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Sherwin-Williams (NYSE:SHW)
Q1 2018 Earnings Conference Call
April 24, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Thank you for joining The Sherwin-Williams Company's review of first-quarter 2018 results and expectations for the full fiscal year of 2018. 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 Monday, May 14, 2018, at 5 p.m.

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

Robert J. Wells -- Senior Vice President, Corporate Communications and Public Affairs

Thanks, Jessie. Good morning, everyone. In the interest of time, we've provided some balance-sheet items and other selected financial information, including a slide deck with a breakdown of our results by the new reportable segments on our website, sherwin.com, under Investor Relations April 24 press release. Consolidated sales in the first quarter 2018 increased $1.2 billion, or 43.6%, to $3.97 billion.

Excluding Valspar results, core consolidated sales increased 4.9% in the quarter. Consolidated gross profit dollars in the first quarter increased $343.8 million, or 25.6%, to $1.69 billion. Consolidated gross margin in the first quarter was 42.5%, compared to reported first quarter of 48.6% in the same period last year. Selling, general, and administrative expenses increased $203.5 million, or 20.1%, to $1.21 billion in the first quarter, but decreased as a percent of sales to 30.6% from 36.6% in the same quarter last year.

The decreases in both gross margin and SG&A as a percent of sales is primarily the result of a mix effect from the inclusion of Valspar. Interest expense for the quarter increased $65.9 million to $91.5 million. The increase was entirely due to acquisition-related interest expense. Consolidated profit before tax in the first quarter decreased $3 million, or 98 basis points, to $303.6 million.

These results include a year-over-year increase in acquisition and integration costs of approximately $106.8 million. Our effective income tax rate for the first quarter was 17.6%. We expect our effective tax rate for full year 2018 to be in the low to mid-20s. Diluted net income per common share increased 3.6% to $2.62 per share from $2.53 last year.

The $2.62 includes $0.95 per share in acquisition-related expenses, including purchase accounting, amortization, and income of $0.68 per share net of incremental interest expense from Valspar operations. We have summarized the first-quarter earnings-per-share comparison in a Regulation G reconciliation table at the end of our first-quarter 2018 press release. Let me take a few moments to break down our performance by segment. Sales for the Americas group in the first quarter increased $128.7 million, or 6.6%, to $2.08 billion.

Comparable-store sales in the U.S., Canada, and the Caribbean, that is sales by stores open more than 12 calendar months, increased 5.2% in the quarter. Regionally, in the first quarter, our Canada division led all divisions, followed by Southwest division, Southeast division, Midwestern division, and Eastern division. Sales and volumes were positive in every division. First-quarter sales in Latin America region, stated in U.S.

dollars, increased 9.5%. Currency translation reduced net sales in U.S. dollars by 2.8% in the quarter. First-quarter segment profit increased $32.2 million, or 10.5%, to $337.4 million.

First-quarter segment operating margin increased 60 basis points to 16.2% from 15.6% last year. Turning now to the consumer brands group. First-quarter external net sales increased $333 million, or 103%, to $656.4 million. Revenue reclassification related to the newly adopted ASC 606 reduced net sales by 2.1%.

Excluding sales from Valspar, core sales for the group decreased 5.3% in the quarter, including a 1.6% positive impact from currency translation. Segment profit for the consumer brands group in the first quarter increased $18.3 million, or 32.8%, to $74.2 million. Segment profit for the quarter includes a $31.8 million charge for purchase accounting amortization. Excluding Valspar, core segment profit for the group decreased 11.8% in the quarter.

Segment profit as a percent of net sales for the quarter decreased to 11.3% from 17.3% last year. Excluding Valspar, core operating margin for the group decreased 118 basis points in the quarter to 16.1%. For our performance coatings group, first-quarter net sales in U.S. dollars increased $743.3 million, or 153.4%, to $1.23 billion.

Excluding sales from Valspar, core sales for the group increased 5.3% in the quarter. Stated in U.S. dollars, performance coatings group segment profit in the first quarter increased $33.7 million, or 58.9%, to $90.8 million from $57.1 million last year. Segment profit for the quarter includes a $57.5 million charge for purchase accounting amortization.

Excluding Valspar, core segment profit decreased 12.1% in the quarter. Currency translation rate changes increased segment profit $4.6 million in the quarter. As a percent of net sales, segment profit decreased to 7.4% in the first quarter, compared to 11.8% last year, including the purchase accounting amortization expense. Excluding Valspar, core operating margin for the group decreased 195 basis points in the quarter.

I'll conclude my remarks on the quarter with a brief update on the status of our lead pigment litigation. In our Santa Clara County California lawsuit, the Sixth District Court of Appeals remanded the case back to the trial court. A new trial court judge has been assigned the case, as the judge who presided over the trial retired. The trial court has two issues to resolve: first, calculation of liability based on the pre-1951 housing standard, and, second, selection of a receiver.

The new judge will determine the process for deciding these two issues. An initial hearing took place March 28, and initial briefs on the proposed size of the abatement fund were filed last week. The next hearing is scheduled for May 24. The defendants plan to seek certification in the U.S.

Supreme Court. Petitions are likely to be filed in June or July. That concludes our review of our operating results for the first quarter, so let me turn the call over to John Morikis, who will make some general comments and highlight our expectations for the remainder of 2018. John?

John G. Morikis -- Chairman, President and Chief Executive Officer

Thank you, Bob. Good morning, everyone. Thanks for joining us. Despite a slow start to the painting season in certain regions of North America, we delivered strong results in our first quarter.

Sales, gross profit, net income, and diluted earnings per share were all first-quarter records for the company. We're seeing continued strong demand across most businesses, and we're making good progress on the Valspar integration, value capture, and pricing initiatives to offset raw-material inflation. If you back out the contribution from Valspar, our core consolidated sales grew by nearly 5% compared to first quarter 2017, with a little more than half coming from volume. Consolidated gross profit dollars increased by nearly $40 million in the quarter.

The core gross margin declined 93 basis points year over year to 47.8%. SG&A as a percent of sales decreased 121 basis points. And core consolidated profit before tax increased 7.2% and expanded 25 basis points as a percent of sales. Core diluted earnings per share, again excluding Valspar results and acquisition costs, increased 10.7% to $2.89 compared to the same quarter last year.

The Valspar business had a little more than $1 billion in net sales and $0.68 to earnings per share in the quarter. Consolidated first-quarter 2018 EPS, excluding acquisition expenses, increased 36.8% year over year to $3.57 per share. The Americas group grew volumes and improved their operating performance compared to the first quarter last year, although growth was at the lower end of our expectations due to slow exterior paint sales in some regions for most of the quarter. Sales to residential repaint contractors in the U.S.

and Canada grew at a double-digit pace for the 16th time in the last 18 quarters. Protective and marine coating sales in the U.S. and Canada grew in the high single digits. And property management, new residential, commercial, and DIY segments all contributed to TAG's growth in the quarter.

Latin America sales in total increased 9.5%. It appears that the fundamental demand and trends remain strong across the business. TAG segment operating margins improved 60 basis points compared to the first quarter last year, reflecting our progress in implementing price increases to offset a challenging raw-material cost environment and good expense control as SG&A decreased slightly as a percent to sales. The group opened seven net new stores in the quarter, bringing our total store count at the end of the quarter to 4,624 stores in the Americas.

