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Sherwin-Williams Company (NYSE:SHW)

Q2 2013 Earnings Call

July 18, 2013 11:00 am ET

Executives

Christopher M. Connor - Chairman and Chief Executive Officer

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

Sean P. Hennessy - Chief Financial Officer and Senior Vice President of Finance

Analysts

John P. McNulty - Crédit Suisse AG, Research Division

Robert A. Koort - Goldman Sachs Group Inc., Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Christopher J. Nocella - RBC Capital Markets, LLC, Research Division

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Nils-Bertil Wallin - CLSA Limited, Research Division

P. J. Juvekar - Citigroup Inc, Research Division

Duffy Fischer - Barclays Capital, Research Division

Gregory S. Melich - ISI Group Inc., Research Division

John Roberts - UBS Investment Bank, Research Division

Eric Bosshard - Cleveland Research Company

Dennis McGill - Zelman & Associates, LLC

Charles A. Dan - Morgan Stanley, Research Division

Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Dmitry Silversteyn - Longbow Research LLC

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Richard O'Reilly

Operator

Good morning. Thank you for joining the Sherwin-Williams Company's Review of the Second Quarter 2013 Financial Results and Expectations for the Third Quarter and Full Year. With us on today's call are Chris Connor, Chairman and CEO; Sean Hennessy, Senior Vice President, Finance, and CFO; Al Mistysyn, Vice President, Corporate Controller; and Bob Wells, Senior Vice President, Corporate Communications.

This conference call is being webcast simultaneously in listen-only mode via Vcall via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com, beginning approximately 2 hours after this conference call concludes, and will be available until Wednesday, August 8, 2013, 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.

I will now turn the call over to Chris Connor for some opening comments.

Christopher M. Connor

Thanks, Jesse. Good morning, everybody. Thanks for joining us today. Last night, the Federal Competition Commission in Mexico voted 3 to 2 to withhold approval of our acquisition of Comex announced on November 12, 2012. At this time, we are still reviewing the rationale for the commission's decision, and will respond to those specific concerns in the days ahead. We have several paths forward in our efforts to secure approval for this transaction, including an internal appeal to the Competition Commission, and we are aggressively pursuing these options as we speak.

Our legal representatives in Mexico are attempting to meet with key commissioners yet today. You may recall that on June 24, we announced an extension of the original purchase agreement out to the end of August. Last evening, and again this morning, I spoke with Marcos Achar, CEO of Comex, and he confirmed their equal resolve to pursue all avenues available to secure confirmation of this transaction. We are clearly disappointed by this decision, but remain resolute in our determination to address their objectives and proceed with the transaction. Obviously, we'll be happy to answer your questions on this topic to the best of our ability after the review of our second quarter results.

Let me turn the call over now to Bob to walk you through our results for the second quarter, and then I'll be back with concluding comments. Bob?

Robert J. Wells

Thanks, Chris. Summarizing overall company performance for second quarter 2013 versus second quarter 2012. Consolidated net sales increased $140.9 million, or 5.5%, to $2.71 billion, due primarily to higher paint sales volumes in our Paint Stores Group. Acquisitions added 0.7% to net sales in the quarter, and unfavorable currency translation rate changes decreased consolidated net sales by 3/10 of 1% percent. Consolidated gross profit dollars increased $83 million over second quarter last year, to $1.23 billion.

Gross margin increased 80 basis points, to 45.5% of sales from 44.7% in the second quarter last year. Selling, general and administrative expenses for the quarter increased 3.3%, to $837.1 million. As a percent of sales, SG&A decreased to 30.8% in the second quarter this year from 31.5% last year.

Interest expense for the quarter was $15.1 million, an increase of $4.8 million compared to second quarter last year. Other general expense net decreased $2.6 million year-over-year, due primarily to a reduction in provisions for environmental expense. Consolidated profit before taxes in the quarter increased $53.1 million, or 16.2%, to $380.9 million.

Our effective tax rate in the second quarter this year was 32.5%, compared to 30.5% in the second quarter of 2012. For full year 2013, we expect our effective tax rate to be in the low 30% range, compared to last year's rate of 30.4%.

Consolidated net income increased $29.5 million, or 12.9%, to $257.3 million. Net income as a percent of sales was 9.5% compared to 8.9% in the second quarter last year. Diluted net income per common share for the quarter increased 13.4%, to $2.46 per share from $2.17 per share in 2012.

Looking at our results by operating segment. Paint Stores Group sales in the second quarter '13 increased 8% to $1.61 billion. Comparable store sales, that is, sales by stores open more than 12 calendar months, increased 7%. Regionally, in the second quarter, our Southeastern division led all divisions, followed by Southwestern division, Eastern division and Midwestern division.

Paint Stores Group segment profit for the quarter increased $66 million, or 24.7%, to $333 million from $267 million in the second quarter last year. Segment margin in the quarter increased to 20.7% from 17.9% last year.

Turning to our Consumer Group. Sales in the second quarter decreased 1%, to $393.7 million from $397.7 million last year. Acquisitions increased Consumer segment sales 3.2% in the quarter. Segment profit for the Consumer Group decreased $1.7 million, or 2.1%, to $79 million in the quarter. Segment profit as a percent of external sales decreased to 20.1% from 20.3% in the same period last year.

For our Global Finishes Group, second quarter sales in U.S. dollars increased 3%, to $513.5 million. Acquisitions increased net sales in U.S. dollars by approximately 1.1%, while unfavorable currency translations had minimal impact on sales in the quarter compared to last year. Segment profit in U.S. dollars increased 13.4% in the quarter, to $54.5 million from $48 million last year. Acquisitions had no significant effect on segment profits in the quarter, while unfavorable currency translation rate changes reduced segment profit $2.4 million. As a percent to net sales, Global Finishes Group segment profit was 10.6% in the quarter, compared to 9.6% last year.

For our Latin America Coatings Group, second quarter net sales in U.S. dollars increased 6.3% to $199 million. Unfavorable currency translation rate changes decreased net sales by 2.8% in the quarter. Stated in U.S. dollars, segment profit in the second quarter decreased to $900,000 from $9.3 million in the same period last year, due primarily to an $11.8 million charge to cost of goods related to an import duly assessment by the Brazilian government for the years 2006 through 2008. This charge was partially offset by selling price increases and higher paint sales volumes.

