ppg industries (ppg) earnings report: q1 2016 conference ... · our comments relate to the...

CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals

EventDescription:Q12016EarningsCallMarketCapasofEventDate:29.41BPriceasofEventDate:112.66

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

PPGIndustries(PPG)EarningsReport:Q12016ConferenceCallTranscriptThefollowingPPGIndustriesconferencecalltookplaceonApril21,2016,02:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ScottMinder;PPGIndustries,Inc;IRMichaelMcGarry;PPGIndustries,Inc;PresidentandCEOVinceMorales;PPGIndustries,Inc;VPIR,TreasurerFrankSklarsky;PPGIndustries,Inc;EVPFinanceandCFO

OtherPart icipants

FrankMitsch;WellsFargoSecurities,LLC;AnalystMahulDalia;RobertW.Baird&Company,Inc;AnalystChristopherParkinson;CreditSuisse;AnalystDavidBegleiter;DeutscheBank;AnalystRobertKoort;GoldmanSachs;AnalystJeffZekauskas;JPMorgan;AnalystDuffyFischer;BarclaysCapital;AnalystVincentAndrews;MorganStanley;AnalystDonCarson;SusquehannaFinancialGroup;AnalystP.J.Juvekar;Citigroup;AnalystJohnRoberts;UBS;AnalystJamesSheehan;SunTrustRobinsonHumphrey;AnalystArunViswanathan;RBCCapitalMarkets;AnalystMikeHarrison;SeaportGlobalSecurities;AnalystNilsWallin;CLSAAmericas,LLC;AnalystLaurenceAlexander;JefferiesLLC;AnalystIvanMarcuse;KeyBancCapitalMarkets;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

(OperatorInstructions)

Pleasenotethiseventisbeingrecorded.

IwouldnowliketoturntheconferenceovertoScottMinder,DirectorInvestorRelations.Pleasegoahead.

Scott Minder (IR):

Thankyou,Operator

ThisisScottMinder,DirectorofInvestorRelations.WeappreciateyourinterestinPPGIndustries,andwelcomeyoutothisteleconferencetoreviewPPG'sfirstquarterof2016financialresults.




JoiningmeonthecallfromPPGareMichaelMcGarry,PresidentandChiefExecutiveOfficer;FrankSklarsky,ExecutiveVicePresidentandChiefFinancialOfficer;andVinceMorales,VicePresidentofInvestorRelationsandTreasurer.

OurcommentsrelatetothefinancialinformationreleasedonThursday,April21,2016.IwillremindeveryonethatweposteddetailedcommentaryinaccompanyingpresentationslidesontheInvestorCenterofourwebsite,PPG.com.Theslidesarealsoavailableonthewebcastsiteforthiscall,andprovideadditionalsupporttotheopeningcommentsMichaelwillmakemomentarily.

FollowingMichael'sperspectiveontheCompany'sresultsforthequarter,wewillmovetoaQ&Asession.

Boththepreparedcommentaryandthediscussionduringthiscallmaycontainforward-lookingstatementsreflectingtheCompany'scurrentviewoffutureeventsandtheirpotentialeffectonPPG'soperatingandfinancialperformance.Thesestatementsinvolveuncertaintiesandriskswhichmaycauseactualresultstodiffer.

TheCompanyisundernoobligationtoprovidesubsequentupdatestotheseforward-lookingstatements.Thispresentationalsocontainscertainnon-GAAPfinancialmeasures.TheCompanyhasprovidedintheappendixofthepresentationmaterialswhichareavailableonourwebsitereconciliationsofthesenon-GAAPfinancialmeasurestothemostdirectlycomparableGAAPfinancialmeasures.

Foradditionalinformation,pleaserefertoPPG'sfilingswiththeSEC.

NowletmeintroducePPGPresidentandChiefExecutiveOfficerMichaelMcGarry.

MichaelMcGarry(PresidentandCEO):

Thankyou,Scott.Andgoodafternoon,everyone.IwanttothankyouforyourcontinuedinterestinPPG.

Todaywereportedfirstquarterof2016financialresults.Weachievedfirst-quarternetsalesof$3.7billionandrecordadjustedearningsperdilutedshareof$1.31.

Overall,wecontinuedtodeliverstrongfinancialresults,asevidencedbyouradjustedearningsperdilutedsharegrowthinthequarter,whichincreased11%versustherecordestablishedintheprioryear.Weachievedtheseresultsdespiteongoingunfavorableforeigncurrencytranslationandcontinuedunevenglobaleconomicandmarketconditions.

Severalfactorscontributedtotherecordfirst-quarterresults,includingearningsleverageonourorganicsalesvolumegrowth,ourcontinuedheritageofcostmanagementandacquisition-relatedsalesandincome.Additionally,wecontinuedtoutilizeourstrongbalancesheettodelivershareholdervalueincludingfirst-quarter2016sharerepurchasestotaling$150million.

Forthequarter,ouraveragedilutedsharesoutstandingdeclinedby2%yearoveryear.Ourstrongquarterlyresultswereaidedbyourownoperationalandstrategicactions,includingaggressiveeffortstodrivehigherorganicgrowthdespiteamixedeconomicenvironment.

Wecontinuetoaccelerateourworkondevelopingandcommercializingnewcustomer-driventechnologies.Thisincludespackagingandcoating'songoingcustomeradoptionofournewcancoatingtechnologiesalongwithcertaintytechnologyadoptionsinourprotectivecoatingsbusiness.

Inaddition,wearecontinuingtherolloutofourenhancedcustomerbrandinginitiatives.AsyouwouldexpectfromPPG,wecontinuetomaintainourdisciplineovercosts,includingfinalizingtheremainingactionsfromourpreviouslyannouncedbusinessrestructuringprogram.




NowIwilldiscussspecificbusinesstrendsforthefirstquarter.Ournetsalesinlocalcurrenciesincreasedabout4%whilereportednetsaleswereconsistentwiththeprioryear.Localcurrencynetsalesgrowthwasdrivenbyacquisition-relatedsalesofabout3%andsalesvolumegrowthof1%.Thesegainswereoffsetbyunfavorableforeigncurrencytranslationof4%orabout$140millioninthefirstquarter.

Ourfirst-quartersalesvolumesincreased1%,consistentwiththeprioryear'sgrowthrate,reflectingacontinuationofmodestglobaleconomictrendsledbybroadeningEuropeandemandgrowth.

Salesvolumesgrewinemergingregionsby1%.ContinuedgrowthinAsia-PacificincludingChinawaspartiallyoffsetbypersistentmarketweaknessinSouthAmerica.Mostofourbusinessunits(technicaldifficulty)experiencedsalesvolumesinAsia,ledbyincreasedmarketdemandforPPG'snewtechnologiesinourpackagingandautomotiverefinishingcoatingsbusinesses,alongwithgrowthinprotectivecoatings.

AutomotiveOEMsalesvolumesinAsiaweretemperedprimarilyduetoastrongprior-yearcomparableperiodwherePPGexperiencedabove-marketdouble-digitpercentagevolumeincreases.Weexpectsecond-quarteremergingregionsalesvolumesgrowthratestoimprove,supportedbyincreasesinmostbusinessesinAsiaandmodestoverallimprovementsinLatinAmerica.

VolumesintheUSandCanadaregionswereslightlyhigherversusprioryearandrepresentedsequentialimprovementscomparedtothepriortwoquarters.RegionaldemandstrendscontinuetobemixedbybusinessandcountrywithongoingdemandsoftnessincertainmarketswithinCanada.

Intheregion,salesvolumesgrewinourpackagingandautomotiverefinishedcoatingsbusinessalongwithmodestgrowthinourArchitecturalCoatingsbusiness.Aerospacesalesvolumesdeclinedprimarilyduetolowercommercialdemandandcontinuedcustomerinventorymanagementactions.

Lookingahead,weanticipatefurtherincrementalimprovementsinregionalgrowthratesinthesecondquarter,buildinguponthemonthofMarch,whichhadthestrongestsalesvolumegrowthwithinthequarter.Regionally,ourhighestfirst-quartersalesvolumegrowthratewasinEurope,MiddleEastandAfrica,whichdeliveredover3%growth.

