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Executives

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

Christopher M. Connor - Chairman and Chief Executive Officer

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

Analysts

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

P.J. Juvekar - Citigroup Inc, Research Division

Jeremy Ridder Brunelli - Consumer Edge Research, LLC

Brian Maguire - Goldman Sachs Group Inc., Research Division

Charles Edward Cerankosky - Northcoast Research

Unknown Analyst

Nils-Bertil Wallin - CLSA Asia-Pacific Markets, Research Division

Eric Bosshard - Cleveland Research Company

Christopher J. Nocella - Barclays Capital, Research Division

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

John E. Roberts - Buckingham Research Group, Inc.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Dennis McGill - Zelman & Associates, Research Division

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

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Dmitry Silversteyn - Longbow Research LLC

The Sherwin-Williams (SHW) Q4 2011 Earnings Call January 26, 2012 11:00 AM ET

Operator

Good morning. Thank you for joining the Sherwin-Williams Company's review of fourth quarter and full year 2011 results and expectations for 2012. 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 by 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 ends and will be available until Thursday, February 16, 2012, at 5 p.m. Eastern Standard Time.

This conference call will include certain forward-looking statements as defined under U.S. federal securities laws with respect to sales, earnings and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward-looking statements is provided in the company's earnings release transmitted earlier this morning. [Operator Instructions]

I will now turn the call over to Chris Connor.

Christopher M. Connor

Thank you, Jackie, and good morning, everyone. Thanks for joining us. The company finished 2011 on a very solid footing, and 2012 was off to a strong start. We're looking forward to sharing these results with you and taking your questions. But before we get to that, let me take a moment to comment on an important change in our reporting structure.

This morning, the company filed an 8-K announcing the change in our reportable operating segments. Beginning with the fourth quarter of 2011, we increased our reportable operating segments from 3 to 4 due to the continued revenue growth, geographic expansion and end-market diversity of our Global Finishes Group. The Latin American Coatings Group, previously aggregated within the Global Finishes Group, will now be reported as a stand-alone segment. The remaining Global Finish Group businesses, mainly automotive finishes, our OEM product finishes, and protective and marine coatings will make up the Global Finishes Group reportable operating segment.

This change will provide better visibility into the operations and financial performance of these businesses. The segregation makes sense in that our Latin American Coatings Group sells primarily architectural products in a specific geography, whereas the businesses on our Global Finishes segment service industrial end markets worldwide. Information about the composition of each of our reportable operating segments is included in the 8-K filed this morning.

For comparison purposes, the 8-K filing also includes updated results for each calendar quarter of 2011, as well as full year results for these new segments for 2010 and 2009. All this information can be accessed through our company website under the Investor Relations/SEC filings tab.

I'll now turn the call over to Bob Wells to review our fourth quarter and full year results, then I'll be back to comment on our performance in 2011, as well as give our outlook for 2012. Bob?

Robert J. Wells

Thanks, Chris. In order to allow more time for questions, we've provided balance sheet items and other statistical data on our website at sherwin.com, under Investor Relations 2010 Year-end Press Release. Summarizing overall company performance for the fourth quarter and full year 2011, consolidated sales for the fourth quarter increased 9.2% to $2.07 billion due primarily to selling price increases, acquisitions and higher paint sales volume. For the full year, sales increased 12.7% to $8.77 billion. Sales from acquisitions increased consolidated net sales 0.7% in the quarter and 4.5% for the year.

Currency translation rate changes decreased consolidated net sales 1.2% in the quarter and increased sales 0.7% for the year. Consolidated gross margin in the fourth quarter decreased to 42.8% of sales from 44.6% in the fourth quarter of 2010. For the year, gross margin decreased to 42.7% of sales from 44.8% last year. The decrease in gross margins for the quarter and year was primarily due to higher year-over-year raw material costs.

Selling, general, administrative expense in dollars increased $33.6 million in the fourth quarter compared to fourth quarter last year, but decreased as a percent of sales to 36.4% from 38% in the same quarter last year.

For the full year 2011, SG&A expense increased $232.7 million but also decreased as a percent of sales to 33.8% from 35.1% in 2010. Incremental SG&A from acquisitions and new stores accounted for the majority of the SG&A increases in the year.

Our fourth quarter 2011 asset impairment charge of $5.5 million compared to a fourth quarter asset impairment charge last year of $4.5 million. Interest expense for the quarter decreased $11.8 million to $9.6 million. For the year, interest expense was $42.5 million compared with $70.6 million in 2010.

And as a reminder, fourth quarter and full year 2010 interest expense included costs associated with the repurchase of long-term debt. The incremental interest expense related to the repurchase of this debt reduced 2010 diluted net income per common share by approximately $0.04 in the fourth quarter and $0.12 for the full year.

Our effective income tax rate for the fourth quarter 2011 increased to 88.8% from 29.7% in the fourth quarter of 2010. Our fourth quarter '11 income tax expense includes a onetime after-tax charge of approximately $75 million to satisfy our settlement with the IRS. For the year, our effective tax rate was 40.4% compared to 31.8% in 2010.

Consolidated net income for the quarter decreased by $58.4 million to $14.5 million. For the year, net income decreased $20.6 million to $441.9 million. Net income as a percent of sales decreased to 70 basis points from 3.8% in the fourth quarter last year. This decrease was due entirely to the IRS settlement. For the year, net income as a percent of sales decreased to 5% from 5.9% in 2010 for largely the same reason.

Diluted net income per common share for the fourth quarter 2011 decreased to $0.14 per share from $0.67 per share in the fourth quarter 2010. For the year, diluted net income per common share decreased to $4.14 from $4.21 per share in 2010. The IRS settlement reduced diluted net income per common share in the quarter by $0.71 per share and in the full year by $0.70 per share.

Now I'd like to review our performance by segment. Sales for our Paint Stores Group in the fourth quarter 2010 increased 13.5% to $1.13 billion. For the year, net sales increased 9.1% to $4.78 billion. Sales increased in the quarter and year resulted primarily from selling price increases and gradually improving architectural paint sales volumes across most customer segments.

Comparable store sales increased 12.7% in the quarter and 8.3% in the year. Regionally, in the fourth quarter, our Eastern division led all divisions, followed by Southeastern division, Midwestern division and Southwestern division. Sales by all 4 Paint Stores division increased by double-digit percentages in the fourth quarter.

Segment operating profit for the Paint Stores Group decreased 1% to $133.7 million from $134.8 million in the fourth quarter last year due primarily to higher raw material costs, increased SG&A expense and the impairment charge. For the full year, Paint Stores Group operating profit increased 4.2% to $645.7 million due primarily to higher selling prices and volume growth that more than offset higher raw material costs and SG&A expenses.

Segment operating profit margin for the fourth quarter decreased to 11.8% from 13.5% last year. Profit margin for the full year 2011 decreased to 13.5% from 14.1% in 2010.