Currency translation rate changes had minimal impact on segment profits in the quarter. As a percent of net sales, segment operating profit was 4/10 of 1% in the quarter, compared to 5% in the second quarter 2012.

Turning briefly to our balance sheet. Our total debt on June 30, 2013, was $1.68 billion, including short-term borrowings of $50.7 million. Total debt on June 30 last year was $1.24 billion. Our cash balance at the end of the quarter was $741.1 million, compared to $46.6 million at the end of second quarter 2012. Through the first 6 months of 2013, we spent $72.1 million on capital expenditures. Depreciation expense was $78.3 million and amortization expense was $14.1 million.

For full year 2013, we anticipate capital expenditures for the year will be approximately $130 million to $150 million, depreciation will be about $150 million, and amortization will be approximately $30 million.

I'll conclude my remarks on the quarter with a brief update on the status of our lead pigment litigation. Trial began on Monday, July 15, in the Santa Clara County case involving public nuisance claims brought by 10 cities and counties in California against 5 defendant companies. The judge presiding over the case has limited oral arguments by each side to 40 hours, including live testimony and cross-examination, which should be concluded before Labor Day.

At the conclusion of the trial, the verdict will be determined by the presiding judge. There is no jury. At this point, we have no indication or sense of timing on a decision.

That concludes our review of the results for second quarter 2013. So I'll turn the call back over to Chris, who will make some general comments and highlight our expectations for third quarter and full year. Chris?

Christopher M. Connor

Thanks, Bob. We often say that our visibility with respect to end market conditions and input cost trends improved significantly in the second quarter, and this year was no exception. This improving visibility over the past few months has revealed a mixed bag of stable to declining raw material costs, continued strength in the domestic residential market, stagnant nonresidential and industrial activity, all against a backdrop of continued global economic malaise.

We've felt the effects, both positive and negative, of these disparate market conditions across different geographies and customer segments. I would say, however, that I'm generally pleased with our progress in most aspects of the business, although the second quarter had its normal share of ups and downs.

On the positive side, our Paint Stores Group continues to perform well. Comp store sales growth at 7% will likely outpace the U.S. architectural paint market in the second quarter, although we continue to see demand disparity across certain customer segments. Residential market demand in both new build and repaint remains very strong in -- even in the month of June. Most of the nonresidential markets, while positive, continue to lag the strength of residential. Protective and marine, for example, a strong category throughout 2012, has softened thus far in 2013.

Paint Stores segment margin for the quarter improved 280 basis points over the second quarter last year and eclipsed 20% operating margin percent to sales for the first time on record. This margin improvement was evenly divided between gross margin expansion and SG&A leverage.

Global Finishes Group also made solid progress in the quarter despite the challenging conditions in most geographies outside of North America. Revenue growth in the quarter was aided by an acquisition completed in the fourth quarter last year, but the earnings improvement in the quarter came entirely from the core business. Flow-through on organic revenue growth in the quarter was nearly 65%, with notable improvement in both gross margin and SG&A. Although we're not satisfied with the current pace of revenue growth in this segment, as market conditions improve at home and abroad, Global Finishes Group margins should continue to expand.

On a less positive note, Consumer segment continues to feel the effect of loss paint businesses at several retail customers, although they've worked hard to mitigate the impact for the lost volume on segment profits. Perhaps the greatest disappointment in our quarter was the $11.8 million charge to our Latin American Coatings Group. The charge is related to our handling of import duties on products brought into Brazil during the years 2006 through 2008. Although we believe our handling of import duties was consistent with a large number of multinationals doing business in Brazil, we elected to accept a voluntary amnesty program offered by the government to resolve this issue rather than encourage significant legal expenses to contest it in court. In 2009, we changed our import duty process. However, the years subsequent to 2008 remain open to audit.

On the raw material front, it's pretty apparent that the major chloride TiO2 producers were unsuccessful in implementing the price increases announced in the first quarter of 2013 to be effective early in the second quarter. Additional price increases were announced late in the second quarter, with nominal effective dates generally around July 1. The increased plant utilization rates, decreased inventory levels and optimism of a third quarter TiO2 demand were cited as reasons for the increases. However, in all geographic markets, TiO2 pricing held steady in July, and we do not believe that market dynamics will change sufficiently over the balance of the year to justify the implementation of these increases in 2013.

Although crude oil moved up during the second quarter, propylene, the key feedstock for monomers, latex, solvents and containers, remained relatively stable, and we expect that to continue as well for the balance of the year. With our assumption of stable TiO2 costs and the current pricing of propylene, we expect average year-over-year raw material cost for the paint and coatings industry to be down low-single digits in 2013.

In the first 6 months of 2013, we've generated $302 million in net operating cash, an increase of $100 million over the first half of 2012. Approximately half of the improvement in net operating cash was from the increase in net income in the quarter, the other half resulting from lower cash required to fund our working capital.

Working capital, as we measure it, which is receivables plus inventories minus payables, decreased as a percent of sales, to 12% from 12.6% in the second quarter last year. We continue to use the company's cash to purchase shares of our stock for treasury, increase our cash dividend and expand our controlled distribution platform.

During the quarter, we acquired 800,000 shares of the company's stock for treasury, bringing our total year-to-date repurchase activity to 1.3 million shares at an average cost of $178.86 per share, and a total investment of $232 million.

On June 30, we have remaining authorization to acquire 15.2 million shares. Yesterday, our Board of Directors approved a quarterly dividend of $0.50 per share, up from $0.39 per share last year. So far this year, our Paint Stores Group has added 22 net new stores, 13 of which were open in the second quarter. This brings our total store count from the U.S., Canada and the Caribbean to 3,542, compared to 3,470 1 year ago. As we commented in April, we are ramping up our new store opening activity, and our Paint Stores Group plans to add approximately 70 to 80 net new store locations during the year.

