PPG Industries, Inc. (PPG) on Q2 2021 Results - Earnings Call Transcript
Company Representatives: Michael McGarry - Chairman, Chief Executive Officer Vince Morales - Senior Vice President, Chief Financial Officer John Bruno - Vice President of Investor Relations Operator: Good morning. My name is Jason and I will be your conference operator today. At this time I would like to welcome everyone to the PPG’s Second Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. . Thank you. John Bruno: Thank you, Jason, and good morning everyone. Once again, this is John Bruno. We appreciate your continued interest in PPG and welcome you to our second quarter 2021 financial results conference call. Joining me on the call from PPG are Michael McGarry, Chairman and Chief Executive Officer; and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Monday, July 19, 2021. We have posted detailed commentary and accompanying presentation slides on the investor center of our website, www.ppg.com. The slides are also available on the website for this call and provide additional support to the brief opening comments Michael will make shortly. Following management's perspective on the company's results for the quarter, we will move to a Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC. Now, let me introduce PPG Chairman and CEO, Michael McGarry. Michael McGarry: Thank you, John, and good morning everyone. I would like to welcome everyone to our second quarter 2021 earnings call. Most importantly, I hope you and your loved ones are remaining safe and healthy. Now let me provide some comments to supplement the detailed financial results we released last evening. For the second quarter, our net sales were a record at nearly $4.4 billion and our adjusted earnings per diluted share from continuing operations were $1.94. Our adjusted EPS was significantly higher than the second quarter of 2020, partially due to last year's second quarter, including various pandemic related impacts. Looking back to pre-pandemic results, our adjusted EPS was similar to the second quarter 2019 despite sales volumes being 6% lower than that period, and we're dealing with historical high levels of raw material inflation in the current period. Operator: Thank you. .Our first question comes from the Ghansham Panjabi from Baird. Please go ahead. Ghansham Panjabi: Hey guys! Good morning. Michael McGarry: Good morning. Ghansham Panjabi: Yeah, so I guess, you know Michael what do you think is a realistic timeline for the recovery non-OEM production, I mean between 2Q and 3Q that looks to be about $200 million in total, to say deferral of a couple quarters or it is longer than that just based on what you see at this point. And then just also more broadly, you know there's been some concern in the market about slowdown in China. Can you just sort of give us a real time pulse as to what you are seeing in the region? Thanks so much. Michael McGarry: Well Ghansham, first of all I would say that the auto industry continues to have significant demand in all places around the world, except for Europe and we do anticipate Europe recovering, but probably at a little bit slower rate, because of the pace of vaccines over there. But I would tell you overall, you know we're anticipating that there's going to be about a million cars less built in the third quarter than we had originally anticipated, because of the chip shortage, and right now if you look at the overall pace of car builds, you know they're still below peak levels, but demand is recovering. So I anticipate that we're going to have a very strong back half of 2021 and a very good 2022. So from that standpoint, you know inventories across a lot, whether they're in the U.S. or China are still at quite low levels, and so I still remain very optimistic. From a China standpoint, specifically inventories are you know probably in that 40 to 45 day range, which is below average slightly. Demand remains strong and what's most encouraging to me is that the pace of EVs continues to pick up, and as you know our positioning on EVs are very strong and so we anticipate continuing to be above industry build rates in content. Vince Morales: And Ghansham, this is Vince. Just to dovetail on Michael's comments, if you look at automotive OEM, particularly in the U.S., you know one other benefit we expect to occur later this year or early next year as chips become available is the rental car fleets. The rental car fleets, there is a sparse inventory in those fleets and so we know those typically account for 10% to 15% of auto builds annually, and we know that 10% to 15% will be higher going forward until they replenish those fleets. Operator: The next question comes from John McNulty from BMO. Please go ahead. John McNulty: Yeah, thanks for taking my question. With regard to the raw material catch up and where you catch up with pricing and I think you're looking for. I think you said in the fourth quarter toward the end of the year. Is that exclusively on price getting high enough to catch up or do you have any assumptions baked in for raw materials actually coming off from these levels. And I guess tied to that, anything about the raw material environment right now that's making you think about possible changes to your supply chain and how you might be thinking about that going forward. Michael McGarry: Hi John, this is Michael. First I'd say there is no change in how we are approaching the raw material. We think this is a temporary dislocation. We've actually been very surprised at the recovery rate in this period. Typically even if you go back and look at the most severe hurricanes, our suppliers have been able to get online and get back up to full rates pretty quickly. This time they've been significantly challenged and it's been compounded by the lack of transportation equipment, not just