PPG Industries Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 22, 2022

There are 19 speakers on the call.

Operator

Good morning. My name is Sam, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter PPG Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer presentation.

Operator

Presentation. Thank you. Presentation. I would now like to turn the conference over to John Bruno. Please go ahead, sir.

Speaker 1

Thank you, Sam, and good morning, everyone. Once again,

Speaker 2

P and L.

Operator

I would now like to turn the conference over to John Bruno. Please go ahead, sir.

Speaker 1

Thank you, Sam, and good morning, everyone. Once again, this is John Bruno. We appreciate your continued interest in PPG and welcome you to our Q1 2022 financial results conference call. PPG. This is John Bruno.

Speaker 1

We appreciate your continued interest in PPG and welcome you to our Q1 2022 financial results conference call. PPG are Michael McGarry, Chairman and Chief Executive Officer Tim Kanabish, Chief Operating Officer and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U. S. Equity Markets PPA closed on Thursday, April 21, 2022.

Speaker 1

These comments relate to the financial information released after U. S. Equity Markets PPG closed on Thursday, April 21, 2022. We have posted detailed commentary and accompanying presentation slides on the investor slide of our website, ppg.com. The slides are also available on the webcast site for this call and provide additional support to the brief opening comments Michael will make shortly.

Speaker 1

Following management's perspective on the company's results for the quarter, we will move to a Q and A session. Both the prepared commentary and discussion during the call may contain forward and brief opening comments Michael will make shortly. Following management's perspective on the company's results for the quarter, we will move to a Q and A session. Presentation. Both the prepared commentary and discussion during the call may contain forward looking statements, reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance.

Speaker 1

Looking statements reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. Presentation. The company is under no obligation to provide subsequent updates to these forward looking statements. This presentation also contains certain non GAAP financial measures presentation.

Speaker 1

The company has provided in the appendix of the presentation materials, which are available on our website, reconciliates to these forward looking statements. Presentation. This presentation also contains certain non GAAP financial measures. The company has provided in the appendix of the presentation materials, presentation, which are available on our website, reconciliations of these non GAAP financial measures to the most directly comparable GAAP financial measures. For more information, please refer to PBA's non GAAP financial measures to the most directly comparable GAAP financial measures.

Speaker 1

PPG's filings with the SEC. Now let

Speaker 3

me introduce PPG Chairman and CEO, Michael McGarry. P and L. Thank you, John, and good morning, everyone. I'd like to welcome everyone to our Q1 2022 earnings call. P and L.

Speaker 3

I hope you and your loved ones are remaining safe and healthy. P and L. I hope you and your loved ones are remaining safe and healthy. To say that these have been difficult and challenging times for so many would be piece of understatement. Since the beginning of the war in Ukraine, we've been focused on protecting the health and safety of our employees and their families from Ukraine PPG as well as our employees in Russia.

Speaker 3

PPG and the PPG Foundation have also committed more than $800,000 PPG and the PPG Foundation have also committed more than $800,000 to humanitarian relief as well as longer term recovery support. In addition, PPG employees have also been providing direct support to those in need, including taking refugee families piece of the business into their homes. The war has also made it necessary to scale back and now wind down our operations in Russia. PPA, including taking refugee families into their homes. The war has also made it necessary to scale back and now wind down our operations in Russia.

Speaker 3

As a result, we recorded a pre tax charge of $290,000,000 for impairment of PPG net sales in Russia represented approximately 1% PPG net sales for the year ending December 31, 2021. We will continue to see our total PPG net sales Q1 of 2019. We will continue to closely monitor developments in the region. P and L. Before I provide the regular quarterly review of our results, I'd like to provide a concise summary of the key issues impacting our business in the quarter presentation as we look ahead.

Speaker 3

With a regular quarterly review of our results, I'd like to provide a concise summary of the key issues impacting our business in the quarter presentation as we look ahead. During the Q1, we had 2 major events, the Ukraine Russia crisis and increased COVID-nineteen restrictions in China, P and L, which have created some new uncertainties about overall Russia prices and increased COVID-nineteen restrictions in China, which have created some P and L, new uncertainties about overall regional demand and possible global carry on effects. You will see due to these increased uncertainties, presentation. We have widened our earnings guidance range we provided for the Q2. You will see due to these increased uncertainties, we have widened our earnings guidance range we provided for the Q2.

Speaker 3

Notwithstanding these two major events are other peak season. Longer standing global impacts, which have affected our financial results for several quarters and which are abating or ratably improving. P and L, and we will continue to see the long standing global impacts which have affected our financial results for several quarters and which are abating or ratably improving. Specifically, we continue to experience improvements in our supply chain and our raw material availability. Additionally, outside of China, COVID restrictions have continue to decrease in many parts of the world and our raw material availability.

Speaker 3

Additionally, outside of China, COVID restrictions have continued to decrease in many parts of the world. As a company, we have continued to improve our pricing realization in both pace and cadence.

Speaker 2

P and L.

Speaker 3

This has been necessary to battle the persistence and breadth of inflation. As a company, we have continued to improve our pricing realization in PPA, both pace and cadence. This has been necessary to battle the persistence and breadth of inflation. Our price capture this cycle is much faster and we are now pricing in the 2nd quarter for 2nd quarter inflation impacts. So we are basically price capture this cycle is PPA in the Q2, and we are now pricing in the Q2 for 2nd quarter inflation impacts.

Speaker 3

So we are basically pricing in real time. P and L. We continue to deliver good earnings leverage when we have improving volumes. While many of our businesses and regions P and L, and we have improving volumes. While many of our businesses and regions P and L.

Speaker 3

We have not fully recovered from the pandemic. As a matter of fact, we are still down about 5% in aggregate. However, when a business does deliver volume improvement, P and L. We're realizing good bottom line gains. This reflects the hard work from our teams on managing our operating costs and SG and A.

Speaker 3

Finally, we had a very solid month of March from a financial returns perspective. We stated many times that March piece of the business, while managing our operating costs and SG and A. Finally, we had a very solid month of March from a financial returns perspective. We've stated many times that March is the most important month in the Q1 given the seasonality of our businesses. Our month of March financial returns were the best returns since the Q2 of 2019, given the seasonality of our businesses.

Speaker 3

P and L. Our month of March financial returns are the best returns since the Q2 of 2021. I will now move to provide some comments to supplement the detailed financial results we released last evening. For the Q1, we delivered record net sales of 4,300,000,000 supplemental details to supplement the detailed financial results we released last evening. For the Q1, we delivered record net sales of $4,300,000,000 and our adjusted earnings per diluted share from continuing operations were $1.37 To quickly summarize the quarter, P and L, our sales performance was better than our January guidance despite unexpected and $0.37 To quickly summarize the quarter, P and L.

Speaker 3

Sales performance was better than our January guidance despite unexpected impacts from the crisis in Europe, COVID related disruptions in China and continuing logistics bottlenecks. More than offsetting these unexpected macro issues was stronger than expected in China and continuing logistics bottlenecks. More than offsetting these unexpected macro issues was stronger than expected demand across many of our businesses presentation. As regional economies and end use markets continue to recover from the pandemic impacts, we expect the demand across many of our businesses presentation as regional economies and end use markets continue to recover from the pandemic impacts. Above market sales volumes were achieved in several end use markets, including our PPG Comex business, which during the quarter opened their 5,000th concessionaire location in Mexico.

Speaker 3

1st quarter sales in Latin America were a record. In addition, our automotive refinish business performed well with strong sales volumes in the U. S. And Europe. Also, our Aerospace business benefited from year over year initial improvements in the market, and we expect further industry demand growth as we are still well below pre pandemic levels.