Looking ahead, we remain optimistic that U.S. architectural paint market demand, primarily in the residential segments, will remain strong as we go through the prime painting season. Based on this outlook, our expectation for third quarter 2013 is for consolidated net sales to increase in the range of 6% to 9%, compared to last year's third quarter. With sales at that level, we expect diluted net income per common share for the second quarter to be in the range of $2.55 to $2.65 per share, compared to last year's record performance of $2.24 per share.

For the full year 2013, we expect consolidated net sales to increase over 2012 by mid-single-digit percentage, with annual sales at that level, we are reaffirming our expectation for full year diluted net income per common share to be in the range of $7.45 to $7.55 per share, compared to $6.02 per share earned in 2012.

Again, thanks to all of you for joining us this morning. And now, we'd be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from the line of John McNulty with Crédit Suisse.

John P. McNulty - Crédit Suisse AG, Research Division

A couple of questions just on the overall business fundamentals. The volumes for same-store sales kind of number for your Paint Stores was 7%? And I think when you adjust for, kind of Easter falling out of this quarter unlike last year, it looks like it's more like a 5% type number, which seems a little bit lighter than what we would expect given what's going on in the construction market. So I guess, can you walk us through maybe some of the puts and takes that might be driving those volumes maybe coming in a little bit lighter than expected?

Christopher M. Connor

Yes, so I'll take a crack at that, John. First of all, I think the 2% impact for Easter might be a little strong for us. It's not that strong of an impact. And we have been commenting about the mix change we've been seeing this year. So our gallon numbers actually were terrific. And it's slightly higher than that sales number that we indicated. We're pretty confident that, that is a, an improvement over what the market ran for the particular quarter. So from our perspective, we see that as a pretty good quarter for the Stores group.

John P. McNulty - Crédit Suisse AG, Research Division

Okay, fair enough. And then just one quick question with the regard to the guidance. I mean, you're reaffirming the guidance at this point. Yet, and it sounds like the raw material environment's better than you were originally thinking. So are you starting to give some back, maybe on the pricing side, or are there other kind of puts and takes that we should be thinking about? Is it something around the timing of Comex potentially closing or, I guess, what's the change there?

Christopher M. Connor

Yes, I think the guidance reaffirming has a couple of moving parts in it. You're correct, the raw material environment certainly is looking better. But we've also just taken an $0.08 hit relative to this Brazilian tax. So holding the guidance at that level, we think, indicates our confidence in the strength of the second half.

Operator

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

Robert A. Koort - Goldman Sachs Group Inc., Research Division

Chris, I was wondering if you can help out on the consumer side. You've referenced losing some business at a few retail customers. I guess we knew Walmart was a prominent one. Could you maybe give us a little color on the others? And then, if we were to take that issue aside, why wasn't there better growth in the consumer, given that, as you said, the residential markets were reasonably hot?

Christopher M. Connor

Yes, fair question, Bob. Thanks for the call. We have commented repeatedly about Walmart, as well as, in earlier calls, confirming a Masco comment about the displacement of the Sherwin-Williams Dutch Boy program out of Home Depot, Mexico. As Masco Behr moved that program into that country for the first time. So those are the 2 impacts that we're seeing for the division. And that's had a significant impact. If we back those 2 things out, we're marginally positive there. We have commented for many, many quarters now that this segment has a little bit of a tough road ahead of us, given the strength of the stores organization in the same markets that they're competing with. And for the -- to your comment about rebounding home programs, we made the comment that we were disappointed in the quarter. So we expect this team to do better.

Operator

Our next question is coming from the line of Ghansham Panjabi with Robert W. Baird.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Last quarter, you commented on a big deviation in volumes between external and internal paint. I think a lot of that was weather related. Chris, can you just sort of update us on how that evolved during the second quarter?

Sean P. Hennessy

Yes, this is Sean Hennessy. The -- when you look at the volumes and that disparage between the exterior and interior that we had, really, because of the exterior first quarter 2012 that we had, very, very strong. As we saw a little more normal, but exterior's still, because of rain, different rain in certain segments. But usually, we don't talk about weather. But because of that, it wasn't all the way back to normal yet on that interior/exterior mix.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay, and then just one quick one on Comex, as best as you can answer it. Can you point us towards some other transactions in Mexico that were brought and ultimately went through closed, perhaps some concessions? Do you have a sense of that?

Christopher M. Connor

No, we don't have any comment regarding those transactions at this point in time.

Operator

The next question is coming from the line of Chris Nocella with RBC Capital Markets.

Christopher J. Nocella - RBC Capital Markets, LLC, Research Division

Can you just give us a sense of how long you think the appeals process could take with Comex? And I see some headlines suggesting accommodation to that market share of maybe 48% to 58%. So can you remind us of your market share in Mexico and maybe what level you think they'd be comfortable with?

Christopher M. Connor

Yes, so I can't answer the deal process because it's somewhat perfunctory, Chris. After a verdict like this, the parties have 30 days to issue in a formal appeal. And then once the Chairman of the commission has accepted the appeal, they have 60 days, and those are working days, just to clarify that, to render an opinion on that. It would be inappropriate for us to make any comments relative to what levels of market share the commissions would be interested in seeing.

Christopher J. Nocella - RBC Capital Markets, LLC, Research Division

Okay, does a Comex deal without Mexico make sense? Maybe supplement it with a large share repurchase?

Christopher M. Connor

I think there are reasons for people to think through that. Our public statements are that we're -- remain committed to completing the full transaction, including both the Canadian, United States and Mexican sides of the deal.

Operator

Our next question is coming from the line of Aram Rubinson with Nomura Securities.

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

Starting at the news on Comex, understand your desire to go to the mat to get the deal done, but 2 things in and around that and then a follow-up. One, are you able to kind of buy back stock aggressively or are you kind of in a holding pattern, as that relates, whether it's kind of a quiet period or other things like that? And then, second, how can you make sure that you avoid distraction inside the company, so that if you kind of go at this another couple of quarters or 6 months that it doesn't kind of affect your business in any unintended way? And then I have a follow-up.

Sean P. Hennessy

Sure. When you think a look at the stack, we are in a blackout. We're in a blackout for 3 days, until 3 days after we've announced, then. We think we'll continue with what we've been doing in the past, but as of today, we can't buy stock today.

