Q3 2023 PPG Industries Inc Earnings Call

Yeah.

Good morning, My name is Emily and I'll be your conference afraid to stay at this time I would like to welcome everyone to the third quarter P. P. G earnings conference call.

Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two.

To allow everyone an opportunity to ask a question the company requests that each analyst to ask only one question. Thank you.

I would now like to turn the conference over to Jon Friedman Vice President of Investor Relations. Please go ahead Sir.

Thank you Emily and good morning, everyone. We appreciate your continued interest in PPG and welcome you to our third quarter 2023 financial results Conference call. Joining me on the call from PPG are Timken, Knavish, Chairman and Chief Executive Officer, and Vince for Ellis Senior Vice President and Chief financial.

Sure.

Our comments relate to the financial information released after U S equity markets closed on Wednesday October 18, 2023, we have posted detailed commentary and accompanying presentation slides on the Investor Center of our website PPG Dot com. The slides are also available on the webcast site for this.

Call and provide additional support to the opening comments, Tim will make shortly following management's perspective on the company's results for the quarter, we will move to a Q&A session.

Both the prepared commentary and discussion during this call may contain forward looking statements, reflecting the company's current view of the 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 the company is under no obligation to provide subsequent update.

So these forward looking statements. The presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures for additional information please refer to Ppg's filing.

Emily: Good morning, my name is Emily and I'll be your conference operator today.

Emily: At this time I'd like to welcome everyone to the third quarter PPG earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remark, there will be a question and answer session. If you would like to ask the question during this time, simply press start followed by the number one on your telephone keypad. If you would like to withdraw your question, please press start followed by two. To allow everyone an opportunity to ask the question, the company requests that each analyst asks only one question.

<unk> with the SEC now, let me introduce PPG, chairman and CEO Tim <unk>.

Thank you John and good morning, everyone welcome to our third quarter 2023 earnings call I'd like to start by providing a few highlights on our third quarter record financial performance and then I'll move to our outlook.

In the third quarter. The PPG team continued to deliver strong financial results, including sales of $4 6 billion and adjusted earnings per diluted share of $2 seven.

Both records for a third quarter, our year to date cash generation is over $1 5 billion, which is also a record on a year to date basis.

Emily: Thank you.

John Bruno: I would now like to turn the conference over to John Bruno, vice president of investor relations. Please go ahead, sir. Thank you, Emily and good morning, everyone.

Our adjusted EPS of $2 seven was 25% higher year over year, we benefited from several non recurring favorable discrete income tax items, which added 10.

John Bruno: We appreciate your continued interest in PPG and welcome you to our third quarter 2023 financial results conference call. Joining me on the call from PPG are Tim Knavish, chairman and chief executive officer and Vince Morales, senior vice president and chief financial officer. Our comments relate to the financial information released after U.S, equity markets closed on Wednesday, October 18, 2023. We have posted detailed commentary and a company presentation slides on the investor center of our website, ppg.com.

Versus our beginning of quarter guidance, excluding this favorable tax benefit this year, our EPS was still about 20% higher than the third quarter of 2022, we're on pace to finish 2023 with all time record adjusted earnings per share.

As we communicated at the beginning of the year, we had a high degree of conviction that our global business portfolio mix would prove resilient this year and as we had anticipated a challenging economic environment that is clearly played out through the first nine months of the year. Our results were supported by good growth trends and strong execution in <unk>.

John Bruno: The slides are also available on the webcast site for this call and provide additional support to the opening comments. Tim will make shortly following management's perspective on the company's results for the poor. We will move to a Q&A session. Both the prepared commentary and a discussion during this call may contain forward looking statements reflecting the company's current view of the future events and their potential effect on PPG's operating and financial performance.

John Bruno: These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation, provide subsequent updates to these forward looking statements. The presentation also contains certain non-gap financial measures. The company has provided a non-gap financial measure to the most directly comparable gap financial measures.

Several of our leading in technology advantaged businesses, which resulted in record third quarter sales in the aerospace automotive OEM automotive refinish and PPG Comex coatings businesses, our third quarter sales volumes were impacted by soft global industrial production, which worsened in Ma.