Speaker 3

Our adjusted earnings We're significantly above the upper end of our January financial guide as we delivered strong earnings leverage on the higher than expected sales volumes. Our adjusted earnings were significantly above the upper end of our January financial guide as we delivered strong earnings leverage on the higher than expected PE sales volumes. This leverage was a result of improving manufacturing performance as COVID related absenteeism presentation. In addition, our selling price increases increased through the quarter and we experienced increasing raw material availability. In addition, our selling price increases increased 10% year over year, marking the 20th consecutive quarter of higher selling prices.

Speaker 3

P and L. Our selling prices are up over 12% on a 2 year stack basis versus the Q1 of 2020, reflecting our continued actions to offset P and L, and we are pleased to report that we are well positioned to deliver on our financial results. We are pleased to report that we are well positioned to deliver on our financial results. Our recent acquisitions also performed well, including the realization of targeted synergies. The tickerilla business delivered year over year sales growth of more PPA of 10%, excluding our Russian operations.

Speaker 3

Our traffic solutions business also achieved greater than 10% sales growth and our first quarter sales were record our Russian operations. Our traffic solutions business also achieved greater than 10% sales growth and our first quarter sales were a record and the business continue to have a large order backlog as we enter the 2nd quarter. During the quarter, we also launched a significant expanded pro painter initiative with The Home Depot and despite continuing raw material constraints restricting our Bienuert 2nd quarter. During the quarter, we also launched a significant expanded pro painter initiative with the Home Depot and despite continuing raw material constraints PPE, restricting our ability to fully load inventory. We now have our full Pro Paint assortment available in about 60% of their stores.

Speaker 3

PPE. We expect to have all the Home Depot stores loaded in the coming months. We expect to have all the Home Depot stores loaded in the coming months. We expect to have all the Home Depot stores loaded in the coming months. We're excited about the growth opportunities that this initiative provides and have already recognized some significant new professional painter business gains.

Speaker 3

Our earnings and margins continue to rise and have already recognized some significant new professional painter business gains. Our earnings and margins continue to be impacted by elevated levels of inflation and supply disruptions. In the Q1, our selling prices did offset year over year raw material inflation, but did not offset P and L. Inflation from other sources, including logistics, energy and labor, and we did not fully recover prior year inflation. P and L, inflation from other sources, including logistics, energy and labor, and we did not fully recover prior year inflation.

Speaker 3

P and L. Sequentially versus the Q4 of 2021, our overall margins improved by more than 200 basis points. We are targeting continued quarterly sequential margin improvement and our overall margins improved by more than 200 basis points. We are targeting continued quarterly sequential margin improvement in the 2nd quarter as well, despite further increases in raw material and logistics inflation. P and L.

Speaker 3

We have continued to optimize our commercial processes the last 2 years and as mentioned, our now and logistics inflation. We have continued to optimize our commercial processes the last few years and as mentioned are now closer to real time pricing relative to inflation. P and L. Due to higher crude oil and energy prices, we're implementing incremental selling prices closer to real time pricing relative to inflation. P and L.

Speaker 3

Due to higher crude oil and energy prices, we're implementing incremental selling price increases in the Q2 and expect that we will exit the 2nd quarter P and L, offsetting all inflation categories on a run rate basis increases in the 2nd quarter and expect that we will exit the 2nd quarter offsetting P and L, and we will continue to see the results of our Q1 results. This drives our expectations for operating margins to sequentially improve further presentation. This drives our expectations for operating margins to sequentially improve further as the year progresses. In several businesses, we continue to face certain raw material shortages, resulting in our overall sales backlog growing to about $180,000,000 PPA exiting the quarter. The order backlogs are the highest in our aerospace and automotive refinish businesses.

Speaker 3

P and L. Additionally, these are 2 of our many industries we supply were to the highest in our aerospace and automotive refinish businesses. Additionally, these are 2 of our many industries that we supply where inventory levels are extremely low all the way to the end consumer. We've continued to control our controllables and once again lowered our SG and A as a percentage of sales, peak seasonally decreased by about 40 basis points compared to the Q1 of 2021. This included delivery of an additional $50,000,000 in cost savings from recent restructuring programs and acquisition synergies.

Speaker 3

This is also despite in our advanced digital capabilities, and we're experiencing growing digital adoption from our customers, most notably in the architectural coatings business. Presentation. In the Q1, our net debt increased mainly due to higher dollar value of inventory reflects our coatings business. In the Q1, our net debt increased mainly due to higher dollar value of inventory reflecting inflationary effects. P and L.

Speaker 3

This seasonal working capital increase in the quarter was consistent with pre pandemic years. We expect our cash flow generation to match prior year end's trends, which is affecting inflationary effects. This seasonal working capital increase in the quarter was consistent with pre pandemic years. P and L. We expect our cash flow generation to match prior year end trends, which is to consume cash early in the year and generate strong cash flow as we progress through the end of the year.

Speaker 3

Strategically, on April 1, we completed the acquisition of Arson CC's powder coatings business, continuing our focus on growing our powder coatings manufacturing capabilities. In addition, we divested some architectural coatings businesses in Africa presentation as we continue with our legacy evaluating all regional businesses and product lines to ensure that they continue to have strategic value and meet our financial hurdles. P and L. In the Q1, we continue to take additional measurable steps to further advance our ESG program P and L, we are going to take additional measurable steps to further advance our ESG program P and L by issuing our inaugural DE and I report. While I'm proud of what we have achieved, we know that there is more work to do and additional areas of opportunity to focus on.

Speaker 3

Presentation. If you've not already done so, I would encourage you to read our report and learn more about what we have done and our aspirational goals for the future, presentation materials. You can learn more about what we have done and our aspirational goals for the future, presentation, which are outlined in our presentation materials. Looking ahead, while our underlying demand continues to be solid in most of our end use markets and regions, Q2 economic activity, in particular in Europe, has started to soften as consumers remain cautious in use markets and regions. Q2 economic activity, in particular in Europe, has started to soften as consumers remain cautious based on the current geopolitical issues in the region.

Speaker 3

P and L. In addition, manufacturing supply chains have been recently impacted in China, which is based on the current geopolitical issues in the region. In addition, manufacturing supply chains have been recently impacted in China due to severe restrictions from rising COVID cases. In the last few weeks, up to 5 of our smaller manufacturing sites have been mandated shutdown due to restrictions plus our principal protective and marine coatings production facility. We're working in both of these regions to manage our operations and costs are reflective of these current macro challenges.

Speaker 3

We're working in both of these regions to manage our operations and costs are reflective of these current macro challenges. We're also assessing impacts both positive and negative these challenges may have on raw material supply and costs. P and L. We're also assessing impacts both positive and negative these challenges may have on raw material supply and costs. As mentioned earlier, we expect further sequential inflationary pressures on raw materials, logistics and energy.

Speaker 3

P and L. Our 2 year stack raw materials inflation expected to exceed 35%, but materials, logistics and energy. P and L. Our 2 year STACK raw materials inflation expected to exceed 35%, but only up low to mid single digit sequentially versus the Q1. P and L.

Speaker 3

We're implementing further selling price increases in all of our business only up low to mid single digit sequentially versus the Q1. P and L. We're implementing further selling price increases in all of our businesses and expect a quicker offset versus historical lags. P and L. We are pleased to announce that we are pleased to announce that we are peak seasonally.

Speaker 3

To the heightened levels of uncertainty, our earnings guidance considers a wider range of outcomes for the Q2. More generally, our guidance assumes that PPE. The Q1 restrictions in China eased somewhat in May and that geopolitical issues do not expand beyond the current Russia, Ukraine boundaries. Presentation of our current Russia Ukraine boundaries. While the current environment remains difficult to predict, I expect that as 2022 progresses, we'll begin to P and L.