Turning now to Consumer Group. Fourth quarter external net sales decreased 1.1% to $252.1 million from $255 million in the fourth quarter last year. For the year, Consumer Group sales decreased 1.8% to $1.27 billion from $1.3 billion in 2010. Consumer Group sales in the quarter and the year were adversely impacted by the loss of a portion of a paint program with a large retail customer that was partially offset by selling price increases.

Segment operating profit for the fourth quarter increased to $30.2 million from $26.1 million last year, primarily due to the selling price increases and good expense control that were partially offset by higher raw material costs. For the year, segment operating profit decreased to $173.7 million from $204 million in 2010. The segment profit decline in the year resulted primarily from higher raw material costs that were only partially offset by higher selling prices and good expense control.

As a percent of net sales, Consumer Group's operating profit in the fourth quarter increased to 12% from 10.2% last year. For the year, operating margin decreased to 13.6% from 15.7% in 2010.

For our Global Finishes Group, net sales in the fourth quarter increased 8.1% to $463.3 million due primarily to selling price increases, acquisitions and higher sales volume. For the year, Global Finishes Group sales increased 32.5% to $1.88 billion due again to acquisitions, selling price increases, higher sales volume and favorable currency translation.

Acquisitions increased the group's sales in U.S. dollars by 3.2% in the quarter and 20.7% in the year. Currency translation of rate changes decreased sales in U.S. dollars by 1.7% in the quarter, and increased sales by 1.4% in the year. Global Finishes Group segment operating profit in the fourth quarter increased to $13 million from $9.3 million last year.

For the year, segment operating profit increased to $90.3 million from $64.7 million last year. In the quarter and year, higher selling prices, volume growth and good expense control more than offset raw material cost inflation and dilution from acquisition. Currency translation had no significant effect on segment profit in the quarter and increased profit $4.5 million in the year. Acquisitions reduced profit for the segment $2.8 million in the quarter and $6.4 million in the year. As a percent of net sales, Global Finishes Group operating profit was 2.8% in the fourth quarter compared to 2.1% last year and 4.8% for the year compared to 4.6% in 2010.

For our Latin America Coatings Group, net sales in the fourth quarter increased 4% to $20.1 million due primarily to higher sales volume and selling price increases, partially offset by unfavorable currency translation. For the year, sales increased 22.7% to $828.5 million due primarily to acquisition, selling price increases, higher sales volume and favorable currency translation. Acquisitions had no material impact on segment sales for the quarter, but increased sales in U.S. dollars by 8.7% in the year. Currency translation rate changes decreased sales in U.S. dollars by 6.4% in the quarter and increased sales by 3% in the year.

Stated in U.S. dollars, Latin America Coatings Group segment profit in the quarter increased 34.6% to $26.4 million. For the year, segment profit increased 27.9% to $75.4 million. In both the quarter and year, segment profit improvement resulted primarily from higher sales volume and price increases, partially offset by raw material cost inflation.

Currency translation decreased segment profit $1.9 million in the quarter and increased profit $1.9 million in the year. Acquisitions had no impact on profit in the quarter, but increased segment profit $1.1 million over the 12 months. As a percent of net sales, segment operating profit was 12% in the fourth quarter compared to 9.3% last year and 9.1% for the year compared to 8.7% in 2010.

Let me conclude by commenting briefly on our balance sheet items. You'll find more balance sheet information on our website under sherwin.com, Investor Relations Press Releases. Our total debt on December 31, 2011, was $993.4 million including short-term borrowings of $346.3 million. Our cash balance at the end of the quarter was $32.7 million compared to $58.6 million at the end of 2010. Total borrowings to capitalization were 39.6% at year end compared to 39.4% at the end of 2010. Long-term debt capitalization were 25.8% compared to 24.7% on December 31, 2010.

For the full year 2011, we spent $154 million on capital expenditures. Depreciation expense was $151 million and amortization expense was $30 million. For the full year 2012, we anticipate capital expenditures for the year to be in the range of $140 million to $150 million. Appreciation will be about $150 million, and amortization will be about $30 million.

I'll conclude with a review -- 2 brief comments on the status of our litigation. In California, the Santa Clara case involving 8 cities and counties in California and 5 former lead pigment manufacturers continues to move through the discovery phase. Discovery will continue for the next 4 to 6 months, at which time the parties will have the opportunity to file depositive -- depositive pretrial motion. The court has set a tentative trial date of September 10, 2012.

In Wisconsin, the Gibson case involving a single plaintiff was recently argued before the Seventh Circuit Federal Court of Appeals. The trial judge found that risk contribution rule established by the Wisconsin Supreme Court in earlier in the Thomas case to be unconstitutional. The plaintiff appealed, and we expect a decision within the next 30 to 60 days.

That concludes my review of our results for fourth quarter and full year 2011. So I'll turn the call back over to Chris who will make some general comments and highlight our expectations for 2012. Chris?

Christopher M. Connor

Thanks, Bob. We began 2011 with a cautious sense of optimism, and on our year-end call last year, we predicted that we'd look back probably on 2010 as a transition year for our company, the domestic paint coatings industry. We described the outlook at that time for many of our end markets as stable to improving. And as you recall, we tempered this outlook by saying that raw material cost inflation was likely to remain a challenge.

I think it's fair to say looking back, the conditions we faced over the past year in both of these fronts were more challenging than we anticipated. U.S. market demand for paint and coatings continued to trend downward, following the exploration of the 2010 home buyer tax credit stimulus. Department of Commerce buying estimates for the architectural market in the first half of 2011 were down 8% from 2010. Most Latin American markets fared better than the U.S, but European markets likely fared worse. I don't think I need to belabor the point too much on raw materials.

Our outlook at the beginning of 2011 was for industry-wide market basket of inflation in the high single to low double-digit range for the year, and the actual inflation rate, as we all know, was probably double that. Yet, against the challenging backdrop of depressed market demand and unprecedented raw material cost inflation, Sherwin finished 2011 with record sales and record earnings per share.

We continue to invest in new stores and branches, and we made great progress towards integrating the 4 acquisitions completed over the past 2 years. We generated strong net operating cash that was reinvested in the business, used to buy back our stock and pay a record dividend.

By most measures, 2011 was a successful year. But I'd like to comment briefly on the progress we made in a few specific areas because I think they best underscore the strength and focus of our organization. First, our ongoing commitment to expanding our store base and maintaining appropriate service levels on our stores despite the difficult market conditions is clearly paying off. Paint Stores Group achieved positive gallon volume growth for the full year 2011, and the rate of growth accelerated significantly in the second half and even more so in the fourth quarter. This growth was broad based with nearly every customer segment showing positive volume. More importantly, in a flat to down market, we are confident that our volume growth during the year translates to market share growth.

In 2011, our Paint Stores Group added 60 net new stores, bringing our store count in the U.S., Canada and the Caribbean to 3,450 locations compared to 3,390 a year ago. Our plan for 2012, again, calls for net new store openings in the range of 50 to 60 locations.