Our plan calls for this team to add approximately 100 net new stores in the Americas by the end of the year.The Encounters platform launched by TAG last year is receiving positive reviews from both our customers and our field organization. And we expect adoption to increase over time, enhancing both our in-store and field service experience. Consumer brands group also showed good progress in the first quarter, but the improvement is not quite as obvious in the numbers. On a year-over-year basis, compared to pro forma combined results from first quarter 2017, sales increased 3.8%, and adjusted operating margin, excluding the purchase accounting impacts, improved by 260 basis points.

If you look at it sequentially, first-quarter sales increased nearly 15% compared to fourth quarter 2017, much of which is probably attributable to seasonality. And first-quarter reported operating margins expanded 720 basis points to 11.3%, compared to 4.1% in fourth quarter. Backing out purchase accounting amortization expenses from both quarters, segment operating margin in the first quarter was 16.2%, compared to approximately 9.9% in the fourth quarter. The improvement in segment operating margin, both sequentially and year over year, is a result of successful expense control and cost synergies as well as our early progress in implementing price increases.

On February 28, Lowe's announced a significantly expanded partnership with Sherwin-Williams, in which Lowe's will become the only nationwide home center to offer our top-selling wood care brands, including Minwax, Cabot, Thompson's WaterSeal, the top paintbrush brand in Purdy, and industry-leading spray paint in Krylon. Lowe's continues to be the only nationwide home center to offer our Valspar and HGTV HOME by Sherwin-Williams brands of interior and exterior paints. Both companies are supporting this effort with incremental investment in service, training, and brand communications, and we're confident this combination of high-quality products, category-leading brands, and outstanding customer service will accelerate comp growth in Lowe's paint aisle. Lowe's will determine the timing and cadence of the department resets.

While there is no impact from this announcement in first quarter 2018, we do expect this expanded partnership to result in increased volumes and revenues in full year 2018. Given our anticipated investment in marketing, displays, training, and other support areas, we expect earnings dilution of approximately $0.40 this year. In the performance coatings group, top-line growth was just under 10% compared to pro forma combined revenues in the first quarter 2017. Sales were up in every product category led by packaging coatings, general industrial, and industrial wood coatings.

Reported segment operating margin was 7.4%, compared to 11.8% reported last year. If you back out the impact of purchase accounting amortization in the quarter, which was a little over $57 million. Adjusted operating margin in the quarter was 12.1%, which compares to 13.5% pro forma combined operating margin last year. The pressure on operating margins year over year is a result of continued escalation in raw material costs, most notably, petrochemicals and epoxy, which are a large portion of the performance coatings raw-material basket.

We continue to work with our customers to recover these cost increases through pricing actions. EBITDA, or earnings before interest, taxes, depreciation, and amortization, increased 44% to $557.8 million in the first quarter, which includes $137.9 million from Valspar. EBITDA margin was flat year over year at 13.9% of sales. Core EBITDA without Valspar increased 6% to $413.9 million.

Net operating cash in the quarter was $40.7 million, compared to $231.8 million a year ago. Net operating cash in the first quarter last year included a benefit of approximately $137 million from settlement of the Treasury lock hedge. Changes in working capital account for most of the remainder of the difference. On March 31, the company had $158.6 million of cash on hand that will be utilized to reduce debt and to fund operations.

During the quarter, we raised our dividend to $0.86 per share, paying $81 million in cash dividends. The balance sheet reflects preliminary purchase accounting balances and total debt of approximately $10.8 billion. We intend to reduce our net debt-to-EBITDA ratio to approximately 3:1 by the end of 2018. Our capital expenditures in the quarter totaled $42.3 million.

Depreciation was $71.6 million, and amortization of intangibles and inventory step-up was $85 million. For the full year, we continue to expect capital expenditures to be approximately $330 million, which is about 1.9% of anticipated sales as we continue to invest in productivity improvements, systems, and new stores. Depreciation should be between $280 million to $290 million, and amortization will be about $340 million. On our year-end 2017 call, we said we would resume opportunistic open-market purchases of company stock in 2018 at a level sufficient to offset dilution from options exercises.

In the first quarter, we purchased 600,000 shares at an average price of $401.91 per share. On March 31, we had remaining authorization to acquire approximately 11 million shares. It's hard to believe that June 1 will mark one year since the close of the Valspar acquisition. I'm extremely proud of the progress we've made in the 10 months we've been together.

Perhaps most proud of the fact that we are increasingly functioning as a single unified global team. You should take comfort in the fact that as a team, we remain focused on execution and value capture in the areas of SG&A, raw materials, manufacturing, distribution, R&D, and revenues. We have confidence in our 2018 year-end annual run rate synergy target of $320 million, which should benefit this year's P&L by about $140 million to $160 million. We expect to book most of the remaining costs to achieve these synergies in 2018.

And we are increasingly confident in our long-term annual run rate range of $385 million to $415 million. Turning to our outlook for the balance of the year. With strong sales and volume momentum coming out of the first quarter, we anticipate second-quarter consolidated core net sales will increase a mid- to high single-digit percentage compared to the second quarter of 2017. In addition, we expect incremental sales from Valspar to be approximately $600 million for the months of April and May, with June 1 making the one-year anniversary of the close of the transaction.

For the full year 2018, we continue to expect core net sales to increase a mid- to high single-digit percentage compared to full year 2017. In addition, we expect incremental sales from Valspar in the first five months of 2018 to add approximately $1.7 billion to consolidated revenues. With these factors in mind, we anticipate diluted net income per common share for 2018 will be in the range of $14.95 to $15.45 per share. This guidance has been revised to include approximately $0.40-per-share dilution from our initial investment in the Lowe's partnership, which reduces the anticipated income contribution from Valspar to $2.30 to $2.50 per share.

Acquisition-related costs and purchase accounting impacts are expected to be $3.40 to $3.50 per share. Given the many moving parts in last year's results and this year's guidance, it can be challenging to understand our underlying earnings-per-share performance. We believe the most meaningful way to view guidance is to exclude Valspar acquisition costs and one-time items, which results in a full-year EPS guidance midpoint of $18.65, compared to $15.07 adjusted EPS last year. On this basis, earnings per share would grow by nearly 24% year over year at the midpoint of our 2018 guidance.

We've included a Regulation G reconciliation table with this morning's press release to better illustrate all the moving parts. With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is coming from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Good morning. Thanks, guys. I guess, just a couple of questions. So first off, I just wanted to understand the 5.2% same-store sales performance.

I know that you guys increased the prices by 3% to 5% in October, so maybe you can just update us on the traction there. And then similarly, if you are in kind of a low single-digit increase on prices, that would imply kind of a similar rate for volume. How do you see the volume kind of in -- progressing through the year? I mean, I know that Q1 is off, but -- sorry, the paint season's off to a slow start here, but are you optimistic that things could improve with weather getting better and labor availability maybe loosening up? Or how do you see -- how is that playing out? Thanks.

John G. Morikis -- Chairman, President and Chief Executive Officer

Sure, Arun. Let me start with the volume piece, and I'll have Al talk to the pricing. You're exactly right. We're feeling terrific about the volume and the momentum that we have in our stores organization.

Had a number of opportunities to talk with not only our customers but our employees, and there's an overall feeling of confidence in the year. Many, many customers talking about this being a record year for them. And I'd say that confidence is very strong. So you're right.

We got off to a little slower start in a smaller quarter. Not too concerned with that. Feeling good about the key drivers that we've been talking about for quite some time, the continued focus on new accounts and share of wallet of existing customers. So that team is executing extremely well.

We have great confidence this is going to be a terrific year for our stores.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

And Arun, this is Al. When we talked about pricing in our paint stores group, we realized a little more than 2% effective pricing. That was roughly sufficient to offset the raw material increases that we're seeing, and it's in line with the effectiveness that we were expecting in the quarter.

