Sign in

    PPG Industries Inc (PPG)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$130.90Last close (Apr 19, 2024)
    Post-Earnings Price$130.90Last close (Apr 19, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • PPG expects strong growth in China, particularly in automotive with double-digit growth expected in Q2, as well as continued growth in industrial coatings, refinish, and aerospace.
    • The company is gaining market share in segments such as industrial, refinish, and packaging, leading to anticipated positive volume growth in Q2.
    • PPG is confident in delivering a bold 10% EPS growth target for 2024, supported by proven margin and cash management, and starting from a position of strength in key markets like aerospace, Mexico, China, India, protective and marine coatings, and automotive.

    What went wrong

    • Weaker-than-expected performance in Europe, particularly in decorative ("deco") and automotive segments, with Q1 results below expectations and uncertainty about recovery. Management noted that Europe was softer than expected, especially in France and the Nordics, and they are not seeing significant improvement yet.
    • Higher wage inflation and logistics expenses are putting pressure on margins, and while the company aims to offset these costs with targeted price increases, these expenses are higher than expected, potentially challenging profitability.
    • The company's ambitious guidance of 10% EPS growth relies heavily on volume growth and productivity gains in the second half of the year, which may be challenging to achieve given the uncertain macro environment, particularly considering higher upstream input costs such as energy trending higher.

    Q&A Summary

    1. Earnings Guidance Confidence
      Q: What underlies confidence in 10% EPS growth guidance?
      A: Management is confident in achieving a bold 10% EPS growth target for the year, despite a challenging environment, due to strong margin improvements, positive volume momentum, ongoing pricing initiatives, manufacturing momentum, and optionality with capital deployment.

    2. Price and Raw Material Dynamics
      Q: How will price and raw materials impact margins?
      A: Raw material costs were down high single digits in Q1 and are expected to be down mid-single digits in Q2 and low to mid-single digits for the full year 2024. Management is confident in their pricing, with ongoing initiatives expected to offset costs like wage and logistics inflation.

    3. Volume Growth Outlook
      Q: Will volumes turn positive in Q2?
      A: Management expects positive volume growth in Q2 and for the rest of the year, building on sequential improvements from prior quarters. They cite share gains launching in packaging, refinish, and industrial coatings, and are confident based on early orders and shipments in April.

    4. U.S. Architectural Business Review
      Q: What is the status of the U.S. architectural review?
      A: The company has seen minimal disruption since announcing the review and reports strong interest in the assets. Management aims to be definitive on the path forward by Q3, considering all options to maximize long-term shareholder value, including partnerships to accelerate growth and improve profitability.

    5. Share Buyback Plans
      Q: Will there be more share buybacks in guidance?
      A: The full-year guidance does not assume additional share repurchases beyond the $150 million bought back in Q1. Future buyback decisions will be made in real time, depending on cash deployment priorities and acquisition opportunities that create shareholder value.

    6. Refinish Business Performance
      Q: How is the refinish business performing post-COVID?
      A: The refinish business faced weaker volumes in Q1 due to lower industry collision claims, especially in March, which were down low double digits, partly due to mild winter weather reducing accidents. Management expects a return to normal growth in the second half of 2024 and continues to gain market share through digital tools.

    7. European Market Outlook
      Q: What is driving the softness in Europe?
      A: Europe was softer than expected in Q1, particularly in architectural coatings in France and the Nordics, and weaker automotive sales. Management sees early signs of improvement in April and expects incremental improvements ahead, with potential for good leverage due to prior cost actions.

    8. China Growth Momentum
      Q: How is growth in China progressing?
      A: China showed growth in Q1, with strong performance in automotive, industrial coatings, and refinish. Management expects this momentum to continue into Q2, anticipating high single-digit to double-digit growth, supported by increased industrial activity and record travel in aerospace.

    9. Capital Expenditures and Growth Investments
      Q: Why has CapEx increased, and will this level continue?
      A: CapEx is higher due to spillover from last year and additional growth investments in Mexico and India. Over the midterm, CapEx is expected to return to the normal range of 2.5% to 3% of sales after catching up from COVID-related delays.

    10. Portfolio Restructuring and M&A Strategy
      Q: How confident is management in remaining businesses and M&A?
      A: Management is confident that the remaining businesses will deliver higher growth and margin profiles. They intend to continue pruning smaller parts of the portfolio and making focused acquisitions that align with performance targets and growth strategy, ensuring each business earns its place in the portfolio.

    Related Publications