Many countries during the quarter and also by cautious consumer buying patterns in Europe , China and other parts of the world.

The selling price increases we implemented earlier this year, primarily in the performance coatings segment drove a solid 3% increase for the quarter, we expect selling prices to remain positive in the fourth quarter of 2023, albeit a little lower sequentially as we continue to see prior price increases reached their anniversaries.

John Bruno: For additional information, please refer to PPG's filings with the SEC.

Tim Knavish: Now, let me introduce PPG chairman and CEO Tim Knavish. Thank you, John, and good morning, everyone. Welcome to our third quarter, 2023 earnings call. I'd like to start by providing a few highlights on our third quarter record financial performance, and then I'll move to our outlook. In the third quarter, the PPG team continued to deliver strong financial results, including sales of $4.6 billion, and adjusted earnings per diluted share of $2.07, both records for a third quarter.

Throughout 2023, a key priority for our team has been restoring our margin profile.

Third quarter marked the fourth consecutive quarter of year over year operating segment margin improvement with aggregate segment margins up 260 basis points.

This led to both of our operating segments delivering at least 25% earnings growth in the third quarter with the industrial coatings segment also delivering high higher sequential margins.

Tim Knavish: Our year-to-date cash generation is over $1.5 billion, which is also a record on a year-to-date basis. Our adjusted EPS of 207 was 25% higher year-to-year. We benefited from several non-recurring favorable discrete income tax items, which added $0.10 versus our beginning of quarter guidance. Excluding this favorable tax benefit this year, our EPS was still about 20% higher than the third quarter of 2022. We're on pace to finish 2023 with all-time record adjusted earnings per share.

Another key focus remains strong cash generation throughout the first three quarters of the year. The $1 5 billion operating cash generation that we delivered is up more than $1 1 billion over a year to year on a year over year basis.

In addition to our strong earnings performance, we significantly reduce working capital in total by about $300 million may.

Mainly driven by lower inventories contributing to the robust operating cash flow generation.

Tim Knavish: As we communicated at the beginning of the year, we had a high degree of conviction that our global business portfolio mix would prove resilient this year, and as we had anticipated a challenging economic environment. That has clearly played out to the first nine months of the year. Our results were supported by good growth trends and strong execution in several of our leading and technology-advantaged businesses, which resulted in record third quarter sales in the aerospace, automotive OEM, automotive finish, and PPG-comics coatings businesses.

We as part of this cash to reduce our higher variable cost debt during the quarter and despite significant increases in market interest rates, our net interest expense declined year over year.

As we look to continue our momentum into the fourth quarter. We are laser focused on achieving top line sales and earnings growth in 2024 and beyond I'd like to highlight a few items that we expect will support growth in 2024 first as I communicated at our CEO investor briefing in.

In May we are working on a number of commercial growth opportunities in several of these initiatives have been launched and are now gaining momentum. For example, we are pleased with the progress being made supporting our customers' rapid growth of electric vehicles in China with PPG technology advantage products and services, we are well positioned with the.

Tim Knavish: Our third quarter sales volumes were impacted by soft global industrial production, which worsened in many countries during the quarter, and also by cautious consumer buying patterns in Europe, China, and other parts of the world. The selling price increases we implemented earlier this year, primarily in a performance coding segment, drove a solid 3% increase for the quarter. We expect selling prices to remain positive in the fourth quarter of 2023, albeit a little lower sequentially, as we continue to see prior price increases reach their anniversaries.

A leading electric vehicle producers and continue to gain share as the production rate increases each quarter, including strong EV export activity out of China.

In the past few years, we've invested to enhance our manufacturing and technology capabilities around powder coatings products with prudent capacity additions. This year. We're realizing the benefit of these investments is our powder coating related sales have increased about 15% compared to last year, we're winning new business every quarter and supporting our.

