Q4 2023 Earnings Summary
- PPG expects positive sales volume growth in 2024, including benefits from China, India, and Mexico, particularly in their Auto OEM business where they are well-positioned in China with strong positions with electric vehicle OEMs. They anticipate a multi-year recovery in automotive with content per EV built up by 20% in 2023.
- PPG has significant spare capacity and expects to improve operating margins through volume leverage and ongoing manufacturing productivity initiatives, including modernization, automation, and digitization of operations, which are projected to yield manufacturing productivity gains of $150 million to $200 million.
- PPG expects to deliver around 10% earnings growth in 2024, driven by positive pricing, volume growth, manufacturing productivity gains, and benefits from their enterprise growth initiatives that delivered around $150 million of incremental sales in 2023.
- Potential pricing pressure in the Industrial Coatings segment due to expected modest price declines in the first quarter of 2024, partly driven by decreases in raw material costs.
- Decreasing raw material costs, such as titanium dioxide (TiO₂), may lead to reduced selling prices and impact margins. The company acknowledges that TiO₂ prices are decreasing and supply is ample.
- First quarter earnings growth is expected to be moderate due to transitory items and difficult year-over-year comparisons, including nonrecurring customer load-ins and timing shifts like the Easter holiday, which may impact sales volume and profitability.
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2024 Pricing Outlook
Q: Will total company pricing be up in 2024?
A: Yes, PPG expects positive company pricing for the full year 2024, largely driven by Performance Coatings, with targeted increases beyond that. Big box pricing is mostly contractual, so significant movements are not expected. -
Raw Material Costs Impact
Q: How will raw material costs impact margins in 2024?
A: Raw material costs remain significantly higher on a multi-year basis, but PPG expects incrementally beneficial invoice pricing as raw materials moderate. Suppliers have ample capacity, focusing on volume, which should improve PPG's P&L throughout the year. -
Maintaining Price Increases
Q: Can PPG maintain price increases despite raw material trends?
A: PPG is confident in holding onto price increases in 2024, not due to mix changes, but because raw materials, while moderating, remain elevated compared to 2019. In Performance Coatings, price increases are secured due to unique value propositions, and they don't expect upstream supply dynamics to change dramatically. -
Auto OEM Outlook
Q: Why is Auto OEM guidance down for Q1?
A: PPG expects low single-digit declines in Auto OEM volumes in Q1 due to strong double-digit comps from Q1 2023 and some index pricing rollbacks. However, they remain bullish on auto for the full year 2024, anticipating volume leverage and content growth in EVs. -
Cash Flow and Inventory
Q: Should we expect cash flow to move with EBITDA?
A: Generally, EBITDA serves as a proxy for cash flow. PPG anticipates cash flow to be commensurate with EBITDA growth, with working capital movements influencing cash flow. They plan to work down a couple hundred million dollars of excess raw materials inventory in 2024, positively impacting cash flow. -
Home Depot Partnership
Q: Is the partnership with Home Depot meeting expectations?
A: The relationship and progress on the Pro program are going as expected, with good sell-out in the fourth quarter. However, challenges in the DIY segment are offsetting gains, affecting overall performance in the architectural coatings business. -
China Sales Strength
Q: Is China's strength primarily domestic or export-driven?
A: PPG's China strength is both domestic and export-driven, but the majority of vehicles painted in China stay in China. The largest EV producer in China is beginning to export, providing incremental upside. -
Titanium Dioxide Pricing
Q: What is the outlook for TiO2 prices?
A: PPG is seeing very good availability of TiO₂, with modestly lower pricing compared to last year. Prices are not down as much as other raw materials but are definitely lower than last year. PPG continues to reduce TiO₂ content in formulations by about 1% per formula without sacrificing performance.
Research analysts covering PPG INDUSTRIES.