John G. Morikis -- Chairman, President and Chief Executive Officer

One other thing I'd add to that, Arun, we also looked at some of the purchases of our customers to give us even more confidence. If you look at spray equipment purchases, for example, those were up double digits. I mean, the whole basket, if you look at those things that we look at internally, to try to get a sense of how confident our customers are, they're all pointing terrifically in the right direction.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And just as a quick follow-up, if I can. On the other two segments, margins also appear to be improving. And I was pleased to see the consumer performance. So I don't know if you can just characterize the price cost situation you're seeing in those two segments.

Are they also improving? Thanks.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah. Why don't I take the same approach here? I'll talk about just the market here for just a moment, and then I'll have Al talk about the pricing. But you're exactly right. If you look at consumer, for example, and the way that we're running this business and the way that we look at the results, it's a combined business.

The combined business for consumer is up 3.8%. And when I say it's combined, it's really one integrated organization now. We don't run separate businesses between the consumer, architectural, and legacy SHW. There's one leadership team, there's one marketing team, one sales organization.

And quite frankly, they're the furthest along in the integration. So they're working hard trying to be as responsive as they can to our customers' needs without regard to what brand they're selling. And when you look at the performance that they're posting, we're feeling pretty good about their position and the momentum that they have.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

I think, on the price side, the -- we're still -- we are seeing the positive effect of pricing initiatives on consumer brands. Certainly, a work in process, and we have room to grow there. On the performance coatings side, as Bob or John talked about in the call, they did see the biggest impact on the increased raw material in the quarter. We had talked about our first half of the year having a tougher comparison from a raw-material standpoint.

And I would say that group is probably the furthest behind with the highest inflation and again, making progress. And we'll continue to do so as we roll the quarters out.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah. Let me just give you a couple of comments on performance coatings from a market side. If you look at the momentum that they have, Arun, there, if you look at -- just going back to Q3, their sales were up 5.8%; Q4, up 6.9%.; and then this most recent quarter, up 9.8%. They're -- and they're showing improvement year over year in their operating profit.

So the profit, if you look at a pro forma basis for that same Q3 period, was down 15.9%; Q4, down 8.7%; in this most recent quarter, down 1.5%. None of us are happy with down 1.5%, but it does illustrate the momentum that we're gaining here while growing our sales. And this is a team that's very determined in what they're doing. And we've got great confidence that they're going to continue to gain traction here.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thank you.

Operator

The next question is coming from the line of Jeff Zekauskas with J.P.Morgan. Please proceed with your question.

Jeff Zekauskas -- J.P.Morgan -- Analyst

Thanks very much. If I can just follow up on performance coatings numbers. It looks like sequentially, your revenues were up a little bit, and your operating profit was down, I don't know, $15 million. So it looks like what's happening is that your raw material squeeze is getting a little bit larger or your raw materials are rising faster than your pricing efforts.

Is that true? And how do you expect that progression to go in the second quarter?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, Jeff. So you're absolutely correct. We did see an acceleration of raw-material cost increases in our first quarter, and it predominantly impacted our performance coatings group. And as you can imagine, when they go up that quick, it's very hard for us to react and put another price increase into the market.

That being said, we do have pricing implemented, and we'll monitor that situation, as we always do, on a month-by-month basis. And if we see another increase that warrants a price adjustment, we'll do that. So pricing actions are in progress.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah, I'd describe it as a rolling in. There are continued pricing activities that continue, but there are a number of agreements that have already been established that we're waiting for the timing to click in as well. So it's a combination of those price agreements that we've already hit on as well as those that are continuing to be implemented.

Jeff Zekauskas -- J.P.Morgan -- Analyst

OK. And for my follow-up, in consumer brands, you've picked up some business at Lowe's, and I guess, you've lost some business at Depot. Like, on an annualized basis, is the sales benefit something on the order of $200 million on a four-quarter basis? And I guess, I'll leave it at that.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, Jeff. So if you look at 2019, you would expect it to be around that amount, maybe slightly below, but around that amount is a good start.

Jeff Zekauskas -- J.P.Morgan -- Analyst

OK, great. Thank you so much.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Thanks, Jeff.

Operator

The next question is coming from the line of Christopher Parkinson with Crédit Suisse. Please proceed with your question.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you. Just very quickly. Within the Americas group, can you just comment on the actual end market trends across resi repaint, commercial, and property management? Just getting away from some of the 1Q noise, just what are your intermediates to long-term thoughts? And then also a quick comment on Latin America would be very helpful. Thank you.

Robert J. Wells -- Senior Vice President, Corporate Communications and Public Affairs

Yeah, Chris. John walked through the current quarter's performance by segment. We had another double-digit performance from -- in the residential repaint segment, high single-digit in protective and marine and mid-single-digit in most of the balance. I will tell you, the outlook for new residential looks pretty positive.

Most among -- most of the public builders, orders, new orders, and backlogs are up in the low teens. We've seen continued significant home value appreciation that should drive strong remodeling activity. Harvard's Lyra forecasts 7-plus percent growth in remodeling activity through the year. The nonresidential square footage started the year pretty soft, but we expect commercial starts to grow this year, probably in the range of about 4%, 4% to 5%.

That translates to probably an equivalent level of growth in square footage. So new commercial looks strong. Residential repaint will continue to drive outsized growth in that segment because we're seeing probably a shift from DIY to do-it-for-me and a lot of investment among stay-in-place homeowners in upgrading their homes.

John G. Morikis -- Chairman, President and Chief Executive Officer

And Chris, on Latin America, I'll take that. As a reminder, Latin America represents about 3.9% of our sales. From a sales and volume perspective, all countries were positive, both in volume and sales. Pricing continues to improve with more pricing rolling in.

So same activities there that we just talked about. We've achieved some pricing, but we're out working hard to drive additional pricing as well as other margin initiatives internally that we can pursue. Additionally, we're focused on pursuing more profitable segments and price points and customers, as you would expect, while continuing to look for additional synergy opportunities. So yeah, we didn't expect to go from a standing start here to a full sprint.

This is kind of the path that we expected to see as we saw improvements in Latin America. So I'd say, it's progressing. Not fast enough for us. We want to move faster, and we're continuing to work with our teams to gain traction at a faster rate.

Christopher Parkinson -- Credit Suisse -- Analyst

That's helpful. And just, you did hit a little on this, but just to dig, I guess, one step deeper. Can you just talk about the end-market performance in performance coatings, specifically those assets acquired from Val? And also, I recently saw some price increases in packaging, but you -- kind of what else can you do throughout 2018 to look at the setup for 2019 a little more favorably? So just any insights there would be very helpful.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah, sure. There are -- to begin with, there are some incredible sale synergies that our teams are working on. We're very excited about not only the pipeline or funnel, if you will, of existing identified sale synergies, but we're adding to those projects and programs every day. And so the more we work at identifying sales synergies, I'd tell you that the more we're finding that teams are energized in accelerating that.

So I think, first and foremost, the combined businesses are going to be much stronger and more meaningful, we believe, in the marketplace. And our continued efforts there will be to identify more. Now that said, there's a lot of work that we can do to continue to improve our performance. And by segment, each of those business units have identified those levers where we can pull and drive results.

But I'd say, when you look at the Valspar business and the transaction, we've always said, we had high expectations in our ability to achieve the value-capture. We knew we could get the costs out, and we're working aggressively to that. And we have more confidence now than ever than -- that we're going to be able to achieve that. But I'd also say that we have more confidence than ever in the sales synergies that are out there.