Tim Knavish: Throughout 2023, a key priority for our team has been restoring our margin profile. The third quarter marked the fourth consecutive quarter of year over year operating segment margin improvement with aggregate segment margins of 260 basis points. This led to both of our operating segments delivering at least 25% earnings growth in the third quarter, with the industrial coding segment also delivering higher sequential margins. Another key focus remains strong cash generation. Throughout the first three quarters of the year, the 1.5 billion operating cash generation that we delivered is up more than 1.1 billion over a year, on a year over your basis.

Our customer sustainability and productivity objectives, and we expect powder to outgrow the market for a number of years to come.

Another commercial growth initiatives supporting our growth in 2024 and beyond involves expanding the breadth of products being sold through the PPG Comex distribution network, our World Class network of over 5100 concessionaire locations in Mexico has consistently outgrown the regional regional architectural market.

And provides customers with their preferred paint brand and products in Mexico. We are very excited about the opportunity to now leverage this distribution network to support customer needs for protective refinish traffic and light industrial products.

Tim Knavish: In addition to our strong earnings performance, we significantly reduce working capital in total by about $300 million, mainly driven by lower inventories, contributing to the robust operating cash flow generation. We as part of this cash to reduce our higher variable cost debt during the quarter, and despite significant increases in market interest rates, our net interest expense declined year over year. As we look to continue our momentum into the fourth quarter, where laser focused on achieving top line sales and earnings growth in 2024 and beyond.

These focus areas are part of a larger basket of commercial initiatives that will support our previously communicated organic sales growth targets.

I will provide periodic updates on these initiatives in subsequent quarters.

Yes.

On a legacy of PPG and another catalyst for earnings growth going forward as strong cash generation and value creating capital deployment.

Tim Knavish: I'd like to highlight a few items that we expect will support growth in 2024. First, as I communicated at our CEO investor briefing in May, we're working on a number of commercial growth opportunities, and several of these initiatives have been launched and are now gaining momentum. For example, we're pleased with the progress being made supporting our customers rapid growth of electric vehicles in China with PPG technology advantage products and services. We're well positioned with the leading electric vehicle producers and continue to gain share as the production rate increases each quarter, including strong EV export activity out of China.

I plan to continue to abide by our hallmark of prudent balance sheet management and financial flexibility supported by strong free cash flow of our business portfolio.

Year to date, we have delivered record cash flow from operations and we have utilized this to deliver on our prior commitment to repay some variable rate debt driving down our interest expense in the fourth quarter, we will likely incorporate some additional debt repayment, but will also likely complete some share repurchase.

<unk>, reflecting our strong cash position and seasonality of our cash flows.

In addition to the sales and earnings growth initiatives, one other strategic initiatives that we've been actioning relates to some selective pruning of our business portfolio.

Tim Knavish: In the past few years, we've invested to enhance our manufacturing and technology capabilities around powder coating products with prudent capacity additions. This year, we're realizing the benefit of these investments as our powder coating related sales have increased about 15% compared to last year. We're winning new business every quarter and supporting our customer sustainability and productivity objectives, and we expect powder to outgrow the market for a number of years to come. Another commercial growth initiative supporting our growth in 2024 and beyond involves expanding the breadth of products being sold through the PPG Comics distribution network.

As a reminder, we've read recently divested a number of smaller assets, including most of our coatings businesses in Africa, a noncore business that we acquired with the <unk> acquisition and have exited certain product categories. In some businesses. In addition, this week, we announced the divestiture of certain international ops.

<unk> and our traffic solutions business.

These actions allow us to channel our gross bandwidth in areas that are meaningful and where we have winning advantages, including technology brands and customer relationships. We will continue to actively assess each of our businesses.

Tim Knavish: Our world-class network of over 5,100 concessionaire locations in Mexico has consistently outgrown the regional architectural market and provides customers with their preferred paint brand and products in Mexico. We're very excited about the opportunity to now leverage this distribution network to support customer needs for protective, refinished traffic and light industrial products. These focus areas are part of a larger basket of commercial initiatives that will support our previously communicated organic sales growth targets.

