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CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page1of22
PPGIndustriesInc(PPG)EarningsReport:Q32015ConferenceCallTranscriptThefollowingPPGIndustriesIncconferencecalltookplaceonOctober15,2015,02:00PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
VinceMorales;PPGIndustriesInc.;VPIR&TreasurerMichaelMcGarry;PPGIndustriesInc.;President&CEOFrankSklarsky;PPGIndustriesInc.;EVP&CFO
OtherPart icipants
DavidBegleiter;DeutscheBank;AnalystChrisEvans;GoldmanSachs;AnalystDuffyFischer;BarclaysCapital;AnalystJohnRoberts;UBS;AnalystP.J.Juvekar;Citigroup;AnalystJeffZekauskas;JPMorgan;AnalystFrankMitsch;WellsFargoSecurities;AnalystArunViswanathan;RBCCapitalMarkets;AnalystNilsWallin;CLSA;AnalystGhanshamPanjabi;RobertW.Baird;AnalystMattGingrich;MorganStanley;AnalystDonCarson;SusquehannaFinancialGroup;AnalystJimSheehan;SunTrustRobinsonHumphrey;AnalystKevinHocevar;NorthcoastResearch;AnalystDmitrySilversteyn;LongbowResearch;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometothethirdquarterPPGIndustriesearningsconferencecall.
(OperatorInstructions)
Asareminder,thisconferenceisbeingrecordedforreplaypurposes.IwouldnowliketoturntheconferenceovertoyourhostfortodayMr.VinceMorales.Pleaseproceed.
VinceMorales (VPIR&Treasurer):
Thankyou.Welcome,everybody.
ThisisVinceMorales,PPG'sVicePresidentofInvestorRelationsandTreasurer.WeappreciateyourcontinuedinterestinPPGandwelcomeyoutothisteleconferencetoreviewourthirdquarter2015financialresults.
JoiningmeonthecalltodayfromPPGisMichaelMcGarry,PresidentandChiefExecutiveOfficer,andFrankSklarsky,ExecutiveVicePresidentandChiefFinancialOfficer.
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page2of22
OurcommentsrelatetothefinancialinformationreleasedonThursday,October15,2015.Iwillremindeverybodythatweposteddetailedcommentaryandaccompanyingpresentationslidesonourinvestorcenteratppg.com.TheslidesarealsoavailableonthewebcastsiteforthiscallandtheyprovideadditionalsupporttotheopeningcommentsMichaelwillmakemomentarily.
FollowingMichael'sperspectiveontheCompany'sresultsforthequarterwewillmovetoaQ&Asession.
BoththepreparedcommentaryandthediscussionontheQ&Amaycontainforward-lookingstatementsreflectingtheCompany'scurrentviewoffutureeventsandtheirpotentialeffectonPPG'soperatingandfinancialperformance.Thesestatementsmayinvolveuncertaintiesandriskswhichmaycauseactualresultstodiffer.TheCompanyisundernoobligationtoprovidesubsequentupdatestotheseforward-lookingstatements.
Thispresentationalsocontainscertainnon-GAAPfinancialmeasures.TheCompanyhasprovidedintheappendixofthepresentationmaterialswhichagainareavailableonourwebsitereconciliationsofthesenon-GAAPfinancialmeasurestothemostdirectlycomparableGAAPfinancialmeasures.ForanyadditionalinformationpleaserefertoPPG'sfilingswiththeSEC.
AndnowletmeintroducePPG'sPresidentandChiefExecutiveOfficerMichaelMcGarry.
MichaelMcGarry(President&CEO):
Thankyou,Vince,andgoodafternooneveryone.IwanttothankyouforyourcontinuedinterestinPPG.
Todaywereportedourthirdquarter2015financialresults.Ourresultsincludedthirdquarternetsalesof$3.8billionandthirdquarterrecordadjustedearningsperdilutedsharefromcontinuingoperationsof$1.61.
Ouradjustedearningspershareinthethirdquarterwereup$0.20,or14%versusthepriorrecordquarter.Ourcontinuedstrongperformancewasachieveddespiteunfavorableforeigncurrencytranslationimpactswhichwerelargerthanoriginallyanticipatedduetofurtherweakeningofemergingregioncurrenciesduringthequarter.
WemorethanoffsetthecurrencyheadwindwithcontinuedbenefitsfromouracquisitionsincludingconsistentlystrongperformanceofComex,ongoingandaggressiveactionstofurtherreduceouroverallcostandcontinuedcashdeployment.Overallweperformedwellthisquarteragainstamoredynamicanduneveneconomicbackdrop.WehavecontinuedtodeliversolidcompoundedadjustedEPSgrowthasaCompanyincludingover20%inthelastthreeyears.
Thisconsistentperformanceisatangiblemeasurementofourglobalcoatingsbusinessplatform,ourabilitytoinnovateandcommercializecustomerdrivenproductsandtechnologiesandourcontinuedaggressivecostmanagement.Additionallywecontinuetobenefitfromdisciplinedearningsaccretivecashdeployment.
Ourthirdquartersalesvolumedeclinedbylessthan1%yearoveryeardownslightlyversusoursecondquarterperformance.Thelowerresultsreflectoverallmoderationofglobaleconomicgrowthduringthequarterandtransitorycustomerinventorymanagement.
OurIndustrialCoatingssegmentgrewvolumesupportedbycontinuedautomotiveOEMvolumegrowthinallmajorregions.WedeliveredhighervolumesinAsiadespitelowerindustryproductioninChina.AlsogrowthcontinuedinEuropeandNorthAmericasupportedbygrowingdemandintheseregions.
Additionallywecontinuetobenefitfrominitialindustryadoptionofournewcancoatingtechnologies
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page3of22
andourpackagingcoatingsbusiness.Weareinearlystagesofanindustry-widetechnologyconversionandwehavedemonstratedexcellentprogressinsecuringaninitialleadershippositionduringthisonceinamulti-decadeindustryconversion.
WithintheIndustrialsegmentgrowthwaspartiallyoffsetbyslightvolumedeclinesinourIndustrialCoatingsandspecialtycoatingandmaterialsbusiness,aresultsimilartopriorsequentialquarterasoverallgeneralindustrialdemandremainstepidinallmajorregions.PerformanceCoatingssalesdeclined,volumesdeclinedduetolowerarchitecturalcoatingsdemandstemmingfromaweakerCanadianeconomycoupledwithinventorymanagementbymostofourUSandCanadiannationalretailcustomersapproachingthetailendofamodestpaintingseason.Overallarchitecturalcoatingsindustrydemandwasmodestinthethirdquarterfollowingaweakerthananticipatedsecondquarterduetopoorpaintingweatherconditions.
Essentiallywedidnotexperiencealarge-scalesnapbackinthequarter.Thisleftmostofourlargenationalretailcustomersandindependentdistributorswithhighinventoriesaswebegantowinddownthepaintseason.Sotheirlatethirdquarterorderpatternswerereducedcommensurately.
VolumesinourotherPerformanceCoatingsbusinesseswereupslightly.RegionallyfortheCompany,highervolumeswereachievedinEuropewithgrowthtrendslightlyaheadofthepreviousquarteraswecontinuetoseebroaderbutstillmodestlyincrementalimprovementintheregion.
Year-over-yearvolumesgrewINAsiaaswell.Chinavolumesweresoftearlyinthequarter,includingcustomerinventorymanagementbutstabilizedwithdemandimprovementlaterinthequarter.VolumesintheUSandCanadianmarketswereloweryearoveryearprimarilyduetoarchitecturalcoatingscustomerinventorymanagement.
Mexicanvolumesexcludingacquisition-relatedbenefitsremainedverysolidwhileSouthAmericandemandweakenedincomparisontoprevioussequentialquarterandyearoveryear.
