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Sherwin Williams Co. (NYSE:SHW)

Q2 2014 Results Earnings Conference Call

July 17, 2014, 11:00 AM ET

Executives

Chris Connor - Chairman and CEO

John Morikis - President and COO

Sean Hennessy - CFO

Al Mistysyn - VP & Corporate Controller

Bob Wells - SVP, Corporate Communications and Public Affairs

Analysts

Don Carson - Susquehanna Financial

Bob Koort - Goldman Sachs

Ghansham Panjabi - Robert W. Baird

Duffy Fisher - Barclays

P. J. Juvekar - Citigroup

John McNulty - Crédit Suisse

Vincent Andrews - Morgan Stanley

Kevin McCarthy - Bank of America Merrill Lynch

Dennis McGill - Zelman & Associates

John Roberts - UBS

Nils Wallin - CLSA

Eric Bosshard - Cleveland Research

Jay McCanless - Sterne Agee

Dmitry Silversteyn - Longbow Research

Eugene Fedotoff - KeyBanc Capital Markets

Jeff Zekauskas - JP Morgan

Richard O'Reilly - Revere Associates

Aram Rubinson - Wolfe Research

Operator

Good morning. Thank you for joining The Sherwin-Williams Company’s Review of the Second Quarter 2014 Financial Results and Expectations for the Third Quarter and Full Year.

With us on today’s call are Chris Connor, Chairman and CEO; John Morikis, President and COO, Sean Hennessy, 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 by Vcall via the Internet at www.sherwin.com. An archived replay of this webcast will be available at www.sherwin.com, beginning approximately two hours after this conference call concludes, and will be available until Thursday, August 7th, 2014, at 5 pm Eastern Time.

Following the company's review of the second quarter financial results and outlook for the third quarter and full year, we'll conduct a question-and-answer session.

I will now turn the call over to Bob Wells.

Bob Wells

Thanks Jessie and good morning, everyone. Thanks for joining us. As you just heard, we've made an important addition to our earnings conference call lineup. Beginning with this morning's call, John Morikis, our President and Chief Operating Officer will be participating in our earnings conference call each quarter.

Many of you had opportunities to speak with John over the years at our Annual Financial Community Presentation. He has a comprehensive knowledge of our operating divisions, customers, suppliers and our industry in general and because most of his discussions surrounding our earnings releases involve these topics it's only natural to include john in the conversation.

We think you'll find his perspective on the state on the industry and our company very valuable. I am going to turn the call over to John in just a moment, but before I do, let me remind you that this conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company’s earnings release transmitted earlier this morning.

In the interest of time, we provided some balance sheet items and other selected financial information on our website under sherwin.com Investor Relations Second Quarter Press Release.

With that, let me turn the call over to John to review our financial results for second quarter.

John Morikis

Thanks Bob. It's a real pleasure for me to take part on our call this morning and let me add my thanks to all of you for joining us.

The press release we issued this morning summarizes a very solid second quarter for Sherwin Williams. We continue to see positive momentum in most areas of the business and we clearly had momentum in large part to our consistent focus and prudent investments made over the past five years.

There are still some areas where we face challenges, but the progress we've made so far in this recovery and the bullish signals we are getting from our customers give us confidence that our momentum is sustainable.

I'll begin by highlighting overall company performance for the second quarter 2014 compared to the second quarter of 2013, then comment on each reportable segment.

Consolidated net sales increased 12.1% to a $3.04 billion, driven primarily by strong performance in our Paint Stores Group and acquisitions. The Comex acquisition added 4.6% to net sales in the quarter, while unfavorable currency translations decreased consolidated net sales 0.9%.

Consolidated gross profit dollars increased $176 million year-over-year to $1.4 billion and gross margins increased 80 basis points to 46.3% of sales from 45.5% in the second quarter last year. This gross margin improvement was primarily the result of better operating leverage from higher production and distribution volume, which more than offset the anticipated gross margin drag from the Paint Stores acquired from Comex.

Selling, general and administrative expense for the quarter increased 15.8% to [$969.2 million] [ph]. As a percent of sales, SG&A increased 31.8% in the second quarter this year from 30.8% last year. Higher SG&A spending in the quarter reflects our continued investment in new stores and sales territories plus incremental SG&A from acquisitions.

Interest expense for the quarter was $16.4 million, an increase of $1.3 million compared to the second quarter last year. Consolidated profit before taxes in the quarter increased $48.3 million or 12.7% to $429.2 million. Our effective tax rate in the second quarter this year was 32.1% compared to 32.5% in the second quarter of 2013. For the full year 2014, we expect our effective tax rate to be in the low 30s compared to last year's 30.7%.

Consolidated net income increased $34.2 million or 13.3% to $291.4 million. Net income as a percent of sales increased to 9.6% compared to 9.5% in the second quarter last year. Diluted net income per common share for the quarter increased 19.5% to $2.94 per share including a $0.06 EPS loss from the U.S. and Canada assets acquired from Comex compared to $2.46 per share in 2013.

Looking at our second quarter results by operating segments, Paint Stores Group had another strong quarter. Segment sales increased 17.2% to $1.88 billion and comparable store sales, sales by stores opened more 12 calendar months grew 9.8%.

Comp store sales growth accelerated 190 basis points sequentially from first quarter 2014 and 280 basis points year-over-year. The rate of sales growth increased sequentially in every customer segment.

Acquisitions added $103.7 million or 6.5% of sales in the quarter. Regionally, in the second quarter, our Southwestern division led all divisions followed by our Southeastern division, Eastern division and Midwestern division.

Paint Stores group segment profit for the quarter increased $42.9 million or 12.9% to $375.9 million as higher paint sales volumes were more than enough to overcome a $10.4 million loss on the acquired stores. Segment profit as a percent of sales decreased to 20% from 20.7% last year, but if you back out the effect of the acquisition, segment profit margin increased to 21.7%.

During the quarter, we opened 16 new stores bringing our year-to-date total to 33 new locations. At quarter end, our total store count in U.S., Canada and the Caribbean was 3,941 compared to 3,542 locations at the end of the second quarter 2013. 98 of the 399 incremental stores were opened organically since the end of the second quarter 2013. This year our Paint Stores Group plans to add approximately 80 to 90 net new store locations.

