PPG INDUSTRIES INC Q3 FY2024 earnings call

Key Highlights

• Delivered sales of $4.6 billion with eighth consecutive quarter of year-over-year segment margin improvement.
• Record third quarter adjusted earnings per diluted share of $2.13, +3% YOY despite higher tax rate reducing EPS by $0.08.
• Segment margin improvement driven by favorable business mix of advantaged products and productivity gains.
• 7 out of 10 businesses had organic growth; Performance Coatings segment +2% volume growth; Aerospace Coatings had record sales with $290 million order backlog.
• Sold Silicas products business for ~$310M, sold Architectural Coatings US and Canada for $550M; restructuring program to save $175M, $60M in 2025.
• Architectural Americas and Asia Pacific growing; Protective and Marine strong demand; Packaging Coatings third consecutive volume growth.

PPG reported sales of $4.6 billion for the third quarter of 2024. The Performance Coatings segment saw +2% year-over-year sales volume growth, driven by above-market volume performance in Automotive Refinish (including high single-digit growth in US collision-related products) and Aerospace Coatings achieved record quarterly sales with double-digit organic growth. The Architectural Coatings segment had sustained growth in Americas and Asia Pacific, while the European Architectural Coatings business was flat. The Protective and Marine business benefited from strong global demand and share gains. The Industrial Coatings segment experienced aggregate organic sales decline mid-single digits due to challenges in auto OEM and industrial production. The Packaging Coatings business achieved third consecutive quarter of volume growth driven by share gains. Revenue contribution details: Performance Coatings was a significant segment, with other segments like Architectural, Protective and Marine, Industrial, and Packaging also contributing.

Forward-Looking

• Optimistic about momentum in Performance Coatings, expecting auto OEM uptick in 2025.
• Self-help initiatives to kick in, providing $60M savings in 2025.
• Strong balance sheet for flexibility in creating shareholder value.
• Confident in long-term 8-12% EPS growth framework despite current macro challenges.

• Auto OEM and industrial production challenges impacting Industrial Coatings.
• Macro uncertainties affecting raw material costs and demand.
• Potential strike impacts in auto industry not built into guidance.

Q: Tim, could you give us the valuation multiple on the architectural deal? And is the exit completely clean or is there anything left behind at PPG to deal with besides the stranded cost at corporate?

A: Yes. Hey, thanks, John. So the sales of that business are approximately $2 billion. The EBITDA margin is low-single-digits, and when you do the math, the multiple comes out to a 14 multiple. And as far as, it's a clean cut, a clean break. Well, of course, will be some transitionary service agreements, but it does include ongoing exclusive supply agreements with AAP for them to distribute our protective and light industrial coatings.

Q: Michael Sison asks about growth algorithm for 2025 post sale of architectural silicas and volume growth potential.

A: Thanks, Mike. You're right. It's a little early to give any numbers. But the way we're thinking about it is we have momentum in a number of areas. We're very pleased with the trend in Performance Coatings. If you look at auto, despite what's happened here in Q3, IHS is projecting marginally positive builds next year and marginally positive would be a lot better than this year. Europe, while it's taken a while to get here is finally flattened which is a positive story for us as we head into '25. We're gaining traction on a number of the growth initiatives that we've been talking about all year. And then I'd say the self-help that we announced today will start to kick in. So that will help us in '25 as well. So overall, we'll continue to -- we're assuming we'll continue to have some challenging macros. But when you combine with the portfolio move that we just announced this morning, we're optimistic and excited that a sharper more focused PPG, PPG with higher growth and a higher margin profile will be the result in 2025.

Q: Michael Leithead asks about outlook and trajectory for industrial margins and weakness cause.

A: Yes. Hey, Mike. So I'd say it was largely driven by the volume, particularly as we progressed through the quarter, predominantly in auto OEM, but also in general Industrial Coatings. There was some, as you saw in the documents, there was some price impact as well, but we expected that. That was all index pricing. The real issue was volume. So the outlook, any volume will bring that leverage right back, but also part of the reason why we're taking these self-help actions.