WecontinuetoexperienceabroadeningimprovementinEuropedemandwithourfifthconsecutivequarterofimprovinggrowthrates.PPG'svolumegrowthrateswerepositiveacrossWesternEuropewithmostcountriesimprovingyearoveryear.Despiteoverallgrowththisquarter,regionaldemandlevelsremainuneven.

ImprovedperformanceinourArchitecturalCoatingsEMEAbusinessaddedtocontinuedstrongperformanceinourpackagingandautomotiveOEMcoatingsbusinessintheregion,primarilyduetocontinuedcustomeradoptionofPPG'smarket-leadingtechnologiesandrelatedworld-classproduct,serviceandsupport.

ArchitecturalgrowthwasledbygainsintheUKandBeneluxcountrieswiththeyear-over-yeargrowthtrend.Weremainoptimisticforfutureeconomic-drivendemandexpansionintheEMEAregion.Despiterecentimprovements,regionaldemandremainswellbelowpre-recessionlevelsandwecontinuetoseesignsofongoingmodestimprovementsinvariouseconomicsubsectors.

Duringthepastseveralyearswehavecompletedsignificantactionstoreduceouroverallregionalcoststructure.Similartoourexperiencethepastseveralquarters,weexpectstrongincomeleverageonanyincrementalsalesvolumegrowth.

Iwouldliketoprovideaquickupdateonforeigncurrencytranslation.AsImentionedearlier,duringthequarter,unfavorableforeigncurrencytranslationloweredsalesbyapproximately$140millionandpretax




incomebyabout$15million.

ThiswasprimarilyrelatedtotheMexicanpesoandtheCanadiandollarbutincludedothercurrenciesaswell,suchastheeuro.Basedoncurrentexchangerates,weanticipatefull-yearunfavorableforeigncurrencytranslationtolowernetsalesby$200millionto$260millionandincomeby$30millionto$40million.

Thisisadecreasefromthefiguresthatweprovidedduringourfourth-quarter2015earningscallinJanuary.ThischangereflectsthestrengtheningofseveralforeigncurrenciesversustheUSdollarduringthefirstquarter.

Shiftingtoearnings,year-over-yearadjustedearningsperdilutedshareincreased11%toanewfirst-quarterrecordof$1.31includingunfavorableforeigncurrencytranslation.Thismarksthe13thconsecutivequarterofdouble-digitpercentageearningsperdilutedsharegrowthandwasachieveddespiterecordperformanceinthefirstquarterof2015.

Thistrendofstrongincreasesinquarterlyearningsperdilutedshareisareflectiononthesuccessofourbusinessportfoliotransformationactionstakenoverthepastseveralyears,includingthesuccessfulintegrationandsynergyachievementandseveralmajoracquisitions.

Forthequarter,PerformanceCoatingssegmentsalesdeclinedby1%andsegmentincomewasupmorethan6%.Contributingtotheresultswerehigheracquisition-relatedsalesandincome,primarilyfromLeJointFrancaisandCummingsMicrowave,strongincomeleverageonhighersalesvolumesandbenefitsfrombusinessrestructuring,partlyoffsetbyunfavorableforeigncurrencytranslation.

Segmentincomeincludedapproximately$15millionofincrementalgrowth-relatedspendinginArchitectureUSandCanada.Iampleasedtoreportthatwearecurrentlylaunchingseveralnewproductswithinmanyofourdomesticnational-accountpartnersstorenetworks.Theselaunchesincludenewpremiumproductsatsomenationalaccountsaswellasimprovedproductformulationsanddifferentiatedproductlabeling.

IndustrialCoatingssegmentsaleswereup2%andsegmentearningsincreased9%.Earningsleveragefromorganicsalesvolumegrowth,acquisition-relatedsalesandincomealongwithdisciplinedcostmanagementwerepartiallyoffsetbyunfavorableforeigncurrencytranslation.Acquisition-relatedgrowthwasprimarilyfromtheREVOCOATandIVCindustrialbusinessesacquiredin2015.Thesebusinessescontinuetodeliverstrongfinancialresultsandtheyprovideanexcellentplatformforfutureglobalbusinessgrowth.

Glasssegmentsalesdeclined2%andearningsdeclinedby7%versustheprioryear.Highersellingpricesandcostmanagementactionswereoffsetbylowersalesvolumes,$8millioninrepair-relatedexpensesduetoaplannedfacilityoutageandlowerequityearnings.Despitethelowersalesvolumes,underlyingflatglassdemandremainssolid.Additionalsegmentandregionaldetailscanbefoundinthepresentationmaterials.

Overall,ourbusinessperformedwellinthefirstquarteraswecontinuetomanageagainstthenextglobaleconomicbackdrop,continuetofocusoureffortsonimprovingorganicgrowthratesthroughenhancedproductinnovation,customerbrandingstrategies.Weremaindiligentoverourcostsandareonpacetoachievethepreviouslyannouncedsavingsfromourongoingbusinessrestructuringprogram.

Finally,ourbalancesheetremainsstrongandwearecommittedtodeployingbetween$2billionand$2.5billionofcashinyears2015and2016combinedonacquisitionsandsharerepurchases.

Inthefirstquarter,werepurchased$150millionofourstockbringthetotalto$900millionforthetwo-




yearperiodtodate.Coupledwiththeapproximately$400millionpaidforacquisitionsin2015,PPGhasdeployedabout$1.3billiononearnings-accretiveactionsagainstthistargettodate.Wehaveastrongglobalpipelineofacquisitioncandidatesacrossvariousend-usermarkets.

Inadditiontosharerepurchasesandacquisitions,PPGremainscommittedtosustainabledividendincreasesaspartofourcapitalallocationstrategy.

TodayourBoardofDirectorsapprovedadividendincreaseof$0.04pershare,bringingthequarterlydividendto$0.40pershare.Thisrepresentsan11%increaseversusthepriorquarterlydividend.

Ourlastquarterlydividendincreasewas7%inthesecondquarterof2015.

Asyoucanseebyouractionsandcontinuedstrongfinancialresults,weremainfocusedondrivingadditionalgrowthaimedatcreatingshareholdervalue.

Thisconcludesourpreparedremarks.Onceagain,weappreciateyourinterestinPPG.

Andnow,Operator,wouldyoupleaseopenthelineforquestions?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

FrankMitschwithWellsFargo.

FrankMitsch (Analyst-WellsFargoSecurities,LLC):

Michael,IwasintriguedbyyourcommentaboutMarchbeingthebestvolumemonthofthethreeinQ1.CanyougiveusanideaastowherethatwasandwhatdoesthatsuggestforQ2andbeyond?ArewelookingatPPGgettinghigherthana1%ofvolumegrowthin2016?


Well,Frank,let'sstartwiththeobviousquestion.Wearecertainlynothappywiththe1%growth.Butweareintheveryearlystagesofourgrowthprogram.SotheBPA-NIforpackagingencodings--I'msurewewillgetquestionsonthat.Butthat'sprogressingwell.TheOEMcompactprocesscontinuestodowell--refinish,waterborne.I'dsaythat'sthefirstcommentary.

Thesecondone,whichisMarch--March,wehadanicestarttothepaintseason.Clearly,weareanticipatingthatthisisgoingtobeabetterpaintseasonthanwehadlastyear.So,thatwasamanifestationofthat.AlsoyouhadtheunevenanduncertainreturnfromtheChineseNewYear.

Peoplewereworriedaboutthat,sowewere--andwetriedtotellyouthatwehadagoodorderbookcomingintotheChineseNewYearinourlastcall.WedidseethatcomingoutofChineseNewYear,sowedidseegoodgrowththere.

AndIthinktheotheroneisabroadeningofthegrowthrateinEurope.Thatwasanicewinthereaswell.SoaltogetherIwouldsaythatwewerecloserto2%to3%growthinMarchversusthe1%thatwereportedintheoverallquarter.


