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Sherwin-Williams Co (NYSE:SHW)
Q4 2019 Earnings Call
Jan 30, 2020, 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 fourth quarter and full year 2019 results and the outlook for the full fiscal year of 2020. With us on today's call are John Morikis, Chairman and CEO; Al 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 and will be available until Thursday, February 20, 2020, at 5:00 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 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 statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. After the company's prepared remarks, we will open the session to questions.

I will now turn the call over to Jim Jaye.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Thank you, Jesse, and good morning, everyone. All comparisons in my remarks are to the fourth quarter 2018 or full year 2018 results, respectively, unless otherwise stated. Beginning with the fourth quarter of 2019. Consolidated sales increased $50.2 million or 1.2% to $4.11 billion. For the full year 2019, consolidated sales increased $366.3 million or 2.1% to $17.9 billion. Currency translation rate changes reduced sales in the quarter and the year by 0.9% and 1.4%, respectively. Consolidated gross profit dollars in the fourth quarter increased $211.3 million or 12.6% to $1.89 billion. Gross profit for the year increased $617.5 million or 8.3% to $8 billion. Consolidated gross margin in the fourth quarter increased to 46% from 41.4%. Excluding impacts from acquisition-related amortization expense and integration costs, consolidated gross margin in the quarter increased to 46.5% from 42.4%. Consolidated gross margin in the year increased to 44.9% from 42.3%.

Excluding impacts from acquisition related amortization expenses and integration costs, consolidated gross margin for the year increased to 45.1% from 42.8%. Selling general and administrative expense in the fourth quarter increased $116.2 million to 1.35 billion and increased as a percent of sales to 32.9% from 30.5%. SG&A expense for the year increased $241.1 million to $5.27 billion and increased as a percent of sales to 29.5% from 28.7%. Interest expense for the quarter decreased $5.6 million to $83.8 million. For the year, interest expense decreased $17.4 million to $349.3 million. The decrease was primarily due to lower year-over-year debt levels. As described in our press release, we recognized noncash pre-tax impairment charges in the quarter totaling $122.1 million related to recently acquired trademarks.

Additionally, the company recognized pre-tax gains in other income and interest income of $34 million and $19 million, respectively, related to a Brazil indirect tax matter. Consolidated profit before tax in the fourth quarter increased $195.4 million to $297.4 million. This includes $71.3 million of other adjustments and $119.3 million of acquisition-related costs. Fourth quarter of 2018 includes $173.2 million of other adjustments and $137.5 million of acquisition-related costs. Consolidated profit before tax for the full year increased $622.1 million to $1.98 billion. This includes $69 million of other adjustments and $389.3 million of acquisition-related costs. 2018 includes $341.5 million of other adjustments and $484.4 million of acquisition-related costs. We have summarized fourth quarter and full year adjustments to consolidated and segment profit in a slide deck on our website under January 30, 2019, year-end and fourth quarter financial results.

Currency translation rate changes decreased consolidated profit before tax by $22 million in the year. Excluding acquisition-related costs and other adjustments, our effective tax rate on adjusted income for the quarter was 18.1% and 19.1% for the full year. Diluted net income per share for the fourth quarter of 2019 increased to $2.66 per share from $1.07 per share. The fourth quarter of 2019 includes per share charges of $0.97 for acquisition-related costs and other adjustments totaling $0.64 per share. The fourth quarter of 2018 includes charges of $1.10 per share for acquisition-related costs and other adjustments totaling $1.37 per share. Excluding these items, fourth quarter adjusted diluted earnings per share increased 20.6% to $4.27 from $3.54. Diluted net income per share for the full year increased to $16.49 per share from $11.67 per share. Full year 2019 diluted net income per share includes acquisition-related costs of $3.21 per share and other adjustments totaling $1.42 per share.

Full year 2018 diluted net income per share includes acquisition-related costs of $4.15 per share and other adjustments totaling $2.71 per share. Excluding these items, full year adjusted diluted earnings per share increased 14% to $21.12 from $18.53. We have summarized fourth quarter and full year comparisons, including the acquisition costs and other adjustments in a Regulation G reconciliation table in our fourth quarter 2019 press release. Let me take a few minutes to break down our performance by segment. Sales for the Americas group in the fourth quarter increased $108.8 million or 4.8% to $2.36 billion. For the year, net sales increased $546.8 million or 5.7% to $10.17 billion. Comparable store sales in the U.S., Canada and the Caribbean, that is sales by stores opened more than 12 calendar months, increased 4.6% in the quarter and 5.3% in the year.

Regionally, in the fourth quarter, our Southeast division led all divisions, followed by Southwest, Canada, Midwest and Eastern. Sales were positive in every division in the quarter. Fourth quarter segment profit increased $36.1 million or 8.7% to $449.4 million. Currency translation rate changes decreased segment profit $4 million in the quarter. Full year segment profit increased $158.1 million or 8.3% to $2.1 billion. Currency translation rate changes decreased segment profit by $15.5 million in the year. Fourth quarter segment margin increased 70 basis points to 19%. Full year segment margin increased 50 basis points to 20.2%.

Turning now to the Consumer Brands Group. Fourth quarter sales increased $5 million or 0.9% to $539.4 million. Full year sales decreased $62.3 million or 2.3% to $2.68 billion. Currency translation rate changes and the Guardsman divestiture reduced sales by 1.2% and approximately 1.8% in the year, respectively. Fourth quarter segment profit increased $17.7 million to $29.7 million. Currency translation rate changes increased segment profit $3.9 million in the quarter. Acquisition-related amortization expense decreased fourth quarter segment profit by $23.2 million in 2019 compared to $24.5 million in 2018. In addition, trademark impairment charges decreased segment profit by $5.1 million in the fourth quarter of 2019. Full year segment profit increased $112.1 million to $373.2 million.

Acquisition-related amortization expense decreased full year segment profit by $91.2 million in 2019 compared to $110.9 million in 2018. In addition, trademark impairment charges decreased segment profit by $5.1 million in 2019. Fourth quarter segment margin increased to 5.5% from 2.2%. Excluding acquisition-related amortization expense and the trademark impairment charge, fourth quarter segment margin increased to 10.8% from 6.8%. Full year Consumer Group segment margin increased to 13.9% from 9.5%. Excluding acquisition-related amortization expense and the trademark impairment charge, full year segment margin increased to 17.5% from 13.6%. For our Performance Coatings group, fourth quarter sales decreased $63.5 million or 5% to $1.21 billion. Full year sales decreased $117.2 million or 2.3% to $5 billion.

Currency translation rate changes reduced fourth quarter and full year sales by 1.1% and 2.3%, respectively. Fourth quarter segment profit was negative $7.4 million, including a charge of $117 million related to trademark impairment compared to segment profit of $112.3 million in the fourth quarter of 2018. Currency translation rate changes increased segment profit by $3.4 million in the fourth quarter of 2019. Acquisition-related amortization expense decreased fourth quarter segment profit by $53.1 million in 2019 compared to $55.2 million in 2018. Full year segment profit was $379.1 million, including a charge of $117 million related to trademark impairment compared to full year segment profit of $452.1 million in 2018. Currency translation rate changes decreased segment profit by $7.1 million in the year.

Acquisition-related amortization expense decreased full year segment profit by $215.5 million in 2019 compared to $215.8 million in 2018. Fourth quarter Performance Coating Group segment margin was negative 0.6% or 9%, excluding the $117 million trademark impairment charge, compared to 8.7% last year. Excluding acquisition-related amortization expense and the trademark impairment charge, fourth quarter segment margin increased to 13.4% from 13.1%. Full year segment margin was 7.5% or 9.8%, excluding the trademark impairment charge compared to 8.8% last year. Excluding acquisition-related amortization expense and the trademark impairment charge, full year segment margin increased to 14.1% from 12.9%. That concludes our review of our operating results for the fourth quarter and the full year.

