Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PPG Industries Inc (PPG, Financial) reported sales of $4.8 billion, marking their seventh consecutive quarter of year-over-year segment margin improvement.
- The company achieved an all-time record adjusted earnings per diluted share of $2.50, representing 11% year-over-year growth.
- Six out of ten business units delivered positive volume growth, driven by enterprise growth strategy initiatives.
- PPG Industries Inc (PPG) saw significant margin enhancement, with an aggregate gross margin of 43% for the quarter, a 180-basis-point improvement year over year.
- The company repurchased $150 million of PPG shares during the quarter, bringing the year-to-date total to about $300 million, and increased its dividend by $0.03 per share.
Negative Points
- Aggregate volumes in the quarter were flat year over year, falling short of initial expectations due to lower demand in Europe and global auto OEM production.
- European volumes, while improved sequentially, remained negative year over year.
- Automotive Refinish sales were down year over year, reflecting a strong prior-year comparison and lower insurance claims.
- General inflation, including higher year-over-year wages and employee benefits, partially offset the benefits from raw material deflation.
- The company lowered its full-year EPS guidance due to a softer-than-expected second half, driven by weaker volumes in auto OEM and architectural Europe.
Q & A Highlights
PPG Industries Inc (PPG) Q2 2024 Earnings Call Highlights
Q: Can you provide an update on the US-Canada architectural review and the likelihood of a sale?
A: Tim Knavish, CEO: We are pleased with the level of interest in the architectural US-Canada business. There is good interest across various scenarios, including full sale, JV, and partnerships. It's too early to determine the final path forward, but we are making good progress. Vince Morales, CFO: We remain on our original schedule to determine a path forward.
Q: Why did your auto OEM numbers underperform compared to global auto builds?
A: Tim Knavish, CEO: Our projections are based on specific assembly plant schedules, and some plants have increased their summer downtimes. We also have a strong position in Europe, which was down more than average, and a step down in China production due to EV tariffs. Vince Morales, CFO: Our organic sales numbers include volume and price. Excluding price, we are closer to the service provider numbers.
Q: Can you provide more color on the volume trend line in Europe during the second quarter?
A: Tim Knavish, CEO: The volume trend in Q2 was softer than expected, particularly in June. Auto OEM and Deco business in Europe were the main drivers. France, our largest country for sales, was particularly soft due to unique situations. However, Eastern Europe performed better than expected.
Q: What are the two to three end markets where PPG is most comfortable in outperforming market growth rates?
A: Tim Knavish, CEO: Aerospace, Refinish, and Packaging are the top markets where we are confident in outperforming. We are also seeing strong performance in Mexico, China, and India across various segments.
Q: Are you seeing any disruptions or market share losses due to the US paint business review?
A: Tim Knavish, CEO: We had a very good quarter in that business with mid single-digit growth. The team has done a good job managing employee and customer concerns, and we are monitoring the situation closely.
Q: Are you still on track with the silica sale, and how do you feel about the rest of the specialty materials portfolio?
A: Tim Knavish, CEO: We are on track with the silica sale and have good interest. The rest of the specialty materials portfolio is strong, with leadership positions in high-technology spaces, contributing to growth.
Q: How would you report your financials if you had a clean slate, considering the upcoming divestitures?
A: Tim Knavish, CEO: We have a logical fit with businesses that deliver factory to factory and those that go through distribution. We are comfortable with the current reporting but will reassess post-architectural USCA transaction.
Q: How are you planning to handle potential raw material cost increases in 2025?
A: Tim Knavish, CEO: We will get ahead of it where possible, especially in businesses with well-defined pricing power. In industrial segments, pricing adjustments are more real-time, with auto OEM typically being the slowest but eventually catching up.
Q: Can you provide more details on the profitability and growth expectations for the US architectural paints business?
A: Tim Knavish, CEO: The best transaction for shareholders will depend on the proceeds and the long-term strategic value. Vince Morales, CFO: The business is performing well with volume growth in Q2, and we expect continued progress.
Q: What changed in your expectations for the second half of the year, leading to the full-year EPS guidance reduction?
A: Tim Knavish, CEO: The main changes were in auto global and architectural Europe. We are not predicting a recession but see temporary adjustments at assembly plants due to factors like affordability and interest rates.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