Speaker 3

We experienced an easing and supply chain disruptions, general inventory rebuilding across many end use markets and still a healthy consumer willing to spend general inventory rebuilding across many end use markets PPG and still a healthy consumer willing to spend, especially in North America. The future PPG earnings catalysts that I reference peak operating margins remain intact and we certainly see a path to return to prior peak operating margins with opportunities to exceed them. Presentation. This includes continued recovery in the automotive refinish, OEM and Aerospace Coatings businesses. Normalization of commodity raw material costs, which should moderate over time given supply dislocations are improving P and L, and there is a softening in certain regional and raw material costs, which should moderate over time given supply dislocations are improving peak season and there is a softening in certain regional economies.

Speaker 3

As demonstrated this past quarter and supported by our lower cost structure, P and L, and supported by our lower cost structure, strong operating leverage on any sales volumes growth, accretive earnings growth from our recent acquisitions from both their historical base earnings and further synergy capture. Above market organic growth driven by our ADDvantage and Leading Brands, Technologies and Services P

Speaker 2

and L, our Q1 synergy

Speaker 3

capture, above market organic growth driven by our advantage and leading brands, technologies and services. In closing, as we look ahead, I remain confident about the company's future. I strongly believe in our team of 50,000 employees as we work to do better today P and L, and yesterday, every day. The way our employees have dealt with the pandemic and are helping during the Ukraine humanitarian crisis PPG that are navigating through a very challenging business environment, our prime example of how the team is making it happen. Thank you for your continued PPG.

Speaker 3

This concludes our environment, our prime example of how the team is making it happen. Thank you for your continued confidence in PPG. This concludes our prepared remarks. And now Sam, would you please open the line for questions?

Operator

Your first question comes from the line of Christopher Parkinson with Mizuho. Christopher, you can proceed with your question. Your first question comes from the line of Christopher Parkinson with Mizuho. Christopher, you can proceed with your question.

Speaker 4

P and L. Great.

Speaker 5

Thank you so much. Can you quickly give us a more granular update on the various inputs as it pertains to, I would say 2Q and the second half inflation outlooks, the persist and as well as the persistence, excuse me, of, I would say, 2Q and the second half inflation outlooks, the persist and as well as the persistence, excuse me, of certain input shortages on

Speaker 6

a quarter to quarter basis. Thank you.

Speaker 3

Chris, what I would tell you is that our input shortages

Speaker 6

on a quarter to quarter basis. Thank you.

Speaker 3

Chris, what I would tell you is that our input shortages remain consistent with what we've seen previously. Emulsions tend to be at the PPA. Top of the list, input shortages remain consistent with what we've seen previously. Emulsions tend to be at the PPA on top of the list. We've had some intermittent because of manufacturing issues with TiO2.

Speaker 3

Those issues have all been resolved. P and L. We've had some intermittent because of manufacturing issues with TiO2. Those issues have all been resolved. PPA.

Speaker 3

Force majeures, when we had the last call, they were over 100. We're down to about 50 now. We've seen improved reliability in Europe. They were over 100. We're down to about 50 now.

Speaker 3

We've seen improved reliability in Europe. We've seen improved reliability exclusive of the Shanghai area for Asia, and we're still seeing some challenging with trucking here in the U. S. But sequentially, we do see the pace of the year. We're still seeing some challenging with trucking here in the U.

Speaker 3

S. But sequentially, we do see the pace of inflation PPA coming down and what's most important is that our pricing is accelerating and is in much more real time basis. Most important is that our pricing is accelerating and is in much more real time basis.

Operator

Presentation. Your next question comes from the line of Ghansham Panjabi of Baird. Ghansham, please proceed.

Speaker 7

Thank Thank you. Good morning, everybody. Could you just give us a bit more color on a real time basis in terms of what you're seeing both in Europe and China, both from a demand and supply chain standpoint and in particular, which businesses are being most impacted? And then related to that, just given all the complexity in the world and your strong capital position, P and L. A.

Speaker 7

How are you in terms of what you're seeing both in Europe and China, both from a demand and supply chain standpoint and in particular, which businesses are being most impacted? And then related to that, just given all the complexity in the world and your strong capital position, how are you now thinking about share buybacks at this point in context of obviously the moves in the stock and your peers this year. Any changes to that versus acquisitions? Thanks. Okay.

Speaker 7

Ghansham, let's start with the share buyback. Just to that versus acquisitions. Thanks.

Speaker 3

P and L. Okay. Ghansham, let's start with the share buyback question first. We're always going to look to optimize shareholder value. P and L.

Speaker 3

Our pipeline of acquisitions remains active. But obviously, at this share price, we're going to buy shareholder value. P and L. Our pipeline of acquisitions remains active. But obviously, at this share price, we're going to balance what's most piece of the business accretive to the shareholders, and so we're looking at both.

Speaker 3

In regards to China and Europe, what I would tell you PPA. The car situation in China is being impacted probably a little bit more than some of the other markets. We do regard that as transitory. PPA. What I would tell you is the car situation in China is being impacted probably a little bit more than some of the other peak markets.

Speaker 3

We do regard that as transitory. We are fully expecting, as we've seen in other instances, people are going to be much more interested in driving themselves versus taking mass transit. So we do expect we're going to be much more interested in driving themselves versus taking mass transit. So we do expect car recovery in Europe. It is the largest car market in the world.

Speaker 3

And they are also shifting from internal combustion engines to electric Brook. It is the largest car market in the world. And they are also shifting from internal combustion engines to electric vehicles faster than some of the other markets. And of course, as you know, we have more content PPE on electric vehicles than we do internal combustion engines. So we feel optimistic about that.

Speaker 3

So clearly, we're concerned about the rising number of COVID cases. It has plateaued in the last 2 or 3 days. We have gotten all but 2 of our plants back up in operating basis. PPA. It has plateaued in the last 2 or 3 days.

Speaker 3

We have gotten all but 2 of our plants back up and operating, P and L, and we expect to get the other two plants up and operating in the next 3 to 5 days, I would say, if we're being a little bit optimistic here. But P and L. Overall demand in China remains good. I don't think the Chinese economy can afford to have secure, but That's not good for them. And I do expect the government to be aggressive and providing a business friendly P and L environment coming out of this most recent GDP in the low single digits.

Speaker 3

That's not good for them. And I do expect the government to be aggressive P and L, providing a business friendly environment coming out of this most recent COVID situation. And then in regards to Europe, clearly the most concerning area for Europe is DIY. We predicted this. This is consistent with what we have told.

Speaker 3

We continue to have a strong propaneur backlog, but DIY and traffic through peak seasonality of the year. But DIY and traffic through P and L. The big box stores in Europe is the one indicator that we're

Speaker 2

watching out. And Ghansham,

Speaker 8

this is Vince. I think if we P and L. We think more broadly as we put together our Q2 forecast, we do expect China to some of the COVID restrictions to ease in the early part of May and continue to ease through the balance of the quarter, PPA. But they're certainly restrictive right now. We know that we know there'll be some carry on effects with respect to logistics and transit of the quarter, PPA, but they're certainly restrictive right now.

Speaker 8

We know that we know there'll be some carry on effects with respect to logistics and transportation P and L, and port availability well into May. So that's baked into our guidance. In your interpretation, P and L, and port availability well into May. So that's baked into our guidance. In Europe, again, PPA.

Speaker 8

We're concerned about maybe overly concerned, but we're concerned about the effect on consumer. Again, we're concerned about maybe overly concerned, but we're concerned about the effect on consumer of energy prices and just the overall environment. So our forecast has baked some of that passiveness, consumer passiveness into Q2. P and L. We hope we're being a bit bearish, but that's what we've forecasted and we'll see how the cards fall as we go through the quarter.