So let me turn the call over to John Morikis, who will make some general comments and provide our outlook for fiscal year 2020. John?

John G. Morikis -- Chairman and Chief Executive Officer

Thank you, Jim. Good morning, everyone. Thanks for joining us. I'd like to make just a few additional comments on our fourth quarter and full year 2019 before moving on to our outlook for 2020. We ended the year on a strong note, growing adjusted diluted earnings per share by 21% compared to last year's fourth quarter. In terms of the full year, we delivered another year of excellent results for our shareholders. Sales grew by 2.1% to a record $17.9 billion. Adjusted gross margin improved to 45.1%, reflecting our pricing efforts and moderation of raw material inflation. Adjusted diluted earnings per share increased 14% to a record $21.12 per share. Adjusted EBITDA increased $235 million to a record $3.1 billion or 17.1% of sales. Net operating cash increased $378 million to a record $2.32 billion or 13% of sales. Return on net assets employed increased to 15.1% on core profit before tax.

Total shareholder return for the year was 49.7%, and we returned approximately $1.2 billion to our shareholders in the form of dividends and share buybacks, an increase of 28% over the prior year. We reduced our debt by $660 million, and we ended the year with net debt-to-EBITDA below 3x. Before moving on to my comments on our segments, I'd like to take a moment to provide an update on the integration of valspar. Well, there's so much to be accomplished, particularly outside the U.S. I want to thank our teams for their tremendous hard work today and bringing our two businesses together, and for increasing the value we are and will be able to deliver to our customers and to our shareholders.

Since the beginning of 2017, Sherwin-Williams has generated $6.1 billion in net operating cash or 12.2% of sales. We've used that cash to invest approximately $800 million back into the business, reduced debt by nearly $3 billion and returned approximately $2.5 billion to shareholders including $1.1 billion in dividends and $1.4 billion in share buybacks. We will no longer be calling out synergies related to the Valspar acquisition as it becomes more difficult to distinguish between acquisition synergies and our ongoing continuous improvements initiatives. We exit 2019 having a benefit of about $315 million from synergies in the P&L, including about $75 million that was realized in 2019. We've identified approximately another $100 million in opportunity, largely related to our supply chain optimization efforts in Europe and Asia. As previously communicated, we expect to realize a small portion of this benefit in 2020, with the majority being realized in 2021 and 2022 as projects are completed.

Let me now turn to just a few comments on our operating segments, all of which contributed to our record performance in 2019. Within the Americas Group, full year sales increased 5.7% against the prior year comparison of 5.6%. Residential Repaint remained our strongest customer segment, up by double-digit percentage year-over-year. This is the sixth year in a row we've grown Residential Repaint at a double-digit level. All other segments grew in the mid-single-digit range for the year. Full year segment profit dollars and margin also improved year-over-year. We continue to invest in innovation and service, introducing 27 new products, our ninth consecutive year of double-digit product introductions. We opened 94 new paint stores in the Americas Group this year and closed 32.

To be clear, we opened 84 net new stores and added 150 new sales territories in the U.S. and Canada. Of the 32 stores we closed, 26 were in Latin America and were related to changing market dynamics. In the Consumer segment, we generated growth with our largest retail partners in North America, though full year segment sales decreased due to lower-than-expected sales in Asia and Australia and the impact of the Guardsman divestiture. Adjusted segment margin improved to 17.5%, driven by synergies, operating efficiencies, pricing, moderating raw material costs, and lower acquisition-related amortization expense. Performance Coatings Group sales for the year were variable by geography and end market and were impacted by unfavorable currency translation rate changes. Growth in North America and Latin America was more than offset by softness in Europe and Asia. Mid-single-digit growth in our packaging and coil lines was offset by softness in other product lines, most notably, industrial wood.

Adjusted segment margin increased to 14.1% from 12.9% in the prior year. Pricing, synergies and good cost control drove the improvement. Turning to our 2020 outlook. We currently see a similar environment to last year, with North America architectural demand remaining solid and industrial demand remaining variable by geography and end market. We have many opportunities to grow share in all of our businesses, and I remain highly confident in our ability to provide customers with solutions based on innovation, value-added service, and differentiated distribution. We enter 2020 well positioned and focused on what we can control. For the first quarter of 2020, we anticipate our consolidated net sales will increase by 2% to 5% compared to the first quarter of 2019. We expect the Americas Group to be at or above the high end of that range. We expect Consumer Brands to be flat or slightly up, excluding the impact of the Ace business we exited in 2019, and we expect Performance Coatings to be up by low single digits.

For the full year 2020, we expect net sales to increase by 2% to 4%, with segment performance similar to what I described for the first quarter. On an earnings per share basis, we believe the most meaningful way to provide guidance is to exclude Valspar acquisition costs and onetime items. On this basis, and given our sales outlook, we expect adjusted 2020 full year diluted net income per common share to be in the range of $22.70 to $23.50 per share, an increase of approximately 9.4% at the midpoint compared to the $21.12 reported in 2019 on a comparable basis. This adjusted 2020 guidance excludes approximately $2.79 per share for acquisition-related expense. The Regulation G reconciliation table in our press release illustrates these moving parts. We expect our 2020 effective tax rate to be in the low 20% range.

One key assumption embedded in our outlook is that the market rate of inflation for our raw materials basket in 2020 will be flat compared to 2019, assuming stable petrochemical feedstocks and no supply disruptions. We expect the basket to be lower year-over-year in the first quarter and, to a lesser extent, in the second quarter, with year-over-year costs flattening out or slightly increasing in the back half of the year. A few additional data points may be helpful for modeling purposes. We'll continue to make investments across the enterprise that will enhance our ability to provide differentiated solutions to our customers. These investments include new stores and reps, capacity and productivity improvements, systems and product innovation in both our architectural and industrial businesses. We also plan additional incremental investments in our digital platform and the home center channel.

These investments are embedded in our full year guidance. We expect capital expenditures to be approximately $320 million, which is about 1.7% of anticipated sales. Note that this estimate does not include any expenditure related to our previously announced headquarters and R&D center project. We expect to provide you with an update on this project in the near future. Depreciation should be $275 million, and amortization will be about $310 million.

Historically, we have targeted dividends of about 30% of prior year GAAP earnings. Next month at our Board of Directors' meetings, we'll recommend a quarterly dividend increase of 18.6% to $1.34 per share, up from $1.13 last year. We expect to continue making opportunistic share repurchases. We'll also continue to evaluate acquisitions that fit our strategy. Before moving on to your questions, let me wrap up today by asking you to save the date of Wednesday, June 3, on your calendars. That will be the day we'll host our annual financial community presentation at the Marriott Marquis Hotel in New York.

The program will include presentations by several members of our leadership team. We'll host our customary Q&A session, followed by a reception and lunch. Again, that date is Wednesday, June 3. We'll be sending out invitations and related information and a link to our registration site in April.

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

Thank you. [Operator Instructions] Our first question comes from Christopher Parkinson with Credit Suisse. Please proceed with your question.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you. Can you just talk a little bit more about your expectations for U.S. housing and the consequence of architectural volumes outlook, just given some more constructive data? Just in terms of what you're hearing from the Americas Group heads and their customers, do you expect broader volume participation this year? Or just what are the key puts and takes? Thanks.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Thank you. Sure, Chris. Good morning. It's Jim. What we always talk about when we have this question is we look at our sentiment from our 4,500 store managers and our 3,000 sales reps, and they continue to be very optimistic about what they're seeing as we end the year and as we head into 2020. As we've talked about this in the past, from a big picture perspective, certainly, we believe that the continuing household formations in that 1.3 million range annually will support what's going on as we go forward. But as you point out, Chris, the more recent data is encouraging. We're seeing strengthening in single and multifamily permits, starts, and completions at the year-end.