AsImentionedweincurrednotableunfavorablecurrencytranslationimpactstosalesandearningsstemmingfromweakenedforeigncurrencies.Thesecurrencies,primarilytheeuro,unfavorablyimpactedoursalesbyabout$310millionorabout8%andreducedourpretaxearningsbyabout$45millionor$0.12pershare.Absenttheforeigncurrencyimpactsouradjustedearningspersharewouldhavebeenupover20%yearoveryear.
Basedoncurrentforeigncurrencyexchangeratesweexpecttheunfavorableforeigncurrencytranslationimpactstomoderatesomewhatinthefourthquarterasforeigncurrenciesbegantoweakeninthesecondhalfof2014andduetotheseasonalityofourbusinesses.Giventhesefactorswenowexpectcurrencytranslationtoreduceourfull-yearsalesbyabout$1.1billionandpretaxearningsbyabout$120millionto$130million.Thisrangeisslightlyunfavorabletotheforecastthatweprovidedduringoursecondquarterearningsconferencecallwithmostofthechangealreadyrecognizedinourthirdquarterresults.
AsyouwouldexpectfromPPGwehavemaintainedouraggressiveoperationalandcostfocusasweachievedlowermanufacturingandSG&Acostsincomparisontolastyear.Ouryear-over-yearSG&Acostsasapercentageofsalesweredownabout100basispointsduringthethirdquarter.
Wecontinuedtoexecuteonourpreviouslyannouncedrestructuringplanandanticipatefull-yearsavingsfromthisprogramof$100millionto$105millionwhenfullyimplementedin2017with$15millionto$20millionofthesesavingsexpectedin2015.Castemploymentwasalsoasignificantfactorofsegmentincomegrowthinthethirdquarter.ThisincludedsalesandearningsfromourrecentacquisitionsincludingComexandseveralsmallercompanies.
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page4of22
SincetheendofthesecondquarterweclosedonCumingMicrowave,ChemfilCanada,IVCIndustrialCoatingsandLeJointFrancaisorabbreviatedLJF.Wewillbenefitfromthesetransactionsinthefourthquarter.
Inadditiontoacquisitionspendingwedeployed$150millioncashinthequarterforthepurchaseof1.5millionsharesofPPGstockandourrepurchasepaceyeartodateisaheadoflastyear.Weremaincommittedtoaccretive,earningsaccretivecashdeploymentandyeartodatewehavespent$900millioninthisregard,includingsixbusinessacquisitionswithanaggregatepurchasepriceofover$400millioncoupledwith$500millionofstockrepurchases.
Wehadpreviouslyannouncedacashdeploymenttargetof$1.5billionto$2.5billionfocusedonacquisitionsandsharerepurchasesforthecombinedcalendaryearsof2015and2016.Wehavenownarrowedtherangeandaretargetingatleast$2billionto$2.5billionoverthattimeperiod.
LookingaheadweanticipatearesumptionofPPGvolumegrowthinthefourthquartersupportedbyglobaleconomicgrowth,theabsenceofcustomerinventorymanagementandthebenefitofincludingComexinourorganicfiguresfollowingtheacquisition'sanniversaryinNovember.
LastlywecontinuetohaveavarietyofPPG'sspecificearningsdriversthatarenotdirectlytiedtothepaceoftheeconomy,mostofwhichI'vealreadyspokenabout.Insummary,theseincludethebenefitsofcompletingourrestructuringactions,attainmentofremainingsynergiesfromtheongoingintegrationofouracquisitions,theongoingeffectsofcontinuedcashdeploymentandourproactivecostmanagement.
BeforeweconcludeourpreparedremarksIwanttoprovidesomecontextaroundafewofthekeyinitiativesIwillbeworkingoninmynewroleasCEO.TheseinitiativesaresummarizedontheslidetitledPPGpathforwardinthepresentationmaterialssupportingtoday'steleconference.
Firstandforemostwearecommittedtomaintaininganunwaveringfocusonourcustomers.Todosowewillcontinuetoinvestincustomer-driveninnovationandtechnology.TechnologydevelopmenthasbeenthebackboneofPPGformany,manyyearsandwe'vebeenabletogainvaluableshareofourcustomers'walletastechnologyinourindustryhascontinuedtoshiftandsupportedchangingcustomerandenvironmentaldemands.
RecentexamplesincludeourcompactprocessandautomotiveOEM,anewarrayofcoatingsandsealanttechnologieswedevelopedtoservetoday'scompositeaerospacemarket,ourindustry-leadingwater-basedrefinishcoatingsandnewcoatingsfortheinsideoffoodandbeveragecansjusttonameafew.Weaimtousethesetechnologyshiftstoexpandourinnovationleadershipinmarketsinwhichweparticipate.AlsoweintendtomaximizethetransferofthesetechnologiesacrossallofPPG'sbusinessesfaster.
Additionallyweneedtoincreaseourcustomerintimacyandservicecapabilitiessothatweareabletodeliverhigherorganicgrowth.ThisrequiresustomakeiteasierforcustomerstodobusinesswithPPG.Thisincludesfromthetimetheyorwedevelopapotentialconceptinvolvingeithercoatingstechnologyorapplicationallthewaythroughthepurchaseordertoourfinalproductshipmentandprovidingtechnicalsupporttoserviceourcustomersandlaunchthenewtechnologyandtheirfacilitiesflawlessly.
Thisisanend-to-endcustomerapproachthatisfocusedonbuildinglong-lastingmutualbeneficialrelationshipsandisaimedatdrivingahigherorganicgrowthrate.
PPGhasbeenverygoodoperationally.Asa34-yearveteranoftheCompanythisisoneofthedisciplinesthatwasinstilledinmeandcontinuestobeimpartedwithallassociatesfromdayoneonthejobanditremainswithustoday.Nostonegoesunturnedinlookingforwaystoreducecostandwe'llmaintainthisaggressivecostmanagementapproach.
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page5of22
Inadditionwe'llmakeitevenmoredynamicsothatwewillcontinuetorapidlyadjustourcoststructuretoconstantlymatchregionalandend-usemarketdemandbyfurthervariablizingourcoststructure.Thiswillincludemoresharedservicecostcentersofexcellencethatwillcentralizecostsallowingustotakeadvantageofefficienciesintechnologiesandispossibleduetoourglobalscale.Thiswillimproveourcoststructureinthevariousregionsandfieldlocationsaroundtheworld.
Strategicallywehavemadesignificantstridesintransformingourportfoliointhepastseveralyears.Wearenowinapositiontooptimizeandextractthefullscaleadvantagesofourglobalcoatingsplatform.Thisincludesimprovementsinnearlyeveryfacetofourbusinessincludingfurtherdistributionandsupplychainadvantagesduetoourbreadthanddepthofproductsandserviceswebuy,makeandsell.
Naturallygivenalltheeffortwe'veputintotransformingourbusinessportfoliowewillmaintainourrigoronourbusinessportfoliotoensurecontinuedshareholdervaluecreation.Alsowewillremainfiscallyprudentandshareholderfriendly,twoothertraitsthathavelongbeenembeddedinPPG'sDNA.
Fromabalancesheetperspectivewewanttoremaininvestment-gradeandmaintainadequatefinancialflexibilitywhichhasservedussowellovertheyears.Wewillcertainlyinvestorganicallytokeepourexistingbusinesseshealthyandkeepourdisciplinewithrespecttoacquisitionvaluation.
AdditionallyweintendtorewardourshareholdersandwillrecommendsustainabledividendincreasestoourBoardofDirectors.Weintendtobeefficientwithallourassetsincludingcashandwe'llreturnexcesscashtoourshareholders.Lastly,I'mhonoredandexcitedtobeCEOandIlookforwardtothecomingweeksandmonthsofspendingmoretimewithourshareholdersandcontinuingthisdialogueonthepathforward.
ThankyouforyourtimeandonceagainweappreciateyourinterestinPPG.NowJasminewouldyoupleaseopenthelineforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)DavidBegleiter,DeutscheBank.