Okay,allright.AndasIlookatslide9andtheautoforecast,obviouslywehavebeenspoiledinexpectingPPGtooutpacetheoverallindustry.AndinQ1,Iguesspartlyduetoadifficultcomp,the




Companymatchedtheoverallindustryratherthanexceededtheoverallindustry.

ButasIlookatthatchart,itlookslikeQ2Chinayouaregoingtoseeamaterialramp-upinactivities.AmIreadingthiscorrectly?


IthinkthewayIwouldthinkaboutthis,Frank,iswehavealwayssaidthatwearenotalwaysgoingtooutperformtheindustry.Atsomepoint,wewouldhavesomereversiontomean.

Ifyourememberlastyear,first-quarter2015,wewereup9%andAsiawasupmuchhigherthanthat.So,whenIlookatourautomotiveperformance,wehadtworegionsthatoutperformed,oneregionthatunderperformedandoneregionwasatparity.Sowewereessentiallyatthe1.7%growthratefortheindustry.

SoIwouldsaywhenIthinkbackaboutthefouryearsofconsecutiveoutperformance,ifourteamtookaone-quarterpause--nothappybutobviously,inthegrandschemeofthings,wewerecontinuingtoperformverywellintheautomotivebusiness.AndIwouldexpectthatwearegoingtocontinuetoseegrowth.

InEurope,registrationswereup5%,soIwouldexpectEuropeanbuildstocontinue.Asiabuilds,Indiaisreallydoingwell--I'mnotgoingtocallthebottominBrazilbecauseIdon'tknowwherethatis.ButcertainlyIthink,overall,wearepleasedwiththeperformance.


Allright,that'sveryhelpful.Thankyou.

Operator :

MahulDalia(Analyst-RobertW.Baird&Company,Inc):

It'sactuallyMahulDaliasittinginforGhansham.CanyoutalkaboutpricinginautoOEMmarketglobally?Areyouseeinganypriceconcessions,giventhedeclineinrawsandthebargainingpowerofcustomersinthatbusiness?Andthenjustmorebroadly,howshouldwethinkaboutpricingfortheCompanyasawholein2016?


Well,let'stalkaboutpricingingeneral.Attheendofthedaywehaveconsistentlybeenabletopriceinthisenvironment.Lastyear,wehadmarginallypositivepriceinanobviouslyverychallengingenvironment.Wehaveforecastedatmarginally--flattomarginallyupagainthisyear.

Intheautomotivesegment,it'snotreallyafairtolookatitonapiecebypiecebasisbecausemostofwhatwehaveisnewproducttechnology.Soit'shardtocomparethenewtechnologyversustheold.

Sooverall,wehaveverysophisticatedautomotivecustomers.Theyexpectfairpricing.Wehavenewtechnology.Weexpecttobepaidappropriatelyforournewtechnology.AndIwouldsaybothpartiesareveryhappywiththepriceandvalueandperformanceofthenewproductinthemarket.


Thankyou.Andformynextquestion,canyouparceloutgrowthinthevariouschannelsinNorthAmerica[team]duringthequarter?SoIguessCompany-ownedstores,nationalaccounts,independentsinCanadaandhowyourperformancecomparedtothemarket.




Scott Minder (IR):

Wearehavingalittledifficultyhearingyou.Letmerepeatthequestion.IthinkyouaskedifwecouldparseoutthedifferentvolumegrowthbyUSarchitecturalchannel.Isthatcorrect?


Yes,exactly.


Okay.SoUSarchitecturalchannel--sooverall,wehadthelowtomidsingledigitsinthatchannel.Itdependsbyregion.Soobviously,theonethatcontinuestogobackwards,andnosurprise,isthedealer,independentdealerchannel.That'sanareawhere--thatisashrinkingenvironment.YouhavethesmallownersofhardwarestoresandpaintshopsovertimelosingsharetothebigboxesandtotheCompany-ownedstores.Sonochangeinthatenvironment.

Idon'twanttocomment,perse,onhowourretailcustomersaredoing.Ithinkit'suptothemtocommentonhowtheirretailcustomersaredoing.ButIwilltellyouthatwehadnewproductlauncheswithDiamondintheGliddenbrandinHomeDepot.Theearlysigns--it'sjustnowgettinginthemarket.Theearlysignsareverypositive.WehaveasuperpremiumpricepointofParamountandMenardsalsoofftoagoodstart,GliddenCompleteatWalmart.

SoIthinkwhenwelookatitfromourperspective,andIcertainlyhavetoletcustomerstalkaboutitfromtheirperspective,butwearepleasedwithwhatweareseeing.TheCompany-ownedstores--itvariesbyregionandvarieswhetherit'sUSandCanada.Butclearly,there'sanopportunityforustocontinuetodelivermoregrowthgoingforward.


Great,andjustonelastone--canyougiveussomemoredetailsontheweaknessinaerospace?Isitjustsmallplanes,largeplanesorboth?Andwhatgivesyouconfidenceonanimprovementin2Q?


Sure.Sowhenyouthinkabouttheaerospacebusiness,youhaveseveralthingstothinkabout.Sooneofthemis--youknow,ayearagocustomerswerehavingsignificantlaunchprograms.Andastheyrampedup,thelastthingtheywanttodoisstoptheirlinewithlackofproduct.Andsotheytendedtooverinventory.

Nowtheyaremoreatasteady-staterate.Andsothere,itallowsthemtohavemoreconfidenceintheirbuildrateandtheirusagerate.Sothat'sashort-termhurdle.

Youdohavesomeunderlyingsoftness,though.Ifyoutaketheoilandgasmarket,theyflyalotofhelicopters.Obviously,theyareflyinglesshelicoptersinthiskindofenvironment,soyouhavelessaftermarketsalesandyouhavelessnewhelicopterbuilds.Sothatwouldbeone.

Andthen,generalaviation--there'salotofchurninthewater,asyoucantell,withoneofourcustomersinCanada.Sothere'ssomethingsgoingonupthere.

SoIthinkoverall,weareonashort-termone-quarter,two-quarterbumpintheroad.ButIanticipatethesecondhalfoftheyearforaerospacetobemuchbetter.Iwouldpointoutthattheacquisitionsthatwemade,thenewaerospaceacquisitionswemade,areperformingverywell.Andtheirgrowthrateisabovethegrowthrateoftheoverallbusiness.




Sotheoutlook,Iwouldsay,isup.Solid.


Great,thankyouverymuch.

Operator :

ChristopherParkinsonwithCreditSuisse.

ChristopherParkinson (Analyst-CreditSuisse):

CanyoujustwalkthroughalittlemoredetailonwhatyouareseeingintheMexicanmarketinComexandpotentiallyjustparseoutarchitecturalstoresversusindustrialenergy,governmentspending?Andjustoverall,justwhatassumptionsaregoingintoyourdoubleMexicanGDPgrowthassumption?Thankyou.


Sure.We'llstartwithfirstquarteroflastyear;wewereup10%plusinMexico.Andthisyearwewereup--oursaleswereup5%ofMexico.TheGDPinMexicois2.2%.

Ourgrowthisbeingdrivenbyseveralfactors.Thefirstoneisthenewstoregrowthrate.Lastyearweadded170storesinMexico.Weareover4,000stores.Wearenow,today,aswespeak,over4,100stores.Andwewilladdanother170storesthere.SowehavebeengainingalotofshareinMexico.TheComexteam,whenweboughtthem,hadaverylargeconcentrationoftheirmarketshareinwhatIwouldcallcentralMexico.TheywereunderrepresentedinsouthernMexicoandunderrepresentedinnorthernMexico.

ButwehaveaUSretailpartnerthathavestoresinMexico,sowerecentlyintroducedastore-in-storeconceptdownthere.That'sallowingthemtogainshareaswell.Sofromthestoresideit'saboutserviceandproductavailability,andthat'sdoingverywell.