Consumer Group also turned in a solid performance for the quarter. Sales increased 10.1% to $433.4 million from $393.7 million last year. Acquisitions accounted for roughly half of the increase, while our domestic wood care and building materials business and Ronseal and Altax wood care businesses in Europe accounted for most of the organic sales improvement.

Segment profit for the consumer group increased $13.4 million or 17% to $92.5 million in the quarter, driven by higher sales volumes, improved operating efficiencies and a profit contribution from acquisitions of $2.7 million. Segment profit as a percent of external sales increased to 21.3% from 20.1% in the same period last year, which is gratifying to see following the softer profit performance in the first quarter.

For our Global Finishes Group, second quarter sales in U.S. dollars increased 6.1% to $544.6 million due to higher paint sales volumes and selling price increases. Most of Global Finishes Group's domestic business strengthened in the second quarter, but this improvement was partially offset by continued weakness outside the U.S., particularly in Latin America.

Unfavorable currency translation had minimal impact on sales in the quarter compared to last year. Segment profit in U.S. dollars increased 0.7% in the quarter to $54.9 million from $54.5 million last year. These results include charges of $4.5 million related to the exit of our business interest in Venezuela. Unfavorable currency translation rates change reduced segment profit by $600,000.

As a percent of net external sales, Global Finishes Group segment profit was 10.1% in the quarter compared to 10.6% last year. Our Latin America Coatings Group continues to operate in a very challenging economic environment. Second quarter net sales for the group stated in U.S. dollars decreased 8.9% to $181.2 million.

Volumes in the quarter were negative and unfavorable currency translation decreased net sales by 11.3%, both of which were mitigated to some degree by selling price increases. Segment profit in the second quarter stated in U.S. dollars increased to $5.7 million from $856,000 in the same period last year.

In the second quarter 2013, we incurred a charge of $11.8 million related to a Brazil tax assessment. In the second quarter this year, lower volume sales, increased raw material cost, and unfavorable currency translations were only partially offset by selling price increases.

Currency translation decreased segment profit $2.9 million in the quarter. As a percent of net sales, segment operating profit was 3.1% in the quarter, compared to 0.4% in the second quarter of 2013.

Although our Latin American Coatings Group results for the quarter and year-to-date are disappointing, we're committed to extending our presence in this important region and we are dedicated and working with all of these sources and expertise required to succeed in that effort.

Turning briefly to our balance sheet, our total debt on June 30, 2014 was $1.69 billion including short-term borrowings of $64.7 million. Total debt on June 30, 2013 was $1.69 billion. Our cash balance at the end of the quarter was $267.2 million, compared to $741.1 million at the end of the second quarter 2013 and $356.5 million at the end of last quarter.

In the first six months of 2014, we spent $66.9 million on CapEx -- capital expenditure, depreciation expense was $83.5 million and amortization expense was $15.1 million. For the full year 2014, we anticipate capital expenditures for the year will be approximately $190 million to $200 million; depreciation will be about $170 million and amortization will be about $30 million.

That concludes our review of results for the second quarter of 2014. So I'll turn the call over to Chris Connor, who will make some general comments and highlight our expectations for the third quarter and full year.

Chris Connor

Thanks John and good morning, everybody. Let me begin by saying how pleased I am to have John with us on the call this morning. I am sure you'll find him to be very insightful addition to our conference call team both today and in the years ahead.

At the midway point in the year, we are encouraged by how 2014 is shaping up. More than once in John's comments you heard him refer to the positive momentum in our business. Sales and volume growth began the year at a respectable pace and it appear to be picking up steam as the year progresses.

Consolidated sales growth in the second quarter increased 280 basis points sequentially and June was our strongest month so far. Domestic spray equipment sales, perhaps an unscientific but nonetheless reliable leading indicator of paint sales, robust throughout the quarter.

As John indicated most painting contractors including many who work in the non-residential markets are feeling very bullish about their order books going forward. Consumer group had another good sales quarter and Global Finishes is posting strong year-over-year volume gains in many industrial coatings categories.

Consolidated gross margin also showed significant improvement both sequentially and year-over-year. This is a function of volume-driven operating leverage, but also of stable raw material cost. Early in the year, we identified titanium dioxide as an inflation risk in the second half.

However, it was pretty apparent that the major chloride TiO2 producers have not yet succeeded in implementing price increase announced in the first two quarters.

As I mentioned in our first quarter call, both of the outward pressure on industry raw material baskets is coming from high density polyethylene, which is driving up cost of plastic packaging.

We've also seen higher year-over-year pricing trends in other raw material feed stocks such as crude oil, natural gas and propylene, ethylene and tinplate, but so far these are not effective raw material cost, we are maintaining our outlook for a relatively stable raw basket for the balance of the year.

In the first six months of 2014, we generated $332 million in net operating cash, an increase of $30 million compared to the first half of 2013, driven by higher six month net income. Although working capital is a slight use of cash in the first half, which is entirely due to the accelerating pace of sales growth, our best measure of working capital efficiency, the ratio of working capital to sales, decreased to 11.7% of sales, from 12.0% in the second quarter last year.

During the quarter, we acquired 2.03 million shares of the company stock with treasury, bringing our total year-to-date repurchase activity to 3.33 million shares at an average cost of $200.15 per share and total investment of $665 million.

On June 30th we had remaining authorization require 8.83 million shares. Yesterday, our Board of Directors approved a quarterly dividend of $0.55 per share, up from $0.50 last year.

Our confidence in the domestic building and remodeling markets continues to grow and we expect non-residential to play and increasingly important role in driving future paint and coating demand.

Many of the industrial segments also appear to be gaining momentum. These positives will be offset to some degree by persistent challenging conditions in Latin America. Based on this outlook, we expect third quarter consolidated net sales to increase in the range of 9% to 14% compared to the third quarter 2015.

With sales at that level, we expect diluted net income for common shares for third quarter to be in the range of $3.15 to $3.25 per share compared to last year's $2.55 per share.

Guidance for the third quarter includes our expectations that the Comex acquisition will increase net sales $120 million to $130 million, and reduce diluted net income for common share by approximately $0.05 per share in the quarter. For the full year 2014 we expect consolidated net sales to increase 8% to 13% compared to last year.

Although our sales expectations have not changed since our first quarter release, we are raising our expectations for full year diluted net income per common share be in the range of $8.50 to $8.70 per share compared to $7.26 per share earned in 2013.