Christopher M. Connor

In terms of avoiding distraction, Aram, we are the masters at avoiding distraction at Sherwin-Williams. We've had lead lawsuits and all the kinds of noise for -- to contend with. And here, again, we're blessed with really terrific leadership in our field operations. Our folks are out selling paint today and taking care of customers, just like every other day. So while the folks on the phone are spending a little time on this issue, rest assured, the rest of the 40,000 folks are doing what they're supposed to be doing today.

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

And just around the California legislation, could you just comment as to whether or not you've reserved differently? The 10-Q usually comments on kind of reserves for environmental, and how you're kind of treating that, and whether or not the prior cases that have been dismissed are fair precedence, or you think this one might be, I don't know, be more unique?

Sean P. Hennessy

No, we think that's fair precedence. You think about Rhode Island and a lot of others. Mississippi, Wisconsin, Ohio, New Jersey. We've never created a reserve for lead lawsuits.

Operator

Our next question is coming from the line of Kevin McCarthy with Bank of America Merrill Lynch.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Chris, I think you had made a comment in your prepared remarks that your comparable store growth is 7%. Paint Stores' likely outpace the market. So if you can give us a sense of where you think the market is running at the industry level for gallonage? And how much you might be exceeding that pace?

Christopher M. Connor

Yes, we don't have good visibility into that, Kevin, until several quarters in arrear, when some of the various reporting groups get some data out for us. We have commented that we believe our industry grows at a, historically, in pace with GDP, 1% to 2%. As we rebound to a more normalized architectural coatings demand in our market, we've talked about that running at a little higher pace, let's say, 3%, 4%. We've seen growth for the industry, maybe in the range of 5% here over the last couple of years, as we're seeing some of these rebounding quarters. But, as I mentioned in the first call that John asked, don't forget that our gallon numbers were in excess of that 7% revenue number. So we'll have a better sense here in a little bit. But we're still pretty confident that the teams are doing great in the stores group in terms of taking gallon share.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Okay. And then a second question, if I may, on the Latin America Coatings Group. I think you had a translation effect there on the top line, but your press release seems to indicate there was no impact on segment profit. I guess it was my understanding you hadn't been hedging and perhaps, you could help me kind of understand how the bottom line would've been insulated in the quarter, given the volatility in the local currency there?

Sean P. Hennessy

Well, I think we did have debt. I think what we're trying to do, over the years, especially in the last couple of years, is to bring cash forward, allow the debt there to be a natural hedge. And when you look at, really, Brazil is where we were -- really had a major change in that quarter. So we were fairly hedged.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Got it. And then final question, for Chris, if I may, it is in terms of potential scenarios for redeployment of capital, if indeed Comex ultimately does not go through. Care to offer any comments on what you're seeing in terms of the M&A pipeline? Are there other opportunities that you see out there in the private market that might be appealing alternatives?

Christopher M. Connor

Sure, Kevin. I think as deployment of capital goes forward here, regardless of the Comex transaction, frankly, you're going to see Sherwin continue to operate in its traditional fashion. We are not hoarders of cash. We'll put that to work. We're comfortable buying back stock, as we've indicated over the years. There are always M&A opportunities for us. We have a disciplined approach and a strategic list of targets that would be of interest to the company. Your comment about many of them being privately held family businesses dictates it's on a certain path in order to try to get those to market. And those conversations have been happening in this environment and will continue to happen. Nothing new to report at this time.

Operator

The next question is coming from the line of Nils Wallin with CLSA.

Nils-Bertil Wallin - CLSA Limited, Research Division

Question on the actual timing of the Comex response, I guess, from the Mexican government. It seems like it, given the amount of time that they have to respond, it wouldn't be until late in the fourth quarter. So is there any reason that they might -- you might be able to accelerate that, so you get a little bit better clarity sooner?

Christopher M. Connor

Well, Nils, our intent will be absolutely to accelerate. And we're approaching this with speed and urgency. It would be premature for me to comment, because I simply don't know how quickly we can get them to engage in what that outcome might be.

Nils-Bertil Wallin - CLSA Limited, Research Division

Understood. In terms of, then, in Latin America, it seems like the second quarter has been a bit of a dip in the last 2 years. Is there anything changing in terms of seasonality or product mix that's causing that from the operating profit perspective?

Sean P. Hennessy

We continue to do a lot of different things in Latin America. In fact, we just did a major IT project down there. And Oracle was now turned on in Argentina on the third of July. So we've been doing a lot of different things in the last couple of years. We'll keep moving on that project. We think that, that project's going to help us with working capital and reducing the working capital as a percent of sales. And I think you're right about the second quarter, because if you look at the year-to-date, last year, our ROS in that segment was 7.4% through the first 6 months and the first 2 quarters. This year, with the adjusted, if you add back the Brazilian import situation, we're at 8.2%. And we look at our forecast for the year, and, I'll just tell you, we think that we still see us improving and moving forward on ROS improvement for the year.

Nils-Bertil Wallin - CLSA Limited, Research Division

Got it. That's helpful. And just a final one, if I may. Does it -- when you look at some of what the competitors have put out there in terms of their growth rate in Latin America, it seems like you're doing a little bit better. Are there -- is there any share shifts going on? Or is it just not really comparable?

Christopher M. Connor

I think if there are share shifts, they're minimal at best at this point in time.

Operator

The next question is coming from the line of PJ Juvekar with Citigroup.

P. J. Juvekar - Citigroup Inc, Research Division

Chris, you didn't mention weather and the wet spring, which would have impacted at least your Exterior Paint business. Did you make up any of the losses in June as the weather improved?

Christopher M. Connor

Okay. I think on the call, PJ, we made the comment that we'd seen strength in the residential markets, and including, during the month of June, there was a lot of noise in the market relative to other impacts to the demand curve there. As Sean said in I think, in one of his answers, we're not ones for giving weather reports on these calls. We expect to have weather issues in various parts of the geography at all quarters, frankly. And so the health and robustness of the residential markets, both new and repaint, are really the core thing that we're looking at and providing confidence on. And we expect that over a cycle, weather will not be that big of an impact.

P. J. Juvekar - Citigroup Inc, Research Division

And, Chris, you talked about some pricing pressure in big commercial projects during the last call. Can you tell us if that is continuing? And if commercial is weak to get to 7% same-store growth, was residential up double digits?