Speaker 8

We're being a bit bearish, but that's what we've forecasted and we'll see how the cards fall as we go through the quarter.

Operator

P and L. Thank you, Ghansham. The next question is from the line of David Begleiter of Deutsche Bank. David, please proceed.

Speaker 3

Thank you. Good morning, Michael and Vince.

Operator

From the line of David Begleiter of Deutsche Bank. David, please proceed.

Speaker 3

Thank you. Good morning, Michael and Vince.

Speaker 9

Guys, just on U. S. Architectural, are you seeing any discounting

Speaker 3

Okay, David. I'm going to we have Tim here. I'm going to let Tim handle that question.

Speaker 4

Hi, David. Tim Kanavis here. Look, in Our architectural U. S. Business, in fact, our architectural businesses handle that question.

Speaker 4

Hi, David. Tim Kanabish here. Look, in PPA. Our architectural U. S.

Speaker 4

Business, in fact, our architectural businesses around the world, we continue to get increasing sequential pricing. P and L. And that pricing, while never easy to get, is being accepted by our customers. P and L. Our customer that pricing, while never easy to get, is being accepted by our customers.

Speaker 4

P and L. Our customers have to remain competitive every day. So we can assume that we're seeing that same kind of behavior from others in the market. So we have not seen what you call discounting in the market. I think P and L, the industry and others in the market.

Speaker 4

So we have not seen what you call discounting in the market. I think

Speaker 2

piece of the business. The industry realizes what's

Speaker 4

going on upstream of us and acting accordingly.

Operator

Thank you, David. The next question is from John McNulty of BMO. John, please proceed.

Speaker 10

Yes. Thanks for taking my question. So on the pricing front, Michael, you kind of indicated you're almost at a point where it's real time pricing. I guess, what are the on the pricing front, Michael, you kind of indicated you're almost at a point where it's real time pricing. I guess, what are the mechanisms in place that you've put so that we can actually see piece of that real time pricing and I guess 2 mechanisms in place that you've put so that we can actually see peak of that real time pricing.

Speaker 10

And I guess to that also, when the raw materials eventually or hopefully subside, PPA. Do you give back some of that pricing in real time or is that something where we may see the more traditional lag or even inside? PPA. Do you give back some of that pricing in real time? Or is that something where we may see the more traditional lag or even stability when it comes price.

Speaker 10

I guess, how should we be thinking about that?

Speaker 3

Well, John, first of all, we're not going to be giving this

Speaker 10

Even stability when it comes to price. I guess, how should we be thinking about that?

Speaker 3

Well, John, first of all, we're not going to be giving this pricing back. As you know, we are still P and L, lagging if you look at this on a 2.5 year stack. So there's pricing back. As you know, we are still peak seasonally lagging if you look at this on a 2.5 year stack. So there's plenty of recovery.

Speaker 3

And the reason that we're able to get more real time pricing than ever before is it's impossible for our customers to argue with what's going on, PPA. They fully see the same things that we're seeing. They're seeing energy and our customers argue with what's going on, Right. They fully see the same things that we're seeing. They're seeing energy prices go up.

Speaker 3

They see raw materials that we buy, they can see it in their own systems going up. They can see transportation going up. They're paying for presentation and they also cannot argue that our competitors are not pricing. So from that standpoint, PPA. Most of the bullets that they usually try to fire at us that our competitors are not pricing.

Speaker 3

So from that standpoint, Most of the bullets that they usually try to fire at us that our salespeople try to avoid, That's not happening. And now it's not a matter of can we take a price increase. Now it's about how much of a price increase are you going to take. And the other thing that we've done much more aggressively than we ever have is withhold shipments. So we're telling people to take a price increase.

Speaker 3

Now it's about how And the other thing that we've done much more aggressively than we ever have P and L is withhold shipments. So we're telling people this is the new price and if you don't like it, please don't place purchase orders and if purchase orders come in without the new price on it, we're sending those purchase orders back. And that has gotten the attention of our customers. P and L. They understand that we need relief and we need relief now.

Speaker 3

That has gotten the attention of our customers. People. They understand that we need relief and we need relief now. And so you could see that there is a palpable PPE Energy in the Air to get price increases as we're doing it. So when you see oil at $107 our customers are getting price piece like that.

Speaker 3

So I'm really pleased our sales teams have gotten much better at pricing than ever in the history of the business. Our customers are getting price piece like that. So I'm really pleased our sales teams have gotten much better at pricing than ever in the history of the company.

Operator

Thank you, John. The next question is with Stephen Byrne of Bank of America. Stephen, please proceed.

Speaker 11

Yes, thanks. I'd like to drill in a little more on this relationship with Home Depot. Michael, you mentioned the 60% level of a particular metric. I didn't catch what that was, but I'm sure there's many, many steps piece involved in the rollout of Michael, you mentioned the 60% level of a particular metric. I didn't catch what that was, but I'm sure there's P and L.

Speaker 11

Many, many steps involved in the rollout of that relationship. And a couple I wanted to ask you about was how many of those 23100 Home Depot stores do you does PPG actually have distribution center available in the vicinity to fulfill orders. And then maybe another one would be P and L. How many of those stores have your ability to fulfill orders? And then maybe another one would be how many of those stores PPA.

Speaker 11

Have your reps already started to reach out to contractors that people are buying materials in The Home Depot, but not paint as identified contractors people that are buying materials in the Home Depot, but not paint as identified by those respective pro desks at those respective Home Depots.

Speaker 3

Okay, Stephen. I'm going to just say the 60% PPEA and PPEA

Speaker 2

and PPEA and PPEA and PPEA and PPEA and PPEA

Speaker 3

and PPEA and PPEA and PPEA and PPEA and PPEA and PPEA and PPEA and PPEA and PPEA and PPEA and PPEA.

Speaker 4

Yes, Stephen, look, the 60% of

Speaker 3

their 2,300 stores, and I'll let Tim add additional color to it.

Speaker 4

Yes, Steven, look, the program is, while it's in 60% of the stores, will continue to ramp up as we move throughout the next several months as supply situation improves and we continue to build inventory. We've got our full pro trade as supply situation improves and we continue to build inventory. We've got our full pro trade workforce engaged across what's now an omnichannel between our own network and workforce engaged across what's now an omnichannel between our own network P and the THD network. And we're beginning to see customer conversions already. That will continue to grow piece of the business.

Speaker 4

As we learn, as the Home Depot associates, we have a lot of new conversions already. That will continue to grow PPA as we learn, as the Home Depot associates learn and as the supply continues to build and we'll pivot as necessary, PPA, but we expect this to continue to grow throughout the year through a combination of load in and conversion of contractors. And then we expect this to be a long term multi year growth initiative for both us and the Home Depot in the pro category.

Speaker 8

Steve, again, just more broadly, and we talked about this on our January earnings call. We think this relationship and this P and L, extended partnership really gives us considerably higher market access. And again, we're really target extended partnership PPA, availability for the professional painter on a daily basis. And as Tim mentioned, that omni channel approach that can come in, availability for the professional painter on a daily basis. And as Tim mentioned, that omni channel approach that can come to our stores, they can go to our dealers or they can go to Home Depot and that's all within a close proximity to our stores.

Speaker 8

They can go to our dealers people where they can go to Home Depot and that's all within a close proximity of their job site.

Speaker 3

Stephen, this is Michael. The last thing I would add is look at the

Speaker 8

of their job site.