equipment, but more importantly drivers. So we’ve had a number of situations where we had to go out and buy spot material and it was challenging to get trucks to be able to deliver that, because of the inability of some of our suppliers. So if you ask me, if there is any change we might do, there could be some additional suppliers brought into the mix to provide us some additional flexibility, but other than that, I don't think you know there’d be any major changes. But overall I would say raw materials, the only one that we're currently forecasting to be moderating is the oil, and as you saw oil in the past week has started to decline. So solvents would parallel the oil price changes. So that’s the only one we have right now in our model. Vince Morales: And John, your first question on our assumptions on raws in the fourth quarter, we would be assuming that on a sequential basis the third quarter and the fourth quarter the raws would stay in a similar – at a similar level, that's our current assumption. Operator: The next question comes from David Begleiter from Deutsche Bank. Please go ahead. David Begleiter: Thank you. Good morning, Michael or Vin, can you quantify how much worse price versus raws will be in Q3 versus Q2, and how much better do you think they'll be in Q4 versus Q3? Thank you. Vince Morales: Okay David, I think – this is Vince. I think it’s similar to the question John just asked. Again, we gave guidance out, 20% raw material inflation give or take in Q3. We did include in the slide packet that was posted last night to our website. Our initial views of pricing, those views will be somewhere between 4% and 5% in terms of our price capture. That’s still well short of what we need. We typically need you know 40% to 50% of the inflation to recover to fully, so we're still looking at additional pricing actions throughout 3Q, across all of our businesses, all of our regions. And in 4Q, to John Bruno’s comment a minute ago, well we expect inflation to remain high. We do expect to remove some of spot buys that we are doing currently. Those are typically coming out large premium to traditional pricing, our list pricing, and we're still looking at additional price capture or a full realization of the 3Q price capturing in 4Q. So again on a run rate basis, our target is to get fully offset in 4Q. Operator: The next question comes from John Roberts from UBS. Please go ahead. John Roberts: Thanks. The raw material and logistical comments all seem to be North American center. Could you give us maybe a more global view of what you're seeing in the raw material outlook in Europe and Asia? Michael McGarry: Yeah John, this is Michael. I would actually say that the Chinese raw material inflation was actually higher. That was driven primarily by epoxies, isocyanates and so those were the most challenging thing in China. The rapidity or the significant increases that we saw in China have kind of leveled off at this point in time. I would say in Europe they're also coming up, but not quite the same rate as China. Availability in Europe is better than availability in the U.S., but still not great. Availability in China is there if you're willing to pay for it. So for spot, so we’ve been really pushing our customers hard. If they want to buy more than contract, if they need to pay extra for that additional volume, and so from that standpoint, we've been working closely with our customers on this additional raw material inflation. And I would say for Latin America, it kind of mirrors the U.S. market. Vince Morales: And John if I could just add, we are seeing with ocean going freight, some of that has been significantly delayed. So even though if there's availability and it's a product that's being pulled at around, it's not showing up in time. So again that's exasperating some of the issues. We expect again a lot of these logistical issues to begin to self-correct in the third quarter. Q2, we have to remind everybody Q2 is typically the peak quarter for a lot of companies, a lot of industries. Q3 things start to moderate in terms of overall global economic demand from a seasonal perspective. So again, we expect some of this to self-correct. John Roberts: Thank you. Operator: The next question comes from Stephen Byrne from Bank of America. Please go ahead. Stephen Byrne: Yes, thank you. I wanted to gel in a little bit about the MOONWALK rollout in Europe. You mentioned 750 installations. Can you put that into perspective? How many autobody shops are there in Europe? Is 750 just scratching the surface or is this meaningful and we expected a 20% through customers. Are you primarily targeting new accounts and share gains with this technology? Any comments on the outlook for share gains would be helpful here. Vince Morales: Yeah Steve, this is Vince. If you look across Europe and the U.S., there's thousands upon thousands body shops. This is a small percentage relative to the total universe. You know I think for us what's most exciting is, every one of these we can make and get to market is immediately sold. We have a back order, significant back orders in Europe. This is now – we are moving this now to the US. We are certainly providing our existing customers who value the speed that this provides for their paint shops. We value that productivity. We are providing them with the opportunity to purchase this first, but we do have an allotment of these that are really focused on new customer wins, and I think as we roll out kind of this 80/20 strategy, we are going to continue to see customer wins around this body shop productivity which the premium shops, the MSOs prefer, that’s their business model. So still early innings here, but we are exceptionally pleased with the traction this is getting and I will continue to update you and continue to rollout more MOONWALK devices as we go