Christopher M. Connor

Yes, on both recounts. Commercial bidding activity, in an environment like this, where folks are going aggressively after gallons, has always been tough in an environment. With moderating raw materials, we expect to see it even more so, and that's been the case. And then on your analysis on the residential impact being double-digits is also accurate.

P. J. Juvekar - Citigroup Inc, Research Division

And just quickly, have you seen any impact from paint geared towards contractors launched at Lowe's [ph] ?

Christopher M. Connor

No, we have not. I don't think that program's been out there long enough to get any indication of the impact it might have.

Operator

The next question is coming from the line of Duffy Fisher with Barclays.

Duffy Fischer - Barclays Capital, Research Division

I wanted to talk to the incremental margin in the Paint Store business jumped really strong this quarter, up over 50%, where it had kind of been 38% in the first quarter. Can you walk through the buckets of what improved so well in that business, as far as profitability relative to sales growth?

Sean P. Hennessy

Well, I would tell you, #1, we're starting to see SG&A improvement. I know that in the first quarter, we had mentioned that in the first quarter 2012, that sales were so strong, we did not get all the SG&A service dollars into that first quarter that we should have had. And we had to go against that history in the first quarter of this year. And remember, at the end of the first quarter, we said, hang in there because we thought that we would be flat to down slightly year-to-date in SG&A, which we finally did. But as those gallons go through the stores, this is the piece where we really feel good about our flow-through. And I think that it was just gallons, gallons going through, but that's G&A leverage. And that's what -- that's really what created it.

Duffy Fischer - Barclays Capital, Research Division

Okay, great. So that feels like a good, solid margin, that above 20% is a good baseline as you would look at it and others see seasonality with it, but there is nothing -- okay, terrific.

Sean P. Hennessy

Yes, we think that's in the first and the fourth quarter, and I...

Duffy Fischer - Barclays Capital, Research Division

Yes, fair enough. And then, when you look at your business and the Comex business in Mexico, not so much around the deal, but we've certainly got a lot of bad macro news flows about the housing market down there and financing for housing. How would you handicap the health of the coatings market going into that today versus if you think about when you would have announced the deal?

Christopher M. Connor

It's clearly softer, Duffy, specifically around the impacts that you've mentioned. The government has redirected some of their support for various housing programs. And that's had an impact on some of the large homebuilders in the region. So we have felt that in our business moderately, and I would suspect Comex has as well.

Duffy Fischer - Barclays Capital, Research Division

Okay, and then just one last question on Comex, in particular. I remember, Chris, you talking about one of the really strong points of the Comex business was just the density that they had. And if one of the fixes, and, again, this is a little bit of a speculation, but if one of the fixes that the government would ask for is the divestiture of some of the points of sale, is that a linear line? Or is there something asymmetric there, where the business starts to lose some of its attractiveness pretty quickly if you had to divest some stuff?

Christopher M. Connor

Yes, first of all, their business model is through an independent concessionario, 3,300 of these other Mexican businesses which operate these facilities. They're not owned by the Comex company themselves. so that in and of itself may not be the solution. And again, as we've commented earlier, all those types of potential outcomes are just purely speculative at this point in time, and we prefer to wait and work through the normal channels here.

Operator

Our next question is coming from the line of Greg Melich with ISI Group.

Gregory S. Melich - ISI Group Inc., Research Division

First, on the gross margin expansion. Could you help us with how much of it was due to manufacturing leverage, with the gallons coming through versus the price of raw material mix dynamic?

Sean P. Hennessy

I would say that the gallons coming through our plants, when you look at the -- I'll just go to the very -- the 45% versus the 43.8% on a year-to-date basis. Really, the majority of it was just the strong sales, the incremental sales. I would say the incremental gallons and incremental sales are really the -- they've created that gross margin, not selling price.

Gregory S. Melich - ISI Group Inc., Research Division

Right, so and then, I guess, that ties into the next, okay. If gallons are up 8, current resi, stronger than commercial, how should we think about the 8 versus the 7 in terms of that price, it's basically just all mix? And is it mix within those different categories, or just mix between the 2?

Sean P. Hennessy

I would say mix within category, yes.

Gregory S. Melich - ISI Group Inc., Research Division

Okay, got it. And then, lastly, you guided to a 6% to 9% growth number for the third quarter. I guess, what's sort of taking that acceleration? Is there something, easier compares or do you see anything specific in terms of orders or customer dynamic to give you that confidence?

Sean P. Hennessy

No, I think if you look at it, we think we're fine. I think the third quarter's looking a little stronger. But I wouldn't say that our sales in the second quarter versus 6% to 9% is that dramatically different, right? I think we're going to be fine.

Gregory S. Melich - ISI Group Inc., Research Division

Okay. And then, Chris, and I realized you can't say much on Comex, but, just to make sure I got the timing right. You said the -- you've already extended the merger agreement to the end of August. Would you expect to extend that again in the near term to give yourself more time, given the 30-day for a formal peer and 60-day review?

Christopher M. Connor

Yes, it's premature to comment on that at this point in time, Greg. I'm sorry.

Operator

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

John Roberts - UBS Investment Bank, Research Division

In the Global Finishes segment, were there similarities or differences between Auto Refinish and other businesses, like Product Finishes? I would have thought you might be seeing some benefit from the Exalta situation, that the 2 businesses might have to converged within that segment?

Sean P. Hennessy

I think that when you look at the Automotive, we had Pulanna, which was an acquisition. So the Automotive piece was the strongest of the 3 pieces, with or without the acquisition.

John Roberts - UBS Investment Bank, Research Division

Okay. And was there material spending in the quarter on the Comex deal in your SG&A?

Sean P. Hennessy

$0.01 to $0.02 a share.

Operator

Our next question is coming from the line of Eric Bosshard with Cleveland Research Company.

Eric Bosshard - Cleveland Research Company

With some insight into where raw material costs are at this point, as you'd indicated, as you think about the map or the path on gross margin from here. I'm wondering if you can just give us some of your thoughts and strategy and thinking on where that goes?