DavidBegleiter (Analyst-DeutscheBank):
Thankyou.Michael,youhighlightinthereleasemoderatingglobaleconomicgrowth.Canyoutalktowhatregionsandwhatendmarketsyou'reseeingthatmoderatinggrowth?
MichaelMcGarry(President&CEO):
Sure.Wecanstartwithautomotiveasyouknow,yousawthatinChina.ThegoodnewsisinSeptemberyousawalittlebitofanimprovementthereandtheorderbookforAugustcontinuestolookmodestlybetter.
Youwouldalsoseesomeheavydutyequipmentbeinganotherareathatcontinuestobealittlebitweak.FromaregionalsperspectiveweseealittlebitofuptickinEuropeandobviouslyLatinAmericaparticularlyBrazilseemstobegettingweakerinsteadofbetter.SooverallIthinkthosewouldbesomeofmyinitialcomments,David.
DavidBegleiter (Analyst-DeutscheBank):
Verygood.Michael,justonrawsinyourgrossmargin,niceexpansioninQ3.WheredowestandontherealizationofsomeofthelowerrawmaterialcoststhroughyourCOGS?
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page6of22
MichaelMcGarry(President&CEO):
David,we'vebeenveryconsistent.Wetoldyouthroughouttheyearthataboutathirdofourrawmaterialsaretiedtooil.Wegetsavingsquickeronitemsclosertotheoilwelllikesolvents.
Wegetthosein30to60days.Transportationtypically60to90days.Wetypicallyworkwithoursupplierstopullthroughthepropyleneandethylenederivativesavings,andthoselagalittlebitmoresixtoninemonths.
We'veseenmorerawmaterialdeflationin3Qthanin2Q.Andwewillcontinuetoworkwithoursupplierstogetfurthersavingsin4Qandgoingforward.
DavidBegleiter (Analyst-DeutscheBank):
Thankyouverymuch.
Operator :
BobKoort,GoldmanSachs.
ChrisEvans (Analyst-GoldmanSachs):
Goodafternoon,gentlementhisisChrisEvansonforBob.IwashopingyoucouldprovidesomeadditionalgranularityontheNorthAmericanarchitecturalvolumedecline.Areyouguysseeinganytrendsoutsideofthedestockingthere?
MichaelMcGarry(President&CEO):
Chris,whatIwouldtellyouisthatwehadawetJuneandpeoplewereanticipatingastrongerpaintseason.We'vebeenveryconsistentinsayingthatweexpectedthepaintseasontobeinthatlowsingle-digitrange.Ithinkourassessmenthasbeenrelativelyontarget.
SowesawthemajorretailfolksbothintheUSandCanadastarttodestocklateinthethirdquarter.ThegoodnewsisIwilltellyouwethinkit'stransitorybecauseasIlookatoursalesforthefirst14daysofOctober,thesalesareveryconsistentwithwhatwesawinthefourthquarteroflastyear.Sothatleadsmetobelievethatthisisatransitoryeffect.
Operator :
DuffyFischer,Barclays.
Duf f yFischer (Analyst-BarclaysCapital):
Yes,goodafternoonfolks.Questionjustifyoutakeastepbackonyourvolumes,thechartthatyouprovideopticallyobviouslydoesn'tlookgood,thewholeindustryisstrugglingalittlebit.Butwhenyoulookacrossyourbusinesses,wouldyousayyou'remygainingorlosingmarketshare,sothequestionisareyourvolumesworsethanthemarketorinlinewiththemarket,wouldyouguess?
MichaelMcGarry(President&CEO):
WellIguess,Duffy,Iwouldfirstsaythatit'sadifficultquestiontoanswergiventhatthere'snotalotofindustrydatathatyoucanrelyon.SoIwouldsayit'sconceivablethatintheUSstoresbusinesswemighthavetickeddownafractionbutcertainlyIdon'tfeelthatwayinCanadaandwe'regainingshareinotherplaceslikeMexico.We'regainingshareinEurope,we'regainingshare,soIwouldtellyouthatsincewerunaglobalarchitecturalbusinessoverallnet-netwe'redoingprettywell.
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page7of22
FrankSklarsky(EVP&CFO):
AndDuffyifyougotosomeothermarketsoutsideofarchitecturalyou'llseeautoisupversustheindustry.Packagingwebelieveisupversustheindustryandwethinkourprotectivebusinessisupversustheindustryalthoughtheothersideofthatpointismarine.Andmarinefortheindustryisdownandwe'rematchingthedeclineswiththeindustry.
Duf f yFischer (Analyst-BarclaysCapital):
Okay.Andthenoneareathatlookslikeyouhaveaexcitingnewproduct,youcallitcompact,Ithinktheindustrywillcallitwetonwet,butitseemslikeyou'vegottentwobigwinsinthatspacerecently.One,howbigdoesthatmarketbecomeoverthenexttwoorthreeyearsandthenisitconceivablethatthiscouldbelikeE-Coatwhereyouwouldgetastrongermajorityofthewinsgoingforward?
MichaelMcGarry(President&CEO):
Duffy,Iwouldtellyouthatthishasn'tbeenarecenttrend.We'vebeenoutperformingtheindustryforquitesomeperiodoftimenow.Sotheindustrywasup1%inQ3,wewereup5%inQ3.
Soagainwehavesignificantlyoutpaced.Wehavetoldpeoplethatit'snotprobablethatwewouldoutpacetheindustryforanextendedperiodoftime.Atsomepointyouhavetoreverttothemeanbutourtechnologywethinkisthebest.
Ourtechnicalservicehascertainlybeenoutstanding.Andwe'vebeenwinningmorethanourfairshareofnewplants,sothat'sgood.
Andthenultimatelywhentheystarttorefurbishsomeoftheseolderfacilitiesandtheywanttosavemoneyandreducethefootprintsizethiscompactprocesswillalsobeanotherwinner.Sowethinkthisisalong-termsustainablewinforusgoingforwardthankstotheoutstandingworkofourR&Dteam.
Duf f yFischer (Analyst-BarclaysCapital):
Great.Thanks,fellas.
Operator :
JohnRoberts,UBS.
JohnRoberts (Analyst-UBS):
Goodafternoon.WasComexuphighsingledigitsinthequarter?Iknowitwasuphighsinglethroughthefirsthalf,soI'mjustwonderingwhetheritsloweddownandstillmaintainedhighsinglefortheninemonthsbutwasdeceleratinginthequartermaybe?
FrankSklarsky(EVP&CFO):
No,John,Comexhasperformedverywellallyear,veryconsistentatmarketsales.WhatwedoseewithComexisthepesodevalued20%-plusandsothat'sbeentakingawaysomeofthetopline.We'vemadeupforthatwithgrowthinbothatmarketaswellasnewconcessionairestoreopenings.
JohnRoberts (Analyst-UBS):
Okay.CouldyoucommentalittlebitabouttheM&Apipelineandwhethervaluationexpectationshavecomedownwithmultiplesonthepubliclytradedpaintcompanies?
MichaelMcGarry(President&CEO):
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page8of22
Yes,John,thewayIwouldanswerthatisit'stooearlyforthemultipleshavecomedownbecausethelast30,60dayswesawthestockmarketcomedown.Ourpipelineitstillcontinuestolookverygood.We'reactivelookingatanumberofpropertiesandIseenodifferenceinthatregardversuswhatwe'vehadinthepast.
JohnRoberts (Analyst-UBS):
Thankyou.
Operator :
P.J.Juvekar,Citi.
P.J.Juvekar (Analyst-Citigroup):
Yes,hiMichael.Ihaveaquestiononthisinventorymanagementbyretailers.Yousawthatinthirdquarter.
What'syourconfidencelevelthatyouthinkit'sbehindus?Yousaidthefirstcoupleofweeksitlooksgood.