Looking beyond the Paint Stores Group, our company achieved a noteworthy milestone in the fourth quarter, as we surpassed 4,000 total company operated stores and branches across all operating segments worldwide. The same competitive advantages control distribution brings to our Paint Stores Group namely direct customer interaction, responsiveness and the control over brands, pricing, inventory and growth are equally applicable to our Global Finishes and Latin American Coatings Group. For these regions, control distribution will continue to play an important and expanding role in these segments going forward.

Second, I'd like to take a moment to comment on our continued progress in working capital management and cash performance. At year end, our working capital ratio had dropped to 10.9% of sales compared to 11.9% at the end of 2010, convincing evidence that the integration of the acquisitions completed in the past 2 years is on track.

This tight working capital management contributed to higher cash generation. For the year, we generated $736 million net operating cash or about 8.4% of sales. If we add back the cash settlement paid to the IRS during the year, cash from operations for the year rose above 9% of net sales.

Free cash flow, operating cash minus CapEx and dividends, finished the year at $428 million. In the fourth quarter, we acquired just under 0.5 million shares of the company stock for treasury, bringing our full year total to 4.7 million shares purchased at an average cost of $78.16 per share, our total investment of $367 million.

At year end, we have remaining authorization to acquire another 21 million shares of the company stock. Over the past year, we've returned more than $153 million in cash to shareholders through quarterly dividends. 2011 marked our 33rd consecutive year of increased dividends per share, a string we intend to continue in 2012.

The third and final area I'd like to touch on is our earnings per share performance for the year. $4.84 before the IRS settlement is a record for our company and a solid performance considering the stiff headwinds we faced in the market. If you believe the old expression that what doesn't kill you makes you stronger, emerging from 2011 a much stronger company than we were a year ago. And while we still have work to do in offsetting the raw material inflation we incurred this past year through a combination of productivity and price implementation, I believe that 15% earnings per share growth in this environment proves the resilience of the business model.

Looking ahead to this year, there appears to be a growing sentiment in the market predicting better times ahead. Many see early signs of the housing recession that's finally nearing an end, while others forecast moderating rates of raw material inflation. From a demand side, we too see early but encouraging signs of improvement in the residential markets. Time will tell whether this momentum is durable and whether it will ultimately lead the U.S. housing market back to more sustainable levels in the coming years.

On the raw material front, however, we still expect significant cost headwinds in 2012, primarily from titanium dioxide. Couple this with the annualization of inflation from 2011, and we would expect the average year-over-year raw material cost increases for the paint and coatings industry to be in the high single to low double-digit percentage range in 2012.

With these factors in mind, our outlook for the first quarter of 2012 is for consolidated net sales to increase 9% to 14% compared to last year's first quarter. With sales of that level, we estimate diluted net income per common share in the first quarter to be in the range of $0.56 to $0.74 per share compared to $0.63 per share earned in the first quarter of 2011.

For the full year, we expect net sales will increase by a high single digits to low-teens percentage versus 2011. And with annual sales of that level, we estimate diluted net income per common share for 2012 will be in the range of $5.37 to $5.67 per share.

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's coming from Don Carson of Susquehanna Financial.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Chris, just wanted to know what your assumption was for the U.S. architectural market behind your guidance range for next year and of course, the DOC getting away with it with their reporting. But you're talking about an 8% decline in the first half of '11, what's your assessment for full year and again, what's sort of your base case for calendar 2012?

Christopher M. Connor

Yes, Don, I think in terms of our expectations for the year going forward for the industry, if we build it up from the pieces parts. We would expect that the housing market is going to continue to show a moderate gain. We think all in on both single-family and multifamily this year, we're going to end somewhere in the mid-to-upper 600,000 units. We think that's going to potentially grow to the low to mid-700,000 units. That will be a little bit of a lift, and we think that the repaint market has also been improving moderately. So all in, I think our kind of expectation for the industry will be that we'll see flat to low single-digit volume gains for the architectural market.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

And then a question on your new segment reporting, the old Global Finishes Group with so many acquisitions you were thinking of margin improvement from sort of the 6% range to maybe 11%, 12% by 2014. How does that change as you strip Latin America out, and what do you see is the margin potential for Latin America, which I guess is running around 9% now?

Christopher M. Connor

Yes, why don't I ask Sean Hennessy, our CFO, to jump in with that, Don.

Sean P. Hennessy

Yes, Don, again we used to talk about the 12% when we talked about the Global Group. We still believe that both pieces will still be shooting at that 12%. I think that you can see Latin America Group is over 9%, which means that they're a little closer. We expect them to reach that 12% prior to the Global Group. But as we continue to do more things in Latin America with controlled distribution and so forth, after we hit 12%, we'll probably reevaluate that.

Operator

Our next question's coming from Chris Nocella of Barclays Capital.

Christopher J. Nocella - Barclays Capital, Research Division

Your same stores growth is 12.7% in the quarter, what's the split there between price and volume?

Christopher M. Connor

Yes, pricing for the stores group, Chris, was in the upper single-digit range. So that's the majority of it, however, we would note that the volume performance in the quarter really was strengthening for that business.

Christopher J. Nocella - Barclays Capital, Research Division

Okay. And based on the already announced price increases, do you think you'll still have the greatest benefit in the fourth quarter, or could be -- first quarter be actually a little bit higher?

Christopher M. Connor

In terms of pricing or...

Christopher J. Nocella - Barclays Capital, Research Division

Right. Yes, for the pricing, do you think the flow-through will be higher in the first quarter than it was in the fourth?

Sean P. Hennessy

For the store group?

Christopher J. Nocella - Barclays Capital, Research Division

Correct.

Sean P. Hennessy

Yes, yes. In the fourth quarter, which has the second smallest EPS when you look at the absolute dollars, the adjustments that go through there, we had the impairment of some trade names and so forth that -- but, if you took a look at some of the inventory adjustments that go through in the fourth quarter, the flow-through is acceptable. But when you take a look at the fourth quarter, we should -- first quarter, we should not have that, those headwinds.

Christopher J. Nocella - Barclays Capital, Research Division

Okay. And just lastly, on the Latin America business, organic sales growth was about 11% 2011. What is your expectation for that business in 2012?

Christopher M. Connor

In the business, we'll continue to tuck along pretty well. We're going to have some FX issues in Latin America next year with the REI [ph], so I don't know if we've given guidance yet per se in the pieces parts, but it'll be a positive year for Latin American Coatings next year.

Operator

Our next question is coming from Jeff Zekauskas of JPMorgan.

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

In your Paint Stores Group, you had double-digit sales and flat operating profits, whereas in the Consumer Group you had flat sales and if you adjust for some non-recurring items last year, you had 50% improvement in operating profits. So why is it that in the business where you had all the sales growth, you didn't really have any operating profit growth, whereas the opposite took place in consumer?