Certainly,governmentspendinghassoftened.Andalotofthatisrelatedtoprojects.Thegovernmentistryingtoreducespending,giventhepriceofoil.Butthereareelectionscomingup,soIwouldtellyouthatwearegoingtowaitandseehowitplaysout.ButhistoricallyinMexico,whentheyhaveelections,thelocalpoliticianstrytosprucethingsuptomakethingslookalittlebitbetter.Andobviously,iftheydothat,wewillbeveryhappytoparticipate,aswehaveaverysignificantshareinMexico.

VinceMorales (VPIR,Treasurer):

IfIcouldaddoneitem,Chris,oneofthesynergieswehadearmarkedwhenwedidtheacquisitionwasarevenuesynergy.That'swhatweaddedsubsequenttotheacquisition.WearedoingverywellinourprotectivecoatingsalesintoMexico,whichwasoneofthesynergieswetargeted.Sothatisanotheraddertothegrowthrate.


That'sveryhelpful,thankyou.Andjustaquickfollow-up--youobviouslyalreadyhadafewshipmentsfrom[Billions].Canyoujustgiveusaquickupdateontheagreement,rampoutlook,etc.,goingforward?Andjustgenerally,howdoyoufeelabouttheprospectsversus,let'ssay,maybeayearago?Thankyou.


Well,IwouldtellyouthatwehavetripledourpurchasesfromBillionsinQ1versus4Q.Butwearenot




satisfiedwiththebuildrate,ifyouwill.Wethinktheycandelivermore.Obviously,theyaresuccessfulatsellingotherplacesbesidesPBG.Butoverall,theproductqualitycontinuestogetbetter.Theconsistencygetsbetter.Andweareusingit.

WerecentlystartedbringingitintootherregionsbesidesUSandCentralAmericaandLatinAmerica.Sotheusagebroadens.Obviously,westartedinAsia.

ButIwouldtellyouoverallwehavebeenpleasedthatwehavecertainlychallengedtheHenanBillionsGrouptocontinuetoworkhardertobringtheproductionrateuptoahigherlevel.


Theirproductionratehasrampedsignificantlyoverthelastsixmonths.Theyarerunningverygoodyieldsandtheyjustneedtorampuptheirpaceabitmore.


That'shelpful.Thankyouverymuch.

Operator :

DavidBegleiterwithDeutscheBank.

DavidBegleiter (Analyst-DeutscheBank):

Thankyou.Mike,howdoyouexpecttherecentriseinoilpricestoimpactPPG?AndwhenwillitbegintoimpactPPG?


David,Iwouldfirststartbysayingthat,asyouknow,wealwaystellyouthatwepullrawmaterialssixtoninemonths--ittakesussixtoninemonthstocollectthrough.Sowearestillpullingthroughthelowerpricesthatwesawin3Q,4Q.Sothat's--youknow,ifyouarelookingforthatpositive.

Thesecondthingisoilbounced--ifyouthinkaboutwhereitstartedQ1andwhereitfinishedQ1,itbounceddown,camebackalittlebit.ButI'dsayoverallit'stooearlytoseewherethatisgoing.There'salotofuncertaintyinthemarkets.Obviously,wearenotoiltraders.Butyoucanreadthesamethingswereadasfarasoil.

Sowearenotdispleasedwithwhereweareinpullingthroughtherawmaterialsstatement.


AndMike,overall,doyouthinkyourmarginsarenearpeak?Orcantheygohigherwiththeoperatingleverageoffsettingmaybealittlebitofcostinflationhere?


Yes,wearecertainlynotatpeak.Don'tforget,westillhavethesavingsforEurope.Wesaid,forthefullyear,Ithinkitwas$70millionthatweweregoingtopullthroughinEurope.Sothat'sone.

Two,youhavesignificantearningsleveragewhenwegetvolumerecoveryinEurope.Obviously,yousawthemargin'sexpansioninthisquarter.ThatwasdrivenbyseveralthingstheleveragefromEurope,restructuringsavings,acquisitionsynergies,somemodestrawmaterialbenefits.

Butoverall,Istillthinkwecandobetterandcertainlyourteamthinkswecandobetter.





Thankyou.

Operator :

RobertKoortwithGoldmanSachs.

RobertKoort (Analyst-GoldmanSachs):

Michael,howdoyoudiscerniftheaerospacecustomerisinventoryadjustmentsversusdemandadjustments?


Well,onethingwedoiswehavesignificantinsightbecauseofoursharewithsomeofthesecustomers.Soweareableto--Idon'twanttocallitvendormanagedinventory,butwehavesignificantinsightintowhattheyarestocking.Thegrowthrateforthelarge--ifyouthinkBoeingandAirbus,obviouslytheyhavebigbacklogs.Buttheirbuildrateisflattomarginallydown.Andthatisobviously--whenyouthinkabouttheirinabilitytogetproductionratesup,it'sfrustratingforus.

Ican'timaginehowfrustratingitmustbeinternallyforthem.Butthat'sthetwowayswelookatthat.


Canyoutalkaboutthevariationinpriceacrosstheportfolio?Iassumethereareputsandtakes,butarethereanyparticularareasoutsideofnon-BPAandBPA-NIwheretherehasbeensomepriceimprovement?


35

Wehaveplusesandminuses,asyounoted,throughouttheportfolio.Butthere'snooutliersoneitherside.


Andlastone,veryquickly


Ithinkthat'sareasonableexpectation.Aswehavealwayssaid,it'simpossibletopredictlargeones.Wehaveapipelinethatlooksverysimilartothepipelinewehadlastyear.Wehadsevendealsthathadabout$400millioninsales.IwouldexpecttoseeasimilarlevelofactivitythisyearandIthinkyouwillhave--youwillseethataswegothroughtheyear.


Thankyou.

Operator :

JeffZekauskaswithJPMorgan.

Jef f Zekauskas (Analyst-JPMorgan):




Whatarethenetcashoutflowsfromasbestosthisyear?Anddoyoustillthinkyouwillsettleyourasbestosliabilities?

FrankSklarsky(EVPFinanceandCFO):

Wedoexpectwearegoingtosettleupinthefirsthalfoftheyear,beforetheendofthefirsthalfoftheyear.AndconsistentwithwhatwehavesaidinthepastandwhatyouwillseewhenwefileourQwherewelaythatout,wehavegotabout$500millionofcashgoingoutinitiallywiththeoptiontopayoutanadditionalamountofcashwhichrepresentsthepresentvalueofthefutureobligationsdiscountedat5.5%.

Wewillobviouslyevaluateeconomicadditionsatthattimetodeterminewhetherwetakeadvantageofthatdiscountthatcouldpotentiallybeattractiveforustodoso.

Sothegrossbeingsomethingover$800million,butthenalmostimmediatelywewillstartonaquarterlybasis,theadjustingofourestimatedtaxesandwill,overtheensuingfewquarters,achieveabenefitthatwillbringthenetcashoutflowintotaltoabout$500million.Thatwouldassume,ifyouweretoassumethatwetookadvantageofthediscountedannuity.

Sothatbethewaywewouldlookatit.Andofcourse,wealsohavethedonatingofthePPGstocktothetrust,inadditiontothat.


AndJeff,wehavethatstockhedgedatabout$22.Soifyoudothemath,it'sabout2.8millionsharesthatyouarelookingatsomewhereinthe$50millionrange.Thatstockisinoursharecountalready,itwillremaininoursharecountgoingforward.


That$50millionisincludedintheamountsthatIgaveyou.


Andformyfollow-up,yourgrossmarginlastyearexpanded110basispointsandthisquarteritexpanded160,eventhoughyouhadnosalesgrowth.Butlastyearyourcurrencyeffectswerenegative7eachquarter,andthisquartermaybeitwasalittlelessthannegative4.

Istherealinkbetweensmallercurrencypressureandthewideningofthegrossmargin?Oraretheynotlinked?Andiftheyarenotlinked,whydidyourgrossmarginqualitativelyadvancefirstwhatyouwereachievinglastyear?


Yes,itisagoodobservationdespitethefactthatwestill--eventhoughthecurrencyheadwindwasalittlebitlowerthanweexpected,itwasstillaheadwindinQ1versusprior.Ithinktherewasacombinationoffactors.