Andthensecondlyonthatwasitaparticularretailerorwasitacrosstheboardforeveryonethatdestockingtookplace?Wasthereanyimpactonpricingbecauseofthat?
FrankSklarsky(EVP&CFO):
P.J.,wehadalittlehardtimehearingyou.Letmetrytorepeatthequestion.YouaskedIthinkwhat'sourconfidenceaboutQ4,nocarryoverintoQ4thedestock,andhowbroadwasthedestocking,isthatcorrect,P.J.?
P.J.Juvekar (Analyst-Citigroup):
Yes,that'scorrect.Wasthereanyimpactonpricingofpaintbecauseofthedestocking?
FrankSklarsky(EVP&CFO):
Thethirdpartwouldbeokay.
MichaelMcGarry(President&CEO):
Right.Sowe'lltakethepricingonefirst.Asyouknowwe'vebeentellingyouconsistentlythatpricing,ourmodelshowspricingflatfortheyear.
Westillseethathappeningandifyouarethinkingaboutnextyearweseepricingflattoprettymuchintonextyearaswell.Asfaraswhywethinkit'satransitoryeffectoninventorynotonlyhavewelookedatourowninventoriesbutwehavealsoobviouslytalkedtoourcustomersandtheyarealsoofthatsameopinion.SoIthinkthat'sawaytothinkaboutitbesidesjustthebackthatwe'relookingatourorderbook.
Anditwasbroad.Iwon'tsayallbutIwillsayitwasverybroad.
FrankSklarsky(EVP&CFO):
AndP.J.youmayhavemissedearlierbutMichaelmentionedthatthefirsttwoweeksofOctoberourorderpatternsareconsistentwiththatsametimeperiodlastyear.
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page9of22
P.J.Juvekar (Analyst-Citigroup):
Okay,thankyou.ThenjustonCanadayoumentionedthatvolumesweredown.CanyoujustgivesomeorderofmagnitudehowmuchwerevolumesdowninCanada?Thankyou.
FrankSklarsky(EVP&CFO):
Soforusjusttoframethisforeverybodywepurchased,whenwepurchasedtheAkzoNobelNorthAmericanbusinessin2013weacquiredthenumberonepositioninthecountryofCanada.Atthattimewesaidthebusinesswasroughly$500millionandveryconcentratedpaintseasonjustfromaweatherperspectiveandthatbusinesswasdownsimilartowhatyou'reseeingthetotalsegmentortotalarchitecturalbusinessbedownsohighsingle-,lowdouble-digitrange.
Andthat'smorestructural,P.J.WedoseeweakeningintheCanadianeconomy.
MichaelMcGarry(President&CEO):
We'vehadtwoquartersinarowofGDPdowninCanada.
P.J.Juvekar (Analyst-Citigroup):
Thankyou.
Operator :
JeffZekauskas,JPMorgan.
Jef f Zekauskas (Analyst-JPMorgan):
Thanksverymuch.Inyourcommentaryyousaidthatyourcost-cuttingprogramisloweringcostsannuallybyabout$20million.Solet'scallit$5millionaquarter.
ButyourSG&AandR&Dcostsinthequarterweredown$52million.SoIassumethat,Idon'tknow,$47millionofthatiscurrencybutyouroverall--thatisyouhada$47millioncurrencybenefitinSG&A,butyousaidthatyourcurrencynethitwas$40million.Sodoesthatmeanthatthegrossmarginwaspenalizedbyabout$87millionor$90millioninthequarterduetocurrencies?
FrankSklarsky(EVP&CFO):
Firstofalllet'stakeavariouscategories.Andifyoulookatcorporatecostit'scorrecttosaycorporatecostswentdownbyabout$20million.
Andthemajorityofthatwasstock-basedcompensationobviouslyreflectingtheequitymarketsandthatwillincludeboththeQ3effectandacatch-upfromthefirsthalf.Thatwon'treallyrepeatinthefourthquarterandIwouldsuspectthatthatcorporatecostlinewouldbebackupinthe$50millionto$55millionrangeversusthelowof$35millionthatyousawinthequarter.
Whatyouarecorrectinsayingthatthereisacurrencybenefittoourconstructsareintotal.ThatappliestobothCOGSandSG&Aaroundtheworld.
Sowhatwesaidwascurrencyimpactedthetoplineby$310millioninthequarterandimpactedthebottomlinebyabout,theoperatingincomelikebyabout$45millioninthequarter,weexpectthatoverallcurrencyimpactinthefourthquarterwillbelessthanthatbutattoday'sratesabout$250millioninthetoplineandabout10%ofthatontheoperatingincomelike.Butintermsofwecan'treallygiveyoudetailrightnowonthespecificcurrencyimpactoneveryportionoftheincomestatementbutthat'showIwouldframeitforQ3andwhatweexpectforQ4aswellasthecorporatedetails.
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page10of22
Jef f Zekauskas (Analyst-JPMorgan):
Andthensecondly,manycompanieswhentheyreportearningsprovideafullbalancesheetandafullfundsplusstatement.Aretherereasonswhyyouinthegatheringofyourinformationthatisdifficultforyoutoputthattogetherandwhatwasoperatingcashflowforthequarter?
FrankSklarsky(EVP&CFO):
So,Jeff,asyouknowweareaveryearlyreporter.Wedothinkthatprovidesveryquicktransparencytoourshareholders.
WedofileourQwithinaweekorsowherewehaveallthosedetails.SoIthinkthereasonwhyiswe'dliketogetalltheEBITinformation,salesandEBITinformationoutasquickaspossible.
MichaelMcGarry(President&CEO):
AndallIwouldaddtothatisthefactthatifyoulookatwherewestartedthequarterandwhereweendedthequarterwehaveobviouslypickedupacouplehundredmilliondollars,over$200millionincashbalance.Andthat'sacombinationoftheearningsandthentakeoffofthatobviouslyCapEx,ouracquisitionspendingbutalsoagoodperformanceonworkingcapitalaswecontinuetoworkoncollectingpast-duereceivablesaswellassomeinitiativeswehavearoundbringinginventoriesdown.SostillverydiligentoverthemanagingthecashflowandasaresultwehadaprettydecentQ3inthatrespect.
Jef f Zekauskas (Analyst-JPMorgan):
Sowhatwastheoperatingcashflownumberinthequarter?
MichaelMcGarry(President&CEO):
Well,you'llseethatwhenwefileourQveryshortlyyou'llseeallthedetailsaroundthat.We'dratherwaituntilyougetthewholestatementbeforewedissectthat.
Jef f Zekauskas (Analyst-JPMorgan):
Okay,great.Thankyouverymuch.
Operator :
FrankMitsch,WellsFargo.
FrankMitsch (Analyst-WellsFargoSecurities):
Hey,goodafternoongentlemenandcongratsonarecordquarter.IwasthinkingmaybeIshouldwaituntilIseetheQtogetsuperexcitedbutI'lltakeyourwordforit.
Michael,IthinkyoumentionedthatNorthAmericanorderpatternsormaybeVinceforthefirstcoupleofweeksofOctoberweresimilartowhatyouwereseeinglastyear,sothatgivesyouconfidencethatwe'renotseeingadestock.AndobviouslyAsiawasabigconcernforfolksandyousaidthatitstartedoutsoftinQ3butthengotbetter.CanyoutalkaboutthepaceofbusinesssofarinOctoberinthatpartoftheworld?
MichaelMcGarry(President&CEO):
SoFrank,letmegiveyouacoupleofthingstothinkabouthere.AndI'llstartwiththeautomotiveside
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becausethereseemstobealotofconcernabouttheautomotivepieces.
Youknowthey'vereducedthetaxonsmallenginesinChinaandtheyannouncedthattaxlateinSeptemberandthattookeffectOctober1.Andsoitwouldnotbeinconceivablethatpeopledeferredpurchasesofsmallcarsbecauseyouknowthatthetaxratewasgoingtodropfrom10%to5%onOctober1.