Included in this full year guidance is our assumption that the Comex acquisition will increase net sales by a low single-digit percentage in the year and reduce diluted net income per common share $0.35 per share. The change in our full year EPS guidance was driven in part by lower than expected dilution from the U.S. and Canada Comex business from our original midpoint of $0.50 per share to our current expectation of $0.35 per share dilution.

Integration of these businesses into our Paint Stores Group and Consumer Group is progressing ahead of our original expectations. We’re on schedule and on budget with respective supply chain consolidation plans and performing better than planned from an operating profit standpoint.

More importantly, we are very pleased with a level of talent, enthusiasm and commitment we see in the men and women to join Sherwin Williams through this acquisition. This, above all, will pay dividends for years to come.

Again, we’d like to thank you all for joining us this morning, and now we’d be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions) Our first question is coming from the line of Don Carson with Susquehanna Financial. Please proceed with your question.

Don Carson - Susquehanna Financial

Yes, Chris. Just wondering, you know, what’s making you more optimistic about the second half outlook, because it appears even – post you changing your Comex guidance that you’re looking to about $0.23 improved earnings despite a similar sales outlook. Your contractors, as you indicated, seem pretty optimistic yet the housing data still seems somewhat mixed, so just wondering if you can reconcile those two conflicting items.

Chris Connor

Yeah, Don. I think that’s a good point about the conflicting data we’re seeing out of some of the housing numbers. We just were commenting about the most recent information. It seems that from quarter-to-quarter we have starts up permits down and the exact opposite the next quarter. I think we’re still fairly bullish on the need for improved housing starts to get up to a more sustainable number. But don’t forget that a solid 75% to 80% of all these architectural coatings are being used to maintain existing structures. And I think therein is the momentum that we’re feeling, as John commented about, the anecdotal evidence we’re getting from our contractors. We just think the second half is going to be strong.

Don Carson - Susquehanna Financial

And then just a clarification on your same store sales growth of 9.8%, what was the price volume mix? How much of that first quarter price increase that you posted did you start to realize in the second quarter?

Sean Hennessy

You know that price increase is going well then -- this is Sean Hennessy -- and when you do, we don’t really break out all those different factors, but the majority of our selling price -- selling increase was volume.

Don Carson - Susquehanna Financial

Thank you.

Chris Connor

Thanks, Don.

Operator

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

Bob Koort - Goldman Sachs

Thanks very much. Chris, you mentioned Comex was -- the integration was going faster than you expected and that provided some earnings leverage. Can you talk more specifically is that because you restructured contracts; took other cost out, what exactly has accelerated the benefit there?

Chris Connor

Yeah. I don’t think it’s in any restructuring of contracts per se. [There are variable] [ph] contracts in a business like this when you’re running your own dedicated store business. I think we’re just getting better operating leverage for the company. Raw material cost, implementation of some of the shutdown activities have gone well, ahead of schedule, lower than expected cost impact. I think we have commented the sale of this business is still lagging what we’re seeing in our core business. So it’s mainly on the operating cost side that’s coming in lower than expectation.

Bob Koort - Goldman Sachs

And you mentioned your pretty impressive 10% Paint Stores sales, can you give us a sense what Comex is doing year-over-year and maybe what you think the overall U.S. architectural paint market might do in 2014.

John Morikis

I’d say that the Comex stores are lagging our store sales, and which would be typical in an acquisition like this. As far as the entire market goes, we get that information that lags, but I’d say we feel very comfortable that we’re growing at a faster rate than market right now.

Bob Koort - Goldman Sachs

Great. Thanks so much.

Chris Connor

Thanks Bob.

Operator

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

Ghansham Panjabi - Robert W. Baird

Hi guys. Good morning. First off on the Paint Stores Group, clearly volumes are well above what your competitor seem to be reporting as it has been the case last couple of quarters. Is this a function of the channel that you’re exposed to, maybe commercial construction or just sort of continued share gains?

John Morikis

I’d say that we’re experiencing very good growth in all the segments that we play, so I don’t think that it’s any specific area. I think we really enjoy this controlled distribution model. We’ve been working hard and investing in the service and products that respond to the customers’ needs and we’re comfortable with our performance.

Ghansham Panjabi - Robert W. Baird

And just as a follow-on to that as commercial construction continues to improve generally speaking how does that affect the price mix component in the Paint Stores Group?

Chris Connor

Yeah. We’ve talked about that Ghansham, in the past, some of these larger projects will be at lower selling prices per gallon. But what we said, the SG&A associated with servicing that business really is lower as well so operating margins for this group will benefit from gallons that we gain in any one of these end market segments.

Ghansham Panjabi - Robert W. Baird

Okay. Thanks so much guys.

Chris Connor

Thank you, Ghansham.

Operator

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

Duffy Fisher - Barclays

Yes. Good morning, guys.

Chris Connor

Good morning, Duffy.

Duffy Fisher - Barclays

Two questions; may be first for Sean. On CapEx, this year’s CapEx looks like it’s even more back-end loaded than normal for you guys. Can you walk through why that’s split is so skewed? And then if you strip out Comex, what was the underlying incremental margin for the Paint Stores Group?

Sean Hennessy

On the CapEx you’re absolutely right. It’s little backward, slanted toward the back. Again, as Comex conversion, Comex starts conversion they’re going to start taking place here. We’re going to start to see that CapEx ramp up. A few other projects that we had -- originally had early in the year we’re going -- especially with IT then completing the IT implementation of system throughout the world.

We’ll have Latin America here completed by next April, but we have some expenses that are coming in. So really it’s Comex and diversion of the stores and some other activities that we see coming in. And the flow through on the stores without Comex, I think John mentioned the 21.7% of sale, but without Comex when you look at that that will tell you we’re probably incremental in the quarter of about $50 million in the sales, without Comex we’re up around $280 million, so you’re talking almost 35% incremental margin.

Duffy Fisher - Barclays

Okay, great. And then Chris, one question for you, a follow-on on bob’s question. If Comex is going better early does that mean that the end point is higher than we thought originally, or do we just get to the same endpoint that we thought to get there quicker.

Chris Connor

I mean we’re just getting to the endpoint on cost side. So as John mentioned, [inaudible] are yet to really be running at the kind of rate we expect and we get too eventually. So we still have some tough sledding ahead of us here.