One,wedidgetsomebenefit,additionalbenefitthisyear,fromrestructuringthatwouldnothavetakenplaceinlastyear'sfirstquarterbecausetherestructuringprogramwasreallyjustgettingunderwayatthatpointinthefirsthalfoftheyear.Sothere'sthatpieceofit.Wehadsomemanufacturingproductivity.Wehavemovedmoreaggressively,obviously,particularlyinEurope,onrationalizingandmovingagainstamoresharedserviceenvironmentfromtheadministrativeside.

Acquisitionswithanicepass-throughofthemarginsfromthoseacquisitionswasalsoanuplift,asthose




acquisitionsprovidedusamarginalittlebitabovethecorporateaverage.Soitwasacombinationoffactorsplus,admittedly,aswehadsaidbefore,amodestamountofrawmaterialsavingsinthefirsthalfofthisyear,continuingwhatwesawthebackhalfoflast.Allofthatcontributedtothe110basispoints.


basispointsyearoveryear.


Right.Butdidthechange,thesmallercurrencyheadwind,benefityourgrossmargin?


Iwouldsayonarelativebasisitwasstillaheadwind.Andsofromanabsolutestandpoint,Iguesstheanswerwouldbeno.Andevenwhenyougobacktolastyear'sfirstquarter,theheadwindwasn'tmateriallydifferentthanitwasinthisyear'sfirstquarter,eventhoughthisyear'sfirstquarterwasalittlelessthanwemighthaveexpected.


Okay,great.Thankyousomuch.

Operator :

DuffyFischerwithBarclays.

Duf f yFischer (Analyst-BarclaysCapital):

ThequestionjustaroundEurope--seeingsomerecoverythere.Didyouteaseoutwhereyouareseeingthatrecovery?AndtheninarchitecturalinEurope,areyougrowingwiththemarketorfasterthanthemarketoverthere?


Well,let'stakeitbycountryjusttoaddalittlemorecolortoit.SostartingtheUK,Ireland,itisgrowingfasterthantheCompanyaverageandtakingshare,clearly.ThenyoutakeFrance,growingslowerthantheCompanyaveragebuttakingshare.ThenyoutakeCentralEurope,IwouldsayslightlybelowtheCompanyaverage,maintainingshare.That'sthearchitecturallandscape,ifyouwill.

Butthenwhenyougetintoourotherbusinesses,wehaveabroadeningrecovery.SoSouthernEurope,Spain,Italy,forexample,significantlyacceleratinggrowthquarteroverquarterinallourbusinesses.Andthat'sabenefit.Wedon'thavearchitectural.WedohavealittlebitinSpainbutverylittle,andwehavealittlebitinItalybut,inthegrandschemeofthings,prettysmall.

Sooverall,SpainandSouthernItalyandSouthernEuropeisdoingverywell,that'sanetpositiveforus.

Theoffsettothat,ofcourse,isRussia,althoughIwouldtellyouthatweareoutperforminginRussia,especiallyinourindustrialbusiness.Theyhavedoneareallygoodjobthere.Theyaretryingtogetmorelocalization,andsothathasbenefitedus.

TheMiddleEast--theMiddleEast,Iwouldsay,slightlybetterthantheCompanyaverage,andthatencompassesallourbusiness.AndIwouldsayourprotectedbusinessisprobablyoftheonesthataredoingprettywellintheMiddleEast.





Great.


There'saslideinourpresentationdeckthatshowstheregion,it'saheatmapthatshowstheregionbycountryyear-over-year.


Okay,fairenough.AndthenjustonBPA,youhavebeentakingsomenicemarketsharethere.Howlongshouldwethinkaboutthattrendlasting?Isthatsomethingthat'sgotanotherfourorfivequarters,ormightithaveanothereightto10quarters?


Well,IwouldgetitjustlikeIlookatautomotive.Wehadfouryearsofautomotiveoutperformance.Thisistechnologythatweareleadingin.There'sbeentwoplantsconvertedinFrance.Wehavethevastmajorityofthatbusiness.Now,withtheproposition65inCalifornia,therehavebeensixplantsconvertedintheUS.AndIwouldcallourshareat5+plusoutofthosesix.SoyoustillhavethewholewayoftherestoftheUStocome.Thefoodguysjuststartedtoconvertprobablyinthethirdquarteroflastyear.Soyoustillhavethatcomingon.

SoIthink,net-net,thisisalong-termstructuralgain.Weusedtohaveonly3%shareinsidethecan.Youwouldthink,overtime,wewouldapproach25%or30%share,ataminimum.Icertainlyhavechallengedtheteamtobebetterthanthat.ButIwouldtellyouthisisasecularchange.Theseguystake--theydon'tchangefor30yearsandthen,whentheydochange,ithappensovertime.Andweshouldexpecttoseethisrampupoverthenextseveralyears.


Great.Thanks,fellows.

Operator :

VincentAndrewswithMorganStanley.

VincentAndrews (Analyst-MorganStanley):

IwantedtorevisittheM&Aconversation.Mythoughtisthatthereobviouslywasalargetransactionannouncedbetweentwoofyourlargerpeers,andthebyproductofthatisthattheyarenolongercompetingwithyouforanyM&Aassetsthatmightbeoutthere.

SoI'mjustwonderingifthedialoguebetweenyourselfandthoseonthattargetlistofyoursisacceleratingorchanginginanyway.Hastherebeenanyimpactonthediscussionsfromthetransactionmultiplethatwasrecentlyputupontheboard?


Well,Ithinkyouhavetoevaluatetheseindependently.Thetransactionmultiplethatwasannouncedinthefirstquarterwasauniquepropertyandcamewithauniqueprice.Andwecertainly--ifanybodytriestoargueforthatpriceforPPGtopay,thatwillbeaveryshortdiscussion.Sowewillstartthere.

ThesecondthingIwouldsayisperhapstheycouldbeoutofthemarketforsomeperiodoftime.Butyouknowwhat?Theyhavecash,debtiseasytoget.Andwearenotgoingtoassumethatthisisanopenrunwayforus.W




We'regoingtolookatwhatourcompetitionis.Wehavemultiplepeoplethatarecompetingwiththeseproperties,sowewillcontinuetoevaluatethat.

Butthebottomlineiswehavenotseenanyincreaseinthenumberofpeoplecomingtous.Iwouldtellyouthat,overall,ourmantraremainsthesame,thatweareverydisciplinedbuyersandthatbusinessteamshavetomakeajustificationandthesynergieshavetobethere,andthat'sthefocusanytimewelookatanyacquisitions.

VincentAndrews (Analyst-MorganStanley):

Veryclear,thankyouverymuch.

Operator :

DonCarsonwithSusquehannaFinancial.

DonCarson (Analyst-SusquehannaFinancialGroup):

JustaquestiononyourarchitecturalgrowthintheUSandCanada--soyoutalkedaboutlowtomid-singledigitgrowth.Doyouthinkyouareunderperformingthemarketthere?Howwouldyoucharacterizeyouroverallmarketgrowth?Andwhatkindofsnapbackdoyouseethisquarterandintothirdquarter,basedontheweather?


Hey,Don.ThisisVince.Alittlebitofanearlyreadinthepastseason,andwedon'thaveenoughdatapointsyettodeterminebychannelhowweareperformingversussomeoftheotherfolks.AndMarchisalittlebitof,typically,amurkymonth.

Wefeelthatinthe--asMichaelmentioned,wehavegotnewproductsinsomeofthemajorhomecenters.Wefeelthoseproductsaregoodnewproductswithgoodnewbranding.Theindependentdealerchannelisashrinkingchannel.Wecertainlyfeelweareholdingourownthere.

AndasMichaelmentionedatthebeginning,we'vegottodobetterinourUScompany-ownedstores.AndinCanadawethinkweareatparity,atminimum.Butalittletooearlyinthepaintseasontocallitonewayortheother.