And product lines to ensure they are consistent with our growth objectives and that they meet our financial objectives and they earn the right to remain in the portfolio.

Now I'll comment on our fourth quarter outlook, we expect several of the businesses and our performance coatings segment to deliver organic growth, including continued solid growth in our PPG comex and aerospace businesses we.

We do expect slowing in U S architectural coatings demand stemming from multi decade highs in interest rates and lowering housing turnover.

Tim Knavish: I will provide periodic updates on these initiatives in subsequent quarters. A legacy of PPG and another catalyst for earnings growth going forward is strong cash generation and value creating capital deployment. I plan to continue to abide by our hallmark of prudent balance sheet management and financial flexibility supported by strong free cash flow of our business portfolio. Year-to-date we have delivered record cash flow from operations and we have utilized this to deliver on a prior commitment to repay some variable rate debt, driving down our interest expense.

While we expect our automotive OEM business to grow in the fourth quarter in most regions. Other portions of our industrial coatings segment will be challenged due to sluggish overall global industrial production.

While there are many variables and uncertain timing. We are prudently included an estimated financial impact of the UAW strikes of a few cents of EPS in our fourth quarter financial guidance.

As we have communicated in the past our regional sales to the Oems impacted by the strike or low single digit percentage of our total company sales.

Tim Knavish: In the fourth quarter we will likely incorporate some additional debt repayment but will also likely complete some share repurchases reflecting our strong cash position and seasonality of our cash flows. In addition to the sales and earnings growth initiatives one other strategic initiative that we have been actioning relates to some selective pruning of our business portfolio. As a reminder we have recently divested a number of smaller assets including most of our coding businesses in Africa, a non-core business that we acquired with the NS Flint acquisition and have exited certain product categories in some businesses.

Also we sell to other OEM customers in the region not impacted by the strikes and given the historically low dealer inventory levels. We expect any loss volume will be made up in subsequent quarters.

Certain other sales volume headwinds are beginning to abate as we expect China is at or approaching trough levels. Also we do not expect destocking to be a significant issue in our packaging coatings end use market in 2024.

With regard to commodity raw materials supply has normalized to pre pandemic levels and we expect to continue to realize benefits from moderating input costs, we will maintain emphasis on diligently managing our costs and expect to make more progress on our previously announced restructuring initiatives.

Tim Knavish: In addition this week we announced a divestiture of certain international operations in our traffic solutions business. These actions allow us to channel our growth bandwidth in areas that are meaningful and where we have winning advantages including technology, brands and customer relationships. We will continue to actively assess each of our businesses and product lines to ensure they are consistent with our growth objectives and that they meet our financial objectives and they earn the right to remain in the portfolio.

In addition, we are beginning to deliver manufacturing and productivity gains, which are supported by a more stable supply chain and customer order pattern.

Despite the challenging environment, we've raised our full year earnings guidance and expect fourth quarter aggregates segment segment margins will be higher on a year over year basis for the fifth consecutive quarter.

Tim Knavish: Now I will comment on our fourth quarter outlook. We expect several of the businesses in our performance coding segment to deliver organic growth and including continued solid growth in our PPG COMEX and aerospace businesses. We do expect slowing in US architectural coding demands stemming from multi-decade highs in interest rates and lowering housing turnover. While we expect our automotive OEM business to grow in the fourth quarter in most regions, other portions of our industrial coding segment will be challenged due to sluggish overall global industrial production.

Lastly, I would like to thank our team members around the World who live our purpose purpose every day to protect and beautify the world. Thanks to their hard work and dedication we were able to support our customers and help them solve their biggest challenges I remain confident in our team's ability to make it happen.

Thank you for your continued confidence in PPG. This concludes our prepared remarks and now now would you. Please open the line for questions.

Thank you.

At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

Tim Knavish: While there are many variables in uncertain timing we have prudently included an estimated financial impact of the UAW strikes of a few cents of EPS in our fourth quarter financial guidance. As we have communicated in the past regional sales to the OEMs impacted by the strike are low single digit percentage of our total company sales. Also we sell to other OEM customers in the region not impacted by the strikes and given a historically low dealer inventory levels we expect any loss volume will be made up in subsequent quarters.