Duffy Fisher - Barclays

Great. Thank you, guys.

Sean Hennessy

Thanks, Duffy.

Operator

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

P. J. Juvekar - Citigroup

Yes. Thank you. Chris, can you comment on the refinish business in light of the harsh winter we had? And did you see a pick up there in the spring? And can you also comment on the protective finishes business? Thank you.

Chris Connor

Yeah. P.J., I’m sorry if you could repeat it. I wasn’t sure which business you’re asking me to comment on relative to spring weather.

P. J. Juvekar - Citigroup

Yeah. Refinish business.

Chris Connor

Refinish business, are you talking about automotive refinish?

P. J. Juvekar - Citigroup

Yes.

Chris Connor

John, you will take that?

John Morikis

Our business here in the U.S. was up slightly in the quarter. We’re expecting that the customers that we’re talking with are experiencing more business as a result of the winter, but we’re up slightly here in the U.S.

P. J. Juvekar - Citigroup

And then you have this sales force that goes out and bids on projects. What are they seeing in non-residential activity, any positives or negatives there?

John Morikis

Very positive. I would say that our contractor base in that space are feeling better -- much better this year versus last year, and quite frankly, much better this quarter than last quarter. So they’re feeling very excited about the bidding activity. And as Chris mentioned, with the spray equipment purchases that we see that as an indicator of their confidence.

Chris Connor

John and I were out recently just meeting with some of these large commercial contractors and some of them said that we’re not even taking any more bids right now. They’re so full up for the next 18 months. And that we haven’t heard that in years, so expecting really strong performance in that going forward.

P. J. Juvekar - Citigroup

So would you say that that is may be in the high single-digit number?

Chris Connor

Just backed in to all the guidance we’ve given you P.J. and we gave you the range I think it’s either high single or low double-digits for the next quarter.

P. J. Juvekar - Citigroup

Thank you.

John Morikis

Thanks P.J.

Operator

Thank you. Our next question is coming from the line of John McNulty with Crédit Suisse. Please proceed with your question.

John McNulty - Crédit Suisse

Yeah. Good morning. Thanks for taking my question.

Chris Connor

Good morning, John.

John McNulty - Crédit Suisse

So with regard to SG&A, the 15% jump or $132 million change, how are you want to look at it year-over-year? How much of that, or how should we think about what the SG&A growth was for kind of, if you will, legacy Sherwin Williams versus say some of the Comex integration and from the cost around that.

Sean Hennessy

Again, the increase in the SG&A in the quarter and year-to-date really, really been driven by three factors. The Paint Stores Group, the new stores [indiscernible] the acquisition, the Comex assets operated at an SG&A rate materially higher than our consolidated SG&A, the sale, so as we anniversary that that will improve, and again, that investment I’d mentioned in IT.

So we’re looking forward here, the SG&A was up 1.3% of sales as we’ve mentioned in the first half of the year. We do expect to see that thread there to reduce. In fact, it’s also part of the reason why we raised guidance. We expect the second half SG&A to be lower in percent of sales than it was last year in the last six months of the year.

John McNulty - Crédit Suisse

Okay. Great. That’s helpful. And then just a quick question on the Venezuelan assets, what was the normal kind of annualized earnings for those assets so we can kind of figure out how much to pull out?

Sean Hennessy

Yeah. The normalized -- it was less than $2 million a year. Unfortunately, over the last few years we’ve been having sales profits there, but we could not get our cash out. So it was a small automotive refinish, but it is in Venezuela. So we picked some severance cost and we closed and we wrote our assets off totally, so that’s why that was approximately $5 million because cash had accumulated and we could not get our cash out of Venezuela.

Chris Connor

Venezuela is to write that asset off.

John McNulty - Crédit Suisse

Okay. Great, thank you. And then one last question, with regard to the case of buybacks certainly things accelerated in the second quarter. I guess how should we be thinking about that going forward? Is this kind of a good run rate for a while, or was it just opportunistic, just seeing kind of what was in the pipeline?

Sean Hennessy

No. We’ve taken a look at our cash flow for the year like we always do. We know how much cash we’re bringing in. And what we said is by the end of the first quarter 2015 we’ll be in a more normalized phase. So we actually have looked at this quarter and actually we did by two -- just over two million shares and that was actually in the form of an accelerated stock repurchase program. So we did that in the second quarter and we’re evaluating what cost program we’re going to do in the third quarter.

Chris Connor

I think it’s not the way to think about that John is that we’re sitting in a higher cash balance right now than is customary for us. We’re heading into the two strongest cash generating quarters of the year for us. And you know what we’d like to do with excess cash. So I would expect it would be reasonable to assume we’re going to remain active in the stock.

John McNulty - Crédit Suisse

Great. Thanks very much for the color.

Chris Connor

Thank you, John.

Operator

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

Vincent Andrews - Morgan Stanley

Thank you, and good morning. Just wondering on the same store sales can you talk a little bit about as you’re seeing more contractors coming in, or are you seeing the same amount of contractors just buying more product or better mix or how’s that working?

John Morikis

Now we’re seeing more contractors and we feel as though the share of wallet that we have with our existing customers is also growing. We’re very excited with the progress that our stores organization is making with both existing and new customers.

Vincent Andrews - Morgan Stanley

Okay. And just one last follow-up on the non-res side of things, are there particular end markets that your guys are getting reports from that just leading enthusiasm?

John Morikis

No. Actually it’s pretty well diversified growth pattern.

Vincent Andrews - Morgan Stanley

Okay. Thanks very much.

Chris Connor

Thanks, Vince.

Operator

Thank you. The next question is coming from the line of Kevin McCarthy with Bank of America Merrill Lynch. Please proceed with your question.

Kevin McCarthy - Bank of America Merrill Lynch

Yes. Good morning.

Chris Connor

Hi, Kevin.

Kevin McCarthy - Bank of America Merrill Lynch

How much did your sales of spray equipment increased in the quarter? And was that rate more than you had previously expected last quarter?

John Morikis

Yeah, Kevin, as you know, we don’t give you specific sales on all those various products segments inside that stores business. So just to say that the whole business is running in comp stores and at high single-digits, spray equipment was probably leading that a little bit, so double-digit sales growth.