forward. Operator: Your next question comes from Mike Sison from Wells Fargo. Please go ahead. Mike Sison: Hey guys, good morning. In terms of the raw material pricing gap, any thoughts between each of the segments? Are there some segments a little bit better off in terms of getting pricing and closing that gap or are there other segments that are doing, you know both might take a little bit more time to get – to close the gap. Michael McGarry: Yeah Mike, this is Michael. So, I mean it’s a traditional PPG model here. So the gap is the largest in automotive for two reasons: one it had the biggest inflationary gap, and the second is, it’s most difficult to get price increases with the automotive guys. But I am very pleased to announce that we have gotten positive price in every automotive region in the world. So we are making good progress there and well ahead where we were in 2017, 2018. I would say the next inflationary would be in our industrial coatings business. They also buy a lot of epoxies, isocyanates. So they would have been hit second most difficult. The business that’s impacted the least is aerospace due to the raw material mix we have there. The place that we probably have closed the gap the most is architectural. We’re working also hard on traffic solutions. This is a business that historically price was a secondary thought. We've elevated that in this business and we've been very pleased at the pace of recovery in our traffic solutions business. So I don't think it's any different than what we've seen in years past, and I think we're going to continue to push hard to close that gap with our automotive customers, and that's – I'm really pleased when you think about where we are in this cycle versus where we were in the last cycle, it's light years apart. Operator: The next question comes from Jeff Zekauskas from JPMorgan. Please go ahead. Jeff Zekauskas: Thanks very much. I think at the end of the last quarter, you thought that you would earn between 2.15 and 2.20 a share. When did you realize that you wouldn't be able to do that? Was it something that happened at the very end of the quarter or at the middle of the quarter? And in your – in the mis-assessment of how much you might early in the second quarter, what were the real sources that? Was it an information issue or did it turn out that raw materials really rose very, very quickly in June? Can you can you talk about the history of the way you assessed the quarter, you know over the past couple of months? Vince Morales: Yeah Jeff, this is Vince. So if you look, we came out early in April, we were one of the early reporters in April. It was directly after the weather event in Texas. At that point in time we were hearing from our suppliers and as Michael alluded to earlier, that this would be a multi week startup. As we progressed through the quarter, and especially in June we continued to see outages and escalation of raw materials, specifically in the June time period, which is why we're seeing Q3 higher than Q2 in terms of our raw material estimates. We continue to see outages, particularly around transportation. Those outages continue to worsen, especially in June and our customers continue to have spot production curtailments from their perspective. So as we were in June, we continue to see the automotive market be heavily impacted by chip shortages and a lot of customers in that particular industry who had year marked Q3 for some downtime actually took it in Q2. So as we went through the quarter, we saw the difficulties continue to grow. So that really was the timeline, and again as you look at our guidance for Q3, you could see some of these things are going to certainly carry forward into the third quarter that we were not anticipating. We are anticipating them being rectified at some point in mid-Q2, certainly not even before late Q2. Michael McGarry: And Jeff, this is Michael. I would say we're disappointed that the raw material inflation continued at such a high level throughout the quarter, and it just seemed to get worse. And when you bank on your suppliers saying they are going to get to 20 trucks and they get you 10, that doesn't help you. So we own up to this raw material inflation miss and that's our accountability. Operator: The next question comes from Prashant Juvekar from Citi. Please go ahead. Prashant Juvekar: Yes, hi! Good morning. Michael, given the shortage of raw materials, are you able to make enough paint products? And where do paint inventories stand in the supply chain; in your stores for example or in the MSOs and refinish. And if painting window is at below normal, could there be sort of paint restocking cycle sometime in second half or next year? Can you talk about that? Michael McGarry: So P.J. I tried to cover that in our opening remarks, inventory levels in all our businesses are at exceptionally low level. You saw that in our working capital numbers. I've actually asked our businesses to share with me the amount of product they made in April, May, June and versus how much of that went out the door and virtually everything we made went out the door. So inventories you know have gone backwards for us. We see very low inventories in the chain in many of our customers as well. So if you look at our architectural guys, they typically don't carry a lot, but they have even less. If you look at our industrial customers, I've had more calls from the customers directly to me in the past quarter than I've had in the past probably three or four years. So customers have low inventory, as well. I do think they will be restocking, and of course as you know in aerospace inventories I would say are at rock bottom, because they couldn't afford to buy anything previously, and so they're trying to stock up now ahead of what they anticipated increased demand. So I can't really think of a single one