Thenjustafollow-uponyourchannelstrategy--you'vetalkedaboutinvestinginbranding.IsthisdesignedmoreforyourCompany-ownedstores?AndwhatkindofinvestmentshouldweexpectinyourCompany-ownedstoresgoingforward?Areyoulookingtoopenacertainnumbereveryyeartogetthatmixupabove50%ofyouroverallarchitecturalsalesvolumeinUSandCanada?


Yes.Sowhenyouthinkaboutthe[$50]millioninvestmentthatwemade,thatis--itwasthefirst-quarterinvestment.That'sanonrecurringinvestment.Wedohaveenhancedbrandstrategiesthatwearerollingout,butthat'sincorporatedwherewemightbereplacingdollaroneorcategoryAwithcategoryB.Sothere'snorealstepchangethere.

Wedoopenup--weexpecttoopenup,wetypicallysay,25,50storesintheUSandCanada.Wewillbeopeningup200storesinMexico,170to200stores.WewillbeopeningupstoresinEuropeaswell,sothatwouldalsobeinthat20to25range.Sowecontinuetoevaluateopportunitiestogrowthisbusiness.ButI'dsayoverallI'mpleasedwiththeperformancethere.





Thankyou.

Operator :

P.J.JuvekarwithCiti.

P.J.Juvekar (Analyst-Citigroup):

Michael,Iwanttogobacktotherefinishbusiness.Whatkindofgrowthareyouseeingthere?Andcanyoubreakitdownbetweenpriceandvolume?AndthenareMSOsgettingbiggerandbiggervolumediscounts?


Let'sstartwiththeeasyone.TheMSOs--ithasbeenrelativelyconstant.They'dliketohavebigger,buteverybody,everycustomerwehavewantsabiggerdiscount.Ithasbeenrelativelyflat.

Whenwethinkaboutourrefinishbusiness,it'snotjusttheUS.WhenwelookatChina,thatisespeciallyagoodmarketforus.Sotheyareshiftingfromsolventstowater.There'sabigtaxinChinaonsolvent-basedproducts.Sothat'sapositiveforus.

Historically,wedohavepositivepriceinourrefinishbusiness.Youwouldexpectthatthisyearwewouldhavepositivepriceaswell.

Interestinglyenough,volumeintheUSisactuallyup.Thathas--milesdrivenisup2%.Notonlydoyouhavemilesdrivenupbutyouhavedistracteddrivingupimmensely.Iseeitabouteverydayonmywayhome.Sothat'spositive.

Theotherthingis,whenyoulookatwhat'shappeningwithtechnology,ourwater-basedproductisoutperformingineveryregionoftheworld.SoeveninArgentinarightnow,ourbusinessisgrowinginArgentina.OneofourcompetitorsvacatedBrazil.Wepickedupahugechunkofthatbusiness.OneofourothercompetitorsvacatedEurope;wepickedupthevastmajorityofthatbusiness.Sowecontinuetoperforminthatregard.SowhenIthinkaboutwhattheshiningstarsinPPG,refinishisatthetopofthelist.


JusttoaddtowhatMichaelsaid,andwetalkedaboutthisalittlebitinthepast,withourstrongpositionoverinAsia,particularlyinChina,andthemovefrompremiumtothemid-lineofferings,wehaveanopportunitytogrowthatbusinessoverthelongtermbecauseasproduction,over20millionunits,goesmostlystilltothatmarket,thatcarparkcontinuestogrowwhereasthedevelopedregionswherewealsohavesolidpositions--thecarparkisrelativelysteady.Soyouaredependinguponmilesdriven,distracteddrivingandthingslikethat.ButChinahastheadditionalbenefitofaddingalotofunitstothecarpark,andsothosegrowthratesoverthelongtermbodewellforthebusinessoverall.


Great,thankyou.Andsecondly,didtheintroductionof[GTV]atLowe'shaveanyimpactonyoursalesatLowe's?


74

Well,Ithinkthewaytothinkaboutthatiswhichpricepointstowecompetein.AndsoIthinkthewaywe




lookatitisourtotalsalestoourretailpartnerwereupyearoveryear2015versus2014.AndI'mnotunhappywiththefirst-quarterperformance.Andourrelationshipisverystrong,andsoIwouldtellyouthatisobviouslyaretaildecisiononhowtheysplittheirbrandandhowtheypositionthem.Butoverall,wearehappywiththatrelationshipwithLowe's.


Allright,thankyou.

Operator :

JohnRobertswithUBS.

JohnRoberts (Analyst-UBS):

WiththecomingconsolidationinthenumberofsuppliersintotheDIYretailchannel,doyouthinkweshouldexpectsomerebalancingamongcustomers,somechurn,toseesharegoupanddownmorethanwehaveinthepast,forexample?Andifthereisadivestment,let'ssay,outoftheSherwin-WilliamsValsparbusiness,doyouthinkwemightendupwithanewcompetitorinthespaceherethatyoumighthavetoworryabout?


Well,John,wedon'tspeakforourcustomers.AsMichaelsaidearlier,theirsourcingdecisionsaretypicallytheirs.Ithinkwe'vegot,asexhibitedbythenewproductsweareplacingintothechannel,youaretalkingaboutthisyear.Wealsohavegoodrelationshipwiththosecustomers,butwearenotatlibertytomakesourcingdecisionsforthem.

WithrespecttotheacquisitionofSherwinValspar,wearenotsurewhattheoutcomeofthatwillbe.Sothat'snotwithinourjurisdictionorourdecisiontree.Sowewillleavethattothepartiestobe.

JohnRoberts (Analyst-UBS):

Okay,thankyou.

Operator :

JamesSheehanwithSunTrustRobinsonHumphrey.

JamesSheehan (Analyst-SunTrustRobinsonHumphrey):

CanyoutalkaboutyourexpectationsforTiO2prices?Itlooksliketheymaybegoingupalittlebithereintheshortterm.What'syouroutlookfortherestoftheyearonTiO2?


James,TiO2,wehavealwayssaid,isthesupplyanddemand-drivenenvironment.WhenIthinkaboutwhat'sgoingonintheoverallglobalsupplyanddemandenvironment,youhaveadditionalcapacityinChina.YouaresoontohaveadditionalcapacityinMexico.

Sofromthatregard,that'sobviouslymoresupply.

Demand--ifyoulookatEurope,EuropeanTiO2consumptionisdownabout15%fromitspeak.Sonet-net,eventhoughEuropevolumesarerecoveringalittlebit,theyarestillsubstantiallydownfromwheretheywere.Then,ofcourse,youhadthematerialweaknessinBrazil,thematerialweaknessinmostofLatinAmerica,Russia.




Andsofromasupplyanddemandstandpoint,Ithinkwestillseeitasabalancedmarket.AndIknowtheyareoutthererunningaroundwithpriceincreasesannounced.

Butifyouremember,theyhavehadpriceincreaseannouncementsforseveralquartersoutofthepasttwoorthreeyears.Andthat--justbecausetheyannouncedthatwearepaying.Sooverall,ourgoal--asyouknow,wehavetakenoutofPPG10%,soourTiO2consumptionisdownbecauseofsubstitutionstrategy,replacement,alternativeproductsandalsowiththebringinginHenanBillions.

SoIknowthere'salotofnoiseoutthere.Butwhenwetalktooursuppliers,wearetryingtogetthemfocusedonsupplyanddemand.Andthat'swherewearegoingtostayonthattopic.Iknowtheyarelookingattheyarenotmakinganymoney.Buttheydidn'twriteusacheckthelasttimewhentheywereatthetopofthecycle.


Great.AndcanyoualsocommentondemandtrendsthatyouareseeinginvariousendmarketsinChina?


Sure.Soobviously,automotivewasup.Everybodyseesthosenumbers,sogoodperformancethere.Industrialisamixedbag.Itdependsuponwhichsegment,soanythingtodowithcommoditiesisdown,heavy-dutyequipmentdown.