Kevin McCarthy - Bank of America Merrill Lynch

Okay. That’s helpful. And Chris, I want to may be come back to an earlier question. I mean historically existing home sales growth has been a primary driver of demand for architectural coatings obviously, and it looks like economists have that metric in some cases anyway down a bit and yet you’re seeing very robust growth. And so I’m wondering why that might be the case? Is it the non-res move that you alluded to, share gains, lagging maintenance, all of the above, how would you try to square that circle?

Chris Connor

We’ll let out our resident economist Dr. Wells take that.

Bob Wells

Good morning, Kevin. Speaking specifically to non-residential market, because we’re getting contribution from other market segments as we’ve already indicated, so on the residential side we think two things are happening. One is we’re getting a list from home value appreciation, so more home owners who are staying in place are doing remodeling and redecorating projects.

Secondly, if you look at the quality of the existing home transactions that are occurring now versus a year or two years ago, there’s a far lower percentage of those transactions that are distressed or foreclosure-type sales. And as you’ve heard us comment in the past, the owner occupant selling to a new owner occupant is the transaction that generates the more paying activity. We think we’re benefiting from that shift.

Kevin McCarthy - Bank of America Merrill Lynch

Okay. That helps. And then last one if I may, Chris, just welcome any thoughts you have on Lat-Am and whether or not we might see volume turn around to positive of territory there anytime soon?

Chris Connor

Yeah. When you’re doing business in Latin America it’s important that you look over longer segments. We’re in one of these cycles where currencies running against us. And there’s a couple of rough spots in their bigger country’s economies. Having said that, and I think John commented on it, we’re still very much committed to the region.

We think there are opportunities for us to enhance our method of distribution and build out our infrastructure there. I don’t think that we’re necessarily forecasting in this guidance that we’re going to see volume growth in calendar year 2014, but rest assure we’ll be working hard to get that fixed by 2015.

Kevin McCarthy - Bank of America Merrill Lynch

Okay. Thanks very much for the thoughts.

Chris Connor

Thank you, Kevin.

Operator

Thank you. Our next question is coming from the line of Dennis McGill with Zelman & Associates. Please proceed with your question.

Dennis McGill - Zelman & Associates

Hello, thank you. First question just one, if you look back to last third quarter, Chris, it was a very strong quarter for you guys both year-over-year and I think on seasonally adjusted basis as well.

And so you’re going up against a tougher comp, but you’re seeing a lot in pipelines you talked about driving out acceleration or a pretty similar acceleration and growth now versus the second quarter of this year. If you look across the major end channels of home improvement or repaying on the residential side, new construction residential and non-res, what’s accelerating the most right now as you think about that pace?

Chris Connor

Yes. So I think as John has commented, we’re seeing a very broad-based recovery here, Dennis, across all these segments. New residential has been strong, residential repaint which is the largest segment, we’ve been commenting on that one now for multiple quarters. Both of those will be double-digit increases over previous years to help drive comp number in to that high 9 percentage. That’s encouraging for us to see those two numbers doing so well because they are the lion’s share.

As John also mentioned the non-residential segments, particularly new construction in that are which has been lagging for some time, we’re really starting to see a lot of lift there as well too. So this looks like heading into a back half where we’re going to be hitting on just about every cylinder.

Dennis McGill - Zelman & Associates

So you talked about earlier the disconnect on some of the macro, if you just looked at new construction, residential, it is that a disconnect for you guys, are you guys seeing acceleration versus so to say, trends on a macro side?

Chris Connor

Our business in very strong in new residential. One of the anomalies in the June print that just came out this morning is that most of the weakness in start were in South and that has been very strong for the about year to date. So whether that was a one month lift or something the beginning of a trend we will see, but new resident in general has been very strong.

Dennis McGill - Zelman & Associates

Perfect. Helpful. And then Sean on the Comex acquisition the trend in margins, I think what you said here now we are going to get to the targeted margin sooner, any update on how you can think about the momentum in 2015 versus what you said may be high single digit type numbers in 2015 for the acquired business.

Sean Hennessy

We were looking at high single digits. I think that we are watching how the year ends, but I think that is probably good a guidance that we can give you right now. I think probably at the end of the third quarter or fourth quarter and fourth quarter for sure, will probably be able to update that, but right now we don’t see any changes to that guidance.

Dennis McGill - Zelman & Associates

Okay. All right. Thanks and good luck.

Sean Hennessy

Thank you, Dennis.

Operator

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

Greg Melich - ISI Group

Thanks. Two questions. One on gross margin and consumer. On the gross margin, how much did Comex hurt in the quarter year-over-year and what did mix do to help.

Sean Hennessy

Greg as you know, I don’t think we have ever given the metrics. Our gross margin with and without it was dilutive and it has been dilutive. The only think I will say is given you a range at the beginning of the year 45 to 46 versus 45 last year and now as the year is going through and now we believe we are going to be at the high end to that range.

Greg Melich - ISI Group

Got it. And then second on the Consumer Group. A nice improvement there, I think it was acquisitions was half of it and then volume was 5% as well in fact it was driven by retail. Could you describe that a little more, was it -- did you sign up any new distribution or was it was just strong sell through or what you really account for that.

Sean Hennessy

We have a new program that we're roaring into Home Depot that we were excited about in our conference line. We've also, as I mentioned seen some nice improvement out of our European operations as well as our building materials.

Greg Melich - ISI Group

Of the 5% volume, would you say that those two were majority of them.

Sean Hennessy

The largest one would have been Home Depot.

Greg Melich - ISI Group

Home Depot, great. Thanks a lot. Good luck.

Sean Hennessy

Thank you, Gregg.

Operator

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

John Roberts - UBS

Thanks for taking my call. There are couple businesses I guess that might come available for sale here in North America and you seemed to be going at a measured pace, which you repurchase, keep your flexibility. Could you talk about the M&A pipeline?

Sean Hennessy

Yeah John. So we've been very clear and open and transparent with the street in terms of the types of properties that would be of interest to us. We would agree that there are some interesting names in North America as well as in our industrial coating segments globally but nothing further to comment on at this time.

John Roberts - UBS

Okay. And then secondly the plan A in Latin America was to get scale to get the margins to improve there. Is there a plan B given scale doesn’t look achievable and at least in the near term that I can see.

Chris Connor

Most of the plan B John and that C and D has to go along with that one. Just as you were representing M&A opportunities there are a number of interesting names and companies that we respect throughout Latin America. So we're certainly not done thinking about building scale through M&A throughout Latin America.