And so our teams are working to identify those segments, those customers and how to better leverage their combined assets to drive the complementary nature of this business.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

And on the pricing side, we have always -- we have talked consistently about, specifically on Valspar performance coatings side, that we're one price increase behind. So we're going to chase that throughout 2018. That being said, as John mentioned, price is rolling in, and we expect that to continue throughout the year.

Christopher Parkinson -- Credit Suisse -- Analyst

Very helpful. Thank you.

Operator

The next question is coming from the line of Steve Byrne with Bank of America Merrill Lynch. Please proceed with your question.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

John, you mentioned a few of these commercial expense line items that you're accelerating as part of that agreement with Lowe's, the sales expense, the marketing and displays and so forth. Are these one-time upfront line items that will dissipate over time? Or is it a matter of the expenses are occurring and the sales is going to lag before that shelf space in Lowe's is full -- filled up with your product?

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah, let me take a piece of that, Steve, and then I'm going to have to turn it over to Al. I will say this, that our expectations here are to help drive Lowe's business. And so to answer it, it's a little bit of both. There are certainly some expenses that we're investing in.

So we're adding additional people, for example, to be a little closer to the sales associates, to ensure better execution on the sales floor, right? So doing more of what we've done and wanting to drive better results requires a little different behavior. We think helping to have the sales associates become more familiar and comfortable with a simplified product lineup and technology, helping them to sell better in the aisle, all of those things, we think, are better off with the additional investments that we're making. When you look at the earnings release that we've posted, where this $0.40 hits in here and hits our EPS, part of that comes from the fact that, to your point, some of it hits in the third and fourth quarter, with very little sales recognition hitting this year. And let me just ask Al to touch on that a little bit.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah. It's really just a timing issue. As you roll the program out, we're basically missing the summer selling season on the paint side. But you're having the costs of those roll in and, as John mentioned, primarily in our third and fourth quarter.

That being said, we're excited about the program, and 2019 certainly will be accretive to sales, as we've talked before, but end profit.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

OK. Thank you. That's helpful. I was wondering if you have made any changes yet in the China paint model of that Huarun brand, the legacy Valspar brand.

Have you made any changes in that overall model to accelerate sales?

John G. Morikis -- Chairman, President and Chief Executive Officer

Not so much in the model, Steve, but we are in other areas. We feel as though we've got quite a bit to bring to that business in technology and the approach to growing our business that we're transferring there.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

OK. Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Steve.

Operator

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

Don Carson -- Susquehanna Financial -- Analyst

Yes, thank you. Going back to paint stores group. You have 5.2% same-store sales growth. You're talking about Q2 and full-year '18 core sales up in the mid- to high single high digits, so I assume paint store group would be at the high end of that.

What will be the price volume breakout there? Is price going to continue to add about two points? Or given some of the increase that we continue to see in TiO2 and with rising oil prices, you need another price increase in paint stores group to maintain gross margins?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, Don, I think you're right. Price would be around that 2%. And as you recall, we went out 10/1 -- on October 1. As we continue to roll that in, we might see a little bit more going in our second quarter.

So the difference is volume, and you're absolutely correct. We do expect our stores, U.S. and Canada stores, to be in the higher end of the mid-high single digits for our second quarter and for our full year. As far as price goes, we have a long-standing tradition that we'll continue to monitor the raw material basket.

We'll push back on our vendors. We'll try to internalize from cost reductions as much as we can. And then absent those levers, we'll talk to our customers first and then talk to The Street about it, any other increases.

Don Carson -- Susquehanna Financial -- Analyst

And as a follow-up. On raw materials, can you differentiate between what you're seeing on the architectural side versus the industrial side, particularly with epoxies on the latter? What's sort of the difference in your outlook for raw-material increase between those two different end markets?

Robert J. Wells -- Senior Vice President, Corporate Communications and Public Affairs

Yes, Don, on the architectural side, the primary driver is still TiO2. And we're seeing a somewhat similar trajectory in TiO2 to what we saw in 2017. All the global producers, as we expected, have announced second-quarter price increases that are currently under negotiation. But that's really primarily what is driving inflation in the architectural side.

On the industrial side of the raw material basket, you've got crude oil, propylene, which also affects architectural coatings, but it affects the industrial piece. Epoxies, zinc, all heading in the wrong direction. So we're seeing inflation from more of the raw material components on the industrial side. There's certainly inflation in the basket on both sides, probably more on industrial.

Don Carson -- Susquehanna Financial -- Analyst

Thanks, Bob.

Robert J. Wells -- Senior Vice President, Corporate Communications and Public Affairs

You bet.

Operator

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

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

Hey, guys. Good morning. Just to sort of back up. Given that you stopped giving quarterly EPS guidance, did the first quarter, from an earnings standpoint, play out the way you thought it would relative to your initial expectations? I know there are several moving parts such as weather, etc., that weighed on the quarter.

But did the timeline of synergies come in ahead of your initial view maybe? And how do you think the -- how much do you think the unfavorable weather in U.S. impacted the quarter as best you could tell?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yes, so I would say, the quarter did come in a little bit better than what we were planning. We did have a lower tax rate in the quarter due to some discrete -- the timing of some of the discrete items. But you look at the strength in our consumer brands and our performance coatings businesses both outperformed even what our expectations were. So that's really what we -- why the quarter came in better.

As far as weather is concerned, it's hard to pinpoint an exact amount on what the impact is in the quarter.

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

OK. And just sort of a follow-up. Just given perhaps some weather disruption this quarter as well as, at least the beginning of the quarter, how do you feel about your customers catching up to their backlogs as the year progresses in context of trades generally being tight from a labor standpoint previously?

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah, we've had a lot of discussion about that, Ghansham. And overall, I'd say, at this point, we still feel pretty good about the contractors' ability to maintain what they are calling or what they're projecting to be a record year. We're working hard to help them with that. We talk a lot about the products that we've developed to help their productivity and the services that we provide in our stores to be able to help them be responsive.

So it's going to be a push. There are going to be a lot of people working hard on weekends and long hours. But right now, I'd say we're still confident in their ability to turn this into an outstanding year.

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

OK. Perfect. Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Ghansham.

Operator

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

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you, and good morning, everyone. As I think about the manufacturing synergies associated with Valspar, I was pretty focused on your ability to consolidate their facilities. But now with this incremental volume going into Lowe's, I mean, how does that change the calculus there? Is having more volume better than shutting down more facilities? Or what, if anything, has changed?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Absolutely having more volume is always better than shutting down facilities. But I think the team is still on pace to rationalize the four facilities that they had talked about late last year, and that will roll in, in our third and fourth quarters. And I think that team does a great job of finding capacity within the four walls that allows us to take on incremental business without adding significant assets or requiring us to keep the fixed assets.

Vincent Andrews -- Morgan Stanley -- Analyst

OK. And just as a follow-up. The 600,000 shares repurchased in the first quarter, is that -- was that -- is there a reason why it was so large in the first quarter? And how should we be thinking about repurchases for the balance of the year?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

No. I think if you look at -- we talked about offsetting option dilution, and typically, our first quarter is our largest quarter on options exercised and with restricted stock that's issued in the first quarter. So I think we're a little bit ahead of it. I would say the options didn't come in as heavy as we thought.

So we'll monitor that as the year goes on and make sure that we meet our commitments that -- and make sure we're paying down our debt to get our debt-to-EBITDA leverage down to that approximately 3:1 that John talked about.

Vincent Andrews -- Morgan Stanley -- Analyst

OK. Thanks very much.

Operator

Thank you. The next question is coming from the line of Scott Mushkin with Wolfe Research. Please proceed with your question.