Sean P. Hennessy

Yes, Jeff, this is Sean Hennessy. When you take a look -- if I can remind you the third quarter, and when you looked at the third quarter the Consumer Group was 11.7% versus 17.5% in 2010 third quarter. And at that time, what we've said is if you looked at our -- the way our inventory was coming down, usually we started to reduce our inventory in the third quarter. And when someone asked why was our margin in Consumers down as dramatic, we said that the reverse will happen in the fourth quarter. That was you take some of that inventory off your balance sheet that's debit going through the P&L because we're producing less. That occurred in the third quarter this year versus the fourth quarter in 2010. So as you can see 11.7%, we're at 12% in the fourth quarter, and the 17.5% was 10.2% in 2010. So that's how -- a lot of different things are happening in the quarter-by-quarter that sometimes the quarters are changing as you manage your inventory and the balance sheet and so forth. So that's why the 2 quarters in the third and the fourth quarter of Consumer were that way. And again, as I mentioned in the Paint Stores Group, with $133 million last year, second smallest quarter, and with the fourth quarter with inventory adjustments, LIFO and others and the trade names, that really would caused the reduction in the flow-through but without it, they showed acceptable flow-through.

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

Just while we're on the subject, what was your gallon inch growth in 2011?

Christopher M. Connor

We said the gallons were positive for the company in 2011. And we said that, that had been trending throughout the year and are more favorable with the fourth quarter being our best gallon quarter.

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

Okay. And then lastly, there are some -- or possibly there are some properties that are on the market with exposure to the auto repaint and auto OEM markets, is that something that if they were available at attractive prices would be of interest to Sherwin-Williams even though they may be of relatively large size?

Christopher M. Connor

Jeff, we've never commented on a specific M&A opportunity that's out there. I'm familiar with the property you're talking about. I think strategically you've heard us speak to the investment community about our interest in the automotive aftermarket segment but not the automotive OE segment. We'll just leave it at that.

Operator

Our next question is coming from P.J. Juvekar of Citigroup.

P.J. Juvekar - Citigroup Inc, Research Division

Chris, you mentioned that you gained share in your Paint Stores business, so are you taking share from other independent store chains? And is that more than offsetting any share loss that you may have had to the DIY segment?

Christopher M. Connor

Yes, P.J., I think that our comment here is broad based for the industry as opposed to any specific channel segment. Although I think you're right to talk about the smaller, independent paint store operator that struggled in this downturn. I think it's easy to see share gains from there, as well as some of the other regional paint store chain operators that we think we've made progress against. There's not been an offset for our DIY business. We've commented throughout the year last year that our DIY performance was strong. In fact, on all the consolidated numbers that we've given you both on sales revenue and gallon performance for DIY, our numbers were there or slightly higher. So a strong DIY year for the company through our store's organization offset a little bit by the loss of DIY business through our Walmart account. But overall, a pretty strong performance as we've commented. Looking at all the industry data we can get our hands, in order the gallon performance were pretty confident across all segments, there were share gains here.

P.J. Juvekar - Citigroup Inc, Research Division

Okay. And then secondly, can you update us on your efforts to reduce your TiO2 usage in paint? And do you have any volume market expectations?

Christopher M. Connor

We have a number of initiatives underway to address the titanium issue. And we've talked about them in the past with the investment community relative to replacing titanium with either lower-grade sulfite type titaniums, internal formulations to reduce the use of it in sourcing perhaps some emerging technologies from other parts around the world. All of those activities are underway. I think we've given guidance that were those to all come to fruition, we'd be somewhere in the 5% to 10% range of our total titanium tonnage usage that could be replaced. And I'd say we're in the early days of making progress towards that.

P.J. Juvekar - Citigroup Inc, Research Division

Okay. And just quickly for Sean. Sean, you mentioned you think some FX headwinds from Latin America. And given that industrial production, IP has been slowing down in Brazil lately. Are you seeing any impact on volumes there?

Sean P. Hennessy

Slightly, but not dramatic enough to not give us confidence that we're going to have improvement in Brazil, as well as Latin America.

Operator

Our next question is coming from Ivan Marcuse of KeyBanc Capital Markets.

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

First question I have is, you've always been sort of conservative on your housing outlook, is there a sign in the market now or something in the market that is more directly related to the repaint business or your store business that maybe is more positive now than it was, than it had been in the past? Or is it just the general market that you're looking at that gives you some optimism going to 2012?

Christopher M. Connor

Well, I think the housing is more positive than it's been on the last 2 to 3 to 4 years. We hit bottom somewhere in the 400,000 to 500,000 units, and we're seeing 600,000 and change starts this year. Most of the economic forecasters that we look at, and we think this makes sense, show a number slightly better than that next year. We see that from permits that have been pulled and projects that are being bid on by our painting contracting customers. So that outlook looks a little bit brighter to us. And we've also just been watching the trend guidance. The residential and the commercial repaint markets, as a reminder, still account for approximately 80% of all the gallon inch that our industry sells. And that tends to kind of start to move and stay on the trend line. And it's been a really -- a good trend line the last couple quarters. And as we said briefly in our comments, the year's off to a good start, really driven by this maintenance painting project. So heading into the year with a fairly optimistic outlook about what we're going to see through that architectural volume through our stores this year.

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

Great. And then, Sean, in the Consumer Group, are you -- are operations and the inventory build, is that going to sort of move back to historical operating patterns? Or is it going to be similar to the first half of this year where it was -- a buildup inventory and then as you talked in the second half were sort of a -- you worked out the inventory?

Sean P. Hennessy

Right. I think we're going to go more to the historical. And I think that's why when you look at the improvement that consumer had in the first quarter as they built inventory last year, we'll still build inventory. But I like your description, more of historical. And I think the bell shape curve will be closer to historical. So we probably will not see the changes by quarter that we did this year.

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

Great. And then lastly, what was that FX gain related to? And then, what do you expect your 2012 tax rate to be?

Sean P. Hennessy

I think our tax rate is going to be in the lower 30s like we have been for the past. If you take the change out in the tax rate with leveraging [ph] settlement, we're in the low 30s also. But the FX gain and really the gain in the quarter was really driven in Brazil and Mexico, but the FX plus year-to-date was really Mexico. And then the Venezuela, what happened at the beginning of the year with Venezuela.

Operator

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

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

I wanted to dig a little bit more into SG&A. Now that we cycled a lot of the acquisitions, is that -- that 4% year-over-year growth, I guess it's $25 million, $30 million year-over-year, should we think of that as a normalized run rate now that we've cycled the acquisitions and other things?

Sean P. Hennessy

Yes, I think that when you take a look at it, 4%, 4.5%, the 4.5% increase in the fourth quarter is more normalized. If you think that we've annualized the major acquisitions in Europe through the first 3 quarters, that's why the full year is probably a little different but I think you're right on with that analysis.

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

Okay, great. And then, Chris, maybe a bigger picture question. In the past, you've seen over many years your -- the range of the gross margin that the business could do used to be sort of 42% to 45% and then sort of shifted up to 43% to 46%, but you've also been making acquisitions, you've been growing overseas. Do you think that 43% to 46% is still the right range? Or just given the acquisitions, given the business mix that maybe it goes back to 42%, 45% for a few years?