And really, the three-month trailing average for all of those was up double digits. We were at the builder show that just happened. And I would tell you, optimism at that builder show among our customers was very positive. And you have other things out there that are supportive as well. The mortgage rate remains very reasonable and some of the recent reports by some of the national homebuilders are also talking about strong orders. So I think we feel very good about where housing is headed from a macro perspective.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Chris, this is Al. I'd just like to add on to that comment by saying, as you look at how our North America paint stores group unfolded throughout the year, our second half was stronger than our first half. And even as you look at what TAG performed, we're at 4.8%, you look at our same-store sales, up 4.6%. To put that in perspective, architectural gallons were high single digits in the quarter because as you -- as a reminder, we did not go out with price in our fourth quarter. And historically, as we've seen momentum in our second half and in our fourth quarter, that translates to growth in our first half. So that's what makes us feel pretty good about the paint stores in architectural in North America.

Christopher Parkinson -- Credit Suisse -- Analyst

Great. And just a quick follow-up. You previously discussed potentially getting your margins in consumer performance back up to -- toward, let's say, 20% was targeted. But can you just simply update us on your conviction and your ability to do this? And just also highlight to the investment community any key non-raw material levers you can continue to pull to potentially make this happen in each segment?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, Chris. We're not coming off our numbers. I am confident in our ability to hit those financial targets we laid out for 2020. As I talked about on the June Investor Day, I confirm that we'll hit those targets but on a lag. And I think, throughout 2019, we made significant progress and are on the right path to attaining those goals. And we've even attained some of those goals already. If you look at our core gross margin at 45.1% for the year, it's at the low end of the targeted range that I had laid out at 45% to 48%. And you look at our strong net operating cash. And if I looked at net operating cash at 13% less capex, you get a little over 11% net operating cash less capex, which is the target that we have laid out. So I am very confident in our ability on Performance Coatings and Consumer Brands to expand their margins to that mid- to high teens, low-20s, and they made good progress this year.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you.

Operator

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

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

Hey hi, you just mentioned that the same-store sales metric in the fourth quarter was mostly volume in TAG just because you lapped the year-ago price. And Jim, you mentioned the strongest region was the southeast, where in October, they were really underwater in that region. So can you just comment on where you think backlog is in architectural paint contractors? And where do you think this could drive same-store sales in 2020?

John G. Morikis -- Chairman and Chief Executive Officer

Well, Steve, I think we're feeling really good about the market and the feedback that we're getting from our customers. As you've just mentioned, there is a backlog. Part of it, I think, has to do with labor. We continue to believe that backlog, if you will, in labor supports our model and helps build loyalty to what it is that we're trying to do for our customers, which is driving the technology and services that help them to be more successful. And we've got a lot of new products that we're launching going into this year, a lot of services that we're introducing, all directly pointed at trying to help those customers to attack those.

So to your question, we think, geographically, it's pretty solid. There's no pockets that I've been in yet or -- nor that we've heard from our teams, where people are feeling softness. There's a general consensus that contractors are feeling very good, could do more if they had more labor. And we want to be there to help support them accomplish their goals.

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

And John, did you anticipate that changing some of the acquired brands to the Sherwin brand would impact the outlook for sales for those products?

John G. Morikis -- Chairman and Chief Executive Officer

Yes. I'd like Al to talk to it from a financial perspective, but absolutely. In fact, I would say we're feeling really good about the fact that we've gotten here as fast as we have. As we entered into the integration, we're always listening to our customers and always listening to our employees, and the fact that our customers, the retention of both our customers and our employees is so high in allowing us to move aggressively in this brand consolidation gives us really a great sense of pride of the speed and execution that we're moving in.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, and Steve, I would just add, this is not indicative of the underlying businesses. If you look at healthy businesses, operating margins are expanding, and we saw that in Consumer Brands and in our Performance Coatings Groups this year. And as John talked about in his opening remarks, I mean, we generated strong cash flow over the period, end of '17 through '19. And we'll continue to do that. We saw strong cash flow in 2019. So as a reminder, we looked at this Valspar acquisition over the long term. It's hard when you're going into an acquisition to predict timing of when certain events happen. But as John said, improving our operating efficiencies by consolidating brands, that's only going to help us going forward.

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

Thank you.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Thanks, Steve.

Operator

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

Jeff Zekauskas -- JPMorgan -- Analyst

Thanks very much. Can you talk about business conditions in China and in Europe? And maybe your offshore operations generally in 2019, how much did they grow in revenue terms? Or how much did they shrink? And whether business conditions in China in the first quarter of 2020 are very different than what they were in the fourth quarter of 2019?

John G. Morikis -- Chairman and Chief Executive Officer

Right. Well, I think, specifically to China, I'd say that the environment that we find ourselves in some of our business has been a challenge. If you look at our industrial wood, for example, with the tariffs and generally a weaker economy, it's had an impact on our business. We've had pockets of strength in Southeast Asia, particularly in the cabinets area wood. So I'd say from a wood perspective, it's been the most challenging. That said, if you look at our packaging business as an example, we had a terrific run there in Asia, actually, across the globe in packaging. Our coil business in Asia was positive. We had some pressure in our general industrial business there. Our automotive business is pretty small, Jeff, in Asia, but it was positive. So I'd say a mixed bag there. Clearly, some pressure, but our market share there is such that it gives us terrific opportunity for growth, and that's where we're headed.

Jeff Zekauskas -- JPMorgan -- Analyst

Okay. And then just a small question. You talked about most of the growth in the stores business in the fourth quarter coming from volume. But in previous quarters, it seemed that price was a larger element. Did you simply annualize your price increases or was there some competitive activity that led to a lower price benefit? Or was there a mix effect? Why was price a smaller component in the fourth quarter?

John G. Morikis -- Chairman and Chief Executive Officer

Yes. There was virtually no price in the quarter, and it was because last year, 2018, the price increase went in the 1st of October, Jeff. In this year, we rolled it in January 1. So the fourth quarter was exposed from a pricings perspective. And I'd just point out, as Al mentioned, so when we look at the architectural gallons in that fourth quarter up the high single digits, it was a really good quarter for our team in our TAG business.

Jeff Zekauskas -- JPMorgan -- Analyst

Thanks.

Operator

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

Ghansham Panjabi -- Baird -- Analyst

Guys, good morning. Can you help us with the margins on the Americas Group segment? Did that play out the way you thought it would during the fourth quarter? During the third quarter, you had a nice year-over-year acceleration in margins. I think it was up 120 basis points, 4Q was closer to 70 basis points, and that was also in a very healthy increase in sales. What were the offsets there?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. So Ghansham, the way I look at -- I start with the flow-through. When you look at flow through in TAG in the fourth quarter, and it was over 33%, so we saw nice leverage on our gallon increased. As John talked about in his opening remarks about investments and additional opportunities, and we have taken a long-term strategic view of the market. And aside from just new stores and new reps that we talked about, John talked about expanding our digital platform that I think -- and we believe will give us a competitive advantage in the marketplace. And we're expanding and investing in that tool to get better aligned with our customer to offer better services to make them more efficient. Ultimately, as we've talked about, we want to drive higher top line growth for them and profitability. So we started that really coming in third quarter and fourth quarter, and you'll see us continue investing at the next year.