Scott Mushkin -- Wolfe Research -- Analyst

A lot of my questions have been actually answered, but I have one. I think in the press release you guys talked about the choppiness of kind of the international markets. So I was wondering if you could maybe elaborate on that a little bit, kind of what you're seeing from the macro perspective in the industrial side of your business.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah, so when you look at our businesses, naturally, they don't move consistently across each business in one direction. So we have seen in any region, some businesses performing better than others. But overall, collectively, those businesses are performing quite well. We've got a lot of confidence in the team.

And I've referenced just the terrific talent that's come from Valspar, and the relationships that they have with their customers are just outstanding. So a little bit of choppiness, I think, is pretty normal. We've got a lot of confidence in the team. And as we combine these businesses, as I mentioned earlier, there are going to be a lot of synergies for growth.

Scott Mushkin -- Wolfe Research -- Analyst

All right, perfect. That was my only question. Thanks, guys.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Scott.

Operator

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

Duffy Fischer -- Barclays -- Analyst

First question is just as we start to anniversary Valspar, the growth rate within Valspar businesses starts to matter more as we do our year over year. So within consumer and performance, how fast on a pro forma basis has the Valspar part of the business been growing?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

So if you're looking at the -- certainly, in the quarter, both the consumer business was up over 13%, and the performance coatings Valspar business was up a similar amount. I'd temper the consumer business a little bit. I don't think we're expecting double-digit gains. We'll take double-digit gains, but I don't think we're expecting that out of that team on a longer cycle.

But you would expect low mid-single-digit growth across the group. I think -- and that's where we're starting to look at where that is. We've integrated so much and made such great progress, specifically, as John mentioned, on consumer. It's hard to look at Valspar versus Sherwin.

So we look at the group, and we're expecting low to mid-single-digit growth in that group. On the performance coatings side, the momentum they have, we're expecting a little bit better than that. And again, they're well down the path of integration, and we're looking at it as a combined business, and our outlook is to say that mid-single-digit growth rate is -- mid- to high-single-digit growth rate is probably what we're looking at.

Duffy Fischer -- Barclays -- Analyst

OK. And then, again, relative to consensus, you guys beat the first quarter pretty handily. You just talked about you beat your own internal expectations, but yet you brought the year down the same $0.40 that the Lowe's stuff is going to hit you. With a bad first quarter weatherwise and some momentum there, theoretically a pickup, it feels like that means Q2 through Q4 is a little bit light relative to what your original expectations are.

Can you just kind of help triangulate some of those numbers?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, sure. First, I mean to be clear, we reaffirmed our original full-year EPS guidance at the midpoint, and that's a 26% increase year over year. So you need to deliver and we needed to deliver strong first quarter and get off to a strong start. As I mentioned, the tax rate was a little bit lower.

That gave us a little bit of a tailwind. We fully expect the full year to be in the next -- rest of the quarters to be in the low to mid-20% range. And you know it, Duffy, our first quarter is our smallest and generally most volatile quarter of the year. It's been a long-standing practice of ours to wait and see how the painting season unfolds before considering revisions to the outlook.

And I think that's served us well on the past, and we fully want to continue with that practice.

Duffy Fischer -- Barclays -- Analyst

Terrific. Thank you, guys.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Thanks, Duffy.

Operator

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

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Good morning. John, Lowe's has a professional paint focus, going forward. How do you make sure that incremental professional paints at Lowe's to the expense of Home Depot or something else like that rather than your own paint stores?

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah. So there's a terrific opportunity there. When you think about the painting contractor that's painting every day, they typically have gravitated toward a specialty paint store, and we work hard to make that easy for them. But there is an entire customer base when you think about the home centers.

People that use paint in part of their projects or part of a remodel project that is a little more difficult for our teams to reach through a specialty store. So we think it's a terrific opportunity for us, along with our customer, Lowe's, to better penetrate that. And we don't think at all that it's cannibalizing our core business. It's typically customers that are in home centers, that are purchasing other products, be it drywall or plumbing or whatever it might be, and using paint as part of that project.

And we're really excited about working with our customer to reach those customers in a new and increased rate.

David Begleiter -- Deutsche Bank -- Analyst

Very good. And John, just lastly, in performance coatings, how would you characterize level of competitors for price increases in these businesses?

John G. Morikis -- Chairman, President and Chief Executive Officer

You know, I'd say that we -- when you think about this, when you think about the cost of goods, the raw materials represent 85% of the cost of goods. When the basket moves, you really need to get it. And our view is clearly on adjusting to the basket as it moves. I'd say that because nearly everyone probably has similar dynamics, many would feel the same pressure and probably have to take the same type of activities they hold.

But we're more focused internally then we are from a competitive standpoint. We'll let them make their decisions. We know we have to make ours.

David Begleiter -- Deutsche Bank -- Analyst

Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Dave.

Operator

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

P.J. Juvekar -- Citi -- Analyst

Hi. Good morning. You guys clearly delivered on sales synergies by winning this Lowe's business. So question on this incremental business that you just won.

Do you expect that to be a lower-margin business because of increased branding and marketing costs? And secondly, did you have to offer lower price to win that business?

John G. Morikis -- Chairman, President and Chief Executive Officer

Well, we don't talk about specific pricing or customers. But I would tell you that the value here is in the branding and the opportunity to help our customer reach their goals. We clearly have a raw-material basket that's moving. We think it's just good practice for us to have open discussions with our customers about our need to remain whole to be able to serve their business and help them grow.

And so that's the nature of our business. We're not going to give any specifics, but I would say that it's going to help our profitability.

P.J. Juvekar -- Citi -- Analyst

And is that "help our profitability" for next 12 months? Or is the profitability going to improve after the 12 months?

John G. Morikis -- Chairman, President and Chief Executive Officer

No. If I understand your question correctly, we're going to have a little bit of drag that Al talked about that. That's the $0.40 that we talked this year as the costs moves in. But moving forward, next year, we expect that's going to help us.

And we -- our goal is going to be to grow that in both sales and profitability going forward, not just the one year.

P.J. Juvekar -- Citi -- Analyst

OK. And then your LatAm business was quite strong. Revenue's up 9.5%. Profits were up.

What are you seeing there? Are you seeing a turnaround in LatAm business?

John G. Morikis -- Chairman, President and Chief Executive Officer

The market is definitely starting to show positive signs. I think our teams are executing well. But again, I want to be very clear. While we're pleased with the progress, there's a lot of work for us to continue to work on.

And our teams are really hunkered down trying to do the right things here.

P.J. Juvekar -- Citi -- Analyst

OK. Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, P.J.

Operator

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

Robert A. Koort -- Goldman Sachs -- Analyst

Al, you guys gave an earnings number that excluded some of the one-offs. That, I think, $3.57 was what you posted. Can you tell me what the EBITDA would be on the same basis?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

EBITDA was up 6% in the quarter for the core Sherwin. That would have been -- give me one second. So we would have made $414 million versus last year $391 million, so up 6%. As we talked about, $551 million -- $552 million is the total.

Robert A. Koort -- Goldman Sachs -- Analyst

Was your $552 million has the one-offs. I guess I'm trying to extract it to make it a like-for-like to the EPS number.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

So you take about -- it's about a $30 million adjustment for the one-off. So the $552 million would be add $30 million.

Robert A. Koort -- Goldman Sachs -- Analyst

Gotcha. And then on TiO2, do you guys have any desire to enter into these long-term contracts that the producers are seeking? Or do you think this is just typical hard-core commodity? So why lock in anything now if it might loosen up down the line?