And also as has been our practice, we are a company that's focused on our core development. We have good scale already in these countries. We are not the market share leader in the larger economies, but call it second or third and that's not a bad position to build from.

So we have a number of imitative to really ramp up our own core group as well as to continue to think about M&A and I think as we commented earlier that you know we are very focused on this region and we expect to do better in 2015.

John Roberts - UBS

Thank you.

Chris Connor

Thanks John.

Operator

Thank you. The next question is coming from the line of Nils Wallin with CLSA. Please proceed with your question.

Nils Wallin - CLSA

Good morning and thanks for taking my question.

Chris Connor

Good morning, Nil.

Nils Wallin - CLSA

On the Comex -- is Comex going to be more dilutive in the fourth quarter than it is for any of the other quarters and if so why would that be the case.

Chris Connor

Yeah, when you take a look at the year-to-date -- when you think about the year-to-date loss on Comex $0.45 and it's compared to the 35 and then compared to last year, it won't be any dilutive. It's 18 and it's 17 in the second half of the year, but they have a sell curve just like our Stores Group and if you take a look at that volume they are closer to the breakeven points in that third and fourth quarter -- I am sorry, the first and fourth quarter and that's why they are more dilutive.

Years ago if you looked to our Stores Group in the first and fourth quarter, when we were closer to the breakeven we had the same phenomenon, but we will get there with the Comex stores with higher volumes, but until that happens the first and fourth quarter will be a bigger drag than the rest of the Paint Stores Group.

Nils Wallin - CLSA

Okay. That makes sense. Then in terms of having the point of sale in the Comex Stores now for a couple months is there anything you are seeing, I know before in the past you guys have said that there is pricing, lower pricing and lower fill rates. Is there anything new that you’ve seen that you can make improvements on and work for those? How quick those get to share one type level.

Chris Connor

We are very excited with what we are learning to the POS and we are excited about the future. We're going to be able to leverage that POS much like we do in our own stores understanding our customers better.

To your point about pricing, a basket approach, what are they purchasing from us and what they are? So we're excited about that and as we go into next year, we're going to leverage that.

Nils Wallin - CLSA

Great. And then just finally I know Latin America now seems like almost unfortunately a bit of an afterthought in terms of profitability and you are certainly looking to improvement it by 2015, but is there any reason that it won't get any worse.

Sean Hennessy

Yeah. I think that we have currency headwinds and if you think about especially the first Brazil real the third quarter and fourth quarter can be better comparisons for us.

If you look at Argentina, right now we have been running at that 8% versus 5%, that will be 8% versus 6% in the second half of the year that's a little bit of difference, but it continue to evaluate in that third and fourth quarter, but operationally I don’t think that we still feel we're strides and improvement our operation. So except for that, I think that you know I don’t see it going backwards from here.

Nils Wallin - CLSA

And how much of you have been able to offset the currency drag with pricing.

Sean Hennessy

Well, I think that when you talk -- if points were failed and shall we get the amount of currency drag when it's over 11% and again in U.S. dollars we were down around 8% and there were some volumes that did backwards, so we gave some price.

Nils Wallin - CLSA

Great. Thanks so much.

Sean Hennessy

Thank you, Nils.

Operator

Thank you. Our next question is coming from the line of Eric Bosshard with Cleveland Research. Please proceed with your question.

Eric Bosshard - Cleveland Research

Good Morning.

Chris Connor

Good morning, Eric.

Eric Bosshard - Cleveland Research

Two things. First of all the earning guidance change for the quarter and the back half of the year it looked like you have affirmed the sales guidance and increased the earnings guidance.

So the assumptions that margins are better and Sean I know you commented about how SG&A looks into the second half versus first half, but can you provide a little bit more color inside of the core earnings guidance change. The sales mix is different or the margin is different especially out a little bit.

Sean Hennessy

We don’t see the sales mix changing dramatically from our original guidance. Eric, I think it really comes down to the gross margin. We did mention 45 to 46. We're at 45 halfway through the year. We think for the full year we're going to be at the high end in the next guidance.

The SG&A we did mention you know the first half of the year, the comparisons were bad. We had more new stores earlier this year than we ever have. Some of the things that we were going to start anniversary we think our SG&A in the last six months will actually be below the last six months of last year. So still good thing. So I think that it's the margin in total and that's because of sales mix just because of things that are occurring and getting some of those other things out of the way in the first half of the year.

Eric Bosshard - Cleveland Research

Is the SG&A stand different in the back half than what you originally expected or is there something different within that relative to where you started that you are thinking.

Sean Hennessy

I think the SG&A spend will probably be slightly below what we originally thought at the beginning of the year, but not dramatically. And I think importantly in that Eric, the SG&A spend is lower because we are integrating the stores better, we are gaining efficiency there haven’t been a whole sales decision to whack programs in marketing, advertising, training, R&D, etcetera. So this is just really the company continuing to add efficiency around the fringes as we integrate businesses.

Eric Bosshard - Cleveland Research

And then second question, Chris for you. Strategically you went through a period of time with acquisitions outside of the U.S., outside of the U.S. architectural business, I heard your comment earlier about sale of Latin America, so I am just curious as you think strategically about the portfolio and acquisitions from hear and if you could give us a sense of your thoughts or your priority or what's important for you going forward.

Chris Connor

I think this management team has been pretty much locked on a pretty logical strategy here for quite some time Eric that hasn’t changed at all. We like the architectural coatings businesses in the Americas and we recognize that our industrial coatings are competing in a global environment or wherever we can find controlled distributions to support those American businesses or add technologies, infrastructure, important geographies and/or customers to the industrial coatings will be at the table and discussing those opportunities.

Eric Bosshard - Cleveland Research

Thank you.

Chris Connor

Thanks Eric.

Operator

Thank you. Our next question is coming from the line of [Arun Viswanathan] with RBC Capital Market. Please proceed with your question.

Unidentified Analyst

Hi guys. Thank you for taking my question. Good to be back covering chemicals. How the customers I guess been responding to the price increase? May be if you can just describe their behavior or given that you do expect a flat rock bucket.

Chris Connor

Not really been an issue I would say with our customers. And we've had a logical discussion with them and we continue to provide them with a good quality product and great service and it's really behind us.