SowesawSeptembersalesinChinawereactuallyupaboutIthink3%ifIrememberrightandinOctoberwehaveaprettygoodviewofwhat'shappeningwithourcustomers.Ourorderbookwe'reprettymuchjustintimedeliveryandwe'reseeingmoderatelyimproveddeliveriestoourcustomers.
Ofcoursewe'reperformingbetterthantheindustrysowearestillexpectingautomotivesalesinChinatobeupmodestlyinthat1%to3%range.IfyoulookatourotherbusinessestherewassomeinitialdestockingaftertheTianjinexplosionportexplosion.
Mostofthathasworkeditswaythroughthesystemnowbecauseofwhathappenedpeoplewereconcernedaboutholdinginventoryforthingslikemarinecoatings,someofourrefinishcoatings.Allthathasbeenmoderatedandweseethoseorderbookscontinuingtogetbetter.
SoIwouldtellyouthatstartingmid-Septemberwestartedtoseethatimprovement.AndithascontinuedintheearlypartofOctober.
FrankMitsch (Analyst-WellsFargoSecurities):
Allright.That'sveryhelpful.AndIdoappreciatetheraisingoftheamountthatyouaregoingtospendoneitherM&Aorsharebuyback.
YouraisedthelowerendthereandIthinkinresponsetoMr.Roberts'questionyousaidthatyou'renotreallyseeingthemultiplescomedownontheM&Afront.Sowouldthatsuggestthatwemightpreferentiallygotowardsthesharebuybackroute?Andhavingsaidthatandinaskingthequestionobviouslythestockismateriallybelowthe52-weekhighoreventhelastyearlyaverage,howareyourthoughtsaboutsplittingbetweenthosetwousesofcash?
MichaelMcGarry(President&CEO):
Well,Frank,letmeclarify.Isaidyetthedaytheacquisitionshadn'tyetreflectedthat.Solet'sbeclearonthat.
Secondlywe'vealwayssaidthatacquisitionsarealwayspreferred.Theyaremoreaccretivethanbuyingbackourstocksothat'salwaysourfirstpreference.
Butwe'regoingtoprotecttheshareholders'valueandifwedon'tseetheacquisitionscomingthroughthenwewilltakethatmoneyandbuybackthestock.Sowewanttocontinuetodobothandourfirstpreferenceisalwaysacquisitions.
FrankSklarsky(EVP&CFO):
AndFrankIthinkit'sitsafetoassumethataswegothroughthefourthquarteryoucanexpectthatwewillcontinuetodeploycashinthequartertoeitheroneorbothofthoseinitiativesaswedid900throughthethirdquarter.Sowe'realreadyonpacetoexceedhalfthemidpointbytheendofthisyear.Soallthemorereasontoraisethatrangebutwewillcontinuetodeploycashinthequarter.
FrankMitsch (Analyst-WellsFargoSecurities):
Thankyouverymuch.
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Operator :
ArunViswanathan,RBCCapitalMarkets.
ArunViswanathan (Analyst-RBCCapitalMarkets):
Thanksguys.SoIguessIjustwantedtoaskyouyourconfidencelevelonacoupleofthings.
SogoingforwardQ4and2016youhavealotoforganicgrowthinitiatives.DoyouexpectthatthatwouldpotentiallydriveapositivevolumegrowthpictureingeneralindustrialorautoOEMorarethosekindofmoredependentonmarketdevelopment?
MichaelMcGarry(President&CEO):
Iwouldtellyouthatwe'reexpectingcontinuedorganicgrowth.Letmegiveyousomereasonswhywebelievethat.
Firstofallasyouknowwesoldouroneglassfacilityandthatwasintheendofthethirdquarterlastyear,soyou'llstarttoseethatasapositive.Comexwillthenflipfromanacquisitiontoorganicgrowthinthefourthquarter.
WecloseonthatinNovember.Wecontinuetoseepositivegrowthinourautomotivebusiness.Packagingcontinuestodowell.
Ourrefinishbusinesswiththewater-basedtechnologycontinuestogrow.That'saslowergrowthgiventhefactthatit'savolumechallengedmarketwiththenewtechnologyoutthere.
Butwe'recontinuingtogrowinthatregard.AndtheoneareathatIwouldsayisstillaquestionmarkiswhereweareinthecycleisheavy-dutyequipment.It'sbeendown.
Iwouldexpectthattoatsomepointreachabottom.Andthenthatwillstarttoturn.Andwetalkedaboutpackagingbeverygoodaswell.
SoIthinkoverallyou'regoingtoseeareturntomoreorganicgrowth.
FrankSklarsky(EVP&CFO):
Andtheotherthinggoinginourfavorquitehonestlyisthefactthatinventoriesinthesystemareatveryreasonablelevels,whetherit'stheUSautomotivebusinesswellunder60daysatcurrentsalesrates,packagingasMichaelsaidwecontinuetopickupnewbusinessfromourtechnology-basedofferingsthere.AndtheninChinabecausetherecentproductionrateshavebeenbelowrecentsalesratesthoseinventoriesarecomingbackinlineinthefieldtoo.Sowedon'treallyhavetogothroughanymorerationalizationofinventoriesifthingsstayreasonablyhealthyintheendmarketsandthatincludesUSarchitectural.
ArunViswanathan (Analyst-RBCCapitalMarkets):
Okaygreat.Andyes,justlookingattheslidesitlookslikeobviouslyNorthAmericawaschallengedinQ4,alotofdestockingtherebutyousoundedslightlymorepositiveonEurope.Canyoujusthopeusunderstandalittlebitmoredetailonwhatyou'reseeinginEurope?
MichaelMcGarry(President&CEO):
Yes,sowe'llstartfirstofallwiththeautomotivebusiness.Asyouknowsaleshavebeenbetterthanbuildsandthat'sobviouslyagoodthinggoingforward.We'realsoseeingapickupinanumberofthecountries.
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SouthernEuropeisobviouslycomingoffaverylowbasebutit'sgettingbetteraswell.AndthenwesawapickupinourarchitecturalbusinessintheBenelux.Andofcoursewe'vealwaysseengoodgrowthinGermanyaswellastheUKandalthoughtheEasternEuropeanregionhasbeenalittlechoppymostlyup,that'sbeengood.
Theonlyonethat'sreallydownofcourseisRussia.Russiacontinuestobedownnearly30%inanumberofsegments,sothateconomyisclearlychallengedandthenwehavebeengainingshareintheprotectedmarketinEuropeaswell.Sothat'sbeenapositiveforceallalong.
AndthenthelastthingIwouldsayisthatwe'rebuildinganewsilicaplantinEurope.Andthatfacilitywillbestartingupandwehaveaverygooddemandforthenewproductsindustryleadingnewtechnologycomingoutofthatfacility.
FrankSklarsky(EVP&CFO):
Andtheoneareawehaven'ttalkedaboutpreviouslyonthecallisSouthAmerica.Forusit'sabout3%ofoursales.
WedoseechallengesinSouthAmericaasMichaelalludedtoinhispreparedremarks.Wedon'tseethatreturningtogrowthcertainlyinthenearterm.
ArunViswanathan (Analyst-RBCCapitalMarkets):
Okay.Andjusttoclarifyyousaidinthepastrecentlythataround10%orsoofyourbusinessesaretheonesthatareinthatchallengedarea.Isthatstillafaircharacterizationoristhereanykindofsensitivityaroundthat?
VinceMorales (VPIR&Treasurer):
AgainI'dsaySouthAmericaabout3%ofoursales.We'veframedarchitecturalCanadaforyouatabout$500million.
Thosewouldbethetwoverysensitive.IfyoucombinedRussia,Ukraine,Africayoumaybegetanother2%or3%max.
FrankSklarsky(EVP&CFO):
AndofcoursetheComexbusinessisdoingextremelywellandthatwillalltranslateintoorganicgrowthfor2016.Theycontinuetoopenstoresataveryhealthypace,sothatwillalsohelpusoutintheorganicgrowthrate.