John G. Morikis -- Chairman, President and Chief Executive Officer

Bob, we have a terrific procurement team, as you know, and our goal is to do what's right. If they feel as though there's some benefit to lock up a piece or part of that, they have the ability to do that. We're not convinced that it has to be a one or zero here. We're looking at what's best for our shareholders long term, and we'll take the appropriate action as they see fit.

Robert A. Koort -- Goldman Sachs -- Analyst

Got it. Thank you very much.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Bob.

Operator

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

Michael Harrison -- Seaport Global Securities -- Analyst

Was wondering if you could comment just on the consumer business overall. The sales growth there was pretty good. Wondering, did you already see some additional load-in at Lowe's in the first quarter? Can you maybe walk through what you saw in sort of the different segments in consumer, including in Europe and in Asia?

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah. So, Mike, we did not begin to see the benefit of the new agreement at this point. The growth primarily came through North America through a cross-section of customers, but primarily in the national retail category. And I'll remind you that the consumer group pursues four segments.

There's national retail, MRO in commercial, other retail, and, as you mentioned, Europe and a small business in Asia there. The other thing I would point before talking about those other areas, I'd say, we did face a softer comp in the first quarter. So we did have a benefit of that as well. But when you look at the numbers, if we're going to move the needle, it's going to be in North America.

The European business and Asia offer opportunities, but there's much smaller businesses. So there's a lot of effort going on there as the synergy opportunities are explored for technology and transfer, just institutional knowledge, going both ways. But the reality is, if we're going to be successful here, we've got to move the North American needle. And that's what we're working on the most.

Michael Harrison -- Seaport Global Securities -- Analyst

All right. Then you guided to $600 million of incremental sales for the two months of Valspar in the second quarter. It looks like that's maybe a little slower pace than -- I heard that you did about 1060 -- $1.06 billion in the first quarter. Is that reflecting some of the changes with the big-box retailers? Or kind of how should we think about that contribution maybe being in the lower run rate than you were in the first quarter?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, Mike. I wouldn't read anything into that. It's -- anyhow, it's approximately $600 million for April and May, and then it rolls into our comp going forward. But it's nothing to – nothing of concern in that run rate.

Michael Harrison -- Seaport Global Securities -- Analyst

All right. Thanks very much.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Thanks, Mike.

Operator

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

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

In terms of gross margin, when you think about the 42.5%, where does that go for the rest of the year? And what's kind of the embedded gross margin for the full year embedded in your guidance?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, we don't break out gross margin specifically in the guidance. But what I would just say is, as we talked about, our first half would be our toughest comparison on a raw-material basis year over year. If raw materials trend like we believe they will, we should see sequential improvement. And I'll go back also, the original EPS guidance at $19.05, it's a 26% improvement.

Embedded -- implied in that is gross margin expansion and SG&A leverage. That's the only way you can -- we can get to those numbers.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

And your raw-material outlook is still low single digits?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Mike, it's still 4% to 6% range. Based on the first quarter running a little higher in terms of year-over-year inflation than we anticipated, we're likely going to push toward the higher end of that range for full year. Now as a reminder, that is our outlook for the industry on a basket similar to what we buy. That does not include raw-material synergy.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Got it. And then just a quick follow-up on the $0.40. As you head into '19, will you overcome that $0.40? Meaning that once you get the sales in from Lowe's and you've got the costs embedded, is it a plus -- $0.40 plus next year?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yes. It will be a plus $0.40. We're not going to probably talk about how much of it more than that.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Got it. Thank you.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Thanks, Mike.

Operator

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

Kevin McCarthy -- Vertical Research Partners -- Analyst

Good morning, and thank you. In response to an earlier question, I think you indicated potential for sales to Lowe's in the amount of nearly $200 million in 2019. My question is, how would you characterize the amount of forgone sales at Home Depot relative to that number? And is there a timing difference between the load-in Lowe's versus the phase-out at Home Depot?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, Kevin. That was -- the number I was quoting is a net number for 2019. As far as timing goes, Lowe's will dictate the cadence of the roll-ins and Home Depot, and that will happen this year as well. But much past that, we're not going to get into a lot of the detail related to --

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah, and I think out of respect to our customers, both Home Depot and Lowe's, we're going to allow them to announce when the different brands will be or will not be available.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Fair enough. I appreciate that clarification that it was a net number. And then second for Al. Given the change in tax regime and the lower rate in the first quarter of 2018, do you see any downward tension in your rate? I know you're affirming low to mid-20% range.

But was the 1Q level strictly discrete items? Or is there any residual effect that you foresee?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yes. The 1Q was the timing of the discrete items. And I would highlight, if you look at our core business Valspar and Lowe's together, our effective tax rate was 19.4% versus last year of 22.7%. The impact of the acquisition-related costs drives the consolidated rate down.

But really, nothing more than just timing of discrete items in that first quarter. And it's our small quarter so it has a bigger impact.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Thank you.

Operator

Thank you. The next question is coming from the line of Nishu Sood with Deutsche Bank. Please proceed with your question.

Nishu Sood -- Deutsche Bank -- Analyst

Thank you. I wanted to ask about the synergies. In your commentary, John, you mentioned synergies contributing to margins in the consumer group, but didn't mention it in the margin commentary for performance coatings. And that may just have been the different trends.

I just wanted to dig into that a little bit. It --should we expect here on 2018 kind of sequential basis different cadence of synergy realizations? So I just wanted to check into that, see if there wasn't something behind that.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah. So if I didn't speak to the synergies, and the work that the team is doing on the performance coatings side, then that was an error on my part. A lot of good work and really terrific effort on the part of the performance coatings team as well. So yes, there are going to be synergies there.

I will say that there are -- synergies going to hit in 2018. And then as you look ahead, from a manufacturing standpoint, there'll be additional opportunities from an asset-rationalization standpoint in the future. That'll take a little bit longer as we get systems and processes in place to look at those outside of the U.S. that will benefit the performance coatings business the most.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yes. And Nishu, let me add. Just if you look at the cadence of midpoint that we talked about, $150 million by quarter, it's really more front-end-loaded than back-end-loaded. And that's related to the projects that have been validated as we went through last year that we see going through the P&L and feel confident about.

And then the back half is really getting impacted by new projects, system implementations that John talked about, and the factory closures that I talked about earlier.

Nishu Sood -- Deutsche Bank -- Analyst

Gotcha. That's helpful. Thank you. And in terms of the consumer group, I know this will go away next quarter, but – or maybe the quarter after that, but in terms of the breakdown between the old legacy Valspar and the legacy Sherwin-Williams, quite a strong performance from the Valspar side of things, kind of continuation of trends on the Sherwin-Williams side of things.

I wonder if you could just speak to that, and particularly the acceleration on the legacy Valspar side.

John G. Morikis -- Chairman, President and Chief Executive Officer

Yes. So I mentioned this briefly earlier that the way this business is managed and run now, it's very difficult to account for a sale or a synergy on the one side or the other. So as we've brought the businesses together, for example, the sales organization is a combined sales organization. There were some sales reps that are -- there are some sales reps that were previously from Valspar, some from Sherwin-Williams, same with products.

And so this is the area, as I mentioned, that they've made – we've made the most progress in integration. So it's very, very difficult to account one side or the other. Our focus here is purely on doing what's right for the customer. And so if selling a gallon of Sherwin or a gallon of Valspar is what's right for the customer, we're pursuing that.

We're adding that up and giving you that information as a legacy Valspar, legacy Sherwin. But it's not the way we're running the business, and it really doesn't account for the overall synergies and efforts that are taking place. It's probably the most area that's -- the area that's most gray among all of them.