of our businesses that have any kind of material inventory either on the shelf or at our customers. Vince Morales: And P.J., this is Vince. If you look ahead, we do think again there's very good underlying demand in many of the markets that we supply, automotive being a proxy as we talked about it earlier. There's several steps where we see automotive sales continuing from multiple quarters. There's a restock that will take place, just to get back to normal safety stock levels in our customer's inventory. So we feel good for the next several quarters about the ability to sell product or our customers’ ability to sell product, more so than we have for quite some time because of this very strong underlying demand around the world. Operator: The next question comes from Frank Mitsch from Fermium Research. Please go ahead. Frank Mitsch: Hey, good morning folks. Michael, you mentioned during this call that you maintained enough flexibility to do accretive cash deployment. And so as I'm listening, there's a number of comments in release in the transcript and on this call today that says, you know you guys are very constructive on your outlook. So just curious as to what extent might you be able to be opportunistic on buybacks? Michael McGarry: Well Frank as you know, we always prefer the acquisitions over the buyback. Clearly, we take a look at this on a monthly basis. You saw that we finished the quarter with about $1.2 billion to $1.3 billion of cash. We're coming into our very strong cash period where we generate a lot of cash in the back half of the year. I think our current ratio is 2.1, so you know from that standpoint and with cash coming in, we're in a good position. There had been a number of the top 30 coatings company has been taken off the board in the last couple of, let's call it last three or four quarters, so the availability of targets is probably not as good as it was six months ago. So you know right now we're going to keep an open mind for that and we're going to remain balanced in how we deploy cash. You saw that we increased our dividend. We think that was important, certainly 50 years of dividend increase is a significant milestone and right now I would say that I like our acquisition, you know order log book if you will where we stand, that pipeline, but overall I would say we're going to remain balanced on this viewpoint. Operator: Your next question comes from Laurent Favre from Exane BNPP. Please go ahead. Laurent Favre : Yes, good morning. My question is on architectural and the guidance on Q3 with volumes down in both the Americas and Europe. I was wondering if you could talk about some, I guess the different buckets of what’s driving that? Is it underlying demand, is it share loss due to pricing, availability of raw materials, DIY comp, etc. Thank you. Michael McGarry: Laurent, I would say from an architectural standpoint there's certainly been no share loss. We've been really pleased with how we're performing in architectural. You saw the numbers we reported in both Europe and the U.S., are strong numbers. So from that standpoint you know what we're looking at is a shift as we anticipated would eventually happen, of people moving from DIY to trade as people start to go on vacation and start to spend their money, they are going to hire professionals to come in and do that. We see our trade order book increasing to offset the weakness in DIY, but what I would point out is DIY is still well above 2019 levels and so when you combine the two, you know we're pleased with the outlook on where we stand. I think the outlook we gave for the third quarter for architectural is quite strong and you know we are pleased with the performance of the business. Vince Morales: The other one I would add – this is Vince. I would add, we are still in the third quarter expecting to experience shortfalls for raw material supply from coatings raw materials supply, so it is moderate in our ability to supply some of our key products, especially on the U.S. side, so trade-in in DIY, so that is one of the limiters we do have in terms of our sales outlook. Operator: Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead. Vincent Andrews : Very much. Just wondering, you know we're halfway through 2021. You know maybe you could give us an assessment of the cost that came out with COVID, the costs that you’re able to avoid you know as we're now halfway through the year. Do you have a sense of, you know any better sense of how much of that’s going to come back and when? John Bruno: Yes, this is John. So we think we're kind of at Perry now. There might be some travel entertainment, just some modest stuff that comes back as things continue to open up, but we felt that on an annualized basis that we could bank – we said on a quarterly basis $25 million to $30 million of temp savings. We had another $30 million of benefit in the second quarter. So I think this is something we probably won't talk much more about, because at this stage you know I think we've made some of these costs permanent reductions and you know now we'll just ebb and flow more with our volume and demand activity. Vincent Andrews : Thanks very much. Vince Morales: And this is Vince. I do think that when you look at our multi-year selling general and administrative cost as a percent of sales, you can not only see the interim savings as we call these, dropping to the bottom line, but you could also see more importantly the structural savings that we've introduced for a couple of years now and those are also benefiting us. On top of that, just to dovetail from Michael on the acquisitions, we do have a significant amount of synergy savings targeted for the five acquisitions. We gave out a target earlier in the year. We're on target for that, although some of these have just closed, so a lot of those savings will be