Sign in

    PPG Industries Inc (PPG)

    Business Description

    PPG Industries, Inc. is a multinational manufacturer specializing in the production of coatings and specialty materials. The company operates through two main business segments: Performance Coatings and Industrial Coatings, supplying a wide range of protective and decorative coatings, adhesives, sealants, and related chemicals . PPG's products are distributed globally, serving diverse markets such as industrial equipment, packaging, automotive, aerospace, and architectural applications .

    1. Performance Coatings - Supplies protective and decorative coatings, adhesives, sealants, finishes, paint strippers, stains, and related chemicals. This segment includes automotive refinish coatings, aerospace coatings, architectural coatings (Americas, Asia Pacific, and EMEA), protective and marine coatings, and traffic solutions.
    2. Industrial Coatings - Provides a variety of protective and decorative coatings and finishes, adhesives, sealants, metal pretreatment products, optical monomers and coatings, low-friction coatings, paint films, precipitated silicas, and other specialty materials. This segment includes automotive original equipment manufacturer (OEM) coatings, industrial coatings, packaging coatings, and specialty coatings and materials.

    Q3 2024 Summary

    Initial Price$126.01July 1, 2024
    Final Price$130.74October 1, 2024
    Price Change$4.73
    % Change+3.75%

    What went well

    • PPG is optimizing its portfolio by divesting non-core businesses, selling the U.S. and Canada Architectural Coatings business for $550 million and the silicas products business for $310 million, improving its organic growth and financial return profiles for a higher-growth and higher-margin company.
    • Record performance in Aerospace Coatings, with double-digit percentage organic sales growth and an order backlog of approximately $290 million, demonstrating strong demand and positioning PPG for continued growth in this sector.
    • Strong balance sheet and commitment to shareholder value, with approximately $1 billion returned to shareholders through dividends and share repurchases year-to-date, and plans to effectively allocate proceeds from asset sales to benefit shareholders and support growth initiatives in 2025.

    What went wrong

    • PPG is exiting the North American decorative coatings market, which may raise concerns about its strategic focus and potential loss of presence in this region.
    • Competitors are negative about the packaging market, and there are risks if packaging share shifts back to competitors, potentially impacting PPG's growth in this segment.
    • PPG plans to implement self-help measures to improve profitability in Europe, indicating challenges in maintaining margins in its European decorative coatings business.

    Q&A Summary

    1. Architectural Business Sale
      Q: What are the details of the Architectural Coatings sale?
      A: PPG is selling its U.S. and Canada Architectural Coatings business for $550 million at a 14x EBITDA multiple. The business has $2 billion in sales and low single-digit EBITDA margins. The deal is a clean exit with no significant stranded costs, and includes ongoing exclusive supply agreements.

    2. 2025 Growth Outlook
      Q: How do you see volume growth potential for 2025?
      A: PPG expects momentum in several areas, including Performance Coatings and a flattening European market. Auto builds are projected to be marginally positive next year per IHS, which would be better than this year. Self-help initiatives announced will also contribute, resulting in a sharper, more focused PPG with higher growth and a higher margin profile in 2025.

    3. Automotive OEM Outlook
      Q: What's the outlook for the Automotive OEM business?
      A: PPG expects the downturn in auto builds to continue into Q4 but anticipates a modest uptick in 2025. IHS projects marginally positive builds next year, improving from mid- to high-single-digit declines this year. Any volume recovery will bring leverage back to industrial margins.

    4. Raw Material Costs Outlook
      Q: Should we expect raw material costs to decline in 2025?
      A: For Q4, raw materials are expected to remain flat, consistent with Q3. It's too early to provide guidance for 2025 as negotiations with suppliers are just starting. However, PPG enters the year-end with ample supply upstream, which could be favorable.