Packaging--wearealittledisappointedinthepackagingoutput.It'srelativelyflat.Withtheconsumer-driveneconomywewouldhavethoughtthatwouldhavebeenupalittlebitmore.ButwearegainingsharetherewithourVPA[non-intent]product.Sowecouldbedoingbetter.

Ifwelookatrefinish,refinish,whatFrankexplainedearlier,thecarparkisgrowing.Whentheymadethenicemovetothepremiummarketwegained.Nowweareintroducingsomemidtierproduct.Sothatshouldbeanetpositive.Ithasn'thappenedyet,butthereisComac,whichexpectstobuildanairplaneatsomepointintime.Theyrolleditoutofthehangar,buttheyrolleditbackinthehangar.

Soeverybodysawit.Itdidn'tfly.SoIdon'tknowwhenthatwillstart,butobviouslywehavealotofcontentonthatplane.Soifitdoesgetintoproductionwewillbeanetbeneficiaryofthat.

Ontheprotectiveside,wearedoingverywellinprotectiveinChina.

Marine--notbad,butyoureallyhavetobalancethatwiththefactthattheKoreanMarinehasjustfallenoffacliff.Infact,tothelargestKoreanshipbuildersdidnotevengetamajororderinQ1.SoyouhavetobalancewhatyouseeinChinawiththefactthatKorea,whichiswherethebigmarketis,isoff.

SoIguessthatwouldbemyaroundthesegmentapproachthere.


Ijustwanttoreemphasize,James,that--MichaeltalkedearlieraboutIndia.WeareseeingverygoodgrowthinIndiaacrossallthemarketsinwhichweparticipatein.

It'sasmallermarketforus,butanimportantmarket,butitisaverygoodgrowthtrendrightnow.


Thankyouverymuch.

Operator :




ArunViswanathanwithRBCCapitalMarkets.

ArunViswanathan (Analyst-RBCCapitalMarkets):

Justmaybediggingonthevolumesidealittlebitmore,the1%volumegrowthyoupostedacrosstheportfolio--Iknowyouguysweren'tsatisfiedbythat.Andmaybecanyouhelpusunderstandwhatkindofvisibilityyouhave,maybeonacoupleofthelargerbusinesses,OEM,refinish,aeroandarchitectural,whythatwouldaccelerateasitgoesthroughtheyear?Aretherespecificprojectsorsomethingelsespecifictoyouguys?Thanks.


I'lltakeashotatthat.Ifyoulookatourdifferentbusinesses,wehavethebestvisibilityinbothMarinenewbuildandaerospacewherewehaveaverylongordercycle.Wehavefairlyconcreteorderpatternsbyourcustomers.

Inthemiddleyouhavesomeindustrialcustomers,automotivecustomerswhereweareseeing,withconfidencewewillcallitamonth'sworthoforderswithfairlygoodconfidence.Andthenontheothersideoftheequationwouldbearchitectural,includingCompany-ownedstoresandindependentdealerswherepeoplearewalkinginonadailybasis.Andtheorderpatternscertainlyhasacadencetoit,butit'snotaspredictable.Sotherewehavelet'scallitafewdaysofvisibility.

Ifyouaggregateallthat,50%,60%ofourbusinesswecanseeoutprobablyseveralweeks,ifnotamonthorlonger.Andsothat'swhatgivesusourabilitytoforecastforyouwhatwethink.


Okay,thanks.Andthenalso,asafollow-up,justcurious.Arewestillexpectingthatoverallvolumegrowthcouldapproachmid-singledigitsfortheyear?Andwherewouldyouseethegreatestamountofvolumegrowth?


Well,wedefinitelyexpectimprovementsaswegothroughouttheyear.Again,IthinkinQ1ofthisyearwehadsomeverydifficultcompsinsomelargebusinesses.Michaelmentionedthealmost10%compwehadinautomotiveinQ1yearoveryear.Thatstartstowaneaswegothroughouttheyear.Andagain,wehad--asMichaelmentionedearlier,wehadsomeeasierweathercompsinsomeofourbusinessesintheUSaswecomeuponQ2andQ3.SoourexpectationcertainlyistomovetheneedlemorepositivelythanwedidinQ1.


Okay.Andthenlastly,ifImay,ontheFXsideIknowthatyouhadsaidthattherewasstillanegativeimpactinQ1.Wouldthatalsowaneaswegothroughtheyear?Anddoyouexpectultimatelytopotentiallyevengetabenefitifwestaywhereweareontheeuro?


Ifwestayatcurrentratesacrosstheboard,itwilldefinitelywaneaswegothroughtheyear.SoQ2impactwillstillbeaheadwindbutabitlessthanQ1,ifyoustaywheretheyare.Anditwillcontinuetodwindledownasyougothroughtheyear.

Positiveandnegative,atsomepointintime--well,itdependsonthemixbecausewhereasthelastfewquartersthebiggestheadwindwastheeuro,withalittlebitstrongereurothananticipatedbutalittlebit




weakerpeso,forinstance,becauseofsomeofthatoil-basedfactorsthereaswellastheweaknessinLatinAmerica,someofthatmixdoeschange.

Socouldoneofthecurrenciesturnpositiveatsomepointintime?Sure.Butoverall,ifyoulookatthewholebucket,yes,the$140milliononthetopline,the$15millionyousawonthebottomline,inthefirstquarterthatwillbealittlebitless.AndthenumbersthatMichaelgavefortheyear,that$200millionto$260milliononthetoplineandthe$30millionto$40milliononthebottomlinedictatethatatcurrentratesthingswillautomaticallycomedown.Wewillseehowthatplaysoutif[ratesfall]throughouttheyear.


AndIwillremindeverybodytheguidancewegaveinJanuarywascloseto$600milliontoplineand$70million,$80millionbottomline.Soit'sasignificantimprovementversusthreemonthsago.


Right.Okay,thanks.

Operator :

MikeHarrisonwithSeaportGlobalSecurities.

MikeHarrison (Analyst-SeaportGlobalSecurities):

IwaswonderingifyoucouldgiveusanupdateonexactlywhereyouarewithsomeofthedisplayresetsyouaredoingatLowe's.Howmuchofthatiscomplete?Anddoyouhaveanymetricsthatyoucansharewithusintermsofthecustomerresponse,eitherLowe'sorwhatyouareseeingfromtheactualDIYcustomersthataregoingthrough?


Well,Iwon'ttalkaboutspecificallyLowe's.I'lltalkabouttheindustryingeneral,whenyoulookatthehomecenters.ThetypicalwaytheydotheirresetsistheystartintheSouthernandWesternstatesandthenworktheirwaynorth.Soifyouthinkaboutthat,weareprobablylessthan1/3ofthewaythroughit.Typically,theyarealldonebytheendofMay.Sothat'sthecadencethatwewouldbeworkingon.

Again,wedon'twanttotalkforourcustomers.Buttheearlyindicationsthatwesaw,wewereverypleasedwiththeearlyturnoverinthestores.Butagain,it'sasmalldatasetinQ1because,ifyouthinkaboutit,mostofthatstartedgettingsetinmid-March.TheyonlyhadtwoweeksinQ1,andthenyouwillhaveprobably1/2to2/3ofthequarterinthesecondquarter.


Andthe$15millionworthofexpensewaspartiallyrelatedtothat.Thatspendingiscompleteatthispoint,correct?


Thatiscomplete,anditwasaone-timeexpense.


AndthenthelastquestionIhadwasjustontheautorefinishbusinessinLatinAmerica.Iknowthatyouhadbeenseeingsomeweaknessthere.Hasthatstartedtoshowanysignsofimprovingorstillprettyweak?





Well,Ithinkyouhavetolookatitbycountry.Right?SoMexico,stilldoingwellinMexico.Colombia,Iwouldsaymoreflatline.Argentinaisgettingbetter,sothatwastheonepositive.AndeventhoughBrazilisgoingdown,weareactuallygoingupbecauseoneofourcompetitorspulledoutofBrazil.Sothathasbeenapositivefromarefinishside.


Yes,it'sstillasignificantnegativeoverallinLatinAmericaforQ1.


Allright,thanksverymuch.