Nishu Sood -- Deutsche Bank -- Analyst

Gotcha. Makes sense. Thank you.

Operator

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

Scott Rednor -- Zelman & Associates -- Analyst

Hey, Al. Could you just clarify relative to the $140 million to $160 million of synergies this year, how much exactly was realized in 1Q?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

It'd be if you split it, the $150 million by four quarters, we saw a little bit more than that in our first quarter. That's the way I would characterize it.

Scott Rednor -- Zelman & Associates -- Analyst

OK, thank you. And then can you guys talk to, on the paint store side within North America, the delta between interior, exterior, kind of what was the gap? And are you seeing that at all reverse here in April?

John G. Morikis -- Chairman, President and Chief Executive Officer

The -- naturally, the interior was much stronger in the first quarter. So they were high single-digit gains in interior, and we were positive in the low or mid-single on exterior. This time of year, we would expect to see more exterior gallons going out in the Southeast and Southwest than what we did. And Eastern's impact was probably significant as well.

Not so much that they saw the impact on the exterior, but just on completion of projects. It certainly had an impact on business there.

Scott Rednor -- Zelman & Associates -- Analyst

And then just honestly, John, a few years ago, you guys put a significant amount of SG&A spend into the Lowe's program. And safe to say that trailed some of the more robust expectations you had for that program back in '14, '15. How do you get confident that a higher level of spend right now you could get a return on that spend when you look to the next couple of years?

John G. Morikis -- Chairman, President and Chief Executive Officer

Well, it's every element of the business, Scott. If you start with the fact that we've got a partner here who is committed to us and us to them in this area of their business, so the opportunity to work collectively on a brand assortment, the training of their people, the simplified branding if you just look at it from that standpoint, instead of having two or three different brands in there with sales reps all calling on the sales associate giving their feelings on which is the right product to sell in which situation, the ability to better train and have them more knowledgeable about the product technology, I mean, every aspect of the business, we think, is terrific and meaningful. And when you look at the alignment that we have there, we think it's going to be a big win. Now that said, we talked a lot about their performance in North America.

Their partners outside of that specific customer had a terrific first quarter as well. We've got great relationships with other customers that we're continuing to work with, if it's Ace or Menards or a whole host of other customers that are doing extremely well. So we're very pleased and we're very focused on doing what's right for each one of these customers. And we think we've got some good momentum.

Scott Rednor -- Zelman & Associates -- Analyst

Great. Thanks. Thanks so much, guys.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Scott.

Operator

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

Dmitry Silversteyn -- Longbow Securities -- Analyst

Thanks for taking my questions. A lot of my questions have been answered, but I just want to confirm something. In your wood coatings business -- your competitor was talking about seeing some weakness there because of the way Chinese are coating at the plant rather than coating in the field. Are you seeing that in your wood business? Or is your wood business primarily sort of plant-applied coatings?

John G. Morikis -- Chairman, President and Chief Executive Officer

Well, there are two different areas there, Dmitry, right? There is the architectural-type customers that apply wood in homes as well as the manufacturing. And there is a trend to having more of that product manufactured in a factory as opposed to stained and finished on projects.

Dmitry Silversteyn -- Longbow Securities -- Analyst

And how does it affect your business? Is it a net positive for you either on top line or margin or neutral or negative?

John G. Morikis -- Chairman, President and Chief Executive Officer

No, I'd say it's probably neutral. I mean, maybe -- yes, it's an opportunity for us. When you look at our market share there, Dmitry, there's tremendous upside, and that's what we are focused on.

Dmitry Silversteyn -- Longbow Securities -- Analyst

OK, OK. Got it. And then just a bookkeeping question, was there a foreign exchange benefit to your performance coatings revenue number? You've provided for consumer and the Latin American piece, but I don't -- maybe I missed it, but not for performance.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

On performance coatings on -- the FX impact on our PBT was about $4.6 million.

Dmitry Silversteyn -- Longbow Securities -- Analyst

$4.6 million. That's on profit, right?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

That's on profit.

Dmitry Silversteyn -- Longbow Securities -- Analyst

So what was the impact on revenue?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

It's 3.9%. It's a tailwind.

Dmitry Silversteyn -- Longbow Securities -- Analyst

OK. Thanks very much.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Thanks, Dmitry.

Operator

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

Chuck Cerankosky -- Northcoast Research -- Analyst

Good morning, or good afternoon, everyone. If -- I want to direct a question to Al, technical question, Al. Looking at the purchase accounting impacts for the first quarter, there was $0.71, and the guidance was $2.65 for the full year, so not quite four times as much. Does that simply reflect the lower tax rate in the quarter? Are there some -- were there some one-time nonamortization items in the first quarter?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

There's about $30 million of nonamortization-type items in the first quarter. And Chuck, we called out $100 million for the year on one-time integration costs. And the way that would roll out would be second quarter, would probably be similar to our first quarter, and then it'll drop down from there.

Chuck Cerankosky -- Northcoast Research -- Analyst

All right. Thank you on that. And then, John, when we're looking at pricing actions Sherwin-Williams today, it seems that it's relatively easy, and I say that with much respect to get them through to the contractors, how do you look at the same situation when you're talking to retailers and talking to OEMs?

John G. Morikis -- Chairman, President and Chief Executive Officer

Well, I wouldn't say that any pricing is easy, Chuck. What we're trying to do is what we have done historically and Valspar has done historically as well, and that is continue to provide the products and services that allow our customers to be successful. We're in the solutions business, right, so we're bringing products and services that help them reach their goal. And when our raw material basket moves, we have opened discussions with them to help them understand what's happening from our cost standpoint.

But I'd say this, it's not so much the discussion or that meeting that determines our success, Chuck, it's what we do all year. When we're working for our customers on a regular basis, helping them reach their goals, then as our costs go, we're much more likely to be successful in having those cost discussions than having to come down to one discussion if you've failed all years. So we're working hard every year to provide the great products and services that allow us to be successful when our raw-material basket moves.

Chuck Cerankosky -- Northcoast Research -- Analyst

Understood. Thank you much.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thank you, Chuck.

Operator

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

John Roberts -- UBS -- Analyst

Good afternoon. You operate your own truck fleet in the U.S. Is the tightness in the trucking market allowing your controlled distribution to allow you to gain any share, providing any extra advantage right now? And are your costs inflating like they are in the third-party trucking market?

John G. Morikis -- Chairman, President and Chief Executive Officer

I'd answer your first question, I'd say that it is an important part of our service model. So the idea of being able to serve our customers with our fleet is one component, John, of what I just mentioned, having good service all year. We have about 700 drivers that operate 550 tractors, and they're an important part of our team. And so the ability to serve customers is a result of having our own drivers allows our drivers to make nighttime deliveries, for example, in our stores so that our store people could be more focused on our customers.

To your point about the flexibility, we can be responsive to -- as opportunities arise to be there when our customers need us. As far as the costs, we have terrific retention of our employees, including our drivers because we pay a very competitive wage, and we'll continue to do that. There's not been significant price or cost increases here, but we're also very sensitive to what's happening in the market to make sure that we're paying our drivers appropriately.

John Roberts -- UBS -- Analyst

Great. Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, John.

Operator

Thank you. The next question is coming from the line of Greg Melich with MoffettNathanson. Please proceed with your question.

Greg Melich -- MoffettNathanson -- Analyst

Hi, thanks. I had a quick one for Al, and a follow-up on price and volume. Al, the three times debt-to-EBITDAR leverage, where does that go once we make the lease accounting adjustment? Does that change it by a turn? Or how do we think about that?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah, it won't change it. I think it'll change it by roughly a third to a half when we get the full impact of the leases on our balance sheet.