John G. Morikis -- Chairman and Chief Executive Officer

Yes. Ghansham, I think when we were together, actually, we talked a little bit about some of the investments we were making on that digital. And we're really proud to be announcing that we'll be rolling this out nationally at the end of the first quarter. We think this is the start of a -- we have a number of products in the pipeline here, but the start of a process that we've been really investing in. And to Al's point, we're cranking that up. And the idea here is increasing that loyalty and the contractors leaning on us to be more efficient in what it is that they're trying to do. We talked early about labor. And this -- the launch of this digital platform will help them run a more efficient business. It's not just external though. We're also investing internally. We didn't talk about this last year. We've made it through one year now with our sales reps now having had iPads for one year.

We think that's improving the productivity of our sales organization to be more responsive to our customers. This year, we've just announced to our team, we're rolling out iPads into our stores to make them more productive and more efficient and more responsive to the needs of our customers. So we are investing. We're investing in this business. We have great confidence of our position right now. And quite frankly, we see some competitive opportunities that we want to take advantage of. So we're putting our foot on the gas here.

Ghansham Panjabi -- Baird -- Analyst

Okay. And then just for my second question on the Performance Coatings segment. Even with the industrial markets having been weaker for everybody, including you, the margins were still up year-over-year. Was there any residual price catch up or any significant mix benefit from businesses like packaging that drove the margin expansion apart from just synergy flow through?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, Ghansham, that's a very astute point. As packaging and coil sales have expanded faster than the rest of the businesses, we do see some lift in the margin on that. Yes, as we've talked about in the past, our industrial business took the brunt of the run-up in raw materials in '17 and '18. We've been chasing that for the last few years. It doesn't come in uniformly like our paint stores group. So yes, we saw some pricing flow through in our fourth quarter. And then the other thing I would say is, as we are investing in growth opportunities, we are also laser-focused on controlling and managing our costs where our businesses and/or regions aren't performing to where you expect them to perform or seeing a path to a set target. So we're controlling our costs and consolidating operations as well. So you can expect that to continue as we go forward, as we continue to invest in other areas.

Ghansham Panjabi -- Baird -- Analyst

Thanks so much.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from John McNulty with BMO Capital Markets. Please proceed with your question.

John McNulty -- BMO Capital Markets -- Analyst

Yes, thanks for taking my question. With regard to -- in the release, you had laid out some acquisition-related costs still in 2020, kind of to the tune of what looks to be $300 million to $350 million or so. I guess what is that still being spent on? And I guess how much of it is -- how much should we be thinking about as actually a cash hit? And then, I guess, tied to that, how are you thinking about cash conversion as we look to 2020? Because it obviously took a big step-up in '19, but curious how or where we go from here.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, John. I'm glad you brought that up because it's important that for an apples-to-apples comparison, we wanted to call out acquisition-related costs. And the amortization depreciation year-over-year is very similar. Embedded in that number is about $30 million in additional integration costs. And we wanted to include that in our guidance in the Reg G table, but we're not going to be laying that out going forward. That breaks out, just so for modeling purposes, a little more back half versus front half loaded. But this gets us in the next phase. Like John talked about, synergies is part of our continuous improvement process. We're going to get back to integration activities, it's just part of our normal operating process. As far as cash flow, John, you've followed us for a very long time. 13%, that's always the new high watermark. And as I talked about in our Investor Day and earlier, net operating cash less capex, we're targeting 11%, and we expect to continue to hit that target as we go forward.

John McNulty -- BMO Capital Markets -- Analyst

Got it. And then just a quick follow-up. With regard to the pipeline that you're seeing from your customers, it sounds like the residential side is pretty solid. Can you speak to the non-resi side and what you're seeing there?

John G. Morikis -- Chairman and Chief Executive Officer

Yes, it's very good. If you look at the commercial side, property management, I'd say, John, trying not to get ahead of myself here, but we're feeling really good. I was just -- came back from our national sales meeting. We had 8,500 of our closest friends together talking about just that. And very bullish environment, very positive. And if you go from the commercial to property management into healthcare, I mean, there's a general feeling that our customers are really excited about what's ahead for 2020. So we're really looking forward to this year.

John McNulty -- BMO Capital Markets -- Analyst

Great, thanks very much for the call.

John G. Morikis -- Chairman and Chief Executive Officer

Yeah. Thank you, john.

Operator

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

Arun Viswanathan -- RBC Capital Markets -- Analyst

Good morning. Just curious on the paint store side, was there any change in the quarter? I know that you put up an 8% comp in Q3, and that would imply like a 6% volume and you did a 5.3% here. So it doesn't appear that way. I'm just curious if you noticed an improvement in Q4 or a deceleration. And do you expect kind of similar kind of mid- single-digit volume growth in 2020?

John G. Morikis -- Chairman and Chief Executive Officer

Yes, Ron, I'd say the largest impact that we had was our Protective & Marine business that runs through our TAG business. The Architectural business, as we mentioned, was up high-single digits. We talked about the fact that we've had another double-digit increase in Residential Repaint and just talked about some of the other segments and the confidence that we have there. If you look at those indicators that we often cite, spray equipment, nonpaint items, everything points in the right direction. So high-single digit architectural gallons going through impacted by the P&M business. And the P&M business, through our stores, was largely impacted by oil and gas, which was under pressure. And we had some timing of some big projects likely not going to be starting out until the beginning of the second quarter. So we saw a little bit of softness in P&M in the fourth quarter, probably going to see a little bit in the first quarter. But again, the pipeline that we're looking at here is really solid.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. And Arun, I would just add to that. The price increase that we went out with in our North America stores on January 1 was 3% to 4%. We expect an effective rate of just below 2%. And as John laid out in the opening remarks, we expect paints -- our TAG organization to be at the high end of our 2% to 4%. So you think 4% to 6%. If there's less than 2% in price, the rest is volume.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. That's very helpful. And then just as a quick follow-up on PCG, obviously, there's macro pressures and regional variability, as you said. Do you think that is kind of tilted to the downside, just given the coronavirus? Or maybe you can just offer your thoughts on where we are potentially destocking wise or -- especially in Europe and Asia, is there any potential for stability there as we move through 2020?

John G. Morikis -- Chairman and Chief Executive Officer

Yes, I think we look at the comparisons of 2019 to 2020, and we have higher expectations moving forward. It might be helpful. Or maybe I could just talk about each of the segments just briefly. If we look at our auto, and maybe I'll just do it for a number of the regions rather than just the two, because I'm sure there's some more questions there. On auto, we'd say North America, we feel really good. Probably the best I felt in the time I've been CEO or COO. Collision shop business here is very strong. I think we're in a really strong position, and we're going to take advantage of that going forward. Europe, I'd say we had a little bit of softness in our auto business in Europe. Asia, as I mentioned earlier, it's a small business, up mid-single digits. In Latin America, we have a leadership position. It was impacted primarily by currency. We had a good quarter in auto in Latin America. Packaging, clearly, the non-BPA is giving us a terrific opportunity. We believe that's an ongoing transition with plenty of opportunity for us ahead.

And so we're investing in this business. We're investing in technology and in capacity and really trying to stay aligned with our customers. We've got great partners that we're trying to support. And if you look at this, this was a double-digit quarter for them. North America was strong double digits. To your question about Europe and Asia, Europe was up, but Asia was up really, really strong double digits. And there, our business in packaging is growing, both in beverage and in food. In coil, new business wins really across the region, North America throughout everyone. We did have a little bit of softness in comparison in Europe. But this is a team that's really hitting on all cylinders, and we're working hard. So those are the ones that are really performing quite well. GI, Asia, we felt some impact there in our general industrial, largely in the heavy equipment and ag equipment. But we have a good pipeline of projects and good -- really good people there.

