Release Date: October 17, 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 record third-quarter adjusted earnings per diluted share of $2.13, marking an 8th consecutive quarter of year-over-year segment margin improvement.
- The company achieved sales of $4.6 billion, with 7 out of 10 businesses delivering organic growth, and the architectural coatings business in Europe showing a positive trend by stabilizing sales.
- PPG's aerospace coatings business delivered record quarterly sales, driven by double-digit percentage organic sales growth, and maintained a strong order backlog of approximately $290 million.
- The company completed $200 million in share repurchases and paid $160 million in dividends during the quarter, returning approximately $1 billion to shareholders year-to-date.
- PPG announced strategic divestitures, including the sale of its silicas products business and the architectural coatings US and Canada business, optimizing its portfolio for improved growth and margin profiles.
Negative Points
- The global auto OEM and industrial production sectors faced challenges, negatively impacting demand in PPG's industrial coatings segment.
- Unscheduled prolonged downtime in the automotive OEM industry, particularly in the US and Europe, led to a rapid decline in industry production, affecting PPG's top line.
- Despite efforts to mitigate costs, PPG was unable to fully offset the earnings impact from the decline in automotive OEM production late in the quarter.
- General industrial activity in the US and Europe remained lackluster, contributing to a mid-single-digit percentage decline in organic sales for PPG's industrial coatings business.
- The company anticipates some stranded costs from the divestitures, requiring a comprehensive restructuring program to eliminate these costs and rationalize its footprint, particularly in Europe.
Q & A Highlights
Q: Tim, could you give us the valuation multiples on the architectural deal? And is the exit completely clean or is there anything left behind for PPG to deal with this type of the stranded costs at corporate?
A: The sales of that business are approximately $2 billion with EBITDA margins in the low-single digits, resulting in a 14 multiple. It's a clean break, though there will be some transition service agreements, including ongoing exclusive supply agreements with AAP for distributing our protective and light industrial coatings. (Tim Knavish, CEO)
Q: Can you talk about the growth algorithm for 2025 post the sale of some of the architecture of silicon, and how do you see the volume growth potential for EBITDA going forward?
A: It's early to give specific numbers, but we have momentum in several areas, particularly in performance coatings. We expect marginally positive builds in auto next year, and Europe has flattened, which is positive. Our self-help initiatives will also contribute to growth in 2025. (Tim Knavish, CEO)
Q: Can you speak about the outlook and trajectory for industrial margins? Was the weakness driven more by price decline or volume?
A: The weakness was largely driven by volume, particularly in auto OEM and general industrial coatings. There was some price impact, but it was expected due to index pricing. Any volume increase will bring leverage back, and self-help actions are being taken. (Tim Knavish, CEO)
Q: As it relates to the $550 million in gross proceeds, is that within the range of outcomes you anticipated? How should we think about proceeds allocations and any dis-synergies from global procurement?
A: The $550 million and 14 multiple are consistent with expectations. We had broad interest and optionality during the process. We have a track record of not letting cash grow on the balance sheet, and we don't see dis-synergies in raw material procurement due to regional procurement practices. (Tim Knavish, CEO)
Q: Question on the cost program: Of the $250 million charge, how is the cash going to flow out? How do we model that?
A: The $250 million charge will be spread over three years, front-loaded in the first 15-18 months. Savings of $60 million are expected next year, with pro rata savings over the following two years. We are making structural changes to our footprint, which takes time. (Vincent Morales, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