Speaker 3

And Stephen, this is Michael. The last thing I would add is, look, at the end of the day, every time we go into a new market with Home Depot, P and L. We get substantial new wins right out the gate. And what that does is it builds excitement among the Home Depot team P and L, and their confidence level grows because what they do is they start trading these winning stories across each of the different markets. P and L, and that's the most exciting thing

Speaker 2

about it.

Operator

Thank you for the question, Steven. Your next question is from Vincent Andrews of Morgan Stanley. Vincent, please proceed. Thank you for the question, Stephen. Your next question is from Vincent Andrews of Morgan Stanley.

Operator

Vincent, please proceed.

Speaker 10

Thank you very much. Michael, I'd be curious to get your updated thoughts on sort of the home improvement market just given since our last call, there's been a big move in interest rates. And I'd be curious to get your updated thoughts on sort of the home improvement market, just given since our last call, there's been a big move in interest rates and P and L. So how do you do you think the rising interest rates matters at all in terms of housing market seems piece of the business. So how do you do you think the rising interest rates matters at all in terms of architectural paint demand and renovation?

Speaker 10

Or how should we be thinking about the revolving housing market.

Speaker 3

Okay. Vincent, I'll let Tim comment on this.

Speaker 4

Yes. Look, there's right now, there's such a strong

Speaker 3

Okay, Vincent. I'll let Tim comment on this.

Speaker 4

Yes. Look, there's right now, there's such a strong backlog, particularly on the residential side. There's so many walls to be painted yet that it's certainly not any near term concern for ours. And even obviously rising interest rates, there's going to be some mortgage and affordability impact there, but there's such a shortage of overall housing in multiunit housing P and multiunit housing continues to climb despite the interest rate rises. Residential permits continue peak seasonality of overall housing in multiunit housing.

Speaker 4

And multiunit housing continues to climb period. Despite the interest rate rises, residential permits continue to climb here in U. S. Despite the interest rate rises. So Absolutely, it's something that we're watching, but the climb here in U.

Speaker 4

S. Despite the interest rate rises. So Absolutely, it's something that we're watching, but we're certainly bullish on that for at least the rest of this year and we'll see beyond that.

Speaker 3

And Vincent, this is Michael. The one thing I would add to that presentation. We do a Pro Painter survey and that Pro Painter survey continues to show a very strong backlog of our professional painters. So we're very continues to show a very strong backlog of our professional painters. So we're very concerned about affordability, more than interest rates.

Speaker 3

But at the end of the day, our propane are still show pretty good back concern about affordability, more than interest rates. But at the end of the day, our propaneers still show a pretty good backlog. Yes, in

Speaker 4

fact, our last propaneer survey, which we just wrapped up, 75% of the painters had a bug. In fact, our last Pro Painter survey, which we just wrapped up, 75% of the painters had a backlog that was at least as big or higher than what they had 90 days and a year ago. So certainly no impact on the short to medium term.

Operator

Thank you, Vincent. P. Your next question is with Josh Spector of UBS. Josh, please proceed.

Speaker 12

Yes. Hi, guys. Thanks for taking my question. A lot of investors are focused on your comments last call about EPS in 2020.

Operator

Josh, please proceed.

Speaker 12

Yes. Hi, guys. Thanks for taking my question. A lot of investors are focused on your comments last call about EPS in 20.23, perhaps greater than $9 per share. You didn't necessarily reiterate that today.

Speaker 2

P and L. Just curious based on

Speaker 12

what you're seeing from a price cost dynamic, but also a demand environment, is that something that's still achievable? P and L. And is that achievable in a scenario that you lay out where China lockdown impacts perhaps fade over the next couple of quarters, but Europe perhaps enters into a minor recession? That's still achievable. And is that achievable in a scenario that you lay out where China lockdown impacts perhaps fade over the next couple of quarters, peak, but Europe perhaps enters into a minor recession.

Speaker 3

Yes, Josh, I would tell you that the dynamics for $9 remain valid, right? So we're going to have an improving refinish market. That's a great business for us. Dollars remain Valid, right? So we're going to have an improving refinish market.

Speaker 3

That's a great business for us. Miles driven, we're actually almost back to 2019 levels in the U. S. We see miles driven improving in Europe as well. So from that dynamic refinish is in solid shape.

Speaker 3

You see the numbers for levels in the U. S. We see miles driven improving in Europe as well. So from that dynamic refinish is in solid shape. You see the numbers for PPA, Aerospace, TSA bookings are all up.

Speaker 3

Aerospace has continued to get stronger. You probably noticed Aerospace, PPA, bookings are all up. Aerospace has continued to get stronger. You probably noticed yesterday, Boeing said they were going to start rebuilding PPA or building 787s again. That's a positive.

Speaker 3

There's a strong backlog of planes. Our share with PPA. Airbus has continued to grow. So I think that's excellent. We're only producing probably about 80,000,000 cars this year.

Speaker 3

P and L. So when you think about what the run rate of cars should be, we're still very bullish that car builds in the U. S. Have been muted because of P and L, and so this is going to get better. So overall, I would tell you that we're in good shape.

Speaker 3

PPA. Our synergies are going to be continuing to come in. Productivity is continuing to improve. So I feel very good, feel very comfortable around $9 And the price raws, we're going to be past that in the second peak quarter. We're going to be pricing past all of it and then we're going to be catching up on the early 2021 kind of inflation.

Speaker 3

2nd peak quarter. We're going to be pricing past all of it and then we're going to be catching up on the early 2021 kind of inflation. So we're on the right track.

Speaker 2

Thank

Operator

you. Next question is from Michael Sipp. So we're on the right track. Thank you. Next question is from Michael Sison of Wells Fargo.

Operator

Michael, please proceed.

Speaker 9

Hey, guys. Nice start to the year. Historically, P and L. A. Hey, guys.

Speaker 9

Nice start to the year. Historically, Q3 tends to sort of seasonally decline from 2Q, but it sounds like the pricing rise is going to get better as you noted. So is this year going to sort of seasonally decline from 2Q, but it sounds like the pricing rise is going to get better as you noted. So is this year going to be a little bit different where you should continue to see EPS improvement. I understand it's kind of tough to guide beyond 1 quarter, but kind of given So the potential for improving volume improvement, I understand it's kind of tough to guide beyond 1 quarter, but kind of given So the potential for improving volumes and your sort of pricing mechanism, is that something that likely happens this year versus historical patterns and your sort of pricing mechanism.

Speaker 9

Is that something that likely happens this year versus historical patterns?

Speaker 8

Yes, Mike, this is Vince. Probably one of the most important metrics we're watching is sequential P and L. Margin improvement. And I think from Q4 to Q1, probably one of the most important metrics we're watching is sequential P and L margin improvement. And I think from Q4 to Q1, you saw our margins move up 200 basis points to 300 basis points depending on the segment.

Speaker 8

We think that's the true indicator of Q4 to Q1, you saw our margins move up 200 basis points to 300 basis points depending on the segment. We think that's the true indicator of how well we're doing, how well the industry is doing. It's really hard year over year at this point to compare. P and L. So again, we're looking sequentially.

Speaker 8

And again, we're very proud with our performance Q4 to Q4. It's really hard year over year at this point to compare. So again, we're looking sequentially. And again, we're very proud with our performance Q4 to Q1. We do expect, again, there's a lot of noise in 2021.

Speaker 8

There'll be additional noise this year. So, Juan, we do expect, again, there's a lot of noise in 2021. There will be additional noise this year. So we do expect, as you've heard Michael in the opening, P and L, some improvement in demand as we go through the year, especially as China comes back. We are seeing refinish, aerospace, etcetera.