We expect to really see some improvement in our performance in this business. Industrial wood, I talked about earlier. China, a lot of pressure. Feeling good about Southeast Asia. Europe was another area of pressure as well. So among all the businesses, I would say the one we're feeling the most pressure in would be the industrial wood. And then Protective & Marine, I talked about largely running through our North American business through our TAG. But if I look at our smaller businesses, albeit Asia is a very small business, it was up strong double digits for us. Europe, down slightly as we had some pressure and some comparisons to some business there. Latin America was up slightly as well. So that kind of captures all the regions, all the businesses, Arun. Hopefully, satisfied some other questions with that response.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks.

Operator

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

Kevin McCarthy -- Vertical Research Partners -- Analyst

Yes, good morning. I was wondering if you could comment a little bit further on capital deployment. You've made some nice progress again on the balance sheet. John, just wondering if you would foresee any material change in the balance of acquisition activity versus repurchases as you look ahead into 2020..

John G. Morikis -- Chairman and Chief Executive Officer

I think the M&A activity is something that we're really focused on. We think it's an important part of our future, although we don't feel as though we have a gun to our head. We've got -- the challenge for us right now, quite frankly, internally is prioritization of the opportunities. So we're very active. And I would say, to answer your question, you should see us deploying more cash into M&A. I don't think you're going to see the transformational type of acquisition that Valspar was, but we're working business by business to understand region by region where it is there are opportunities. I want to clearly point out that we are not trying to be everything to everyone everywhere.

We are absolutely determined to invest where we can return -- generate a return of share for our shareholders. And each of our businesses have developed a really good strategy that they're executing, and any of those M&A opportunities include the right to win in those markets. So we're not going to be there. We're not deploying cash in commodity areas, and we're not deploying cash for the sake of saying that we can be somewhere. We're there to make money.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Understood. That's helpful. My second question relates to raw materials. It sounds like you anticipate some relief to start the year. Just wondering if you could provide a little bit more color as to the individual categories like pigment and petrochemicals, etc. And then with regard to resins, in particular, just wondering if you could comment on your degree of internal integration versus external purchases of resins and how that's evolved in recent years, if it has.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Sure. Sure, Kevin. Glad to answer that. As John said in his comments, and you're right, our outlook for this year is that the overall basket will be flat compared to 2019. And that's assuming stable petrochemical feedstocks, no supply disruptions. It will be lower year-over-year in the first quarter. It will be a lesser extent in the second quarter and then sort of flatten out, maybe increase in the back half. If you remember, we had our highest rate of inflation in 2019, it was in the first quarter which moderated through the year. So our full year outlook, that's our best estimate at this time. The visibility, once you get a couple of quarters out, is a little bit murkier. When you get to the specific categories, Kevin, we expect the petrochemical basket to be in line with our overall raw material outlook, probably a tailwind in the first quarter, maybe into the second quarter before flattening and again increasing in the back half.

We're seeing right now key feedstocks, propylene, ethylene are down year-over-year as we enter 2020. And other key materials like epoxy, for example, more on our industrial side, are also down year-over-year. From a TiO2 perspective, right now, what we're seeing is relatively stable moving into 2020, based on the current demand environment that we're in. So that's kind of a big picture look at it from a resin internalization standpoint. I'll let Al take that one.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, Kevin, I don't think our strategy has changed. We've picked up a nice business with EPS as part of the Valspar acquisition. We've got to even invest in more assets to internalize resins, but it's a balance. We look at where we can make the most from a -- not just -- not a cost necessarily, but from a differentiation standpoint. And we have, as we've talked about, a number of projects in the pipeline across each of the segments to continue to drive what I'd call continuous improvement opportunities. You saw some of that benefit in our Consumer Brands group this year and helping their margin expansion, and you should expect that going forward.

John G. Morikis -- Chairman and Chief Executive Officer

Yes, Kevin, if I could, I'd just like to add just one other component that was just slightly touched on by Al on the proprietary development of technology. We're looking at this opportunity to serve our customers, particularly the painting contractor who's looking to maximize productivity. And we're combining the asset that you're asking about in a way I think that's really unique for Sherwin. We're trying to position ourselves to provide solutions and technology to help those customers to be more productive. I mentioned earlier the number of products that we are introducing. And here, I'd just like to take the opportunity to talk about three of those because I think it highlights what Al just talked about from a resin capability standpoint. And I'll be very brief on this. But this gives us the opportunity to develop products that really help our customers in a unique way. We're introducing a product this year called Flex Temp that provides a contractor the ability to get out earlier, colder temperatures and stay out longer in hotter temperatures.

It actually has a spread of ability to be applied from 35 degrees Fahrenheit up to 120 degrees Fahrenheit, with no change in viscosity, terrific uniform application. And so it extends the ability of these painting contractors to be out. So when we talk about labor and the challenges of getting caught up, we're looking at ways to make them more productive. We're introducing a new product called Emerald Rain Refresh that, again, same platform of technology, proprietary. We'll hold on to this. No one else will have it. But this is a product that not only optimizes applications so that you have more productivity from painters with less experience. This is a product that when it rains or it is hosed down, it looks like it was just painted.

So after every rain, the home or commercial building, to look as if it was just painted, brand-new clean. So these painters that have applied this in the commercialization process have just been really raving about it. And the last one, just to be brief again, we're introducing a new extension on our Emerald line, which is our top-of-the-line product. This will be the finest paint that we've produced yet, outstanding hiding, great applications. So again, painters with limited experience. We're making limited-experienced painters, better painters. Best application, better touch up, all with this idea that if we're developing resins and products for them, the loyalty to Sherwin increases.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Thank you so much.

John G. Morikis -- Chairman and Chief Executive Officer

Thanks, Kevin.

Operator

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

Anthony Walker -- Goldman Sachs -- Analyst

Hi, guys, This is Anthony Walker on for Bob. Maybe just two quick ones. Can you talk about the performance of the international businesses within the consumer segment, which you acquired through the Valspar transaction? In the past, you've talked about potential strategic or rationalization opportunities there, assuming the businesses continued to underperform. How should we think about the timing and the opportunity there?

John G. Morikis -- Chairman and Chief Executive Officer

Yes. I think -- let me just walk through the three areas there just briefly. First, Asia, I'd say the business is certainly going through a transition. We've talked about the fact that this Walroom brand was predominantly focused on interior wood. So we're shifting that strategy, as much of that business internally, and region is now shifting to a shop or factory applied application. And so the teams are developing a strategy and executing pieces of it to pursue and reposition the brand there. Again, a small piece of the business, but we think this is an important one. Future opportunity here is terrific. We're gaining -- we're making some progress in the quarter. We started to see a positive trend in Asia. So I'd say that one is trending the right way.

Europe, we made significant progress this past year. Sales were positive in mid-single digits. Operating profit improved to a low double-digit percentage. So feeling that we are pointing in the right direction there. Australia is a bird of another color. We've got some challenges there. And quite frankly, we're not performing as needed. We have plans and teams executing on this. This is one that you should expect us to get closer to and see some improvement or making some tough changes.

Anthony Walker -- Goldman Sachs -- Analyst

Great. And then just one on the price increase that you announced for the Paint Stores Group. How should we think about that flowing through the results in the year? Will we start to see that show up in the first quarter in full? And then how should we also think about the magnitude of what I assume are labor, freight and distribution expenses as sort of tempting to offset?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. The pricing will roll out on a similar cadence to past price increases. You'll see some of that for sure in the first quarter. And then as it takes hold over the next six months, we'll get full effectiveness as it flows through all of our customers. When you look at our cost basket that we've talked about, merit increases are higher than what they've been in the past, healthcare benefits continue to rise, and as we've absorbed those over the past number of years. But this price increase is not unprecedented to cover costs other than raw materials. And if you go back in the first quarter of 2014, we went out a price increase to cover those costs. Because as you can imagine, it's a compounding. If you don't get it in the first year and it compounds over three or four years, it gets to be pretty steep. So that's kind of why this justification with this price increase.