MichaelMcGarry(President&CEO):
AndIguess,ArunthisisMichael,theonethingI'daddattheendisFrance.Franceisstillachallengedmarketforus.Butatsomepointwedofeelconfidentthat'sgoingtohavetoturnaroundandsoIwouldtellyouthat'sprobablywhywe'remoreoptimisticwhenyouputallthesethingstogether.
ArunViswanathan (Analyst-RBCCapitalMarkets):
Okay,thanks.
Operator :
NilsWallin,CLSA.
NilsWallin (Analyst-CLSA):
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Goodafternoonandthanksfortakingmyquestion.BackonNorthAmericanarchitecturalyoudidn'tmentionperformanceatthestoressowhatdidvolumedoinyourcompany-ownedstores?
MichaelMcGarry(President&CEO):
Yes,same-storesalesweremodestlynegative.We'vecomeoffofIdon'tknowsevenoreightpositivecompsinarowincludingQ1andQ2ofthisyear.MostofthatwasCanada.
Wetalkedaboutthemodestpaintseason.AndthenIwouldremindyouthatourPMC,mostofourPMCinNorthAmericarunsthroughourstores.Asyouknowtheoilbusinesshasbeencertainlyunderalotofpressureandsothat'sthewayIwouldcharacterizethat.
VinceMorales (VPIR&Treasurer):
AndPMC,justforeverybody,isprotectivememoryandcoatings.
NilsWallin (Analyst-CLSA):
SoifweremovethestorenumbersfromtheotherchannelsinNorthAmericaandarchitecturaldoesthatmeanthatthoseotherchannelswereactuallydownmorethanhighsingledigits?
VinceMorales (VPIR&Treasurer):
Slightlymorebecausethestoreswerejustslightlynegative.
NilsWallin (Analyst-CLSA):
Okay.Thanks.AndthenonCanadaImeanobviouslyweunderstandGDPissuestherebuthousingstillcontinuestobestrong,sowhatisitsomeotherchannelthat'saffectingthedemandforarchitecturalpaint?
VinceMorales (VPIR&Treasurer):
No,we'vesaidformany,manyyearsthatarchitecturaltypicallytracksclosertoGDPthananythingandthereisahousebuildmarketandahouserepaintmarket.Therepaintmarketistypicallyfivetosixtimeslargerthanthehousebuildmarkets,sotherepaintmarketisnottrackedIguessinnewhomesalesandthat'stheonethatdrivesthevolumeattheendoftheday.
MichaelMcGarry(President&CEO):
WewouldsaythepaintinCanadais80%repaint.
NilsWallin (Analyst-CLSA):
Understood.That'shelpful.Andthenjustfinally,Michael,youdidspeakaboutleveragingyourassetbase.
Obviouslyyou'vegotsomeprettysignificantsizeinyourassetsacrosstheglobeanddoingthatthroughdistributionandsupplychain.Whatwouldthattranslateintermsofmarginaccretionoverathree-tofive-yearperiod?
MichaelMcGarry(President&CEO):
Ithinkit'salittleearlytoanswerthatquestion.IthinkthewaytothinkaboutitiswehavemajorsharedservicefacilityinEuropeandAsia,nowwiththeComexonewewillbeabletoaddadditionaloneinLatinAmerica.
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Wearestartingupwe'veputinanewpresentfacilityinBrazil.WehaveanewfacilitythatweexpandedactuallyinChina.
Sothatwilldrivethelowercostinourautomotiveandindustrialbusinessesthere.AndthenwearealsomovingmoreofourproductioninEuropefromwesttoeast,sothatwilladdadditionalbenefits.SoIthinkthat'sthewayIwouldgetyoutoframeyourquestion.
NilsWallin (Analyst-CLSA):
Thanksverymuch.
Operator :
GhanshamPanjabi,Baird.
GhanshamPanjabi(Analyst-RobertW.Baird):
Heyguys,goodafternoon.MichaelIknowit'searlybutlookingoutto2016canyoujustgiveussomeofthevariousputsandtakesrelatedtosomeofthebiggerbusinessesinyourportfoliojustfromafundamentalstandpoint,maybestartingwithNorthAmericanarchitecturalandthenalsoautoOEM?
MichaelMcGarry(President&CEO):
Okay.NorthAmericanarchitecturalIwouldsaythatwe'reprobablygoingtohavethesameopinionwehadthisyearwhichislowsingle-digitsgrowthforthatbusiness.Sowe'regoingtocontinuetostaythere.
Automotive,itcontinuestobeaverystrongmarketforus.That'sbeenagoodone.OurrefinishbusinessinNorthAmericawe'regainingsharewithourwater-basedtechnology.
That'sapositive.Aerospacehasbeenmoderatinggrowthbutcontinues--wecontinuetogetnewcontentontheplanesandwiththeacquisitionsthatwe'veadded,thatCumingsMicrowavewouldbeone.Thatwouldbeanotherpositive.
WhenyoumovetoEuropeIwouldtellyouthatagainIwouldsaythatit'sprobablygoingtobemodestinthatlowsingle-digitsrange.Wecontinuetodowellinourautomotivespacethere.Ourpackagingspacecontinuestopickupbusiness,sothat'sgoodforus.
Whenyoulookatsomeoftheotherbusinessesprobablythebrightspotisourprotectivebusiness.Wehaveanewindustry-leadingtechnologyonfireprotectionthathasreallydoneverywell.
OnthenegativesideobviouslyyouarestillgoingtohavethechallengesinRussia.Wedon'tseethatgoingawaymovingtoSouthAmerica.
AsVincementionedearlier,weseethatprobablybottomingout.Sowe'renotrealexcitedaboutwhatweseedowninBrazilbutweareaggressivelytakingcostoutinBrazil,soit'snotgoingtobeanegativefromthatkindofstandpoint.
AndthenmovingovertoAsia,SoutheastAsiahasperformedokay.Indiahasbeenreallysolid.Iwouldsaytheyareinthat6%,soifyouaskwhathasthehighestgrowthinAsiarightnowit'sIndia.
AndwestillremainbecauseourbusinessinChinaispredominantlyforconsumer-orientedstuffwhatwemakeinChinastaysinChina.It'snotfortheexportmarket.Sowe'reoptimisticthatChinawillcontinuetoresumeitsgrowth.
WeknowtheChinesegovernmentisveryinterestedintheeconomygrowing.Theyaretakingalotofrightmovestohavetheeconomygrow.Andwehavebenefited,thathasbeenoneofourbestmarkets
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andweexpectthattocontinuetodowellgoingforward.
GhanshamPanjabi(Analyst-RobertW.Baird):
That'shelpful.Thenspecifictopackaging,canyoujustparseoutthestronggrowththatyou'reseeingtheregeographically?Itseemslikeyou'veseenafairamountofsuccesswithBPAnon-intent.Isthatspreadinggloballyanddidthatstarttomaterializeand3Q?
MichaelMcGarry(President&CEO):
Well,theBPAnon-intentwinstartedinEurope.They'vecontinuedintotheUS.AsyouknoworyoumayknowCaliforniahasthisProposition65outthere.
They'venottakenafirmpositionyet.ButourguessisthatourfolksintheUSwillbemuchmoreinterestedintheBPAnon-intentcoatingsgoingforwardsothattrendwillaccelerate.
Andasyouknowweonlyhad3%marketshareinsidethecan.Andsosincethisisaonceinagenerationormulti-generationforsomeofthesethingsopportunitywe'regoingtobeatahigherpresenceinsidethecanthanwe'veeverbeeninthepast.Sothatwillbeapositiveforusoverall.
GhanshamPanjabi(Analyst-RobertW.Baird):
Okay,thenjustonefinaloneforFrankifIcould.Justonworkingcapital,Frankfor2015justgivenhowdynamictherawmaterialimpairmenthasbeenhowshouldwethinkaboutthatfor2015?Thankssomuch.