Christopher M. Connor

No, we still feel good about that range, Greg. And I think, of note, we've announced yet another price increase for calendar year 2012. As you know, we give full transparency to The Street regarding the pricing activities taken by our stores group. And we announced an 8% price increase effective February 1 of 2012. So we're going to continue to move pricing into the market place. A great deal of it will depend on what happens with titanium for the rest of the year but if it holds in kind of the range that we have given for the year, for the industry for our basket going up, and we fully expect to be back to in the 43% to 46% range.

Operator

Our next question is coming from Chuck Cerankosky of Northcoast Research.

Charles Edward Cerankosky - Northcoast Research

First question is regarding impairment charges, Sean. I'm looking at the P&L and you got trademark impairment charges, which you talk about in the text of the press release, but you're also mentioning asset impairment charges. Are we talking about 2 separate line items or 2 separate types of impairment charges?

Sean P. Hennessy

No, I think we're talking about the same thing. It's really related to trade names. As you know, when we acquired [indiscernible] and the store group, you're looking at MAB, Duron, some others, [indiscernible], some of these trade names we keep for quite a while. But when you -- as you continue to stop using those brand names, you're doing the mark to market on your balance sheet, so you're doing it. Last year those impairments actually went to global and dealt with a long time acquisition from prior years.

Charles Edward Cerankosky - Northcoast Research

Well, the reason I'm asking or focused on this, Sean, is the P&L. The amount for 2011 is bigger than $4.5 million of 2010, yet in the text, it's talking about a $0.03 hit this year versus $0.04 last year. I was wondering if you could reconcile that.

Sean P. Hennessy

That is -- I'll get back to you on that, Chuck, the question on the $0.03 versus the $0.04.

Charles Edward Cerankosky - Northcoast Research

Yes, that's what had me confused there. All right. Got you. Now when we're looking at the new segment reporting, Sean, it's been astounding, at least to me, spread between the operating margin of the Latin America Group versus Global Finishes, and I'm wondering what accounts for that. Is it some allocation things or just the nature of the products? But regarding the latter, you'd think some of these protective coatings would have higher margins than architectural?

Sean P. Hennessy

Chuck, I think it really has to do with the scale of the businesses. We've been in Brazil for many, many years, a lot longer than we have been in China. And some of these acquisitions that we did complete in 2010, as you know, when you take a look at the purchase price versus sales, it was lower than the dollar per dollar that we always -- that we refer to every once in a while. We've continually said those were at lower operating margins. So I think that it's a good change. You're going to see that, but I think that, that's really the reason why.

Charles Edward Cerankosky - Northcoast Research

Okay. Could you be a little -- give us any precision on what the volume growth in the fourth quarter was in paint stores?

Christopher M. Connor

Yes, I think as we -- the earlier question when we talked about the revenue in the 12% range and that the pricing portion of that was in the upper single digit, not the high single-digit, the rest of that is going to be volume. So by mathematics, Chuck, that's going to get you in the mid-single digit range.

Charles Edward Cerankosky - Northcoast Research

Okay, so similar to the third quarter?

Christopher M. Connor

Stronger than the third quarter.

Charles Edward Cerankosky - Northcoast Research

A little stronger?

Christopher M. Connor

Stronger than the third quarter.

Charles Edward Cerankosky - Northcoast Research

All right. Now when you look at what your paint stores customers are doing, both the contractors and the DIY, when they're in the store, are you seeing anything that indicates less sensitivity to price increases or a willingness to build the market basket? For example, a contractor finally getting past the hump on buying an incremental piece of equipment or whatever it may be.

Christopher M. Connor

Yes, I think as the volume comes, and we were commenting in the last couple of quarters that has been coming. And don't forget, that volume is building on the backs of essentially fixed price increases announced in the last 20 months. So there's a concern that pricing is having a chilling effect on demand? Once again proving that to be the case is more of the broader market issues that are causing painters to get going again. We'll see the lifts in the associated product sales and really the equipment sales are more of a end of first quarter start of second quarter. And we'll be able to comment a little bit more on that side of it going forward. But in terms of product mix and continuing to move up to better quality products, all those levers which are historically at play here, Chuck, are still behaving as they have historically.

Sean P. Hennessy

Chuck, if you wouldn't mind, I'd like to jump in here and answer that question on the $0.03 versus $0.04. The dollars that you quoted which is right from us is what hits the SG&A. Last year, in the $0.04 there was also a $2.1 million impairment that went to cost of goods sold. So that's why it was $0.04 last year and $0.03 this year.

Charles Edward Cerankosky - Northcoast Research

So $0.04 -- go that by me again, there's a...

Sean P. Hennessy

Included in last year's $0.04, besides the amount that we -- that you quoted is also a $2.1 million that went to cost of goods sold. And so that's what's in the $0.04. We didn't include it in the absolute numbers that you quoted earlier.

Charles Edward Cerankosky - Northcoast Research

So the $2.1 million is not in that EPS amount, but it is in the $5.49 million.

Sean P. Hennessy

No, no. We're talking about last year's when the number is higher. It also -- the $0.04 included a $2.1 million impairment hit into cost of goods sold. The other number you quoted is the SG&A piece.

Operator

Our next question is coming from Bob Koort of Goldman Sachs.

Brian Maguire - Goldman Sachs Group Inc., Research Division

It's actually Brian Maguire on for Bob today. First, just a question on the raw material guidance. If I heard you right, I think you said high single to low double-digit raw material cost for 2012. I think on the third quarter call, you might have mentioned that if prices stayed where they were then, you'd be looking at more like low- to mid-teens. And I think we've since gotten a price increase in TiO2. So we're just wondering if something has changed since then, or maybe you're seeing something in the organic side of the bucket or the metal side of the bucket that you're expecting a decline there next year just due to the components of that raw increase.

Christopher M. Connor

Great question, Brian. And that's very intuitive to pick that up, because you're right, there has been a little bit of a change. And I want to ask Bob just to comment on what we're seeing here.

Robert J. Wells

Sure, Brian. The question that we answered on last quarter's call was if you took -- if you straight-lined raw material cost where we finished the quarter, in third quarter, what would it bode for 2012 as it annualizes. It's a little different question asking the same question at the end of fourth quarter because a good portion of the raw material basket eased somewhat during the fourth quarter. So we're starting from a slightly lower base in the fourth quarter. Annualized 2011 cost going through '12 today would amount to mid-to high single-digits for the industry. And then on top of that, we anticipate continued inflation in TiO2 as we indicated.

Brian Maguire - Goldman Sachs Group Inc., Research Division

So was it mostly the resins that gave you some of the release in the fourth quarter?

Robert J. Wells

Yes.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay, great. And then on the SG&A, I think it sounded like you're expecting continued kind of 4% to 4.5% growth year-over-year. And contrasting that against your high single to low teens sales growth guidance, that implies a lot of leverage in 2012. Do you think that will be enough to offset any gross margin compression that you might have from a raw material price increases?