So just a moment to compile the Q&A roster.

Your first question today comes from the line of John Mcnulty with BMI. John . Please go ahead. Your line is now open.

Yes. Good morning, Thanks for thanks for taking my call and congrats on a solid set of results.

Wanted to ask on the raw material environment.

We've seen a decent jump up in oil recently I guess can you speak to how we should be thinking about raws moving from <unk> to <unk> and if you expect them to be down.

Tim Knavish: Certain other sales volume headwinds are beginning to debate as we expect China is at or approaching drop levels. Also we do not expect destocking to be a significant issue in our packaging coatings and use market in 2024. With regard to commodity raw materials, supply has normalized to pre-pandemic levels and we expect to continue to realize benefits from moderating input costs. We will maintain emphasis on diligently managing our costs and expect to make more progress on our previously announced restructuring initiatives.

And how much on a sequential basis do you expect them to be down and then I guess, how should we be thinking about that as it rolls through into 2024.

Hey, John Thanks for thanks for the question. So let me talk about oil first.

Obviously oil is going to produce some impact on solvents for us.

But really our raw material basket is much more dependent upon.

Supply demand were.

Several steps removed from from oil with the exception of solvent. So that's a much bigger impact for us.

Tim Knavish: In addition, we are beginning to deliver manufacturing and productivity gains which are supported by a more stable supply chain and customer order pattern. Despite the challenging environment, we've raised our full year Arnie's guidance and expect fourth quarter aggregate segment margins will be higher on a year-over-year basis for the fifth consecutive quarter. Lastly, I would like to thank our team members around the world who live our purpose every day to protect and beautify the world.

And then the total impact for Q4, we saw a high single digit deflation in Q3.

We expect high.

The high single digits in Q4, and we expect further deflation as we move into 2024 on a broader basis.

Yes, John This is Vince let me just add a little bit to what Tim was saying so the supply demand environment as we pointed out I think in our prepared remarks and the press release.

Tim Knavish: Thanks to their hard work and dedication, we were able to support our customers and help them solve their biggest challenges. I remain confident in our team's ability to make it happen. Thank you for your continued confidence in PPG.

We are seeing sufficient more than sufficient supply that's typically a bigger driver.

All of our input costs than just the feedstocks and right now and heading into a seasonally lower fourth quarter. We expect that to continue so I would expect.

John Bruno: This concludes our prepared remarks and now would you please open the line for questions. Thank you. At this time, I would like to remind everyone in order to ask a question, please press start then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Recent rise in oil.

No impact other than solvents on our fourth quarter and as we head into next year. It will start negotiating with our suppliers in Q4 late Q4, and the tone from our suppliers has been more volume driven as opposed to price driven.

John Mcnulty: Your first question today comes from a line of John McNulty with BMO. John, please go ahead. Your line is now open. Yeah, good morning. Thanks for taking my call and congrats on a solid fit of results. I wanted to ask on the raw material environment. You know, we've seen a decent jump up in oil recently. I guess can you speak to how we should be thinking about raw as moving from three Q to four Q. And if you expect those to be down, and how much on a sequential basis do you expect them to be down?

Your next question comes from the line of Duffy Fischer with Goldman Sachs. Duffey. Please go ahead. Your line is now.

John Mcnulty: And then I guess how should we be thinking about that as it rolls through into 2024?

Hey, good morning, guys.

Just a question around the delta between industrial and performance. So industrial margins were up 300 bps year over year.

And performance was up a little under two 5%, but industrial trails on volumes by 4% and trailed on dollar pricing by three.

So it doesn't look like there were any leverage from price and volume.

Tim Knavish: Hey, John, thanks for a question. Somebody talked about oil first. You know, obviously oil is going to produce some impact on on solvents for us.

On the margin spread so what's underlying that gap and why was industrial able to do better than performance, even though it didn't on price or volume.