Greg Melich -- MoffettNathanson -- Analyst

Got it. So that's how much it will go up, and so when you get that target to stay under three, that will bump up that sort of the headwind you have until next year?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

That's right.

Greg Melich -- MoffettNathanson -- Analyst

OK. And then on the business, I want to make sure I got the comp right if they -- and the price and volume mix. So if the comp was 5.3%. And let's say, price was 2%, and volume was 3%.

Given that the rest of the year looks like the comp will need to be a couple of hundred bps higher, is that improvement in comp that you're expecting more from price increases rolling through or more from volume pickup?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

It's going to be from volume.

Greg Melich -- MoffettNathanson -- Analyst

So we should assume the price still stays around that 2% level? And does that --

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Yeah. I mean -- yes, certainly, it gets a little bit of improvement as we continue to work with our customers, but it won't be significantly more than that.

Greg Melich -- MoffettNathanson -- Analyst

OK. Thanks a lot. Good luck, guys.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Thanks, Greg.

Operator

Thank you. Our next question is coming from the line of Patrick Lambert with Raymond James. Please proceed with your question.

Patrick Lambert -- Raymond James -- Analyst

Hi, good afternoon. Thanks for taking a few questions. The -- briefly, it's mostly about timing, the timing of the $0.40 cost for developing solutions, if you could tell us about the $0.20 in Q2 and Q3 and then almost breakeven in Q4. That's question No.

1. But same questions for synergy. I think you pretty much answered that it could be above the same for each quarter, but just if you could confirm the impact of the synergies per quarter. And finally, raw materials, I try to get the absolute dollars headwinds in Q1.

Is that still or is that just a bit above $110 million of headwinds from raw materials? Thank you.

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

So on the timing of the Lowe's program, I would say it's going to be more heavily weighted to our third and fourth quarters. As far as the synergies, Patrick, like I said, it's pretty even throughout the quarters but a little more heavily weighted to our first and second quarters. And on the raw -- on the just the pure raw-material dollars, the $110 million, I think, you said, sounds a little bit heavier than what I would say but not really materially off.

Patrick Lambert -- Raymond James -- Analyst

About $100 million?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Sure.

Patrick Lambert -- Raymond James -- Analyst

OK. That's it for me.

Operator

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

Laurence Alexander -- Jefferies -- Analyst

Just two quick clarifications. You have some comments already about how your customers have improved their productivity. Does that -- in the architectural segment? Does that imply that the summer volumes could be higher than your historical growth rates? Or do you see the soft start to the year as more just pushing out into creating pent-up demand that will be satisfied in Q4? And secondly, I don't think there's any ambiguity in this, but apparently, there might be. Which of the earnings ranges is the benchmarks that you will be using to build your bridge to 2019?

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

So on what we're building, as the benchmark would be the consolidated, excluding Valspar acquisition, 18.35to 18.95. That's what I would have you focused on as our base going into '19.

John G. Morikis -- Chairman, President and Chief Executive Officer

And in terms of the comments on customer productivity, I think the comment was we're going to do everything in our power to help our customers improve their productivity, both through product performance and service model, in an effort to, frankly, help them catch up. They fell a little behind in the first quarter. They've got a lot of work to do. They're going to be, we're sure, working longer hours, more weekends, but we're going to participate in that.

Laurence Alexander -- Jefferies -- Analyst

Perfect. Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Laurence.

Operator

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

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Good afternoon, everyone, and thank you for taking my questions late. I was wondering if you could give us some details on the packaging side. One of your competitors is making progress and said that they are gaining share on the non-BPA coatings. Could you help us understand what is happening there, first of all, in terms of what your growth is in that category, and then whether the industry, at least in Europe, has already caught up and everyone is more or less non-BPA?

John G. Morikis -- Chairman, President and Chief Executive Officer

Yeah. So the packaging business is our fastest-growing business in our performance coatings business. So we're thrilled with the momentum that we have there. The team is executing, And quite frankly, the technology that we have, we think we have a very unique technology that is really been very well accepted by our customers.

And it's growing in acceptance here. And we're thrilled with it. It's performing very well. And from a market-share standpoint, we're -- we think we're doing quite well.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

All right. And if we look at the general industrial side, could you give us a feel for the trends and categories which are showing more improvement year over year and continuing in that particular vein?

John G. Morikis -- Chairman, President and Chief Executive Officer

In general industrial, you're talking about?

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Yes.

John G. Morikis -- Chairman, President and Chief Executive Officer

Well, again, another strong-performing area for our performance coatings business. They are having very good progress or they're making very good progress in various segments in different geographies around the world. So earlier there was a question about choppiness, and I made the comment about that it's not every business and every segment moving straight line. So here in the GI business, there are segments in, for example, North America that are doing very well, that may not be as performing strongly in other parts of the world.

But collectively, that business is performing very well. Again, as I mentioned in my prepared comments, it's in the top two or three of the performance coatings segment.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Could you share with us which areas are not doing as well in North America, for example?

John G. Morikis -- Chairman, President and Chief Executive Officer

We don't -- Rosemarie, we don't break into that business in great detail. But I'd say, overall, we are very pleased with the performance there. And this is another area, from a price standpoint, that they've got some very large customers. They've been working through pricing.

And we're expecting to see price recovery in this space.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

OK. Thank you.

John G. Morikis -- Chairman, President and Chief Executive Officer

Thanks, Rosemarie.

Operator

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

Robert J. Wells -- Senior Vice President, Corporate Communications and Public Affairs

Thank you, Jessie. As a reminder, our Annual Financial Community Presentation is scheduled for Tuesday, May 22. It will be held in Boston. The program will consist of a brief business review by our segment leadership teams, including an update on our Valspar integration plan and progress.

And presentations will be followed by a Q&A session and lunch with management. If you have not signed up and would like to attend, registration is still open. Send me an email at rjwells@sherwin.com, and I will reply with a link to our registration site. Jim Jaye, our VP of investor relations, and I will be available over the coming days to help you with any follow-up questions that arise as you digest this morning's call.

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

Operator

[Operator signoff]

Duration: 88 minutes

Call Participants:

Robert J. Wells -- Senior Vice President, Corporate Communications and Public Affairs

John G. Morikis -- Chairman, President and Chief Executive Officer

Arun Viswanathan -- RBC Capital Markets -- Analyst

Allen Mistysyn -- Senior Vice President, Finance, and Chief Financial Officer

Jeff Zekauskas -- J.P.Morgan -- Analyst

Christopher Parkinson -- Credit Suisse -- Analyst

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Don Carson -- Susquehanna Financial -- Analyst

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Scott Mushkin -- Wolfe Research -- Analyst

Duffy Fischer -- Barclays -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

P.J. Juvekar -- Citi -- Analyst

Robert A. Koort -- Goldman Sachs -- Analyst

Michael Harrison -- Seaport Global Securities -- Analyst

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Kevin McCarthy -- Vertical Research Partners -- Analyst

Nishu Sood -- Deutsche Bank -- Analyst

Scott Rednor -- Zelman & Associates -- Analyst

Dmitry Silversteyn -- Longbow Securities -- Analyst

Chuck Cerankosky -- Northcoast Research -- Analyst

John Roberts -- UBS -- Analyst

Greg Melich -- MoffettNathanson -- Analyst

Patrick Lambert -- Raymond James -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Rosemarie Morbelli -- Gabelli & Company -- Analyst

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