Sean P. Hennessy

Yes, and I think when you look at the gross margins, for the first half of the year, we were at 45. I think that without the Brazilian situation that we spoke of, that 45.2%. And we've continually said we're in that 43% to 46% range. And I would expect that our gross margin will come in between that 45% and 46% range for the year.

Eric Bosshard - Cleveland Research Company

There's been some discussion in the past of the range potentially being better in this cycle. I'm wondering as you think of the structural issues going on with input cost and also where we are in terms of volume and leverage, how do you think about doing better than that 43% to 46% range over the next 12 to 18 months?

Sean P. Hennessy

I think that over this period, I think, as we've commented in the past, we've always believed that eventually, we'd be at 44% to 47%, potentially, 45% to 48%. I think that, right now, it'd be premature. One of the things that we are sort of waiting to see is, after the Comex closes, to really show the combined gross margin it would be an effect in the short run. And we think it changes our long-term goal. So I think if that -- when that occurs, I think we'd be in a lot better shape to give you some updated numbers.

Eric Bosshard - Cleveland Research Company

In terms of, related to this, secondly, in terms of the benefit from the input costs, looking at better revenue growth than the quite incremental margin in the back half of the year, should the profitability progress of the first half be sustained or improved in the back half? How should that look as we work through the second half?

Sean P. Hennessy

Yes, when you look at the first 6 months, I think that we're at 3 57 versus 3 13 at $0.44. The mid-point of our range is $1, and I'll tell you that we're going to have to have a higher flow-through in this improvement in the third and fourth quarter than we'd had in the first 2 quarters.

Eric Bosshard - Cleveland Research Company

And then, secondly, as it relates to the Comex.

I'm just curious what color you can give us on your interactions with the commission prior to last evening's decision from them? If you could just shed some light on the interactions, the questions they've asked and sort of given your response to the decision last night, relative to those interactions?

Christopher M. Connor

Sure, just briefly, Eric, on that point. We've been represented by outside counsel in Mexico City, who specializes in working with this commission. They have had appropriate meetings with the commissioners during the process. Several of our management team has been able to participate in those discussions to help clarify points, provide data, et cetera. And so I would characterize that as being open and appropriate conversations.

Eric Bosshard - Cleveland Research Company

Was that a surprise last night, relative to the sort of candor and tone of those discussions?

Sean P. Hennessy

I'd be careful to not particularly use that word surprised. I think we'll just leave it at disappointment.

Operator

The next question is coming from the line of Dennis McGill with Zelman & Associates.

Dennis McGill - Zelman & Associates, LLC

Chris, just to clarify or maybe expand a little bit on that, the last question. So can you talk at all, even high level, on some of the points of contention that the commission raised, things that you have to go back and look at or address just to understand what are the dynamics that the commission is focused on?

Christopher M. Connor

Yes, Dennis, as we commented, we got this report late last night. It was 144 pages in Spanish. We are going through that in great detail at this moment. I think it just would be premature to comment at this time, unfortunately.

Dennis McGill - Zelman & Associates, LLC

Come on, Chris. You got to bone up on your Spanish. Okay, that's fair. On the business side, within same stores, can you just maybe comment a little bit more on what's driving the mix and whether that's a temporary dynamic within some of the categories or if that's the exterior/interior dynamic and how that plays out as you kind of normalize out weather?

Christopher M. Connor

No, I think we've mentioned it before. I think residential's been tremendously stronger than commercial. And I think that new residential has been fairly strong. So when you look at those 2 pieces, that's really what's been driving it.

Dennis McGill - Zelman & Associates, LLC

You're seeing the gallon, the gallon mix on the residential price is lower than non-res? Or just new construction?

Sean P. Hennessy

New construction, in general, is usually a lower average selling price. As that continues to become a higher percentage of our sales, that drives gallons faster than sales.

Dennis McGill - Zelman & Associates, LLC

Okay. And then is there a...

Robert J. Wells

I'm sorry, this is Bob. There is also still a slight interior-to-exterior mix difference relative to last year. Although it's what Sean said, the new construction, plus an interior-to-exterior mix difference.

Dennis McGill - Zelman & Associates, LLC

And is there a similar negative drag on the margin line?

Sean P. Hennessy

No, the operating margins are strong.

Dennis McGill - Zelman & Associates, LLC

All right. Well, I know that they're strong, Sean, but I'm just asking is there a drag on that or is it just the top line drag?

Robert J. Wells

No, we've talked for a long time, Dennis, about the consistency of the platform for products and assessments we're in. So we're fine in that regard.

Operator

Our next question is coming from the line of Charles Dan with Morgan Stanley.

Charles A. Dan - Morgan Stanley, Research Division

First, I just want to clarify that the new EPS or the new unchanged EPS guidance, does that include the $0.08 Brazilian duty expense?

Christopher M. Connor

Yes.

Charles A. Dan - Morgan Stanley, Research Division

Is that another way you would have been raising guidance if that -- if we hadn't run into that issue?

Christopher M. Connor

We've got a dime range, and it's only $0.08. So it's in there.

Charles A. Dan - Morgan Stanley, Research Division

All right. Well, okay. And then, secondly, just again to clarify the comments you made about the Mexican housing market getting softer versus when the Comex deal was announced, can you just clarify the original arrangement had -- just, does it have a price adjustment if there is a material change in that market and the performance, because now we're talking with the range that you gave, about 1 year going by just before the potential closing?

Sean P. Hennessy

As we continue to do the due diligence and the market has changed, there's other things that have not changed, and some other things that have gotten stronger. We continue to look at the pro forma. We look at what our -- what we expect to get a return on our assets that we put into this and the internal rate of return. And we don't have an automatic adjustment for the market conditions. I think that, as we've gone through, I think we're still, if this closes any time soon, even with the, in our mind, short-term market changes in Mexico, we think this is going to create nice shareholder value.

Charles A. Dan - Morgan Stanley, Research Division

And then lastly, just 2 housekeeping questions. One, your administrative expense, excluding the change in interest expense, seems to be down in the first half of the year. Do you expect that to continue to be down in second half? Or should we think about that going back up? And...

Christopher M. Connor

Well, I think -- oh, I'm sorry, go ahead.