FrankSklarsky(EVP&CFO):
Ourgoalonworkingcapitalobviouslyistobringthatdownby100basispointsayear.We'veseenalittlebitofslowpayrecentlybutwe'llgetthatbackdownbytheendoftheyearandwedohavesomerelativelyaggressiveinventorygoalsfortheteams.
We'remakinggreatprogressonthat.Butthatwouldbeouroverallgoalistokeepbringingthatdownbyabout100basispointsandprobablythelargestopportunityininventoryfollowedbypeopleworkingonthereceivables.Payablesareinprettydecentshape.
IwasjustgoingtoaddonemorethingtowhatMichaelwassayingonthegrowthprospectsfor2016.Rememberalotoftheacquisitionsthatwehavedonethisyear,that$400millionworthofcashdeployedacquisitions,therevenueassociatedwiththatisonlyasmallportionofwhatthefull-yearimpactisorwillbefor2016.Sobetween$400millionand$500millionofrevenueassociatedwithacquisitionsexcludingthebaseComexbusiness.
That'soverandabovethebaseComexbusinesswillhitinfullstridenextyear.Andyoucanmakeanyestimatesyou'dlikeintermsoftheprofitabilityofthosebusinessesbutthat'salsogoingtobeaccretivetoourtoplinealongwiththeEBITDAthatgoeswiththat.
GhanshamPanjabi(Analyst-RobertW.Baird):
Okay,terrific.Thankssomuch.
Operator :
VincentAndrews,MorganStanley.
MattGingrich (Analyst-MorganStanley):
HeyguysthisisMattGingrichonforVincent.Iwaswonderingifyoucouldspeaktothephasingofsell
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throughinUSarchitecturalthroughthequarteronamonth-by-monthbasis?
MichaelMcGarry(President&CEO):
Onamonth-by-monthbasisIwouldtellyouthatwestartedtoseethedestockingstartinAugustandbythemiddletotheendofSeptemberitwasover.Sothat'sthewayIwouldthinkaboutthat.
MattGingrich (Analyst-MorganStanley):
Okay,great.Andthenintermsofhowsalestrendedinyourdedicatedpaintstores,whatdidyouseethere?
MichaelMcGarry(President&CEO):
ActuallyinthededicatedpaintstoresitwasprettyIwouldsayconsistentthroughthequarter,althoughneartheendofSeptemberourcompsweremarginallybetterthanwhattheywereearlyinthequarter.AndthentheyhavestartedtobeinOctoberasImentionedvirtuallyidenticaltowhatwehadin4Qoflastyear.
MattGingrich (Analyst-MorganStanley):
Wouldthatbemidsingledigits?
MichaelMcGarry(President&CEO):
No,it'slowsingledigitspositive.
MattGingrich (Analyst-MorganStanley):
Okay,thanksguys.
Operator :
DonCarson,Susquehanna.
DonCarson (Analyst-SusquehannaFinancialGroup):
Yes,aquestiongoingintonextyear,whatkindofgrossmarginmomentumdoyouthinkyouhavefromraws?Becauseobviouslyinthefirsthalfoftheyearyou'regoingtohavesomerelativelyeasycomps.Areyoustillexpectingsomegoodgrossmarginexpansioninthefirsthalfoftheyear?
MichaelMcGarry(President&CEO):
Don,Iwouldtellyouthatwe'regoingtocontinuetoworkwithoursuppliersandpullthroughthesavingsandsoIwouldsayit'sgoingtobemodest.Ourgoalhereistocontinuetopullthosethrough.
WestillseeweaknessintheTiO2market.Westillthinkit'soversupplied.
Andthenclearlywehaven'ttalkedaboutHenanBillionsyet.Surprisinglywe'vemadeit55minutesinthecallandnotonequestionaboutit.SoI'llgoaheadsinceeverybody'sinterestedandtellyouthatthefirstsetofsampleswegotfromthemtheparticlesizewastoolarge.
Thesecondsetofsampleswegotfromthemweretoosmall,sonowtheyaredialingitin.WeexpecttobebuyingthecommercialquantitiesofTiO2fromHenanBillionssometimelateinthefourthquarter.
SooverallIwouldtellyouwe'restillfeelinglikethere'smoresavingstocome.PlusasyouknowwewillhaveincrementalrestructuringsavingsinpredominantlyEuropebutalsoBrazilandAustraliafromour
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restructuringprogram.Thatincrementallythroughouttheyearwilladduptoabout$60millionto$75million.
Obviouslyitacceleratesasitgoesthroughouttheyearof2016.Butthatwillbeanotherpositive.
Operator :
JimSheehan,SunTrust.
JimSheehan (Analyst-SunTrustRobinsonHumphrey):
Thankyou.Couldyoutalkaboutyourexposuretocommercialconstructionandwhatyou'reseeinginbothyourcoatingsandyourglassbusinessesinthatmarket?
MichaelMcGarry(President&CEO):
Yescommercialconstructionisobviouslymoreimportanttoourglassbusinessthanitistoourcoatingsbusiness.CommercialconstructionhasbeensteadyandgettingslightlybetterbutthechallengethereisactuallythefabricatorswhomakethefabricatedglasswindowunitsareIwouldcallthemfull.
Theirbacklogonfabricatedunitscontinuestobesix,eight,10weekssothat'sbeenachallengeforthemarket.Iwouldtellyouthatourglassbusinessasyoucanseehasdoneprettywell.
We'vegottenprice.We'vealreadyhadtwopriceincreasesinthatbusinessthisyear,sothat'sbeenapositive.Andwecontinuetoexpectimprovementagainnextyear.
JimSheehan (Analyst-SunTrustRobinsonHumphrey):
Thankyou.AndinEMEAyouhadsomepositivevolumesthere.
IthinkautoOEMwasparticularlystrong.CouldyoujustcommentonwhatyourvolumegrowthwasinarchitecturalcoatingsinEurope?
MichaelMcGarry(President&CEO):
ArchitecturalcoatingswereflatinEuropeandofcoursethatvaried,soupintheUK,upintheBenelux,downinFrance.MostlyupinEasternEuropebutnoteveryEasternEuropeancountrywasup.Sonet-netflatbecauseFranceisourlargestarchitecturalcoatingsmarket.
JimSheehan (Analyst-SunTrustRobinsonHumphrey):
Thankyou.
Operator :
KevinHocevar,NorthcoastResearch.
KevinHocevar (Analyst-NorthcoastResearch):
Hey,goodafternooneverybody.Thequestionongoingbacktothecashdeploymentbumpedupthelowendoftherangeand$2billionto$2.5billionandyousayatleast$2billionto$2.5billionsoimplyingitcouldgoaboutthat.
Iguesswhatwouldittakeforyoutogoabovethatrange?WoulditnecessitateM&Aorifthestockpricewasattractiveenoughwouldyouconsiderrepurchasingabovethatlevel?
FrankSklarsky(EVP&CFO):
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AsMichaelsaidthepaceofsharerepurchaseobviouslydependsuponnotonlythepipelineofM&Abutalsothetimingatwhichyoudeployandclosethedeals.Iguesswhatwe'resayingisthatwe'reconfidentenoughinthecash-generatingcapabilityofthebusinessthatwe'reverycomfortableuppingthemidpointofthatrangesothatwe'renowat$2billionto$2.5billion,andthefactthatwe'vealreadyexceededthepaceofthepriorrangebytheendofthethirdquarterandexpecttocontinuetodeploycashinthefourthquarter.
Butaswelookoutin2016we'vegotagoodpipelineofM&A,sochancesarewe'llbedoingmoredealsnextyearandbesupplementingitwithsharerepurchasesbecausewe'restartingouttheyearwhereweendedthethirdquarterwith$1.4billionofcash.Q4isgenerallyagoodquarterforcashgeneration,sowehavetheconfidencethatwe'llcontinuetodeployandearnvaluefortheshareholdersandwe'lljustcontinuethatintonextyearandseewhereitgoes.