    5. Aerospace Business Growth
      Q: What is the outlook for the Aerospace business?
      A: PPG is not seeing a slowdown in Aerospace; backlogs are significant in OE and aftermarket, and military demand is red hot. They project high single-digit growth in Q4 and expect another outstanding year in 2025.

    6. Cost Savings Program
      Q: How will the $250 million charge and cost savings flow?
      A: The $250 million charge will have cash outflows spread over three years, front-loaded in the first 15–18 months. PPG expects $60 million in savings next year, with the remaining $175 million realized over the following years. Structural changes to the footprint will take time, but there are quick-hitting items as well.

    7. M&A Pipeline and Strategy
      Q: What is PPG's M&A strategy after the sale?
      A: The M&A pipeline has been thinner over the last 1.5 years but is improving. PPG does not exclude Architectural Coatings and will look at opportunities where they have a strong right to win. They are focused on being targeted and investing where it adds shareholder value.

    8. Protective and Marine Outlook
      Q: What's changing in the Protective & Marine outlook?
      A: PPG's Protective & Marine business has seen its sixth straight quarter of volume growth. While comps make Q4 look flat, the business benefits from infrastructure spending, marine aftermarket activity, and near-shoring. They are bullish on its continued performance.

    9. Refinish Business Dynamics
      Q: Why is Refinish guidance flat for Q4?
      A: The flat guidance is due to inventory management by distributors and a prior-year pre-buy ahead of a price increase. Insurance claims are significantly down, but PPG is gaining about 500 net shop wins per quarter. They look at Refinish over multiple quarters due to channel dynamics.

    10. Packaging Coatings Business
      Q: How is the Packaging Coatings business performing?
      A: PPG has lapped prior share shifts and picked up share for the full year 2024. They are confident in picking up more share heading into 2025. Their technologies and services are the reasons for net share gains.

    11. Divestiture Impact on Earnings
      Q: Will the U.S. and Canada divestiture be dilutive?
      A: If PPG uses the net proceeds for share buybacks, the transaction will be slightly accretive next year. There are about $15 million of stranded costs, but structural costs are expected to be lower due to cost programs.

    12. Manufacturing Productivity Gains
      Q: What's driving lower COGS despite flat volumes and raws?
      A: PPG has started to gain on manufacturing productivity, which is helping reduce COGS. Index contracts are based on a basket of raw materials, not directly linked to energy prices.

    13. Decorative Coatings Strategy
      Q: What is PPG's Deco strategy after exiting North America?
      A: PPG will focus on countries where they are #1 or strong #2, such as in Europe where they're #1 in 10 countries. They will stay in these businesses as long as they deliver good earnings, cash, and growth.

    14. Impact of Insurance Claims on Refinish
      Q: Are lower insurance claims affecting Refinish sales?
      A: The drop in insurance claims is due to higher totals, less repair claims, and some consumers not turning in claims. PPG believes these factors are transitory and continues to gain market share.

    15. Capital Allocation Post-Divestiture
      Q: How will PPG allocate proceeds from the sale?
      A: PPG has a strong balance sheet and has been buying back shares in the last four quarters. They will continue to deploy capital in ways that deliver shareholder value.

    16. Lease Liabilities Transfer
      Q: How are lease liabilities handled in the store sale?
      A: The leases and obligations are transferred with the business. There's no change to PPG's debt profile as a result.

    17. Industrial Margins Outlook
      Q: What's the trajectory for industrial margins?
      A: Weakness was largely driven by volume declines, particularly in auto OEM and general industrial coatings. Any volume increase will bring leverage back to margins.

    18. Confidence in Growth Framework
      Q: Is the 8–12% EPS growth framework still achievable?
      A: PPG remains confident in these goals over the cycle. They acknowledge macros may cause fluctuations but feel good about momentum going into next year.

    19. Cost Program Cash Flow
      Q: How will the $250 million charge cash flow?
      A: Cash outlays will be spread over three years, front-loaded in the first 15–18 months. Savings of $60 million are expected next year, with remaining savings over following years.

