Q3 2024 Earnings Summary
- 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.
- 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.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Sales Growth | Q3 2024 | Flat to low single-digit percentage growth | -1.48% year-over-year (from 4,644In Q3 2023 to 4,575In Q3 2024) | Missed |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.