Charles A. Dan - Morgan Stanley, Research Division

No, no, go ahead. I'm going to ask the second one afterwards.

Christopher M. Connor

I would say that we expect, even without the SG&A from the interest expense, the way you were referring to that question, we think that, that expense will be up slightly in the year. We just think there were some timing – and, again, we have some -- a couple IT projects that we're going to be working on in that -- in admin, also.

Charles A. Dan - Morgan Stanley, Research Division

Okay, and then, lastly, if you could just give the gross profit change by segment, if you could just...

Sean P. Hennessy

Sure. I got it. Gross profit change by Store group, $83 million. Consumer Group was down $400,000. Global Finishes, $8.6 million improvement. And Latin America is down $9.2 million. And I just want to remind you, that $9.2 million is -- that's where the $11.8 million was expensed as the cost of goods sold.

Operator

The next question is coming from the line of Ivan Marcuse with Keybanc Capital Markets.

Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division

Real quick. The residential recovery's been going on for a while now, and I understand nonresidential tends to lag, it's historically lagged. Is this lag lasting a little bit longer than you would have expected? Or is this sort of in line with expectations? And how would you sort of gauge your outlook for nonresidential, based off of, I guess, historic trends?

Robert J. Wells

Ivan, this is Bob. I think what we're seeing is that there are certain categories of nonresidential that has been real slow to start. And that's not unexpected. Retail was severely overbuilt during the last run-up. We're seeing solid construction activity in multi-family housing. We're seeing a pickup in office. Some of the institutional categories, specifically schools and government buildings, have been slow to start. So it's choppy across subcategories in the nonresidential market. But I think most of the nonresidential market is starting to pick up as expected. As a reminder, we do expect positive overall nonresidential volume this year in terms of square footage put in place.

Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division

Great. And then, for the Mexican market, if you could you remind me, what is the breakdown between, I guess, the total volumes in housing, new construction and repaint? And how much do the builders -- do they dominate, the large builders, dominate the new construction in Mexico? How does that market sort of -- I mean, how do gallons break out, I guess...

Christopher M. Connor

Yes, it would be very similar to the United States architectural business model that we've commented on for a long period of time. The vast majority of coatings in Mexico are to maintain and decorate existing structures. New construction totally would be in that 25% range, plus or minus a little bit. There are large Mexican homebuilders, but there are hundreds if not thousands of other independent builders as well, too. So you can pretty much apply the same kind of modeling to the U.S. market that we've commented on and share with you a long period of time to Mexico.

Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division

Great. And then my last question. On the Brazilian market, there's been a lot of uncertainty. Does that continue to -- what are you seeing in terms of your business on there? It looks like your results remain fairly strong.

Christopher M. Connor

Yes, I think there has been some noise surrounding Brazil's overall economic environment. We've had some segments that have been a little bit harder hit. Don't forget that one of the things that Brazil has in its future is hosting this World Cup and the Olympics. And the construction is build out of the required stadiums, airport expansion and housing, all areas where it would impact our business. So that's a little bit behind schedule. But some of our strength is relative to the work we've seen happening in that space so far.

Operator

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

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Chris, a question on your ability to outsustain or outperform industry growth. You're growing 7%, industry's 3% to 4%. How much of that, do you think, is due to your stronger position in new home construction because of your relationships with the top homebuilders? And how much is -- would be repaint, where you're just seeing a swing back to contractors?

Christopher M. Connor

Clearly, Don, as this rebound is occurring, we've commented about the emerging importance of the professional painting contractor. They have they've troughed a little bit during the downturn. And we expect that we're on our way back to about a 60-40 mix, where 60% of all the coatings will be purchased by professional painting contractors. Clearly, the new residential construction market, in terms of -- and all new construction. Bob just commented briefly on multifamily also being a strong, new segment as well, so we're getting a lift from that, and we'd expect that to continue.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Okay. And on the last call, part of your confidence in the outlook for the year was just the backlog that your contactor customer base had. How is that looking? Are they still relatively confident in the business outlook? And the other comment you made is that weather doesn't create or destroy demand for paint. It just defers it or accelerates it. So, this adverse weather that we saw in the second quarter, does that just push out demand into the third quarter or is lost for the year as a whole?

Christopher M. Connor

Yes, I would say you're accurate with all of your questions there. We would expect that the contractors book of business looks robust. Sean just commented on the third quarter sales guidance being a little bit stronger even in our second quarter. As we meet with these folks on a daily basis through our stores, they're continuing to give us indications. They've got a good book of business. And to your point about weather just moving demand back, none of these folks are commenting about the impact of weather. They're continuing to be on projects and expect that they're going to have a pretty solid second half as well.

Operator

The next question is coming from the line of Dmitry Silversteyn with Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

It sounds like from your comments, that your commentary on raw material expectations seems to be a little bit better than it was earlier in the year. I think there was some concern about second half of the year seeing some inflation in the petrochemical side of raw materials, at least. Now you're looking at it being flat and TiO2, obviously, is flat and down year-over-year. Your guidance was basically flat versus your previous expectations. So is raw material improvement, if it is there, just not significant enough? Or was this basically the $0.08 penalty from Brazil that prevented you from raising guidance on a little bit more robust outlook for cost? Or is there some other, sort of cautionary things that you're seeing in the market in the back end of the year that you would rather keep the powder dry as far as your expectations are concerned?

Christopher M. Connor

Well, on the raw material factor, Dmitry, there's obviously, there's a lot of moving parts. We believe that the TiO2 producers were going to push pricing hard, beginning in the second quarter, and they have. We weren't sure whether market conditions would be such that they'd actually realize some of the pricing that they were pushing. Our outlook, our point of view now is that market conditions will not accommodate a price increase or any effective pricing in TiO2. We weren't sure whether propylene would remain stable. It appears to be holding pretty steady, despite the run-up in crude oil. So I would say that, to Chris' opening comments, there's a lot more clarity now than there was 3 months ago. I wouldn't characterize, on the total raw material basket outlook for the industry, as far better today than it was 3 months ago. It's maybe, marginally better.