visible and more visible in 2022. Operator: Our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead. Kevin McCarthy : Yes, good morning. Michael, there's been a lot of focus on automotive as a source of the negative variances. I'm curious, if we put automotive on the side for the moment, would you care to call out other businesses that would have disappointed relative to your prior expectations and you know if so, was that more driven by a demand variance or price cost spread that was you know spread across many of your business. A - Michael McGarry: Yeah Kevin, so the two businesses that were impacted besides automotive the most was architectural due to emulsions and traffic solutions, the same thing. So we had a hard time getting the emulsions and resins from our suppliers. You can't make paint without that and so we were hand to mouth on those kind of things, despite having significant demand. If you go into any of our stores or go in the big boxes or asking the DOTs, they would all tell you that all the suppliers are struggling to put paint on the shelves. So I think that was the most material things. But it is interesting, you know we didn't track it, because I didn't think it would become a material number, but the number of other places that chips show up, you know whether it's appliances or other heavy duty equipment, so everybody has been impacted somewhat, but it really didn't turn out to be enough of a number to call out, but I would say the two biggest ones are architectural and traffic solutions. A - Vince Morales: Yeah Kevin, I’ll just add that in many of our businesses, automotive obviously, the two Michael mentioned, traffic solutions architectural, we can even get into aerospace. Some of our industrial businesses we finish, you know we have a higher order book exiting Q2 that we just could not fulfill. So our order book as we alluded to earlier is very strong. We just got to be able to fulfill that with product availability. Operator: The next question comes from Arun Viswanathan from RBC Capital Markets. Please go ahead. Arun Viswanathan : Alright, thanks for taking my questions. So I guess I just wanted to go back to the last question a little bit and understand I guess potentially some of the bridge items for ‘22 versus ’21. So you have a full year of accretion on many of the deals. You have kind of a normalization in some of your volumes and hopefully you’re all caught up on price cost. So I think you made the comment that your ‘21 EPS is going to be a double digit growth from ‘19 levels. Is that a fair starting point when you think about ’22 and is there – you know just given what you've seen on the cost side, is there opportunities to continue to grow margins as you recover that price cost spread in ‘22 as well. Thanks. Vince Morales : Yeah Arun, this is Vince. A little bit longer look than we want to do at this point in time. There's still a lot of fluidity just in the economies out there. You know I think we’ve tried to lay out today some of the positive things we think are in store, not only for us but the industry, good demand. We do think PPG specific, these acquisitions along with the synergies that come with them. We hope we get to a normal price cost environment, but it's all too early to make that call for what the supply chain looks like going into 2022 right now. We think it'll normalize, but it's just too early to make all these calls at this point time of the year. We certainly feel very optimistic about you know next year just given the overall demand outlook. Typically when you have strong demand, you know that parlays into positive results, better cost spread on a bigger sales base, etc. Operator: The next question comes from Duffy Fischer from Barclays. Please go ahead. Duffy Fischer: Yeah, good morning guys. I just wanted to drill down on volume, particularly in Q3 if we can. You know Vince, you talked about 4%, 4.5% price rolling through and relative to your low single digit growth, I mean that's kind of all the growth then that would be in both segments as price, which would mean than volume is kind of flat to maybe down. And Michael called out $150 million of kind of foregone sales because of the issues which you know might add another 4% to that. So what that would say is kind of the run rate volume growth, looks like it's 3%-ish in Q3, which feels pretty light given how early we are in the cycle. So can you just talk about what you think the underlying volume growth is in your businesses, kind of Q3 and then how does that set the table then for continued volume growth the rest of this year and into next year. Vince Morales : Yeah Duffy, I'll try to give this a shot, a lot of numbers in there. Look, when you look by business you know we're still constrained as Michael alluded to, on our ability to fully satisfy our order book. We expect that to continue well into Q3 if not fully through Q3. Some of our customers are still well constrained on their ability to produce, so again we gave out the guidance of low single digit organic growth and we think there's a lot of moving pieces in there. What again I'll just pass through to you is our confidence level that we're not going to be able as an industry to supply the demand that's out there even by the end of Q3. So you know how these pieces come together Q3 versus Q4, we’ll still see how that's determined, but strong, very strong underlying demand, recovery demand occurring in aerospace, starting to occur in aerospace, some demand in refinish as traffic miles pick up. So we're just confident there's underlying demand there and we just got to be able to fulfill it. Operator: The next question comes from Bob Koort from Goldman Sachs. Please go ahead. Bob Koort: Thank you. Good morning. Mike and Vince, I think you guys talked about having to go to the spot market for procurement. How