Vincent Morales: But really our raw material basket is much more dependent upon supply demand, where several steps removed from oil with the exception of solvent. So that's a much bigger impact for us. And then the total impact for Q4, we saw a high single digit deflation in Q3. We expect high single digits in Q4, and we expect further deflation as we move into 2024 on a broader basis.

Yes, Duffy, let me start and I'll, let Tim add some color, obviously, but if you look.

Look at Q3 alone.

The improvement year over year in industrial is larger but the performance segment improved quicker. So we got pricing, we typically at pricing and performance quicker. So we had price injected into our businesses quicker and performance.

We lag that with industrial and we're still getting price in industrial.

And certainly in 2022 and the back half.

So on a year over year Delta Youre, correct industrial segment looks better but performance just recovered earlier, Tim you want to yes, I think spot on and I think both segments will see continued.

Vincent Morales: Yeah, John, this has been for me. I just add a little bit to what Tim was saying. So the supply demand environment, as we pointed out, I think in our prepare remarks and the press release, we've seen sufficient more than sufficient supply. That's typically a bigger driver of our input costs than just the feed stocks. And right now, and heading into a seasonally lower fourth quarter, we expect that to continue. So I would expect the recent rise in oil to have no impact other than solvents on our fourth quarter. And as we add in the next year, it will start negotiating with our suppliers in Q4, Lake Q4. And the tone from our suppliers has been more volume driven, as opposed to price driven.

Year over year margin improvement.

Depending upon what the addition of manufacturing productivity improvements that I mentioned in my opening comments and of course.

As we get into seasonality more volume will help that.

That step change in margins as well.

Your next question comes from the line of Ghansham Panjabi with Baird.

Please go ahead. Your line is now open.

Thank you operator, good morning, everybody.

As we kind of think about 2023 to be higher margin vertical including aerospace in comex. It delivered an outsize growth and obviously margin conversion as well how should we think about the sustainability of these growth verticals into 2024, and just more broadly what is your base case for volumes for each of the two operating segments next year.

Duffy Fischer: Your next question comes from a line of Duffy Fischer with Goldman Sachs. Duffy, please go ahead, your line is now open. Yeah, good morning, guys. Just a question around the delta between industrial and performance. So industrial margins were up 300 Bips year over year and performance was up a little under 2.5%. But industrial trailed on volumes by 4% and trailed on dollar pricing by 3. So it doesn't look like there were any leverage from price and volume on the margin spread.

Tim Knavish: So what underlying that gap and why was industrial able to do better than performance, even though it didn't on price or volume? Yeah, Duffy, this is going to be $5.10 at some color, obviously. But if you look at Q3 alone, the improvement year over year and industrial is larger, but the performance statement improved quicker. So we got pricing, we typically have pricing and performance quicker. So we had price injected into our businesses quicker and performance.

Yes, ghansham thanks for the question.

Aerospace you should expect that.

To continue not only for 'twenty four but.

Multiple years going forward, we have just.

Such a unique technology advantage position in that industry across.

Commercial.

Commercial new build commercial aftermarket general aviation and military.

And all of those are strong and projected to be strong for the foreseeable future.

We've got a tremendous backlog everything we make we can sell so.

You should feel very good about we do for coming quarters and years.

Likewise with PPG Comex.

Think this was the 13th quarter in a row of record performance. There is nothing to say, we won't have 14th 15th and beyond.

Tim Knavish: We lagged that with industrial and we were still getting price and industrial in certainly in 2022 in the back half. So on a year of a year of delta, you're correct, the industrial statement looks better, but performance just recovered earlier. Yeah, I think spot on and I think both segments will see continued year over year margin improvement, depending upon with the addition of manufacturing productivity improvements that I mentioned in my opening comments.

In my opening comments I mentioned in back in May at the CEO briefing I mentioned that while we will continue to gain share in the conventional architectural business. We're now focused on kind of our next chapter of accelerated growth in PPG Comex and Thats using our world class distribution.

Tim Knavish: And of course, as we get into seasonality, more volume will help that step change in margins as well.

<unk> network.