Speaker 8

But it's really going to be hard to compare versus historical patterns. And again, we're just looking sequentially, are our margins getting better Q4 to Q1, Q1 to Q2 versus historical patterns, and that's really our marker, historical patterns. And again, we're just looking sequentially, are our margins getting better Q4 to Q1, Q1 to Q2 versus historical patterns, and that's really our marker.

Operator

The next question is with Frank Mitsch of Fermium Research. Frank, please proceed.

Speaker 11

Yes. Good morning. Need to give props to John on Slide 5. PPA tells a very helpful story as to what you're facing. Obviously, a lot of questions already on price.

Speaker 11

Michael, I was just curious P and L. What the absolute number you're expecting in 2Q would be versus that 10% in 1Q? And then P and L, where you're expecting in 2Q would be versus that 10% in 1Q. And then P and L. Noted in the comments that your Ticarilla sales were up low teens, excluding Russia.

Speaker 11

I'm curious how much of that was volume?

Speaker 3

Yes. So, Frank, first of all, we try to give you a guide on that second quarter. So if you take Yes. So Frank, first of all, we try to give you a guide on that second quarter. So if you take John's little dotted line on that chart, you're going to dotted line up to around 12%.

Speaker 3

So that's probably a pretty good John's little dotted line on that chart. You're going to dotted line up to around 12%. So that's probably a pretty good number. We certainly people internally pushing the team for more than that, but I think that's a realistic outcome. I think the tickerilla volume P and L was in that low single digits, if I remember correctly, but outcome.

Speaker 3

I think the tickerilla volume P and L. Was in that low single digits, if I remember correctly. But the beauty about what we're seeing with the Ticarilla team piece of the business is that we're teaching them how to price. And that is something that they historically have not done a lot of.

Speaker 2

P and L.

Speaker 3

And so this has been a wonderful thing for us. And we as we've talked about, it's something that they historically have not done a lot of.

Speaker 2

P and L.

Speaker 3

And so this has been a wonderful thing for us. And we as we've talked about before, we think Ticarela can look just like what Comex has. So P and L. We get more growth in the local markets than we get before. We think Ticarela can look just like what Comex has.

Speaker 3

So P and L. We get more growth in the local markets and we get better value for what we're selling and that leads to an ever improving return on our investment piece that we invested in, playing Ticarilla.

Speaker 8

Yes. And Frank, since you brought Ticarilla, one of the other businesses Brian, Ticarilla. Yes. And Frank, since you brought Ticarilla, one of the other businesses that performed P and L. We saw it perform P and L, and Q1 was our traffic solutions business, the prior end of Flynn acquisition.

Speaker 8

We saw PPA on around 25% organic growth year over year in that business and was a seasonally light quarter. But again, we still ended that quarter ended the quarter with a PPA and A. Very strong backlog and now we're going into a very it's a seasonally light quarter. But again, we still ended that quarter ended the quarter with a very strong backlog and now we're going into a very strong quarter.

Speaker 3

Yes. Hey, Frank, it's Tim.

Speaker 4

Just to add one more thing on that other large acquisition for us. PPA. Vince mentioned 25% top line growth, all time record, other large acquisition for us. P and L. A.

Speaker 4

Vince mentioned 25 percent top line growth, all time record quarter for that business. And much like what Michael described with Ticarilla, the prior and the flint business pricing discipline was very different. Describe with Ticarilla, the prior and the splint business pricing discipline was very different than what we how we executed PPG and we also achieved double digit price increase in that business for Q1. So really pleased with both of the large acquisitions and how they performed for a digit peak price increase in that business for Q1. So really pleased with both of the large acquisitions and how they perform for us.

Operator

Thank you, Frank. The next question is from Arun Viswanathan of RBC. Arun, please proceed.

Speaker 13

Great. Thanks for taking my question. I just wanted to again drill into some of the drivers of maybe Q3 and Q4 understanding that your visibility is relatively dynamic. But PPA. When you think about the raw material inflation that you saw in Q1 and Q2 or seeing now, are your current price increases PPA, sufficient to carry you into Q3 or will you be are your current price increases PPA.

Speaker 13

Sufficient to carry you into Q3 or will you be raising prices even more? And if you do have to raise prices even more. Could you also comment on the availability of ROS and if that has improved greatly from last year? Thanks.

Speaker 8

Yes, Arun,

Speaker 2

this is Vince. Honestly, our visibility Yes, Arun, this is Vince.

Speaker 8

Yes, Arun, this is Vince. Honestly, our visibility is in terms of P and L. All the dynamics that play into inflation is probably 60 to 90 days. So going out to Q3 or Q4 is difficult. What we could tell you is we are seeing better supply.

Speaker 8

Well, in Europe, certainly better, so difficult. What we could tell you is we are seeing better supply Well, in Europe, certainly better supply in the U. S. China is obviously we're going through a transitory period due to P and L, but we do expect supply in the U. S.

Speaker 8

China is obviously we're going through a transitory period due to P and L, but we do expect supply to normalize for the balance of the year. And as we said many times, we do feel there's enough structural PPA and EBITDA to easily satisfy global coatings demand. So we have a lot of other noise going on right now. Peak capacity to easily satisfy Global Coatings demand. So we have a lot of other noise going on right now, P and L.

Speaker 8

At some point, we'll normalize across supply demand based on historical patterns. Just too hard to know, P and L. At some point, we'll normalize across supply demand based on historical patterns. Just too hard to predict Q3, Q4 right now. We do have enough we do have a good pricing going and as Michael said in Q2, which is enough to compensate for the P and L,

Speaker 2

and we'll continue

Speaker 8

to see a significant sequential increase in raw materials. If we see more raw materials in the back half of the year, we'll put in that rate for the sequential increase in raw materials. If we see more raw materials in the back half of the year, we'll put in that real time pricing engine again.

Operator

Thank you, Arun. Next question is with Jeff Zekauskas of JPMorgan. Jeff, please proceed. Thank you, Arun. Next question is with Jeff Zekauskas of JPMorgan.

Operator

Jeff, please proceed.

Speaker 14

Thanks very much.

Speaker 3

It seems that your packaging coatings business has slowed

Speaker 14

down. When we look at beverage can demand globally, it seems pretty strong.

Speaker 3

What's the slowdown?

Speaker 14

When we look at beverage can demand globally, it seems pretty strong. What's the dynamic that's going on there? And in auto refinish, What were the volumes in the quarter year over year? Yes. First, auto refinish, What were the volumes in the quarter year over year?

Speaker 3

Yes. First of all, let me P and L. We've picked up new share at, I would say, 70% of the new beverage can plants. So we're in very picked up new share at, I would say, 70% of the new PPEB beverage can plant. So we're in very good shape from that going forward.

Speaker 3

2nd, when you look at P and L. The packaging numbers, you have to remember we had phenomenal comps last year and that will make it more difficult. But our packaging overall growth this year is phenomenal comps last year and that will make it more difficult. But our packaging overall growth this year is going to be quite good. So I feel very good about our position in our Packaging Coatings business.

Speaker 3

I would also tell you that when I think about that business, it's not just the volume, it's also the price piece that we're realizing as well. I would also tell you that when I think about piece of that business. It's not just the volume, it's also the price that we're realizing as well.

Speaker 1

Jeff, this is John. I'll just comment on Refinish. If you look at the U. S. And Europe, on a year over year basis, volumes were up about mid peak single digit and that's off of a tough comp from last Q1.

Speaker 1

Jeff, this is John. I'll just comment on Refinish. If you look at the U. S. And Europe P and L.

Speaker 1

On a year over year basis, volumes were up about a mid single digit and that's off of a tough comp from last Q1 was a good quarter, especially in the U. S. Asia was off a little bit, mainly driven by what we talked about the Winter Olympic was a good quarter, especially in the U. S. Asia was off a little bit, mainly driven by what we talked about the Winter Olympics slowed activity down and there was P and L.