tolerant are your customers going to be of that as a basis for price hikes and sustained price hikes then into next year as some of the spot markets start to normalize. Is there confidence you can retain those price hikes and is there any scope for you to use the force majeure impact that you suffer to somehow pass those along on your own terms with your customers or is that just something that doesn't happen? Thank you. Michael McGarry: No Bob, this is Michael. We have been aggressive in trying to get our customers pay for the additional freight charges that are, you know if they want to move up orders, if they want to – you know us to buy from spot people. In order to keep them running, we have gone to them and asked them to pay for that, but that's a portion of the overall raw material increase. You know even without the spot we would have still been you know 15% to 17%, so these are real increases. You know they are seeing them in their own cost structure as well, so they are not able to debate whether or not we're having these things. So as Vince alluded to earlier, you know we need to get about 50% of the overall increase and so we've been out there with some very significant increases and I think we’re making a lot of progress in that regard. Clearly you know we'd like to have moved faster, but when I look back on 2017, 2018, we’re well ahead of that, so. I think the customers are very understanding of this and what it takes is the whole market to move to capture it and you know we've been out early and often and we’ll have to continue to do that in 3Q and 4Q. Vince Morales : And Bob, I’ll just add, you know most of our customers are facing similar issues beyond just coatings and they are trying to supply their customers, and they are short of product as well. So this is a pervasive issue that's well known across the materials and industrial spaces and you know our customers are seeing inflationary pressures from a variety of different industries. We’re one of those industries of course and so again the acceptance level as Michael alluded to is higher today than it certainly was in the past cycles. Operator: The next question comes from Mike Harrison from Seaport Research Partners. Please go ahead. Mike Harrison: Hi! Good morning. I had a question on the aerospace business. Within the aftermarket business, do you have situations where some of these aircrafts have been mothballed for several months and they need significant maintenance or even repainting before they return to service. Maybe just talk a little bit about how that aftermarket business recovery is playing out. Michael McGarry: Yes, so the easy one is on the repaint side. They don't need repainting per say, but if any, if a customer had returned planes to the lessor, those planes, they’d be returned in a white format. So we have been painting a lot of planes white during the pandemic. Now we're not painting any white right now, because they are going to be returned to service, so there will be a pick-up of that. Also, what we historically find is after events like this, you will see some rebranding being done, so we're anticipating that will also happen maybe in 2023, 2024. But overall right now when you take the plane out of storage, if it was properly stored, there is some maintenance they need to do on it before it goes back into service, but then they don't have to do the big heavy check that they do at the big maintenance cycles. But overall inventories are exceptionally low. Our order book in – or I should say our book-to-bill ratio has improved significantly in aerospace. Our backlog has increased and so right now the biggest challenge we have in our aerospace business is our labor, making sure we get enough qualified labor to work in the plants, to be able to get the product out the door. So we're feeling very, very good about aerospace on the MRO side. We're not there yet obviously on the OEM side. You know builds are picking up slightly on the 737, they are picking up slightly on the A321, but for the bigger birds, they are not picking up at all and we don't anticipate seeing that range pick up until 2023 time period because of a lack of international flights. Operator: The next question comes from JD Panjia from On Field Investment Research. Please go ahead. Q - Unidentified Analyst: Thanks a lot. Just a question really around the logistics. So obviously there's a significant increase in container rates out of China. So as and when the container rate or rather logistic situation sort of normalizes, do you expect a sharp reversal in some of your raw material basket, because if I think about oil it has only gone up, let’s say call it their cut 20% in the last quarter, but some of your own materials have more than doubled and literally volumes that are coming out of China into Europe and U.S. are gone down a lot in all the raw materials. So once the container rate situation normalizes, do you see a sharp reversal of raw material dynamics? Thanks a lot. Michael McGarry: Hey JD, this is Michael. I would say the container rate is only a portion of the overall raw material spend. The bigger challenge overall has been the supply-demand issue for the base raw materials. Certainly we're not happy with the container prices. It has escalated significantly, but if we could get the overall base supply-demand balance back in balance if you will in our supply chain, I think prices would start to normalize somewhat. We don't see that happening in 2021, so right now we're still anticipating significant inflation when we said its 20% in Q3 and we’ll have a significant inflation in Q4, so. You know for as far as we can currently look out, we're still looking at a pretty inflationary cycle. Vince Morales: Yeah, again this is Vince. If I could just add, so what we've seen is a compounding of events here. One was the – obviously the shock in March due to the chemical supply chain. That was then compounded by the logistics systems got out of sequence, which was then compounded by some of the international logistics, not only got a sequence, but were higher priced. So these kind of chain events is what really pushed these raw materials up. Some of that will unwind as we get out of the season. As I said earlier, Q2 is the peak season, but we do expect these raw material costs to remain elevated for the balance of the year. Operator: The next question comes from the Edlain Rodriguez from Jefferies. Please go ahead. Edlain Rodriguez: Thank you. Good morning guys. Michael, a quick question. I mean one quick one about medium term volumes. So when you look at the couple of businesses that are still below pre-pandemic levels. Do you have a sense of when they catch up and essentially given the pace of activity your seeing, do you get there in 2022 or is it more you know like 2023 or so? Michael McGarry: Well, the only business that will not be recovered by 2022 in my opinion is aerospace OEM. So aerospace MRO will probably be 90% back. Certainly the military is already back. Refinish, we saw last year when Europe opened up, we saw the refinish miles in Europe come back very strongly, so we're anticipating the same thing as they get the vaccines out that we anticipate the back half of 2021 will you know recover significantly and by hopefully all of 2022 Europe will be back to normal. We see in the U.S. already we’re at 90%-plus recovered in refinish, and actually what you're seeing is a little shift from traffic from the cities into the suburbs. So you know collisions are actually improving every month here in the U.S., and of course in China it's all the way back to normal, and we see a snap back in India whenever we see the folks get allowed to travel again. So most places it is vaccine related, and so we're pretty confident. If you go through the rest of our businesses, we're already back at industrial work, mostly back in automotive. Our packaging business is well ahead, you know the demand in aluminum packaging is very strong, so our packaging business is going to have another record year this year and next year. If you look at our PMC business, you know protective, you know now that that oil prices have recovered, I expect protective to continue to recover as well as they start to protect these high value assets in the oil fields. So I'm very comfortable that we're going to have a strong back half of the demand for 2021 and a continued demand recovery in 2022. Operator: There are no further questions at this time. Mr. John Bruno, I turn the call back over to you. John Bruno: Yeah, thank you Jason. I’d like to thank everyone for their time and interest in PPG. This concludes our second quarter earnings call. Operator: This concludes today's conference call. You may now disconnect.PPG Ratings Summary
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BofA Downgrades PPG Industries to Neutral Amid Tariff Risks and Rising Input Costs
PPG Industries (NYSE:PPG) shares fell nearly 2% today after BofA Securities lowered its rating on the stock from Buy to Neutral and cut the price target to $126 from $143, citing a growing mix of macro and sector-specific headwinds.
While overall coatings raw material inflation is expected to remain relatively contained through 2025, the firm projects a more noticeable price uptick by 2026—driven in part by escalating costs for tin plate and epoxy resin. These pressures are being amplified by anticipated mid-single-digit inflation in raw materials, compounded by tariff-related impacts.
PPG’s recent sale of its U.S. and Canadian architectural coatings business reduced its exposure to North American housing, but its Mexico-based Comex segment could face indirect pressure if tariffs slow the Mexican economy. Meanwhile, PPG’s automotive OEM and refinish segments may be vulnerable in a potential downturn, given their sensitivity to consumer demand.
With inflation risks climbing and economic uncertainty rising, BofA believes the near-term upside is now limited, prompting its shift to a more cautious stance on the stock.
BofA Downgrades PPG Industries to Neutral Amid Tariff Risks and Rising Input Costs
PPG Industries (NYSE:PPG) shares fell nearly 2% today after BofA Securities lowered its rating on the stock from Buy to Neutral and cut the price target to $126 from $143, citing a growing mix of macro and sector-specific headwinds.
While overall coatings raw material inflation is expected to remain relatively contained through 2025, the firm projects a more noticeable price uptick by 2026—driven in part by escalating costs for tin plate and epoxy resin. These pressures are being amplified by anticipated mid-single-digit inflation in raw materials, compounded by tariff-related impacts.
PPG’s recent sale of its U.S. and Canadian architectural coatings business reduced its exposure to North American housing, but its Mexico-based Comex segment could face indirect pressure if tariffs slow the Mexican economy. Meanwhile, PPG’s automotive OEM and refinish segments may be vulnerable in a potential downturn, given their sensitivity to consumer demand.
With inflation risks climbing and economic uncertainty rising, BofA believes the near-term upside is now limited, prompting its shift to a more cautious stance on the stock.
PPG Industries, Inc. (NYSE:PPG) Financial Overview and Market Position
- Wells Fargo maintains an "Overweight" rating on NYSE:PPG, with a current stock price of approximately $112.55.
- PPG reported fourth-quarter earnings of $1.61 per share, missing the consensus estimate of $1.65 per share, leading to a 2.9% drop in share price.
- The company's FY25 adjusted EPS guidance of $7.75-$8.05 is below market estimates, causing analysts to adjust their price targets.
