back to work, is slowly growing. I think you'll see China pick up faster as the U.S. and European economies recover. Our business has a significant export component. The cadence will be choppy across businesses and geographies, but packaging is going strong and we expect that to continue, and auto refinish will pick up as people return to driving.

Our next question comes from John Roberts with UBS. Please proceed with your question.

You gave the June quarter sales guidance but not earnings guidance. Where in your cost structure is the most uncertainty that you can't flow that through? Is it in labor costs or the stores’ cost, raw materials—what are you most uncertain about in your cost structure?

John, we haven't provided quarterly EPS guidance. We gave sales guidance through the year because of uncertainty. I don't think there's a fundamental uncertainty around our cost structure. The plan—actions we've taken to reduce costs, reduce discretionary spending, and hold open items—will impact the second quarter. But we're managing the company for the long-term. We're looking at the recovery coming out of the third and fourth quarters and driving momentum into 2021.

Regarding the raw material basket being down low-single-digit percent, do you have significant inventory of raw materials to work down such that your dollar purchases of raws will be down more than that low-single digit?

The vast majority of our raw material inventory is in bulk tanks at our factories. We're not buying ahead in any material way. We're staying close to suppliers and making sure they're able to service us. The team has done a very good job managing the rapidly increasing DIY demand, retrofitting plants and moving products to build capacity. Our suppliers have done a terrific job making sure we have the raw materials needed. Our procurement and global supply chain teams deserve a lot of credit. There's no reason we would be buying ahead on raw materials.

Our next question comes from Garik Shmois with Loop Capital. Please proceed with your question.

I want to be clear on the 2Q Consumer Brands guidance. Does that include the Ace exit and your softer Asian fundamentals? Because if it does, it does seem that the retail piece is running mid-teens if not better if I'm not mistaken?

Yes, it does include both of those. On the Ace business that we exited, we're shipping final inventories of private label in this quarter and it will be complete. From a quarterly standpoint, the second quarter is probably the least impacted and then third quarter will be a little heavier on the impact and fourth quarter a bit more moderate. It does include Asia as well.

Just to follow up on the comment around exterior in the Americas gaining momentum—is this just seasonal or are you seeing an increase in contractor backlogs driving that momentum?

It's a number of drivers, including seasonality. Our teams are focusing on this business through contractor relationships and product technology. You may recall last quarter I talked about a product called FlexTemp. We're getting really good feedback and interest from residential and new residential customers. It's a product that can be applied down to 35 degrees or up to 120 degrees without sacrificing performance or application. That type of innovation, along with service and relationships in our stores, supports our belief that we'll grow and outpace the market.

Our next question comes from David Bellinger with Wolfe Research. Please proceed with your question.

Comparable sales were very strong. Can you talk about what you were seeing early in the quarter from an underlying demand perspective? It seems housing metrics were improving. Regarding the early trends of Q2, how long do you think DIY’s outperformance will last? Is there potential pull-forward in demand out of the back half of the year?

I'll start and let Al add. Early in the quarter life was very good; we thought this was going to be a strong year. We still feel the fundamentals are there. On DIY, it is hard to say if there's a big pull-forward—we'll have to see how it unfolds. Typically DIY customers tackle smaller projects—bedrooms, living rooms—not large multi-story jobs. Many professionals still do larger repaint projects. We don't expect a massive impact on res repaint from DIY, and we hope DIY may introduce consumers to the value of repainting, which could have longer-term benefits. But we also expect DIY levels to moderate as people return to work and unemployment pressures are felt. Al, anything to add?

DIY could include some pull-forward but it's hard to quantify. Importantly, if DIY leads homeowners to appreciate the impact of repainting, that could have longer-term benefits. We'll need to monitor whether the activity is simply pulled forward or creates sustained new demand.

Regarding pricing increases planned throughout the year, has there been any data suggesting customer pushback on higher pricing in this environment? How is that shaping your thinking about further pricing opportunities?

It's not impacted materially from what we can see right now in the choice of products. We're experiencing a positive mix shift toward higher-quality products. We review our total cost basket monthly and make decisions on a monthly basis, and when we consider pricing we talk with employees and customers and share relevant information with the financial community.

Our next question comes from Rosemarie Morbelli with G. Research. Please proceed with your question.

One area we didn’t talk about clearly is Latin America. Could you give us a feel for what is happening there in terms of demand, the shutdowns if any, and the operating status which may create more issues going forward?

Sure. Chile is likely the closest to normal operations. Argentina and Ecuador in many cases are largely closed. In Mexico, about 60% of our stores are operating normally and the remaining are running curbside or delivery; a very small percentage are closed. In Brazil, roughly about 34% of our stores are closed and the remaining 66% are open, and those open stores represent over 70% of our gallon volumes from our own stores. Looking at our dealer network, about half of dealers are closed and about 60% of home centers are closed but offering delivery. There are mixed dynamics in Brazil and across Latin America.