John G. Morikis -- Chairman and Chief Executive Officer

Yes. We're not getting thank you notes from our customers, obviously. But many of them are facing similar situations. So the fact that we waited until January 1 gave our customers an opportunity to kind of recalibrate as they're bidding going forward in the new year. And secondly, the fact that they're experiencing the same thing, I think, has helped in the execution as well.

Operator

Thank you. We'll move on to our next question, which comes from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question.

Mike Harrison -- Seaport Global Securities -- Analyst

Hi, good afternoon. They might be wondering if you could give us an update on the progress at Lowe's. And maybe just more broadly speaking, your expectations for DIY in the first half of '19. It seems like with refinancing activity having picked up and the easy weather comps and the store resets and the training that's been going on at Lowe's, that maybe that business could be stronger, yet you guys provided guidance that suggests that consumer is more flattish for the full year.

John G. Morikis -- Chairman and Chief Executive Officer

Yes. So a piece of that, just a reminder, as we have the ACE business that's coming out. So that's a piece of the go-forward forecast, Mike. But I would describe our opportunity at Lowe's quite simply as we think we're moving the ball in the right direction, but we're never satisfied. And we're investing. I mentioned earlier in my remarks about that we're stepping up our investments in the home center channel. Obviously, they would be a big part of that. We see that there are opportunities in both the consumer side and the professional side, those pros that paint, we think it's a terrific opportunity for us to help our customer.

On the consumer side, we have a lot of opportunities to help convert shoppers into customers. And we made a big commitment to this relationship, and we want to see this thing through. And the opportunity here is to help execute and that's on all fronts. So I don't think you should ever expect us to say that we're done. This is a business that we're looking at just aggressively as we do our own stores business. We think there's opportunities, and we're committed to helping our customer win.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Mike, I would just add to that, that we have talked about this in the past that embedded in our Consumer Brands segment is our retail channel that has been under pressure consistently. And as Lowe's has performed better, they certainly are taking share from that segment. And then we're trying to be realistic. When we look outside the U.S., we're trying not to build -- although optimistic, trying not to build a hockey stick to our sales guidance. And -- but rest assured, we expect more out of those teams outside the U.S.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. And then I wanted to also ask about the ColorSnap consultation brand and how that's contributing to paint store sales growth. How much of North America do you have covered with the ColorSnap offering at this point? I'm just trying to get a sense of kind of what stage we're in with that rollout and how much more it could contribute.

John G. Morikis -- Chairman and Chief Executive Officer

Yes, we're pretty early in it. There was an opportunity. And again, this goes back to helping our customers. Mike, you really hit on something here, because this has worked out quite well for us, not so much just for the consumer, but our residential repaint contractors are leaning on us to help accelerate the selling process for them. And as we employ this as well as the digital ColorSnap, which is an AI application that's new and continuing to -- we continue to enhance the previous platform, it allows our customers to accelerate through their process of closing business. This is the professional painting contractor to a homeowner. So I would suspect that you're going to see that as a component, one of many items that we are going to continue to leverage and add service and productivity that helps build loyalty to the painting contractor. But it's still got a lot of opportunity across the country. A lot.

Mike Harrison -- Seaport Global Securities -- Analyst

Thank you,

Operator

Thank you. We'll move on to our next question, which comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Good morning. John, can you discuss your plans for store openings and any closings in 2020? And any impact on the cadence of store openings from either your digital strategy or how you're trying to service some of your larger customers going forward?

John G. Morikis -- Chairman and Chief Executive Officer

Well, we expect to continue in that range of 80 to 100 stores. We -- I don't know that it's changed in any way from a store cadence. We'd like to see a smoother rollout of the stores rolling in. I've been trying to fix that since I ran that business 15 years ago. But I'd say that we feel really good about it. I also want to thank our teams because I think we're getting -- continuing to get better at it. The stores that we're opening and we're cranking up faster, and the impact is better. Some of that has to do with the quality of people in the stores as well as the systems that we're adding to those. So I'd say you should expect us to continue to add in those stores at a similar rate to what we've had.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. David, I'd just add. When you look at TAG and we closed 32 stores in the year, 26 of those stores were in Latin America. We have talked about the pressure we've been under Latin America. As you know, we take a rigorous and consistent view of our portfolio of businesses, brands, customer programs and other investments. And as we've not been able to see a line of sight to above average growth either in sales, operating margins, cash, we've had to take action. We're not exiting those markets, but pushing those sales through what I would call more of a dealer network which is a little less asset intensive. And I think you'll see some of that continue here in our first half.

David Begleiter -- Deutsche Bank -- Analyst

Very good. And John, just lastly, what's your sense on the pool of available painters in both the quantity as well as the quality in 2020?

John G. Morikis -- Chairman and Chief Executive Officer

Let's say, it's under pressure. Our customers, as I mentioned earlier, would like to move faster, and there are a number of wonderful painters and many people entering in the industry that are learning as they go. And as I mentioned, as I ran through those products briefly. We're taking that into consideration as we're building products and helping our customers to improve their efficiency. So I'd say they're both under pressure. People that typically enter into the trades, we're working with those professionals to help train those employees, but there's a pressure in finding them.

David Begleiter -- Deutsche Bank -- Analyst

Thank you.

John G. Morikis -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from P.J. Juvekar with Citi. Please proceed with your question.

P.J. Juvekar -- Citi -- Analyst

Yes, hi, Good morning or good afternoon Plastic, single-use plastics, are coming under pressure. So it's bags and bottles. I was wondering if as bottles come under pressure, would some of the food and beverage stuff move to cans? And would that become an opportunity for you on interior or exterior coatings of the cans?

John G. Morikis -- Chairman and Chief Executive Officer

Yes. The answer is yes. We would welcome that transition, and we want to work to support our customers to do that. As I mentioned earlier, the progress that we're making in our packaging business in both food and beverage has been fantastic, and more of that transitioning into our packaging and customers' business is terrific. And that's why we talk a lot about this in our stores business. But even on the packaging side, we're really determined to help our customers through technology to help speed up lines, to help minimize -- not damaged, but trying to buy imperfections in the coatings. But the idea here is, as we help them become more efficient in driving efficiencies into their plant, the better supplier we are. So we're really focused on making them better.

P.J. Juvekar -- Citi -- Analyst

Okay. And then my second question is now that your leverage is below your target of 3x, what is your willingness to look at M&A, what size? And would 2020 be the year that you come back into the market for M&A?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

P.J., we have consistently are looking for acquisitions of any size. I mean I think you're right. As you look at our debt-to-EBITDA ratio under three in 2020, I don't expect to pay down debt. And as our EBITDA grows, you'll see us drive that target down toward the two to 2.5 long-term target that I have. But yes, we are actively looking for acquisitions. But as John mentioned earlier, we're taking a disciplined approach to that. And I'd say, we raised the dividend 18%. We'll keep capex below 2%. But absent those M&A, absent any acquisitions, we're going to buy back our stock this year.

John G. Morikis -- Chairman and Chief Executive Officer

Yes. But I think to your point though, our COO, David Sewell, got his teams really leaning forward in this area, looking for those opportunities, not only just simply from the opportunity, but from the strategic value that can be gained from it.