Robert J. Wells

All right. I think that when you take a look at it, we really -- we try to give you sales and EPS guidance. I mean, we don't go down each component whether it's gross margin and give guidance especially at this time. But I think when you look at the high point to midpoint and the low point, I think that it bodes that we're going to have operating margin improvement next year.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Got it. And then I think I heard you mentioned that the Eastern regions led the way on the same-store sales growth in the paint stores. Was that a change from what you've been seeing recently? Or is there anything kind of in the composition of where the same store sales growth is coming geographically that gives you some increased confidence that this housing recovery is meaningful and we're going to -- you'll actually have a recovery in 2012?

Robert J. Wells

This is Bob, Brian. I think the eastern division has kind of been lagging on the new construction side simply because there's not as much you new developments and space to develop in eastern geographic regions. I think the strong performance by Eastern division in the fourth quarter really suggests that the repaint market in the Eastern division were outperforming those in the other divisions. Although as Chris pointed out, all 4 -- or as I pointed out, all 4 divisions had double-digit sales growth in the fourth quarter. So we're kind of splitting hairs trying to determine difference between the 4.

Brian Maguire - Goldman Sachs Group Inc., Research Division

It's pretty broad based then?

Robert J. Wells

Yes.

Operator

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

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Chris, you mentioned in response to a previous question that you thought you might be able to reduce your titanium dioxide requirement by 5% to 10%, as one of your major global coatings peers has made similar remarks within the last 6 or 8 weeks. Just want to drill down a little bit on that. You mentioned it was early days, can you give us a feel for where you are today relative to that target range? Also, the timing that you would envision to achieve the range and how much you can get from new technologies versus, let's say, just diminishing the content on lower-end products, if that's an option.

Christopher M. Connor

We're not in the range today. We'd be below that. The expectation would be that over the next years, we would work to get in there. And I think that's about the breadth of what we'd be comfortable commenting on. We recognize that given the choice of a poor performing product or a consistent product at a higher price, the vast majority of our customers would opt for the latter. And so any decisions we make to replace titanium, reduce titanium, formulate titanium out go through a very rigorous field testing process. So we're going to lag a little bit perhaps our peers ability to move in this range. Nevertheless, it's work worth doing, and there's opportunities there and I feel that we're on target of where we should be.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Okay. And then shifting gears, Sean, Brazilian currency and a lot of other currencies for that matter have been quite volatile since Labor Day of last year, can you remind us how you're approaching hedging, especially now that we have the separate Latin segment there. How should we think about your activities or lack thereof?

Sean P. Hennessy

Yes, I think that we continually look at, again, cash flow. We're doing -- we're borrowing in country. We borrowed in country when we've been to Europe, as well as some of the other acquisitions that we made. And this operating income is being created -- or cash is being created, we continue to pay down. While these companies are bringing cash back to us here in the United States, we're doing some forward contracts and so forth. But we're also doing things between one country and the other, so that we have inter-companies that are protecting us.

Operator

Our next question is coming from Dennis McGill of Zelman & Associates.

Dennis McGill - Zelman & Associates, Research Division

Just a couple of quick ones. Chris, I think you mentioned in the fourth quarter, you said the volume growth that you saw was across every customer segment. I was just curious if there's a meaningful spread between top and bottom. So any color I guess you could give on which segments are at the extremes. And then if there's any meaningful discrepancy, maybe give us the order of magnitude.

Christopher M. Connor

Yes, I think the trend line there, Dennis, have been that the DIY business and the residential repaint business through our contractor segments were at the high end. That's been consistent with kind of the year's performance. The news in the quarter is that the new residential, and some of the commercial markets which had been lagging turned positive for us as well, and that's a really good sign.

Dennis McGill - Zelman & Associates, Research Division

Okay. And then just big picture I guess, in hindsight when you look at the paint store performance for the year being up in dollars and margin pressure being pretty minimal despite the volume challenges that you talked about and the raw material [indiscernible]. Can you give any more confidence about what the recovery could look like or where margins could return to if you do get the volume growth and the return to normal?

Sean P. Hennessy

Yes, I think when you take a look at one tank [ph], the high points for the Paint Stores Group was 15%, 15.7% operating margin. I don't see anything structurally different. We see that as a possibility in the future.

Operator

Our next question is coming from Dmitry Silversteyn of Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

A lot of my questions have been answered, but just to follow-up, you did discuss the -- or at least directionally the volume performance of the stores group. Assuming kind of similar levels of pricing for the Consumer Group, it looks like your volumes were down significantly and significantly more than would be suggested by the loss of the Walmart business. So anything happened in the Consumer Group in the fourth quarter to give you that result?

Sean P. Hennessy

Well first of all, our selling price -- effective selling price is a little longer. The cycle is a little longer in Consumer Group than it is in stores. So they were not as -- it wasn't as high as it was in the stores. I don't have that number exactly but having said that, I think we were pretty happy the way the fourth quarter came out with Consumer Group.

Dmitry Silversteyn - Longbow Research LLC

Okay. So 4% to 5% volume loss I guess was at the high end of your expectations, is that what you're saying?

Sean P. Hennessy

Yes. I mean, I think without the Walmarts -- I think in the Walmart, this was the last dramatic quarter we had to go through. And I think that without that, I think it was right where we -- where was our expectations.

Dmitry Silversteyn - Longbow Research LLC

All right, very good. Secondly on talking about margins and kind of the way to think about that for 2012 and beyond. Clearly, if raw material inflation stays as benign, and I don't know if that's the right word to use, but say ass benign as you think it will, which is high single digits, low double-digit type of inflation, given high single-digit pricing that you pass through and the traction that you already got with your existing pricing, it sounds like you should stay on par, or maybe you can get ahead of raw materials a little bit. So the gross margin side of the business looks like you're okay. But what concerns me about your comment about margin improvement and year-over-year after 3 years of decline is that your fastest growth is happening in your Global Group and your Latin American Group, both of which are lower-margin businesses. So is the improvement you're seeking in your North American business is going to be sufficient to offset the negative mix, if you will, from the lower margin businesses growing faster in the external markets, international markets?

Christopher M. Connor

Well first of all, Dmitry, isn't it wonderful to be talking about benign raw material cost increases in the high single, low doubles. I mean, where have we gotten to in this industry? I think you make a very good point about the faster growing segments over the past couple of years. But I think what you should be reading into this guidance that we're giving today is that our stores business is clearly back on track and moving in a really solid direction here with the pricing leverage that we need. We're giving guidance that we expect the gross margins to bottom and turn, in fact to go the right direction. As Sean commented, we expect with that, that the SG&A numbers will continue to go the right direction as well and that the operating leverage for the entire company, this year will be positive.

Dmitry Silversteyn - Longbow Research LLC

Okay, very good. And then finally, you talked about the Global Group having the ability to reach 12% operating margin at sometime in the future. It's almost a 10-point improvement that you're looking to gain there. What's going to take you there and, how long is that going to take?