Speaker 1

Obviously, some restrictions in March.

Operator

Thank you, Jeff. Your next question is from Kevin McCarthy with Vertical Research Partners. Kevin, please proceed.

Speaker 15

Good morning, everyone. Two questions on manufacturing variance and CapEx. Good morning, everyone. Two questions on manufacturing variance and CapEx. Piece of the business.

Speaker 15

First on the manufacturing side, back in January, I think you talked about a $0.20 EPS drag in the 4th quarter P and L Manufacturing side. Back in January, I think you talked about a $0.20 EPS drag in the 4th quarter. P and L, I'd like to know if that number declined in the Q1 and if so, how much and

Speaker 12

piece of the business,

Speaker 15

what your crystal ball might say for the Q2. And then on the CapEx side, if I read the numbers right, it peak outlook like your Q1 spend was $194,000,000 versus $80,000,000 last year. And just was wondering if there's anything unusual in that, like your first spend was $194,000,000 versus $80,000,000 last year. And just was wondering if there's anything unusual in that in terms of cadence or any change in your annual range of $475,000,000 to $525,000,000 for CapEx this year.

Speaker 3

Yes. So the look, we'll take

Speaker 15

that in terms of cadence or any change in your annual range of 475 to $525,000,000 for CapEx this year.

Speaker 3

Yes. So we'll take the easy one first, CapEx. We had CapEx spending in December that we don't pay for until Jake, the easy one first CapEx. We had CapEx P and L spending in December that we don't pay for until January. So the January number was probably a little bit

Speaker 2

P and L.

Speaker 3

We feel good about that. As you know, some a little bit of that is catch up from the underspending in 2020 and a little bit of early 2021. So from a manufacturing standpoint, we had about $0.20 in Q4. We probably had $0.20 in a little bit of early 2021. So from a manufacturing standpoint, we had about $0.20 in Q4.

Speaker 3

We probably had about half that in Q1. P and L. The problem is it's not that we having challenged about half that in Q1. P and L. The problem is, it's not that we're having challenges making things, it's we're having challenges scheduling things because of raw materials potential inflation on energy at the plant.

Speaker 3

So as you can imagine, going into Q1, we had a certain natural gas number for Europe P and L, we're well in excess of that once the war broke out. So I would tell you, overall, The manufacturing is well in excess of that once the war broke out. So I would tell you, overall, the manufacturing P and L is getting better. And I'd say for Q2, you should anticipate another 50% improvement in that number.

Operator

Thank you, Kevin. Next question, P. J. Juvekar of Citi. P.

Operator

J, please proceed.

Speaker 16

Yes, good morning. Michael, I know you've been back integrating into resin copper.

Speaker 2

Next

Operator

question, PJ Juvekar of Citi. PJ, please proceed.

Speaker 16

Yes, good morning. Michael, I know you've been back Integrating into resin capacity in the past. Just kind of how did that help you during this crazy period of energy inflation and all that? And then second question for Vince. Vince, you mentioned sequential, you know, crazy period of energy inflation and all that.

Speaker 16

And then second question for Vince. Vince, you mentioned sequential margin improvement. But given your sort of Q1 that you reported, the Q2 guidance, Chil margin improvement, But given your sort of first quarter that you reported, the second quarter guidance, first half is going to be down year over year. If you continue to improve margins sequentially, do you think you can grow earnings this year? Thank you.

Speaker 3

Okay. So P. J, I'll take the emotions question. We, as part of our traffic solution

Speaker 16

Thank you.

Speaker 3

Okay. So P. J, I'll take the emotions question. We, as part of our traffic solutions or Ennis Flint acquisition, it came with a small resin plant. So we're making more emotions there.

Speaker 3

We think we can increase the size of that facility. So the team is working to do that as well. So PPA. It was running 5 days a week, one shift. Now it's running 24 hours a day, 7 days a week.

Speaker 3

And We're going to improve the size of that. So we are able to get BA and some of these other raw materials that go in making the emulsion, so the availability improved the size of that. So we are able to get BA and some of these other raw materials that go into making the emulsion. So the availability P and L is better there. And so we feel comfortable that we're going to continue to improve the utilization.

Speaker 3

That facility is better there. And so we feel comfortable that we're going to continue to improve the utilization of that facility. Yes.

Speaker 8

And P. J, on the margins, I'm glad you brought that issue back up because I do feel it's really the measurement stick because of all the noise last year. Our Q1 last year was very strong, benefited by Q1 of 2021 benefited by P and L. Our Q1 last year was very strong, benefited by Q1 of 2021 benefited by some pandemic recovery. And then as we got through the balance of the year, our second half of twenty twenty one was very, very weak.

Speaker 8

We're not going to give full year guidance on the call here today, but Again, the trajectory of margins sequentially for each of these quarters, I think is the true marker for our industry. We're not going to give full year guidance on the call here today, but again, the trajectory of margins sequentially for each of these quarters, I think, is the true marker P and L for our industry. We do expect again from some of the reasons Michael mentioned, abating PPA. We do expect again from some of the reasons Michael mentioned abating supply shortages, improvement in our manufacturing and catch up on pricing. We do expect our margins to improve sequentially versus historical patterns for the catch up on pricing.

Speaker 8

We do expect our margins to improve sequentially versus historical patterns for the foreseeable future.

Operator

Thank you. Next question, Laurence Alexander with Jefferies.

Speaker 8

The foreseeable future.

Operator

Thank you. Next question, Laurence Alexander with Jefferies. Laurence, please go ahead.

Speaker 6

Hi, everyone. This is Kevin Espak on for Laurence Alexander. I just had a quick question about the credit market. So I guess given the moves and also the Fed's tightening cycle, I guess. I was wondering if there's been any shift in how you think about financial leverage and I guess how much you plan like and also the Fed's tightening cycle.

Speaker 6

I guess, I was wondering if there's been any shift in how you think about financial leverage and I guess how much you plan or expect that you could flex your balance sheet going forward?

Speaker 8

Yes. We're our financial our long term financial P and L. We're in kind of the mid-2s in terms of debt to EBITDA. P and L. We do have a we do expect to pay down some debt this year.

Speaker 8

If we see anything strategically we want to execute P and L. We'll act accordingly, but we're not going to shift our strategies. P and L. Again, if you look at we'll act accordingly, but we're not going to shift our strategies. Period.

Speaker 8

Again, if you look at our interest rate, blended interest rate, it's the best in class of our space or close to the best in class. So again, no change in our strategy or outlook in the near term.

Operator

Thank you.

Speaker 8

So again, no change in our strategy or outlook in the near term.

Operator

Presentation. Thank you. Next question, Mike Harrison of Seaport Research Partners. Mike, please go ahead.

Speaker 17

Hi, good morning. Couple of questions on the auto OEM business.

Operator

Please go ahead.

Speaker 17

Hi, good morning. A couple of questions on the auto OEM business. First of all, you had been dealing with some operational inefficiencies there. PPA. Has that improved either in terms of customer first of all, you had been dealing with some operational inefficiencies there.

Speaker 17

P and L. Has that improved either in terms of customer behavior or your ability to manage what's going on in that space? And then maybe an update on electric vehicle application wins with some of your innovative offerings. Have you PPA. Have you seen some wins come through?

Speaker 17

And are you concerned at all about battery shortages impacting EV growth this year?

Speaker 3

Okay. Let's start with the manufacturing. I would say the Okay. Let's start with manufacturing. I would say the auto guys have gotten better at knowing what chips are coming in and when they're coming in.