    20. M&A Excluding Architectural Coatings
      Q: Will Architectural Coatings M&A be off the table?
      A: PPG does not exclude Architectural Coatings opportunities. They will consider any opportunity where they have a strong right to win.

    21. Refinish Growth into 2025
      Q: What is the outlook for Refinish growth in 2025?
      A: PPG continues to gain net shop wins and expects the positive momentum to carry into 2025. They monitor the business over multiple quarters due to distribution dynamics.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Performance Coatings2,6283,0412,8802,61511,1642,6143,0482,921
    - Automotive Refinish--------
    - Aerospace--------
    - Architectural Americas/AP--------
    - Architectural EMEA--------
    - Protective and Marine--------
    - Traffic Solutions--------
    Industrial Coatings1,7521,8311,7641,7357,0821,6971,7461,654
    - Automotive OEM--------
    - Industrial--------
    - Packaging--------
    - Specialty Coatings--------
    Glass--------
    Total Revenue4,3804,8724,6444,3518,2464,3114,7944,575
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States and Canada1,7762,0591,9411,7127,4881,7422,0391,929
    - United States--------
    - Other Americas--------
    EMEA1,4281,5201,3931,2755,6161,3591,4541,366
    Asia Pacific6477367337582,874656734751
    Latin America5295575776052,268554567529
    Total Revenue4,3804,8724,6444,3518,2464,3114,7944,575

    Executive Team

    NamePositionStart DateShort Bio
    Timothy M. KnavishChairman and Chief Executive OfficerOctober 1, 2023Timothy M. Knavish has been with PPG since 1987. He was appointed as Chairman and CEO on October 1, 2023. He previously served as President and CEO from January 1, 2023, to September 30, 2023 .
    Anne M. FoulkesSenior Vice President and General CounselSeptember 2018Anne M. Foulkes has been serving as Senior Vice President and General Counsel at PPG since September 2018. She previously held various legal roles within the company since 2011 .
    Vincent J. MoralesSenior Vice President and Chief Financial OfficerMarch 2017Vincent J. Morales has been serving as the Senior Vice President and CFO at PPG since March 2017. He has held various finance-related positions at PPG since 2007 .
    K. Henrik BergströmSenior Vice President, Architectural Coatings, Latin America, EMEA, and Asia PacificMay 1, 2023K. Henrik Bergström has been in his current role since May 1, 2023. He previously served as Vice President for the same regions from February 2022 through April 2023 .
    Kevin D. BraunSenior Vice President, Industrial Coatings SegmentMay 1, 2023Kevin D. Braun began his career at PPG in 1991. He was named Senior Vice President, Industrial Coatings Segment on May 1, 2023. He has held various roles in the company since 1994 .
    Amy R. EricsonSenior Vice President, Protective and Marine CoatingsJanuary 2023Amy R. Ericson has been serving as Senior Vice President, Protective and Marine Coatings since January 2023. She previously held leadership positions at other companies before joining PPG .
    Chancey E. HagertySenior Vice President, Automotive Refinish CoatingsMay 1, 2023Chancey E. Hagerty has been in his current role since May 1, 2023. He previously served as Vice President, Global Automotive Refinish Coatings from January 2020 through April 2023 .
    Ramaprasad VadlamannatiSenior Vice President, OperationsJanuary 2023Ramaprasad Vadlamannati joined PPG in 1999 and has held various leadership roles. He was appointed Senior Vice President, Operations in January 2023 and will retire by December 31, 2024 .
    Kevin BraunSenior Vice President, Operations (effective October 1, 2024)October 1, 2024Kevin Braun will become Senior Vice President, Operations effective October 1, 2024. He has been with PPG since 1991 and has held various roles, including Senior Vice President, Industrial Coatings Segment .