Christopher M. Connor

We have a couple of acquisitions that were significant in this business that were 1.5 to 2 years into the integration of it. We talked last year, I think, on a number of the calls about the need for pricing in those businesses, that we had not been as aggressive as we should have been, given the careful stance we were taking as new owners of this business. I think all of the kind of traditional work that we do here on pricing, on the operating side of the business, on the cost side of the business, on the asset side of the business helps build these businesses in the right direction, and all those things are as quick here. To Sean's point, we have been consistent about giving guidance that these businesses will constructurally get there. There's nothing that's changed our opinion about that. And if scale comes up on these countries, we fully expect to get that accomplished.

Dmitry Silversteyn - Longbow Research LLC

Let me see if I can have this a different way. How much of the profit improvement you're looking to get out of the Global Group is going to be improving the profitability of the 2 wood coatings businesses you bought in Europe versus just a maturation of already nice unit margin businesses you have in automotive aftermarket, marine and productive and some other mid shift business that are part of the global group?

Christopher M. Connor

I think we would expect to be getting slightly higher percentage operating lift from those businesses than they would play for their volume. I mean, they're early in their cycle, and they should be ramping up quicker. We gave you some guidance in terms of the size of those business when we acquired them, relative the entire new size of the global group now that you have that data point. But I think what's important to note is that all of the businesses, both the domestic parts of those businesses, as well as the other corners of the world, we all expect those things to improve this year.

Sean P. Hennessy

And I think that in the short term, Chris is absolutely right. But to answer your question a little differently, just because of the size differential between the acquisition versus the core, the absolute dollars will grow faster from the core just because that's 70% of the sales approximately. And so the acquisitions that are 30%, 35%, a little higher than 30% -- our percentage will grow faster, but the absolute dollars will grow faster in the core.

Operator

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

Eric Bosshard - Cleveland Research Company

The volume numbers on the stores in the fourth quarter was also something we haven't seen in quite some time. I'm curious, Chris, on the confidence that you have. And I know that visibility is never great in this business, but things you're looking at to give you some confidence on the sustainability or where that goes and what you're assuming what your guidance implies for that in 2012?

Christopher M. Connor

Nick, on that opening comment there -- you made a point that the 2012 was off to a solid start. So we're seeing the kind of gallon numbers that we experienced ramping up in the fourth quarter, continue on that same trend line into the first quarter of this year. Of note, we've just returned from Nashville, Tennessee where we had 7,000 of our employees gathered in one room, all of our store managers and field sales folks, and it's always a terrific time to be with our team. And the sense from their face-to-face contact with their customers would indicate that we're expecting that this industry is going to have a better gallon growth this year.

Eric Bosshard - Cleveland Research Company

And the better is you commented when you went through the details that it's commercial and new resi, is that sort of where the inflection is taking place?

Christopher M. Connor

I think it's across the whole volume. I think that was the question about kind of the range from Dennis, at Delman [ph] about what's the high, what's the low. And we commented that both the res repaint and the DIY gallons continue to move up, and the new commercial and new residential have gone positive. So really across all these kind of breakout segments. There was movement up by hundreds of basis points in the demand for gallon. Not one went more aggressively than other, but we got the negatives positive which was a really a good sign.

Operator

Our next question is coming from Nils Wallin of CLSA.

Nils-Bertil Wallin - CLSA Asia-Pacific Markets, Research Division

This year seems to be -- or at least this winter, it's where we're probably running about 7% warmer than last year, have you noticed any seasonality in the order patterns that you're seeing, that you saw assuming in the fourth quarter and you're seeing so far this year in the first quarter?

Christopher M. Connor

The first quarter is always a weather quarter. Fortunately, it's our smallest quarter of the year. So there may be a little bit of that happening. As we've had warmer weather in the upper Midwest and upper Northeast, we've been getting wiped out in Texas and other places. Per the earlier comment, I guess was with our 5 Alaska store managers, they've got 18 feet of snow in Alaska. So I think there's marginal impact on weather, but for the most part it's not that big of deal for us.

Nils-Bertil Wallin - CLSA Asia-Pacific Markets, Research Division

Okay. Now I think in your guidance regarding the raw material basket, you spoke mostly about TiO2 going up, but some of the organics or resins getting some relief there. Certainly there's an expectation in some parts of the market about propylene prices moving back up because of the ply [ph] constraints and what have you. Now I know obviously, as in propylene but it translates into downstream resins that you're buying. What are you seeing or what are your expectations in that regard? And are you -- do you expect your resins -- do you expect there could be some resin increases later on in the year?

Sean P. Hennessy

The short answer is yes. I think the rate of increase is likely to moderate compared to last year, but our expectations for the raw material basket for the industry being up high single digits to low teens does incorporate some inflation on the non-pigment side of the raw material basket.

Nils-Bertil Wallin - CLSA Asia-Pacific Markets, Research Division

Okay. That's helpful. And then just more of I guess a broader look, your control distribution model in North America is certainly envy of the industry, but then it's probably a little bit different of how you would approach it in South America. Are you looking for the same type of expanse and density of your distribution model in South America? And what type of investment do you think you'll need to make to get there?

Christopher M. Connor

Yes, good question. Not every country and every market within the country fits the model, as well as perhaps it does in North America. So just to give you a little more clarity to that, for example, in Brazil within the southern part of the country, around São Paulo and Rio, traditional and very, very strong independent paint dealer network that we sell our products through and want to continue to support those folks. In the northeastern part of the country, not so much and that's really where we focus our store growth from an architectural neighborhood paint store. Yes, we would need the same kind of density in that geography within the country of Brazil and the economics are very similar to the U.S. economics in terms of what it costs to open a store. We rent these facilities, we put about the same amount of inventory, fixing, et cetera, into them. So I don't think that we need to get to the 3,500 store count density model in the United States for Latin America to start showing the same kind of operating margins. But suffice it to say, there'll be pockets where we can run at that same density. I hope that's helpful, Nils.

Operator

Our next question is coming from John Roberts of Buckingham Research Group.

John E. Roberts - Buckingham Research Group, Inc.

Did you leave all of the automotive refinish in the new global segment?

Christopher M. Connor

Yes.

John E. Roberts - Buckingham Research Group, Inc.

So you're going to keep that, U.S., everything all in that one place?

Christopher M. Connor

Yes, those businesses are, on the industrial coating side, global by nature. So there still will be U.S. businesses included in that global business.

John E. Roberts - Buckingham Research Group, Inc.

Right, and Latin America refinish as well.

Christopher M. Connor

Latin America?

Sean P. Hennessy

Yes.

Christopher M. Connor

The automotive refinish is in that global group.

John E. Roberts - Buckingham Research Group, Inc.

Okay. And then secondly, as a leading indicator, sometimes in the past you've talked about spray equipment, ladders, et cetera, have you seen anything in your distribution sales to some of that stuff to give you encouragement as well?

Christopher M. Connor

Yes, the volume there is solid. Sales are up double digits in those segments and just as a reminder though, this is kind of the off-season for that when we get back to our first quarter call, we'll really be in the second, then we'll have a better feel for that. But even in an off-season, to be up solid double-digit sales gains on those types of things would be an indication of better confidence for our paint and contractors, John.