P.J. Juvekar -- Citi -- Analyst

Thank you.

John G. Morikis -- Chairman and Chief Executive Officer

Thank you, PJ.

Operator

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

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you. All I've got left on my list is, Al, can you just -- the tax rate stepping up this year, is that just sort of your starting point? And then you see how the year plays out and what things your team comes up with. Or do you -- how should we be thinking about the higher tax rate?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, Vincent. That -- I'm always looking at the tax rate. It's a function of how many options and how our legal entity consolidations flow through to help that tax rate. So I started at the low 20% range and then I expect our tax guys to develop plans and continue with the programs that are going to continue to drive that down.

Vincent Andrews -- Morgan Stanley -- Analyst

Thanks very much.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Duffy Fischer with Barclays. Please proceed with your question.

Duffy Fischer -- Barclays -- Analyst

Yeah. Good morning. Just one for me. Volumetrically, how fast did the North American architectural market grow last year, do you guys think?

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

We haven't seen official data yet on that, Duffy. If I go back to probably the most recent data we have is 2018, gallon growth was a little over 2%. I want to say it's probably similar in 2019 and probably at a similar level in 2020, sort of that low single-digit level, if I would guess.

Duffy Fischer -- Barclays -- Analyst

Thanks, guys.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

You bet.

Operator

Thank you. The next question comes from Justin Speer with Zelman & Associates. Please proceed with your question.

Justin Speer -- Zelman & Associates -- Analyst

Thank you guys. I just wanted to unpack that, if you could help maybe further unpack the nature of those SG&A investments. And how you think they'll unfold from a percentage of revenue standpoint?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. Justin, we're not going to go down the P&L by line on the guidance. I think what we've consistently done is grow our store count, grow our rep count, and then these additional investments are going to come through pretty evenly throughout the year. And we're not going to quantify them because it's like any other review that we do. We want to see how the first half unfolds, how volumes look and it may give us an opportunity to accelerate in the back half of the year like we did this year. So I think it depends, but they're in our guidance and we'll continue to manage those accordingly.

John G. Morikis -- Chairman and Chief Executive Officer

I would say, Justin, we are planning on sharing a number of these with you during our financial community presentation on that June 3 date, where we'll give you some idea from -- in some of these areas, the digital, I think you'll be really impressed with. And to the extent that we're comfortable in sharing, obviously, we don't want to point specifically for competitive reasons to what we're doing. But as much as we can, as things roll out, we'll share what we've done, but not what we're going to do.

Justin Speer -- Zelman & Associates -- Analyst

Okay. And I guess, maybe because I'm sure you pilot, I know you piloted a number of these different programs. But just curious how the -- there's like a response rate in terms of growth improvement to the model. Or is it just a stickiness in this widening of the moat, bringing the customer closer, the relationship is good? But does it change the growth algorithm or the amount of gallons that flow through, all else equal?

John G. Morikis -- Chairman and Chief Executive Officer

Yes, we're doing this for growth. We absolutely believe it improves the stickiness, the moat -- any metaphor we want to use, but we are growing our business, and we're going to do it profitably. And we think that the more solutions that we bring to our customers to help make them more profitable, the more likely we're going to continue to be their supplier. And so we're really focused on not just one lever, one silver bullet, but a number of these that will enhance their ability to be successful. And as a result, we become a better supplier to them.

Justin Speer -- Zelman & Associates -- Analyst

And my last question is just on the consumer business. Just how much mix benefit from that transition in ACE will you -- are you thinking or estimating for your 2020 targets there?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. What we talked about is the ACE business, that private label business was about $100 million a year, considerably below the average of our consumer operating margin. We didn't lay that out and we're not going to, but you should expect margin improvement because of that.

Justin Speer -- Zelman & Associates -- Analyst

Thank you, gentlemen.

Operator

Thank you. Our next question comes from the line of Garik Shmois with Loop Capital. Please proceed with your question. We'll move on to our next question which comes from the line of Truman Patterson with Wells Fargo. Please proceed with your question.

Truman Patterson -- Wells Fargo -- Analyst

Hi, good afternoon, guys. Thanks for taking my questions. First, just wanted to make sure I'm understanding this clearly on your TAG in paint stores demand outlook.for 2020. The full year guide, I think it implies that volumes grow pretty much in line with 2019, maybe at a bit of a slower pace even. When I'm listening to you all, you're very optimistic on the architectural volume side. Seems like that market is even accelerating, which would imply that Protective & Marine in that non-res market might even be decelerating versus 2019. Just trying to understand how you all are thinking about that. And if you can walk me through the parts.

John G. Morikis -- Chairman and Chief Executive Officer

Yes, Truman, I'd say you're right in sensing our confidence in the architectural side, having just finished the quarter in the mid single -- or I'm sorry, high single digits, gives us confidence moving forward. On the Protective & Marine side that runs through there, we've got the fourth quarter and likely the first quarter right now that we're seeing is likely a little softer than we would have liked to see, but feeling pretty good about it going forward. So I think we're trying to be just in line with what our customers are telling us, and we feel pretty good about the number that we put out here.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. Truman, the other comment I would make is, as I mentioned earlier, if you look at the way the year unfolded for paint stores in North America, we had a strong second half versus the first half, even a 9%, 8%, 7% TAG increase in the third quarter, which is a large quarter and a very good result in a large quarter like that. So I think when we get through our second quarter and see how the year is unfolding, we can give you an update then.

Truman Patterson -- Wells Fargo -- Analyst

Okay, OK. And then final question for me just on the raw materials basket. Can you just discuss what kind of tailwinds you actually saw in the fourth quarter from an overall basket perspective? And then just remind us what you ended up seeing in 2019 as a whole.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Yes, Truman. Costs for the broad basket that we buy, I would say, moderated slightly in the fourth quarter '19 from third quarter of '19. So it kind of played out as we thought. Fourth quarter 2019 was also lower year-over-year. The year-over-year decrease in the fourth quarter was driven primarily by lower cost for resins, solvents. And we don't provide specific dollars on the savings of the raw materials, but you can see the positive trend, I think, reflected in our year-over-year gross margin improvement.

Truman Patterson -- Wells Fargo -- Analyst

Okay, thank you.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Sure.

Operator

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

Rosemarie Morbelli -- G.Research -- Analyst

Thank you. Good afternoon, everyone. John, I was wondering if you could give us a little more on the impairment charges. I am assuming that the bulk of it is the woods coatings in China, but you also mentioned one impairment taken in the Consumer Brands category. Is that ACE? Or a little color on which product lines you are more or less eliminating as there is no growth and those for which you are going to change the brand name.

John G. Morikis -- Chairman and Chief Executive Officer

Yes, Rosemary. I would not classify it as no growth. I would characterize it in GI and in automotive. As we've put in, implemented our systems, our legacy systems, we've gotten customers to move to a new label and that has helped us optimize or streamline our operations. That's the biggest impact. Another example would be in Australia. We're under pressure that we talked about earlier about driving operating margin and cash flow improvement. And one way to do that is reduce the number of brands you're trying to support. And so in that area, we also move from -- remove focus, if you will, on one brand and driving it more through the Wattyl brand.

And again, that's going to help us in the midterm here to reduce our costs and keep investing in labels and merchandising and different things like that. So the Walroom brand in China has been under pressure. John talked about that transition certainly from -- to factory applied coatings. That is an impact. And as that transition continues to move and expand, we're not expecting or anticipating any other impairments going forward.