Rosemarie, I would add that in the first quarter the impact of foreign exchange on our Latin America results was in the mid-teens and that impact accelerates into the second quarter as we see devaluation in currencies like the Brazilian real, Argentine peso and Mexican peso. That will be an additional drag on those businesses in the second quarter.

In the past few years, you’ve given us a number of store openings in Latin America and in North America. Are you still closing down stores in that region?

Last quarter we did close eight stores in Latin America. We continually review businesses, brands, customer programs and investments. We have made difficult decisions and will continue to do so where necessary. We want to grow the business but there are dynamics in some markets that make it more challenging. We have a strong leadership team in the region and we'll continue to take appropriate actions.

Lastly, can you talk a little about any changes in the competitive environment? Everyone is trying to gain share and offset the impact of the pandemic. Can you give us a feel for what's going on in the marketplace?

It's hard to do that for every part of the company and every region. We have a lot of respect for our competitors—there are good global and regional competitors. Everyone's business is different. These are challenging times. We'll do what's right strategically for us and our customers. Good competition makes you better; we have a healthy paranoia that keeps us motivated and driven.

Our next question comes from Greg Melich with Evercore ISI. Please proceed with your question.

Two quick questions: one on pricing—could you talk about Performance Coatings Group pricing given everything that’s going on? And second, on stores, what percentage of orders are you now taking via e-commerce, and are there products customers are asking you to add to the assortment in this environment?

We chased price and raw material through 2018 and 2019 and implemented selective price increases early in 2020. The dynamics in Performance Coatings are similar to architectural: we continue to invest in innovation that helps customers be more effective and efficient, drive faster line speeds and lower total cost of application. We're focused on value rather than commodity pricing and will continue to expand services that drive mutual growth.

Help them make more money—help them achieve their goals and solve their problems. Everything we can do to add value to customers.

And on online orders and assortment?

On online, it's a high growth percentage but still a relatively low base, so while the growth rates are strong it's off a small overall percentage. We expect continued growth and to come out of this stronger as a result. On products, yes, customers are asking for certain items and we're evaluating them—likely some of those will appear on our shelves as we adapt.

Our next question comes from Jeff Zekauskas with JPMorgan. Please proceed with your question.

Are the social distancing practices of Sherwin-Williams uniform across its store network, or are they different in different states? And how do you expect them to evolve from now to the end of the year? Will the state set your guidelines or will you set them?

We have standard protocols that we follow for social distancing. As stores come back, teams have done a phenomenal job. There will be details on floors and we will guide walkways and other flow. Our manufacturing plants have been implementing social distancing as well. We follow CDC guidelines at a minimum and consult healthcare professionals where appropriate. We take these measures very seriously and try to go above and beyond where we can.

When you think about the next year or two in terms of the value of paint, with raw materials coming down and consumers distressed, do you think we're going to go through a deflationary period in product pricing or more of a continuation of intermittent general price increases as a base case?

An important element is the cost structure of a contractor: about 90% of costs are labor. Our focus is on driving efficiency, productivity and profitability for contractors through innovation and services. That improves our position with customers and supports quality pricing. We must be competitive on price of entry but will continue to make investments that justify our pricing.

Jeff, to add, when raw materials rolled over after the big run-up in costs in the past, we largely held price and saw gross margin improvement. But you can only do that if you continue to invest in products and services that help contractors make more money. That's our approach.

Our next question comes from Christopher Perrella with Bloomberg Intelligence. Please proceed with your question.

A quick question on inventory levels with the rapid drop in demand. You were building into the spring for robust business. Where are your raw material inventories standing and what is your best estimate of the working capital impact in second quarter?

We did a good job managing inventory. Raw material inventory is a smaller part of overall inventory, but we managed inventories down where we saw weakness in demand and that helped contribute to the $151 million working capital improvement in the first quarter. We did build architectural inventory for the season, and we're seeing some shift with stronger DIY demand through home center channels. Our global supply chain is building and producing as much as possible and working with customers to get the right products into stores and into customers' hands. We have cut batch sizes, safety stock and moved to more make-and-ship models in some cases. We'll continue to manage inventories as the demand environment unfolds.

With the implied sales guidance for Q2, is there any implied channel drawdown in Performance Coatings or is that all basically straight volume out of your factory to the customer?

It's primarily volume out of the factory. The team has done a nice job driving inventory down where needed.

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

Thank you, Jesse. This is Jim Jaye. I just wanted to thank everyone for their questions and interest today. I hope it came through very clearly our confidence and determination to manage through this near-term environment as we go forward. Before we sign off today, I just want to do a housekeeping note for all of you. We will be postponing our Annual Financial Community presentation, which was scheduled for June 3rd in New York City this year. It's our intent to reschedule that event hopefully later this year. We don't have that date yet but as we have details we'll let you know whether that's going to be a virtual presentation or not. Thank you. As always, I along with my colleague Eric Swanson will be available for follow-ups. Please contact Natalie Darr in our office to be added to the queue. Thank you and have a great day.

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