Unidentified Analyst

Okay. Great. And then I guess -- I just wanted to delve into the earlier comments you mentioned that you were seeing strength in the South and maybe you can just highlight what you're seeing growth on the res and non-res side regionally speaking and if there is any differences.

Chris Connor

As Bob mentioned the strong performance that we are having in the new residential has been in the south. We've also had good performance in parts of Northern Area and then Western and Eastern as well. Commercial has really been strong. It's really been quite strong across all segments across all our regions.

Sean Hennessy

It's been our practice to kind of give you that ranking of where the strength is coming from and so we've continued on and sometimes when we are preparing our thoughts to share with you, we think about when all the segments are doing so strong in all the geographies, it really kind of splitting areas to tell you which parts of country you are doing better. So this is really a business through the Stores Groups that is just delivering across the country, across all segments as John commented on them.

Unidentified Analyst

Okay. Great thank you a lot.

Chris Connor

Thank.

Operator

Thank you. The next question is coming from the line Jay McCanless with Sterne Agee. Please proceed with your question.

Jay McCanless - Sterne Agee

Hi. Good morning everyone. I wanted to ask about Latin America in a different way. Do you think the volume softness this quarter had more to do with the World Cup than an actual drop-off in demand? And then the second part of that, when you look at 2015 and 2016 and what the economists are expecting for housing growth and then commercial growth, what does that outlook -- what does that look like.

Chris Connor

I don’t know that we want to say that it was a World Cup influence our results and there are markets that we would say are impacted by the economic conditions or the environment and there is somewhere we just need to perform better and that’s we are working on. I didn’t catch the second part of your question.

Sean Hennessy

So the expectation on the market conditions going forward, Jay, I guess we have confidence that when we look behind the results today, the housing needs going forward in Mexico, the infrastructure, that hasn't been maintained as appropriately it is a should have been perhaps in Brazil, the demand for the types of products and services we provide, we'll have to have a rebound going forward. And I think that's why we continue to stay hard at it, improving our operations investing and trying to build out our network.

Jay McCanless - Sterne Agee

Okay thank. And then the second question I have just in the U.S. if you look at single family housing demand versus multifamily housing demand. Is multifamily an increasing portion of your business and what types of numbers do you get there whether on profit margin or on volume growth relative to what you see in single family.

Bob Wells

Jay, this is Bob. With respect to demand, multifamily is a larger component of a new construction markets than it was during the last cycle. And we think that's probably going to be true for some time although as you know the multifamily size is really voluble and to oscillate quarter to quarter and year to year.

We think that for the time being that the U.S. is going to be more of a renders market than an owner's market for some time to come. From a margin standpoint we've always commented that it really doesn’t affect us from an operating margin standpoint all of the segments that have very comparable operating margin.

Jay McCanless - Sterne Agee

Okay great.

Chris Connor

Jay, the one positive on the multifamily side is that while single family homes the maintenance activity in those homes is kind of a mix of DIY to contractor on the multifamily side, it is overwhelmingly maintained by contractors, which plays to our strength.

Jay McCanless - Sterne Agee

Okay. Great. Thank guys. Appreciate it.

Chris Connor

Thanks Jay.

Operator

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

Dmitry Silversteyn - Longbow Research

Good morning, guys and congratulations on quarter.

Chris Connor

Good morning, Dmitry

Dmitry Silversteyn - Longbow Research

I would like to touch base on your corporate expense line. It's been off pretty material year-over-year. Some of it obviously Comex, but a lot of it is probably not Comex. So in the context of your SG&A in the second half of the year being down as a percentage of sales versus second half of last year, how much of that is going to be corporate expense versus just better margins in the operating businesses?

Chris Connor

Even with the Admin expense we were up $31 million in the first half of the year and as we take a look at the -- take that down at $25 million, that split really between stock compensation and other compensation such as bonus and the IT projects that we've been working on.

The second half of the year, we don’t think we are going to be up the $31 million. So that's going to help, but even if we were up, when you add up $31 million, that's a nice improvement, but really the SG&A is really been driven by the operating division.

Dmitry Silversteyn - Longbow Research

Okay. Got it. And then can you provide us with updates, if anything is going on, or any changes with respect to the litigation in California, how that's progressing, and also given the news in the market with PBG taking a run at Comex, if that's changing at all, your mutual animosity in the courts with the Comex owner.

Chris Connor

Dmitry with respect with California Litigation, there is really no changes in the status of that suite since our last call. As you know last quarter, we announced that the final judgment was entered against three companies. We immediately filed a Notice of Appeal in that judgment and we are currently waiting for the record to be transmuted from the trial court to the Court of Appeal.

It tends to be a fairly long process. We think the record would probably be transferred in the third quarter. At that point the court will initiate a briefing schedule, which is going to take at least five months and once and then all arguments will begin and once all arguments conclude it's another 90 days for the court to render a decision.

All totaled we continue to believe that the decision by the Court of Appeals is going to take approximately two to three years. As far as the Comex issue is concerned we are still in arbitrator and there is still a lawsuit filed by Sherwin Williams in the New York Court and at this stage we are in the process of selecting arbitrators.

Dmitry Silversteyn - Longbow Research

Got it. Then not to beat the dead horse to death here, but in terms of your Latin-American operations obviously there's not much you can do without the facts other than maybe push through pricing which you have been doing, but for you to turn that business around and the performance of that business and actually get out on a positive trajectory either this year or next year, is there anything that you guys can do internally or do you have to rely basically on the currency and the end markets improving?

Sean Hennessy

No, there's a lot we can do internally, Dmitry and it's the same kind of playbook that we assume run the company deliver the results we have. We need to knock on more doors, call on more painting contractors move more gallons of paint, be more efficient.

When the economies come back and the currency runs our direction, it will be really, really good. In the mean time, we're working on the things that we can control.

Dmitry Silversteyn - Longbow Research

So are you increasing your sales presence there in terms of outside sales people and how do you bang on more doors?

Sean Hennessy

We have invested in more people to promote our sales and our gallons in the marketplace absolutely.

Dmitry Silversteyn - Longbow Research

All right. Thank you.

Chris Connor

Thanks Dmitry.

Operator

Thank you. The next question is from the line of Eugene Fedotoff with KeyBanc Capital Markets. Please proceed with your question.