Rosemarie Morbelli -- G.Research -- Analyst

Okay. And then the goal was very optimistic. Your projections of 2% to 4% on the revenue line is stronger or higher than it was, 2019 versus 2018. And yet, if I look at your EPS projections at the midpoint, it is up 9% versus up 14% in '19 over '14, if I have those numbers right. So I am wondering, what are the offsets?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes, Rosemarie, I'd say that we're -- if you're comparing last year to the go forward, as I talked about the price increase that we went out with and being effective under 2%, that's below what we really realized through the first three quarters of last year. Our raw material moderation isn't as strong as what we saw in 2019. And these investments that we talked about, even though we're seeing slower in our second half of '19 on Performance Coatings, we continue to invest back in this -- in our businesses that we think are going to provide growth opportunities in the future, not only the new stores and the new reps that we even accelerated in the back half, but this digital program that John laid out. And then some other -- our home center channel that -- so yes, we're continuing those investments in 2020.

John G. Morikis -- Chairman and Chief Executive Officer

It may not have an immediate feedback or a payback, but we're running this company longer term than just one quarter. And we absolutely believe these are the right investments to make. And so we're moving forward aggressively, taking advantage, as I said, of not only the market, but we really think there's some competitive opportunities out here that we want to take advantage of.

Rosemarie Morbelli -- G.Research -- Analyst

Okay. So nothing really special, just going forward and investing where you need to?

John G. Morikis -- Chairman and Chief Executive Officer

Investing where we need to, skinnying back where we can. But leaning forward, we think that we've described it internally, Rosemarie, as a coil. We feel we're cranking this coil down, and we expect it to respond given the investments that we have in a very positive way.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

And Rosemarie, we don't expect the market to be this way. But if you go back to 2007, '08 and '09, when we added 260 new stores, when we came out of that, you look at our market share growth, not only on the 3-year, but the 5-year and the 10-year compounded average growth rates, we think we're well above market growth and that's the attitude we're taking. We look at it long term and expect, as John mentioned, that coil to grow market share faster than what we've done in the past.

Rosemarie Morbelli -- G.Research -- Analyst

Thank you.

Operator

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

Christopher Perrella -- Bloomberg Intelligence -- Analyst

Hi guys, quick ones on Lat Am volume. Has that flattened out for you at this point and you're looking for inflection in 2020? And then just a little color on consumer pricing. Do you expect to get about half of what you get in the TAG group for 2020?

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. Chris, I would say, for Latin America, our volumes have, I would say, improved as the year has gone on. But where you're seeing it is as we continue to see the devaluation, we're continually -- that team is continually having to go out with price. 60% of our raw materials are dollar-denominated, so every deflation we see in Brazil, as an example, we're constantly chasing with price. So the biggest portion of our impact right now is price. But some of the things that we're doing on streamlining sales organizations and focus on the right segments and customer segment will help drive growth in the future.

John G. Morikis -- Chairman and Chief Executive Officer

Yes. We're just not waiting for the market. We're not waiting for currency. We're trying to do -- we mentioned earlier, control the things we can control. And our Mexico sales were up high single digits, clearly offset by Argentina and Brazil and some of the other regions. As Al mentioned, we're trying to be very aggressive in Brazil. The store reduction is an example of that. But we're looking to drive more profitable sales to the most efficient channels down there.

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Yes. And Chris, the second question on price. Yes. In Performance Coatings, we do still have opportunities for price in certain businesses and regions. And as you remember, '17 and '18, we saw the big run-up in raw materials. Our industrial businesses were impacted the most. Although raws have moderated, and our expectation is in 2020, they're not back to where they were at the beginning of 2017. So we're continuing to need price. We've expanded our margins, but we expect and I feel confident that we'll get to the high teens and low 20s. And recovering those raw material costs plus the incremental freight cost, plus the merit increases and healthcare that I talked about on TAG, those are affecting our Performance Coatings Group, and we're having to offset those. So yes, we're going to continue with price.

Christopher Perrella -- Bloomberg Intelligence -- Analyst

Thank you.

John G. Morikis -- Chairman and Chief Executive Officer

Thanks, Chris.

Operator

Thank you. Our next question comes from the line of Chris Bottiglieri with Wolfe Research. Please proceed with your question.

Chris Bottiglieri -- Wolfe Research -- Analyst

Hey, guys, thanks for the question. First of all, I want to kind of follow-up on your comment earlier on the auto business, looking the best that it's been in your tenure. A little surprising to hear. I mean are you starting to see like accident frequency inflect or total loss rates come down? Or is it more so just competitive dynamics where you feel like you're taking share from the channel?

John G. Morikis -- Chairman and Chief Executive Officer

Competitive dynamics, we're taking share. I think the market -- there's been some compression, we think, and we've talked about that openly with safer cars and safer attributes that are going into these vehicles, which are absolutely critical. So we're doing it by the technology that we're bringing and the services that we're bringing. The combination of Valspar and Sherwin together, we have a new improved system that we think has been very well received by the marketplace. And we're really working hard to serve those customers in a way to help their throughput through those facilities.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got you. That's helpful. And then one other question on coronavirus. I just want to think there are like potential impacts, maybe like a more of an indirect impact. Recognize you don't have high exposure to like Chinese TiO2. But are there any impacts to that market that could manifest in the global supply chain if the work stop continues? Or any other like feedstock or inputs that, again, if we continue to see more business shutdowns and extended holiday that could maybe have an impact on your business? Curious how you think about that.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Yes, Chris. Let me start just by saying, first, when we look at this, the health and safety of our employees is #1, obviously. And so we're monitoring that very carefully and the recommendations that are out there. We've suspended travel to and from China in the short term. And we're limiting some travel inside the country to business critical. So we're doing that. But I think we're working closely with our teams there, our customers, our suppliers. Haven't seen, to this point, any negative impact, and we'll continue to monitor that closely. I think it's just too early to see.

John G. Morikis -- Chairman and Chief Executive Officer

Now we've got some very good leadership on the ground there. Jason Wu and his team are keeping us fully abreast. And I'd say right now, from a procurement standpoint, we're staying close. So there's a couple of dynamics. There's a raw material piece of it and there's also the point that Jim just mentioned about, trying to make sure we're doing everything we can to protect our employees and work with our customers. There's a whole lot of people trying to do everything possible to do that. But there's a lot of uncertainty, and we'll react as it unfolds.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got you. Really helpful. Thank you.

John G. Morikis -- Chairman and Chief Executive Officer

You bet.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. So I'd like to turn the floor back over to Mr. Jaye for any additional concluding comments.

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

Thank you, Jesse, and thanks, everybody, for joining us on the call today. Myself and Eric Swanson will be available, as we always are, for your questions today, tomorrow and into next week. And again, appreciate your interest in Sherwin, and we'll talk to you very soon. Have a good day. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 102 minutes

Call participants:

James R. Jaye -- Senior Vice President-Investor Relations & Corporate Communications

John G. Morikis -- Chairman and Chief Executive Officer

Allen J. Mistysyn -- Senior Vice President-Finance and Chief Financial Officer

Christopher Parkinson -- Credit Suisse -- Analyst

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

Jeff Zekauskas -- JPMorgan -- Analyst

Ghansham Panjabi -- Baird -- Analyst

John McNulty -- BMO Capital Markets -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Kevin McCarthy -- Vertical Research Partners -- Analyst

Anthony Walker -- Goldman Sachs -- Analyst

Mike Harrison -- Seaport Global Securities -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

P.J. Juvekar -- Citi -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Duffy Fischer -- Barclays -- Analyst

Justin Speer -- Zelman & Associates -- Analyst

Truman Patterson -- Wells Fargo -- Analyst

Rosemarie Morbelli -- G.Research -- Analyst

Christopher Perrella -- Bloomberg Intelligence -- Analyst

Chris Bottiglieri -- Wolfe Research -- Analyst

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