PPG Industries, Inc. (NYSE:PPG) is a leading global supplier of paints, coatings, and specialty materials, competing with giants like Sherwin-Williams and AkzoNobel. Despite receiving an "Overweight" rating from Wells Fargo, PPG's recent financial performance has shown mixed results. The company's fourth-quarter earnings fell short of analyst expectations, leading to a slight drop in its share price.
PPG's Chairman and CEO, Tim Knavish, highlighted the company's resilience and growth prospects, noting a 6% increase in adjusted EPS and improved segment margins. The company has also demonstrated its commitment to shareholder returns, with $1.4 billion in operating cash flow returned to shareholders, including $750 million in stock repurchases. However, PPG's guidance for FY25 adjusted EPS is below market expectations, prompting analysts to revise their price targets. Despite these challenges, the stock remains active, with a trading volume of 1,686,932 shares, reflecting ongoing investor interest.
PPG Industries, Inc. (NYSE:PPG) Financial Overview and Market Position
- Wells Fargo maintains an "Overweight" rating on NYSE:PPG, with a current stock price of approximately $112.55.
- PPG reported fourth-quarter earnings of $1.61 per share, missing the consensus estimate of $1.65 per share, leading to a 2.9% drop in share price.
- The company's FY25 adjusted EPS guidance of $7.75-$8.05 is below market estimates, causing analysts to adjust their price targets.
PPG Industries, Inc. (NYSE:PPG) is a leading global supplier of paints, coatings, and specialty materials, competing with giants like Sherwin-Williams and AkzoNobel. Despite receiving an "Overweight" rating from Wells Fargo, PPG's recent financial performance has shown mixed results. The company's fourth-quarter earnings fell short of analyst expectations, leading to a slight drop in its share price.
PPG's Chairman and CEO, Tim Knavish, highlighted the company's resilience and growth prospects, noting a 6% increase in adjusted EPS and improved segment margins. The company has also demonstrated its commitment to shareholder returns, with $1.4 billion in operating cash flow returned to shareholders, including $750 million in stock repurchases. However, PPG's guidance for FY25 adjusted EPS is below market expectations, prompting analysts to revise their price targets. Despite these challenges, the stock remains active, with a trading volume of 1,686,932 shares, reflecting ongoing investor interest.
PPG Industries Upgraded at Wells Fargo
Wells Fargo analysts upgraded PPG Industries (NYSE:PPG) from Equal Weight to Overweight and increased their price target on the stock from $140 to $163. The analysts believe that exiting the US architectural coatings market is a smart strategic decision for PPG, enabling the company to capitalize on the improving earnings potential alongside the housing market's recovery. This move positions PPG to more effectively achieve its 8-12% EPS growth targets, with a more streamlined coatings portfolio expected to drive solid earnings growth in 2024, estimated at around 10% year-over-year.
Volume growth is expected to turn positive in the second quarter of 2024, with projections of 1% growth for the year and 2.6% in 2025. The anticipated increase in volumes is attributed to improvements in China, India, and Mexico, stability in Europe, and robust growth in the Aerospace and Refinish sectors. Additionally, the divestiture of the US architectural business could offer further growth opportunities for Performance Coatings.
PPG Industries’ Shares Up 5% on Updated Guidance Announcement
PPG Industries (NYSE:PPG) announced this morning that it expects Q1/23 adjusted EPS to be in the range of $1.52-$1.58, exceeding previous guidance of $1.10-$1.20. As a result, shares surged nearly 5% yesterday.
Margin recovery accelerated in Q1, driven by higher sales volumes and additional selling price capture, led by aerospace and automotive OEM coatings businesses. The company noted higher year-over-year earnings were seen across most of the portfolio, including Europe, and volumes were better in China due to fewer pandemic disruptions than originally expected.
Analysts at RBC Capital raised their 2023/2024 estimates following the updated guidance and raised their price target to $143 from $133, while maintaining their Sector Perform rating.
PPG Industries’ Shares Up 5% on Updated Guidance Announcement
PPG Industries (NYSE:PPG) announced this morning that it expects Q1/23 adjusted EPS to be in the range of $1.52-$1.58, exceeding previous guidance of $1.10-$1.20. As a result, shares surged nearly 5% yesterday.
Margin recovery accelerated in Q1, driven by higher sales volumes and additional selling price capture, led by aerospace and automotive OEM coatings businesses. The company noted higher year-over-year earnings were seen across most of the portfolio, including Europe, and volumes were better in China due to fewer pandemic disruptions than originally expected.
Analysts at RBC Capital raised their 2023/2024 estimates following the updated guidance and raised their price target to $143 from $133, while maintaining their Sector Perform rating.