Speaker 3

So they're much better they're having much less scheduled or unscheduled downtime, that's the way it should be phrased. So our manufacturing has gotten better because their predictability of running has gotten better. P and L. And the one question nobody asked, so I'm going to throw the answer out there and make sure you know it is our automotive team had so our manufacturing has gotten better because their predictability of running has gotten better. And the one question nobody asked, so I'm going to throw the answer out there and make sure you know it is our automotive team has priced higher than company average.

Speaker 3

So I feel really good about that, where we are in that space. And then from an EV standpoint, we don't see PPA. Battery shortages this year, it's certainly a longer term trend that we're going to be paying. From an EV standpoint, we don't PTC battery shortages this year. It's certainly a longer term trend that we're going to be paying close attention to.

Speaker 3

But right now, when I think about where we're winning in that space, our protective coatings that go into the battery has PPE picked up 2 world class customers this quarter. Dielectric powders is another area that we're winning in. And so I feel very comfortable about that. So one of the top 5 guys we are also running a long term cathode binder study with. That's more like a 3 to 5 year program, but the fact that they came to us to do that is really a good sign about how they see us playing in this space long term.

Speaker 3

So I'm very comfortable with the pace, and our ability to service that market.

Speaker 8

Yes. Mike, I just want to I'm glad you brought the question up again because I do want to talk a little bit piece of the business more broadly about auto builds. Michael mentioned targets from 3rd party consultants this year is around 80,000,000 builds. Again, we think the market on a run rate basis is typically over 90%. So there's at least, let's call it a 10% to 12%, 15% PPCC catch up that will occur in the next you pick the number of quarters or months, 12 to 18 months.

Speaker 8

On top of that, PPA. We think there's a fleet rebuild that has to occur for things like car rental fleets. We peg that as another 3% to 4% of the market. It has to occur for things like car rental fleets. We peg that as another 3% to 4% of the market.

Speaker 8

On top of that, there's an inventory replenishment cycle for in the U. S. For example, dealer lots. So very long runway. They're certainly getting better chip availability and more consistency.

Speaker 8

And there's more chips to come in the back half of the year in early 2023. So very instrumental in our recoverability and more consistency and there's more chips to come in the back half of the year in early 2023. So very instrumental in our recovery, and we feel very strong about underlying demand that supports that.

Operator

Thanks, Mike. Next question is from Jaydeep Pandeya of On Field Research. Jaydeep, please go ahead.

Speaker 18

Thanks.

Operator

Jadeep Pandeya of On Field Research. Jadeep, please go ahead.

Speaker 18

Thanks. The first question really is around your protective and marine business. Appreciate you guys are bigger in China these days, but how do you see your backlogs evolving now that oil prices PPEs are high, gas prices are high. And also, appreciate you guys are bigger in China these days, but how do you see your backlogs evolving Now that oil prices are high, gas prices are high and also some of the marine end markets are doing extremely well in terms of P and S generation. So do you think that next 2 years, we should see a material improvement in this area?

Speaker 18

And then the second question really is around auto, the next 2 years we should see a material improvement in this area. And then the second question really is around auto the auto business of yours. I appreciate Vince what you just said, but like P and L. If we go by the theory that there is cannibalization where EVs are eating into the ICEs, just want to understand your fixed cost structure. So in the sense, in cannibalization where EVs are eating into the ICEs, Just want to understand your fixed cost structure.

Speaker 18

So in a sense, in the next 5 years, if we have 19,000,000 cars, but $25,000,000 or $20,000,000 of them are EVs. Can you actually reduce your fixed costs in your traditional ICE based auto OEMs and on the other $75,000,000 or $20,000,000 of them are EVs. Can you actually reduce your fixed costs in your traditional ICE based auto OEMs and on the other hand, obviously, win in EVs. And then are you looking at any bolt on acquisitions, for instance, in EV related coatings for batteries or do you have already exposure there? Thanks a lot.

Speaker 18

Are you looking at any bolt on acquisitions, for instance, in EV related coatings P and L for batteries or do you have already exposure there? Thanks a lot.

Speaker 3

Okay. J. D. We'll start with the new builds. Our marine business presentation.

Speaker 3

Okay, Jadeve. We'll start with the new builds. Our marine business P and L is up substantially and it's going to continue to grow. New builds are up 20% year over year P and L, and it's up strongest in China, which is where new builds are up 20% year over year. And it's up strongest in China, which is where we're strongest.

Speaker 3

So this is a good market for us. The oil and gas peak of the year. The first

Speaker 2

quarter of the year is going to be built because of

Speaker 3

the Russia war on Ukraine are also going to increase. So that's piece of the business. LNG tankers are really good for us. This is a war on Ukraine, are also going to increase. Piece of the business.

Speaker 3

LNG tankers are really good for us. This is an area where pool fires lead to a product that we sell that are best in class. So I have high hopes in an area where pool fires lead to a product that we sell that are best in class. P and L. So I have high hopes for our PMs, our protective marine business over time that it's continued to do well.

Speaker 3

When you talk about the auto business, that's for our PMs, our protective marine business over time that it's continuing to When you talk about the auto business, so fixed costs, we actually paint EV cars just like you paint internal combustion cars. So we're going to still have all that business and plus you sell additional paint for the battery box. So actually your fixed your cost structure improves as the volume goes through. So the transition from that business and plus you sell additional paint for the battery box. So actually your fixed your cost structure improves as the volume goes through.

Speaker 3

So the transition from internal combustion engines to batteries is actually a good trend for us. And we are leading in the internal combustion engines to batteries or is actually a good trend for us. And we are leading in the space in this area. So we're doing I'd say we're doing better than our typical market share P and L on internal combustion engines. Now, will we look at acquisition in that space?

Speaker 3

We're always doing better than our typical market share piece of the business on internal combustion engines. Now, when we look at acquisition in that space, we're always looking for things that add shareholder value. P and L. So I would tell you that we're always interested. It is a highly competitive space right now.

Speaker 3

There's a number of people playing in it, PPA, whether it's the protective coatings, whether it's films, whether it's powders, whether it's PPA Thermo Gap Fillers. There's a variety of different applications on how you win in that space. Whether it's thermal gap fillers. There's a variety of different applications on how you win in that space, but we feel very good about this.

Operator

Thank you, Jaydeep. There are no further questions waiting at this time. So I'd like to hand the call back over P. John Bruno.

Speaker 1

Thank you, Sam. And before we wrap up the call today, I want to There are

Operator

no further questions waiting at this time. So I'd like to hand the call back over to John Bruno.

Speaker 1

Thank you, Sam. And before we wrap up the call today, I wanted to let everyone know that Mary Anne Benczyk will be retiring PPG in the Q2 and this will be her last quarterly earnings call. I think a lot of people on the call have dealt with Mary Anne PPG and she's been a value team member here at PPG for many years. And I think a lot of people on the call have dealt with Maryann PPG and she's been a valued team member here at PPG for many years and provided excellent support to the investment community, supporting Investor Relations PPA for more than 20 years. We want to thank Mary Anne and wish her and her family all the best in retirement.

Speaker 2

That concludes our prepared remarks. We have a

Speaker 1

great day to day job of helping our patients P and L for more than 20 years. We want to thank Mary Anne and wish her and her family all the best in retirement. That concludes today's call. If anybody has any other questions, PPA. Please give our area a call.

Speaker 1

Thank you very much. That concludes today's call. If anybody has any other questions, please P and L, and give our area a call. Thank you very much.

Operator

That concludes the PPG Q1 2022 earnings call. Thank you all for your participation. You may now disconnect your lines.

Powered by Quartr
Earnings Conference Call
PPG Industries Q1 2022
00:00 / 00:00