Dmitry Silversteyn - Longbow Research LLC

Okay, that's helpful. And then we're in our third year of negative volume comps on the consumer line or in consumer division. Obviously, in 2011, it was -- the majority of that was Walmart loss and then, I guess, a little bit of that spilled over into 2012. And now we have the Mexican Home Depot issues with Masco replacing Dutch Boy. When are we going to -- or when do you think you're going to anniversary that, and we actually get to see sort of the clean performance of the consumer group and hopefully, positive numbers [ph]?

Sean P. Hennessy

Yes, the other thing, just to make sure that -- you did a nice job of presenting the history, but you have to remember that when we did do the Walmart deal, when that Walmart deal was the major hit and last, at the end of the third quarter last year, we had another step down. And that's what we're anniversary-ing. So on the last call, again, Masco put it out there. In the fourth quarter of last year, and they -- we had that Mexican Dutch Boy will convert to Behr. So when you take with the last quarter, we said that, really, we were going to see negative through the third quarter. Then after the third quarter, we'd expect that we'd start to see some improvement there. So I think we answered it that way after the first quarter, and we feel pretty good about that answer. I wouldn't change it.

Dmitry Silversteyn - Longbow Research LLC

Okay, so fourth quarter, we should start seeing more apples-to-apples type of comparisons anniversary-ing all the headwinds as far as business losses?

Sean P. Hennessy

Yes.

Operator

[Operator Instructions] Our next question is coming from the line of Jeff Zekauskas with JPMorgan Chase.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

In terms of the-- are you -- do you continue to be optimistic about the Comex transaction? Because, at worst, you could divest your own Mexican business and own their much, much larger Mexican business? And did you offer them -- did you offer the commission any remedies so far, or remedies have not been discussed yet?

Christopher M. Connor

Well, Jeff, we'll always squeeze you in, first of all, so thanks for being on the call. And secondarily, those are all appropriate thoughts and ideas and questions for you to ask. And equally as appropriate, I cannot comment on any of that at this point in time.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay, and then lastly, sequentially, did your prices change either positively or negatively in your stores and in your consumer business?

Sean P. Hennessy

No, not at all. I think when you look at the second quarter versus the first quarter, it's been over 12 months since we've had the last price increase. And the selling prices are not dramatically different.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Are you allowed to say whether you're optimistic or pessimistic about the closing of the Comex transaction?

Christopher M. Connor

Jeff, we're optimistic by nature here, and I think the comments we gave early on about the multiple paths we have to continue pushing forward here, we're hopeful that we'll get this done.

Operator

Our next question is a follow-up question from the line of Aram Rubinson with Nomura Securities.

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

While I'm at it, can you talk about both the promotional environment and maybe the cadence of comps by range? Because I think by region, you mentioned there was a big range, and I was just curious to how wide a range there was by region?

Christopher M. Connor

Yes, so the promotional activity, Aram, has been very consistent in our industry pretty, much for decades on end now. This is the time of year when you'll see discounting by all the major retailers, including Sherwin-Williams, to drive traffic into stores around the big peak holiday seasons, and, certainly, July 4 qualifies as one of those. Bob did comment briefly about our Southeastern division leading the pack, Southwestern division second, then Eastern and Midwestern. All of them solidly in the mid-single digits and above range. The range was not very wide.

Operator

Our next question is a question coming from the line of Richard O'Reilly with Revere Associates.

Richard O'Reilly

Can you remind me or us, we had the volumes in the -- are the volumes for the Paint Stores made in the Consumer Group, or is it the other way around?

Sean P. Hennessy

No, the product that is sold through Stores Group is produced in the Consumer Group. So the Consumer Group is making product for sales of the Consumer Group, as well as the Paint Stores Group. So they also handle the logistics and warehousing.

Richard O'Reilly

Okay. So the consumer margin is down only a couple of percentage point -- basis points, even though the sales are down because the Paint Stores Group volumes were up so well. Is that how I should be thinking about it?

Christopher M. Connor

They definitely get a positive impact, yes, from having the Paint Stores Group improving volume.

Richard O'Reilly

Okay. And then a second question, if I can. Following up on the raw materials, I think you had said you saw your -- the overall basket now down low single digits. And we know about pigments. And propylene, at least, is down from the first quarter levels. What else in that basket is up or down noticeably? I mean, is packaging, or is distribution in there? What else can you comment on?

Sean P. Hennessy

Richard, distribution is not in there. But we tend to comment on propylene and TiO2, because TiO2 represents the vast majority of the pigment category. And propylene affects about -- the cost of about 60% of the raw material basket by cost. So we find propylene to be a good proxy for most of the rest of the basket outside of pigments. There is some movement in various specific solvents that we don't tend to delve into. But for the most part, packaging, latex and resins, and most of the base load solvents are holding pretty steady.

Operator

Our next question is coming from the line of JD Punjabi with Very.

Unknown Analyst

Just -- can you give us a little bit more color on what's going on in the Marine and Protective market? Why is it we can actually -- when you expect things to turn around there? And also, if you can provide a little bit more color on some of the other industrial coating markets, that will be great.

Christopher M. Connor

Yes. So the Marine market, Protective and Marine markets, for us, predominantly, as we've commented through our Global Group businesses, is a North American business. So we have a terrific share position in the United States, on a variety of different end segments here. I think Bob also commented about just some of the softness that we're seeing in the nonresidential sector of the economy, and, frankly, that's almost totally where the Protective and Marine business resides. Our segments would include there Bridge and Highway, petrochemical, wastewater treatment, energy, food and beverage. The military's an important component of that. Or, better said, the government is an important component of that. So sequesters have a little bit of an impact here as well. The good news for this business for us has always been that this is one of these types of painting projects that you can't defer maintenance for long. And so we think there's been just a slowing of it, a little bit, over this last quarter. And discussing the projects that we see on the books and with our contractors who work in this space, they're confident that the second half of the year will be better for them, and we'd expect to report that going forward.

Operator

It appears there are no further questions in queue at this time. I would like to turn the floor back over to Mr. Wells for any concluding comments.

Robert J. Wells

Thanks, Jesse. As always, I will be available for the balance of the day, tomorrow and throughout the coming week to answer your follow-up questions. I appreciate your patience if you're in the queue now. And, again, thanks for joining us today and thank you for your continued interest in Sherwin-Williams.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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