Operator

Our next question is coming from Jeti Pandya [ph] of Berenberg Bank.

Unknown Analyst

A couple of questions, really quick. You alluded to you are taking market share in a shrinking market. Now thankfully and hope, you are right. The market is sort of starting to turn. Now when it does turn, I mean, what sort of market share do you envisage? I mean, do you expect to grow faster than guys with sort of stores and similar distribution network? And I'm referring to basically TPG [ph] [indiscernible]Valspar, and that's the first question. And then the second question is with regards to TiO2 per se, I mean one of your very big suppliers is putting capacity in, in a more midterm situation, and they were saying that paint companies are trying to talk to them with regards to longer-term contracts. Have you developed or have you had any longer-term contract with regards to securing supply for TiO2 per se simply because they were also alluding to the fact that TiO2 market in the U.S. could become a bit tighter as the year progresses?

Christopher M. Connor

Sure, Jeti [ph]. I'll take the first question on the market share and ask Sean to comment a little bit about our titanium contract structure and how we think about that market. Our expectation on market share is exactly to your point against the other operators of regional paint for a change. And as a reminder, we've shared with The Street frequently the kind of customer mix shift between painting contractors and do-it-yourself. And as we start to see a little healthier economy, i.e. the housing starts increasing, some of the commercial projects increasing, we expect to see a rebound in the role of the painting contractors will play in the total purchases of these products, and that bodes well for us. We have a commanding lead on store count. We're widening that gap on an annual basis. All those things make sense that they should in fact deliver the higher market share for the company and typically that comes against those that are also providing products and services to painting contractors. So that's where we expect to get it. Having said that, the DIY still is a sizable portion of the business in the market. And again from earlier comments, you know that we've been talking about really solid double-digit sales teams in our DIY business for a while. So at least holding our own, if not gaining a little bit of share from a small base to the stores platform on DIY. So all in, we think another solid market share opportunity year for us is coming up. Sean, you want to comment on the titanium for Jeti [ph]?

Sean P. Hennessy

Sure. I would say that in the last few years, this decade's really been one of the most volatile decades in raw material, in all of raw materials. But I would say that the word contract is sometimes overused. I would say no, we don't have contracts per se but probably have more agreements. We will probably and we're always looking to make sure that we can take care of our customers. We'd like to have only one price increase a year. We've gone above that many, many times. So in the -- right now we're watching -- years ago, we wanted to have a contract -- we were -- but we'd never buy a 100%. You'd always want to be somewhat in the spot market. I think the way these raw materials have been rising in the last few years, they've been less optimistic about -- or less wanting to do a contract with us on a firm price. I think that what we're doing as we're watching the market and if we see an opportunity to buy a longer-term contract, we might do it. But I would say it's more in the state of flux right now.

Unknown Analyst

Maybe just a quick follow-up, x TiO2, your raw materials bill, is it fair to assume that it goes up maybe between 0% to 4%, 3%, 4%?

Sean P. Hennessy

I don't know if I'd put it in a range, Jeti [ph]. I think that -- I think it's -- suffice it to say, we do expect inflation on that side of the basket and it's one of the reasons why we give a range for raw materials in general is because rather than pinning it down to a specific inflation percent, we know that, that side of basket will go up.

Operator

Our next question is coming from Jeremy Brunelli of Consumer Edge Research.

Jeremy Ridder Brunelli - Consumer Edge Research, LLC

Just a couple of quick questions. I wanted to validate some of your comments versus what was in the press release. I think you said in the Paint Stores Group that you saw improving volumes across most segments, but it sounds like what you're saying is you saw it across all segments. Should I interpret that, that there were some segments that were kind of a flat growth pace from third quarter to fourth quarter? Is there any read into that?

Christopher M. Connor

I think you for the fourth quarter, it's all segments; for the year, some segments. And when we talked about the new residential piece of that really being the segment that improved, that was the good news in the fourth quarter.

Jeremy Ridder Brunelli - Consumer Edge Research, LLC

Got you, okay. And I think you said that you saw ramping volumes, does that mean like the pace of growth through the quarter was accelerating in 2012?

Christopher M. Connor

Yes.

Jeremy Ridder Brunelli - Consumer Edge Research, LLC

Okay. And then, do you have any sense in the, I guess, in the repaint market if there's been an inflection point between kind of strength and maintenance versus infection more towards bigger [indiscernible] capital improvement?

Christopher M. Connor

We don't have a good feel for that one. We don't give that perspective on a repaint job if it's because of a major remodeling job or commercial capital expenditure to your point. We get great visibility between new constructions and maintenance, but that is a fine line in fact that we don't really get that visibility, Jeremy.

Jeremy Ridder Brunelli - Consumer Edge Research, LLC

Great. And then one last question, can you just remind us what the lead time is from when, either from a permit or from a housing start to where the pro painters start to buy paint from you guys?

Christopher M. Connor

On average in the residential market that would be about 6 to 8 months lag.

Operator

Our last question is coming from Jeffrey Zekauskas of JPMorgan.

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

Do you worry that there's adequate TiO2 supply over a multiyear period if the coatings industry globally grows, I don't know, 3.5%?

Christopher M. Connor

Well, Jeff, that's certainly a topical question for discussion, and you have to go beyond the titanium producers to the ore producers to get your arms wrapped around that. And I think there's been a lot more focus from the paint manufacturing side to do just that. I certainly paid a lot more attention into the various minds and capacity around the world than we would have in past decades as we've been dealing with the titanium for some time. And I think that it kind of depends on who you're talking to and who's trying to push pricing, whose going to indicate what the availability is. We are convinced that the core earth ore required to make titanium is an extremely plentiful ore in the world. We're not worried about a shortage of that at any time in the future. However, the ability to mine it and get it out and have it ready to be converted is of some concern. Just as we commented and the industry has commented on some of the capacity expansions that the producers are generating, we see the same thing coming from the mining side as well. Time will tell over how all that kind of comes together, and if we end up with more shortages than not. We've also talked regarding our ability to maybe offset some of this demand, as well as some of our competitors are perhaps as aggressive, if not more so than we are in that space. So I think it's really early to comment on that. We are quite confident that as we look out to 2012 and short term beyond that, but that the availability of supply will be sufficient to fund the company's growth.

Operator

I'd like to hand the floor back over to management for any closing remarks.

Christopher M. Connor

Thank you, Jackie. Let me conclude this morning's call by asking you to save the date of Wednesday, May 23, 2012, on your calendars. That's the date we'll host our annual financial community presentation this year at the Park Plaza Hotel in Boston. The program will consist of our customary morning presentations with Q&A, followed by a reception and lunch. Again, that date is Wednesday, May 23. We'll be sending out invitations and related information in the coming weeks. And again, I'll be available over the balance of the day and this week to take your follow-up calls. Thanks for joining us today, and thank you for your continued interest in Sherwin-Williams.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you, all, for your participation.

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