Butwecoulddomoresharerepurchase.OurpreferenceistodoM&A,thatwillbethefirstpriority.Butyou'llseebothofthataswegothroughthefourthquarterandmoreprimarilyM&Ainthe2016timeframe.
KevinHocevar (Analyst-NorthcoastResearch):
Okaygreat.AndjustalsoyoumentionedanexpectationtoresumeorganicgrowthinthefourthquarterandFXimpactstomitigatealittlebitandalsoyouclosedLJFaftertheendofthesecondquarter.Sodoyouthinkthatthetop-linedeclinethatwesawinthethirdquarterisitwillstopthereandwillresumetop-linegrowthinthefourthquarter?
MichaelMcGarry(President&CEO):
Kevin,Idobelievethat'sgoingtohappen.WeclosedLJFonOctober1.
Wehavefouracquisitionsthatbasicallyclosedinthethirdquarter,pluswe'llhaveComexthatflipsintotheorganicside.SoIthinkthat'sallpositive.
KevinHocevar (Analyst-NorthcoastResearch):
Okaygood.Thanks,guys.
Operator :
DmitrySilversteyn,LongbowResearch.
DmitrySilversteyn (Analyst-LongbowResearch):
Goodafternoon.Thanksforfittingmeinhere.Coupleofquestions,alotofthemhavealreadybeenaddressed,butjustwanttounderstandontheChinaimpactfromtheautomotive,howlongdoyoutypicallyleadthesalesnumberinChina?Inotherwordswe'veseensalesdeclineinChineseauto,I'massumingproductionisdecliningthisquartertoadjustforthat.
Soisthefactthatyoudidn'tseemuchofadeclineinthethirdquarter,isthatjustadelayandyou'llseesomeofitinthefourth?Orareyoumorereal-timewiththesalesnumberattheretaillevel?
MichaelMcGarry(President&CEO):
WellthesalestothecustomerdeclinedinJune,July,AugustandthenturnedbackpositiveinSeptember.Theywere3%.
Buildsinventorieswerecomingdowninthatsameperiod.Rightnowinventoryisbasicallyatthesame
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levelitwaslastyear,sothey'reinverygoodshapefromthatstandpoint.Wethinkthey'realittlebitover40dayswhichistypicalforthem.
AndthenrightnowasImentionedearlieronthecalltheOctobersalesaretrendingup.Webasicallysupplyinrealtime.Wegetorderslet'scallthem28daysinadvanceofwhatI'dcallapre-lookandthentheyarefirmedup14daysinadvance.
SorightnowwehaveaprettygoodfeelforhowOctoberisgoingtoturnout.AndIthinkoverallwewouldtellyouthatitshouldbemarginallyup.
DmitrySilversteyn (Analyst-LongbowResearch):
Gotit.Sowhatyou'vedescribeintermsofyoursalescadenceinJune,July,AugustandSeptemberwasprettymuchwhatwesawattheretaillevelinChina.Soisthatjustacoincidenceorareyouorthereisnolagbetweendemandforyourcoatingproductsforautomotiveandthesaleofautomotivetoaretailer?
VinceMorales (VPIR&Treasurer):
No,Dmitry,we'reverycloselyalignedbecausetheydidtakeinventorydown.HadtheynottakeninventorydownIthinkyouwouldseethatlageffectbuttheindustrytookinventorydowncommensuratewiththesalesdeclineinrealtime.
DmitrySilversteyn (Analyst-LongbowResearch):
Gotyou.Okay,sothat'sgoodtoknow.SecondquestionontherawmaterialbenefityoutalkedabouttakingsixtoninemonthstogetsomeofthesepropyleneethylenederivativeswhichI'massumingyou'remainlytalkingaboutresinsheredowninprice.
It'sbeenaboutthatlongsinceoilreallystartedtoselloffandsincepropyleneandethylenepricingstartedtotumble.Soareyoustartingtoseelowerpricesinresinsonayear-over-yearbasisthat'sgoingtohelpyouwiththedeclinesinTiO2toreallydriveyourmargincertainlyintothefirsthalfofnextyear?
VinceMorales (VPIR&Treasurer):
Wellaswesaidweexpectedmodestbenefitwiththebenefittogrowthroughouttheyear.Weareseeingthatinournumbers.
Aswesaidinthepastthebenefitismutedinnon-USregionsimplybecauseoilistradedindollarsaroundtheworld.SowhenyougotoEuropeoryougotosomeoftheseemergingmarketsthecurrencydeltashaveeatenintomostoftherawmaterialimpacts.Soagainwe'repullingthisthroughourvaluechain.
Wefeelwe'redoingagoodjobatit.Wedohaveanotherquarterheretogoandwe'recertainlytalkingtooursuppliersonadailybasis.
FrankSklarsky(EVP&CFO):
SoasVinceissayinghereasyouseetherawmaterialbenefitscomethroughthepaceofthatmaynotchangesignificantlygoingfromQ3toQ4toQ1butitwillbemoreevidenttothebottomlinebecausetherewillnotbesomuchoffsetfromthecurrencyheadwindasthatmitigatesstartinginQ4versuswhatwe'veseenatveryhighlevelsrecently.
DmitrySilversteyn (Analyst-LongbowResearch):
Soyou'renotsomuchlookingataccelerationofbenefitsasdiminishmentoftheheadwindsthatwill
CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
©2014TheStreet,Inc.Al l R ightsReserved Page21of22
makethosebenefitsmoreapparent?
FrankSklarsky(EVP&CFO):
TheotherthingthatwewouldmentionthoughisthatwhereyouseeabitofaheadwindonrawmaterialsbecauseoftheexchangerateinplaceslikeBrazilorreallyasmallpercentageofourrevenueinCanadabecausetheexchangedoescausesomeofthoseUSdollar-basedinputstobealittlebithigher.
DmitrySilversteyn (Analyst-LongbowResearch):
Okayandthenonefinalquestiononpricing.ArchitecturalmarketinNorthAmericayoutalkedaboutpricingbeingessentiallyflatandsimilarexpectationsfor2016whichmakessense.
IntermsofthecoatingsideofthebusinessasopposedtothearchitecturalsideofthebusinessbothinNorthAmericaandgloballywhichtendstobedealingwithcustomersthatarelookingforsomepassthroughofrawmaterialprices,what'sthepricingenvironmentlikeinsomeofthegeneralindustrialcoatingsandperhapssomeoftheautomotiveaftermarketandsomeoftheseareaslet'ssayoutsideofhighvaluepropositionlikeautomotiveOEMcoatings?Areyoustartingtoseeeitherlowerpricesormorecustomerinsistenceonpricepassthroughoraretheystillhappywithgettingtheproductfromyouatthepricetheygotitlastyear?
MichaelMcGarry(President&CEO):
DmitryIreallydon'twanttogetintoparsingeachofthedifferentbusinessesbecausewerolloutnewproductsandwehaveolderproducts.Whatwe'vebeenconsistentinsayingisthatthepricingenvironmentisflatandweexpectthattocontinue.
DmitrySilversteyn (Analyst-LongbowResearch):
Notjustinpaintsbutencodingsaswell?
MichaelMcGarry(President&CEO):
Correct.
DmitrySilversteyn (Analyst-LongbowResearch):
Thankyouverymuch.
Operator :
Thatconcludesquestions.IwouldnowliketoturnthecallovertoMr.VinceMoralesforclosingremarks.
VinceMorales (VPIR&Treasurer):
IwanttojustonceagainthankeverybodyfortheirtimeandinterestinPPG.BothScottMinderandmyselfwillbeavailabletotakequestionsafterthecall.Thankyou.
Operator :
Ladiesandgentlemen,thatconcludestoday'sconference.
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CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals
EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0
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