    Questions to Ask Management

    1. Given that general industrial activity in the U.S. and Europe was lackluster and your Industrial Coatings organic sales declined by a mid-single-digit percentage despite growth in China and India, what specific strategies are you implementing to reverse this trend and drive growth in these regions?
    2. With the divestiture of your Architectural Coatings U.S. and Canada business for $550 million and the announced restructuring program to eliminate stranded costs and rationalize your footprint, how confident are you in achieving the projected $175 million in savings, and what challenges do you foresee in fully realizing these savings?
    3. In the Aerospace business, despite your optimism for high single-digit growth in the fourth quarter and an outstanding year in 2025, how are you addressing potential risks such as customer strikes and supply chain disruptions that could impact your growth projections?
    4. Considering the decrease in insurance claims affecting your automotive refinish business due to factors like higher totals and consumers not turning in claims, what strategies are you employing to mitigate this impact and sustain growth in this market segment?
    5. With the recent thinning of your M&A pipeline and your commitment to only pursue acquisitions where you have a strong right to win, what specific criteria are you using to evaluate potential targets, and how will you ensure these acquisitions align with your strategic focus and deliver shareholder value?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateDecember 2017 April 2024
    End Date/DurationNo expiration No expiration
    Total additional amount$2.5 billion $2.5 billion
    Remaining authorization amountN/A22,726,533 shares
    DetailsN/AN/A

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Raw Material Costs: Expected to remain flat in Q4 2024.
      2. Corporate Costs: Structural corporate costs expected to be lower due to a cost reduction program.
      3. Volume and Growth: Anticipate a modest uptick in auto OEM builds and better performance in general industrial coatings.
      4. Divestitures and Restructuring: Sale of Architectural Coatings U.S. and Canada business and silicas products business; restructuring program expected to deliver $175 million in savings, with $60 million in 2025.
      5. Shareholder Returns: Plans to continue returning cash to shareholders through dividends and share repurchases .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      1. Organic Sales Growth: Expected to be flat to low single-digit percentage growth.
      2. Adjusted EPS: Anticipated between $2.10 and $2.20 per share.
      3. Selling Prices: Expected to be flat.
      4. Raw Material Costs: Expected flat to low single-digit percentage deflation.
      5. Operating Margins: Improvement expected through sales volume growth leverage and cost control initiatives .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024
    • Guidance:
      1. Adjusted EPS: Expected between $2.42 and $2.52 per share.
      2. Sales Volumes: Anticipated to be positive by a low single-digit percentage.
      3. Raw Material Costs: Expected to decrease by mid-single digits.
      4. Selling Prices: Expected to be flat to slightly positive.
      5. Volume Growth: Positive sales volumes expected in each remaining quarter of 2024.
      6. Enterprise Growth Initiatives: Focus on driving higher sales volumes.
      7. Balance Sheet and Cash Flow: Strong balance sheet providing flexibility .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      1. Sales Volume: Expected to be flat in Q1 2024, with growth in specific segments.
      2. Selling Prices: Anticipated to remain positive.
      3. Earnings Growth: Full-year earnings growth of around 10% expected.
      4. Adjusted EPS: Expected to grow to a range of $1.80 to $1.87 per share in Q1 2024.
      5. Raw Materials and Costs: Benefit from moderating input costs.
      6. Volume and Price Dynamics: Positive sales volume expected for FY 2024.
      7. Tax Rate: Higher year-over-year tax rate expected .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Akzo Nobel N.V., mentioned as a global competitor in the industrial coatings segment .
    • Axalta Coating Systems Ltd., mentioned as a global competitor in the industrial coatings segment .
    • BASF Corporation, mentioned as a global competitor in the industrial coatings segment .
    • Kansai Paints, mentioned as a global competitor in the industrial coatings segment and as an alliance partner to serve Japanese-based automotive OEM customers in North America and Europe .
    • Nippon Paint, mentioned as a global competitor in the industrial coatings segment .
    • The Sherwin-Williams Company, mentioned as a global competitor in the industrial coatings segment .