Operator :

NilsWallinwithCLSA.

NilsWallin (Analyst-CLSAAmericas,LLC):

Michael,withrespecttothelong-termoutlookintheBPAnon-intent,yourfour-yearorfive-yearcycle,curioustoknowhowmuchbeveragecanpenetrationisbakedintothatandwhereyouseethebottlersandthecanproducerscurrentlyintermsoftheirBPAusagewithinthecan.


Iwouldsaythisisinning--bottomofthefirst,topofthesecondinning.Sothere'salotofworktobedoneinthisregard.Youtendtohaveonecustomeronthebeveragesideasaleaderandthenmostoftheotherguystendtobefollowers.Soweareoutinfrontwiththeleaderinthatarea.Andyouhaveacoupleofthefoodguysthataremoreaggressive,sotheymovedatafasterratethanthebeverageguyshave.

AndthenIwouldsaythatonthebeerside,it'sevenonaslowerramp.Sotherehasbeenalotofpacktestsdone,therehasbeenalotoftastetestsdone.Therehasbeenalotofworkinthatarea.Butasfarasactualproductionitisway,wayearlyinthegameforthoseguys.


JusttopiggybackonwhatMichaelwassayingbefore,too,keepinmindthatinbusinesseswherewehavetypicallyoutperformedintherecentpast,wewerealreadystartingwithasolidmarketshareposition.Andthosebusinesseswerealreadyatamaturelevel.

Thishastwoadvantages,thissector.Notonlyinitsinfancyintermsofadoption,wearealsostartingatapointintimewhere,asMichaelsaid,wehaveverylowshareinsidethecan.Soeverythingisincrementalshareforus,earlypointsofadoption.That'swhatgivesustheconfidencethatthisisamultiyeartrendandithasalotoflegstoitforsometimetocome.


Gotit.That'sveryhelpful,thanks.Andjustasafollow-up,theindependentnetworkinNorthAmerica--andarchitecturalobviouslyhasbeendown--doyouhaveasensewhat,firstofall,overthelastcoupleofyearstheaveragerateofdeclinehasbeen?Anddoyouthinkit'saccelerating,decelerating?Andwheredoesitbottomout?Ordoesitjustcompletelydisappear?





First,letmesaythatthischannelhasbeeninacontractionmodeforquitesometime.I'dsay,ifyoulookoveralongerperiodoftime,callitfiveorsevenyears,thecontractionhasbeenmoremodestthantheindustryhasexpected.I'ddefinitelysaythelastcoupleyearsithasacceleratedsomewhat,butit'slumpy.Sothere'snotalinearpathhere.

Andrightnow,Ithinkwe'reprobablycontractingsomewherebetweenlet'scallit1%to2%peryear,thelastcoupleyears,tothemarket.


Wheredoyouexpectitactuallytobottomoutasapercentofthetotalmarket?


It'salong,longtermplay.Obviously,asourretailpartnersgetbigger,astheCompany-ownedstorenetworksgetbigger,it'smorechallengeasthesepeoplethatownthesestores,astheirchildrendonotwanttobeinthehardwarebusinessordon'twanttobeinthepaintstorebusiness,theytendtosell.

Soovertime,thisisjustthedemographicplaythatwillcontinuetoplayout.Butyouaretalkingabout30,40,50years.Thisissomethingthat'sgoingtobegoneinthreeweeksorthreeyears.


Understood,thanksverymuch.

Operator :

LaurenceAlexanderwithJefferies.

LaurenceAlexander (Analyst-JefferiesLLC):

Tworelatedquestions--first,asyoulookatyourcommentsaroundtheoperatingleveragetotherecoveryinEuropeandalsoopportunitiestoimproveyoursupplychainandproductivity,isthereanystructuralreasonwhyyourconversionofsalestofreecashflowshouldn'timproveonatwo-tothree-yearkindofbasis?


Ithinkit'saverygoodpoint.Notonlywillwegettheoperatingleverage,butwealsohaveamulti-year,ifwearegoingon,improvementinworkingcapital.Andthatalsowillhelpusimprovethecashflowconversion.Sowestillhavetheopportunitytoimproveinventorylevels.Wearelookingatworkingonourcomplexity,whichwillimprovedaysofinventory,stillhavesomeroomtoimprovepastduereceivables.Sothatwillhelpconversion.

Theotherfactoristhatwehavesaidintherecentpastthatourcapitalspendingismoreatapeaklevelnowandwilldeclineoverthenextfiveyears.Thatwillalsoimproveourcashconversionasapercentofnetincomeandasapercentageofdepreciation.Soallthosefactorsconsideredactuallybodewellforcashconversionpercentageoverthenextthreetofiveyears.


AndLawrence,over(technicaldifficulty)wearestilldownvolumewiseinEuropelet'scallitmidteens.Sothere'sstillalotofrecoveryleft.Notsayingwewillgetbackallthatasaregion,butthere'sstillalotofrecoveryleftintheregion.





AndthenwhenyoulookatIndustrialCoatings,thevaluepropositiontothecustomer,themixthatyouhavebetweentheprotectingservicesasopposedtodecoratingthemorbeautifyingthem,doyouhavetherightbalance?Oristhatbalancegoingtoshiftovertime?Anddoesthatshift,ifthereisone,haveanyimplicationsforeithermarginsorsalesgrowth?


Ithinkwedoboth.Ithinkthecoatingsindustry,notonlyPPG,butweprotectandbeautify.Soit'sadualpurposethatthecoatingprovides.Idon'tlikethere'samixeddifferential.Onautomobileitprotectsthesurfaceandbeautifiesthevehicleitself.Somostofourcoatingsdoboth.


Thankyou.

Operator :

IvanMarcusewithKeyBanc.

IvanMarcuse (Analyst-KeyBancCapitalMarkets):

Justacouplequickquestions--thefirstonewasontoLaurence'squestion.Whatisyourgoalforworkingcapitalasapercentofsales?Itcontinuestoimprove.Whatdoyouthinkyoucouldgetthisdownto?


It'sgoingtovarybybusiness.Businesses,someofwhicharelargelytransactionalandrequirevery,veryquickresponsetocustomers,areactuallygoingtocarrysomemoreonthehighsingledigits.Ifyourunthenumbersbasedonourinventoriesrightnow,youcansaywearearound80daysofinventory,ifyourunthemoffthefinancialstatements.

Wethinkthatthere'sagoodfivetoseven,fiveto10daysofinventoryopportunitythere.Wepickedupfivedayslastyear,there'sstillseveralmoredaystogettoourbenchmark.Andwearelookingat100basispointsayear,generally,toimproveworkingcapital.Combinationofpayables,wherewe'vemadealotofprogressrecently,inventories,past-duereceivables.Andkeepinmindthateverydayofinventoryandpayablesisworth$25million;everydayofreceivablesisworth$43million.There'salotofleverageoncashflowbyimprovingitjustalittlebit.


Great,andthenmylastquestionis--youmentionedthatMarchisyourstrongestmonthwith2%to3%typeofvolumegrowth.DidEasterhaveanysortofimpactonMarch?IknowthatfromApriltoMarch--oristhatanegligiblesortofeventforyourbusiness?


Formostofourbusinesses,Ivan,ourB2Bbusinesses,specifically,ithasanegligibleornoimpact.MostofourB2Bbusinessesrun24/7.EasterdidmoveintoQ1thisyear.ItwasinQ2lastyear.ItmighthavehadasmallcrimpimpactonsomeofourB2Cbusinesses,again,notwhatIwouldcallnoticeableinthenumbers.


Great,thankyou.




Operator :

Thisconcludesourquestion-and-answersession.IwouldliketoturntheconferencebackovertoMr.ScottMinderforanyclosingremarks.

Scott Minder (IR):

Onceagain,IwouldliketothankeveryonefortheirtimeandinterestinPPG.Ifyouhaveanyfurtherquestions,pleasecontactInvestorRelations.Thisconcludesourfirst-quarterearningscall.Thankyou.

Operator :

Theconferenceisnowconcluded.

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