Eugene Fedotoff – KeyBanc Capital Markets

Good morning, guys. Thanks for taking my questions.

Chris Connor

Good morning, Eugene.

Eugene Fedotoff – KeyBanc Capital Markets

Congratulations on a good quarter.

Chris Connor

Thank you.

Eugene Fedotoff – KeyBanc Capital Markets

Couple of questions on store group sales for the quarter, if you can comment on anything that you’ve seen maybe something outside of normal seasonal improvement and also maybe you can comment on sales in first half of July here.

Sean Hennessy

We mentioned the time is good and all segments across all of our divisions and that momentum is continuing here as we begin July.

Eugene Fedotoff – KeyBanc Capital Markets

Okay. Thanks and a question on DIY customers of your stores. I think previously you’ve talked about gaining market share in that particular segment. Just wondering if that's still the case, you are seeing strong growth in DIY presence and how was 4th July weekend for that segment I guess?

Chris Connor

Performance in DIY is also strong. The weekend was good for us as well and again the momentum is continuing.

Eugene Fedotoff – KeyBanc Capital Markets

Great. Thank you.

Chris Connor

Thanks Eugene.

Operator

Thank you. Our next question is coming from the line of Jeff Zekauskas - JP Morgan. Please proceed with your question.

Jeff Zekauskas - JPMorgan

Thanks very much. I imagine that sequentially your tin prices in North America went up, is everything now priced in so that tin prices sequentially going forward should be flattish or is there still more realization to come?

Sean Hennessy

I think the price increase we've realized what we're going to get from the price increase. We don't see a big improved increase in the third or fourth quarter Jeff.

Jeff Zekauskas - JPMorgan

And you commented before that you thought that the TiO2 market was benign for the remainder of the year, when you look out over the next two or three years, do you still see it as benign or you do you see it as changing?

Chris Connor

Jeff, it's always based on the balance and supply and demand in the market. Coatings demand in North America should continue to grow as we move back towards normalized levels. That said as you know, there is plans on the drawing board for a new high-capacity TiO2 plant in Mexico. There is continuing supply growth coming out of Asia Pacific. So it just all depends on how on the timing of those factors.

Jeff Zekauskas - JPMorgan

Okay. Thank you very much.

Chris Connor

Thanks Jeff.

Operator

Thank you. The next question is coming from the line of Richard O'Reilly with Revere Associates. Please proceed with your question.

Richard O'Reilly - Revere Associates

Thank you and good afternoon now I guess.

Chris Connor

Good afternoon, Richard.

Richard O'Reilly - Revere Associates

Okay. In the consumer group the profit contribution from Comex at $2.7 million is that all flowing from the sales gain? My math is the $19.7 million or does some of that flow through from the paint stores like what happens in the legacy Sherwin Williams.

Sean Hennessy

No that income is actually from a couple different sources that are in consumer group. The duck back products as well as the viewer business we have up in [tied in] (ph) Canada, so that process is really not being driven by the stores group.

Richard O'Reilly - Revere Associates

Okay. Good. Okay. And second question, I guess you are trying to answer this, but for the second quarter alone for Comex, your profit, the loss was smaller than you thought, but the sales were clearly at or below the low end of your projection, what's going on -- why are the stores -- Comex stores lagging your expectations?

Chris Connor

Why are they lagging our expectations, we expected them to be behind and they are. As we commented, Richard when we made this acquisition, that this was a troubled asset in North America and we are building these stores out and improving their inventory position and we've already talked about the equipment etcetera and so it's going to take us a while to reestablish those relationships and get those gallons and customers coming back.

John talked about the things we're learning in this for example, the ability to add on associated product sales for equipment etcetera and these all things that are we're going to be working on aggressively going forward.

Richard O'Reilly - Revere Associates

Okay. Fine. Now you just came out I guess the stores -- Comex stores business, which is at the low end of your expectations for the quarter.

Chris Connor

Well actually expectations we gave were $0.10 dilutive for the Comex that's in the second quarter. We actually were $0.06 dilutive.

Richard O'Reilly - Revere Associates

Baked in sales, the sales…

Chris Connor

Right. They're at the low end of -- sales that are still at the low end of the expectation, that's correct.

Richard O'Reilly - Revere Associates

Okay. Thanks a lot for your time guys.

Chris Connor

Thank you, Richard.

Operator

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

Aram Rubinson - Wolfe Research

I can't believe it I still have questions left to ask. Thanks for extending the call. Couple things, I was curious first I want to make sure we get the gross profit dollar changes if it's possible by segment before we get off and then just can you tell us about what your competitors are doing?

They seem to be really busy on the acquisition front, whether it's your North America last year and then down in Mexico? I am just wondering strategically how you view that and what you would like to do to kind of fortify yourself?

Sean Hennessy

I'll take the gross margin dollar real quick here, so we get that -- make sure we get that, our Paint Stores Group were up $142,500,000 million, consumer was up $21,959,000, our Global Finishes Group were up $8,418,000 and Latin America Group was up $4,211,000.

Then regarding our competitors there and we've long commented about this terrific industry that we compete in that we're blessed with really outstanding companies to compete against.

We respect the strategies and performance of all these folks and we look forward to meeting them on the battle field and I think our results as John commented earlier particularly in the area of share gains, we're showing that we're pretty confident. We've got a good model here. We're going to continue to work it hard.

Aram Rubinson - Wolfe Research

Thanks and just last thing, you wanted to get your cash balance down, is it fair to assume that historically you were kind of sub $100 million in terms of cash you would like on the balance sheet. Should we assume that that's about right for your long term or do you think you need more of these?

Sean Hennessy

Yes we think that we don't think we need -- we need liquidity sources. Our liquidity sources are strong, but I believe our cash flow will be below $100 million again in the future.

Aram Rubinson - Wolfe Research

Thanks guys. Have a great quarter.

Sean Hennessy

Thank you, Aram.

Operator

Thank you. It appears there are no further question at this time. I would now like to turn the floor back over to Mr. Wells for any additional concluding comments.

Bob Wells

Thanks Jessie. As always, I will be available for the balance of today, tomorrow and throughout the coming weeks and to your any follow-up questions you might have. Thanks again 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. We thank you for your participation. And you may disconnect your lines at this time.

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Source: Sherwin Williams' (SHW) CEO Chris Connor on Q2 2014 Results - Earnings Call Transcript
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