To sell refinished coatings traffic industrial protective and those are all up and running so you should feel really good about those two businesses continuing our record breaking performance and we certainly do.

An overall volume basis.

Ghansham Panjabi: Next question comes from the line of gunshamp and jobee with bed. Gunshamp, please go ahead. Your line is now open. Thank you, operator. Good morning, everybody. You know, as we kind of think about 2023, you know, two of you higher margin verticals, including air space and comics have delivered on outsized growth and, you know, obviously margin conversion as well. How should we think about the sustainability of these growth verticals into 2024 and just more broadly, what is your base case for volumes for each of the two operating segments next year?

I'm confident that we're going to swing to overall positive volume.

In 2024 based on our based on a number of green shoots that we're seeing throughout our portfolio.

Okay got you if I could if I could add just to those green shoots.

We are seeing.

Europe in our opinion is dropping especially for our business mix.

We were essentially flat in Q3 and European volume.

Across our portfolio, we do expect.

Ghansham Panjabi: Yeah, Gunshamp. Thanks for the question. Aerospace, you should expect that to continue not only for 24, but multiple years going forward. We have just such a unique technology advantage position in that industry across commercial commercial new build, commercial aftermarket, general aviation, military, and all of those are strong and projected to be strong for the foreseeable future. You know, we've got the tremendous backlog, everything we make, we can sell. So that, that you should feel very good about we do for coming quarters and years.

Growth to resume in China, albeit at a lower level. So those are those are two pieces of our two big pieces of our portfolio geographically and as Tim mentioned in Mexico, We expect to have outsized growth relative to other regions.

And then the other businesses that Tim mentioned.

I agree with but I would also add that we do we are picking up.

Share in our refinish business based on some of the technologies that we talked about in May.

Your next question comes from the line of Christopher Parkinson with Mizuho.

Please go ahead. Your line is now open.

Thank you so much good morning, Tim.

Tim you've spoken a lot about kind of refocusing on R&D and.

Further positioning PPG to outgrow some of its respective end markets new products, New technology has been literally just mentioned one.

Ghansham Panjabi: Likewise, with PPG comics, I think this was the 13th quarter in a row of record performance. There's nothing to say we won't have 14th, 15th and beyond. In my opening comments, I mentioned in the back in May at the CEO briefing, I mentioned that while we will continue to gain share in conventional architectural business, we're now focused on kind of our next chapter of accelerated growth in PPG comics. And that's using our world class distribution network to sell refinished coatings, traffic, industrial, protective, and those are all often running.

Once we're through this macro mayhem or however, you want to characterize it whats your level and degree of confidence that you will in fact be able to outgrow certain end markets and where you ultimately the most enthusiastic thank you.

Yeah, Hey, Chris Thanks for the question.

I like how you describe that as the macro.

I'm thinking about the broader kind of sequential what you should expect to see from US most of the 23 you heard me say many times laser focused on margin recovery, we've made progress there I think.

Next phase I would call, mostly focused on recovery growth in some of our stronger portfolio segments, but while all of that is happening we have been.

Ghansham Panjabi: So you should feel really good about those two businesses continuing record breaking performance and we certainly do. On an overall volume basis, you know, I'm confident that we're going to swing to overall positive volume in 2024 based on a number of green shoots that we're seeing throughout our portfolio. Yeah, and if I could add just to those green shoots, so we are seeing Europe in our opinion is dropping, especially for our business mix.

Shifting those focus and investment areas that you alluded to and I would say innovation areas not just the classic R&D because some of that innovation is inside the can.

And some of that innovation is outside that can and we're starting.

To see progress in a number of those areas, which is some of the green shoots and confidence that I have on go forward.

From a sustainability standpoint, I look at our Marine MLR business were up 20% this year and a lot of that is driven by sustainable products for <unk>.

Ghansham Panjabi: We are essentially flat in Q3 and European volume across our portfolio. We do expect a growth to resume in China albeit at a lower level. Those are two pieces of our portfolio geographically. And as Tim mentioned, Mexico, we expect to have outsized growth relative to other regions. And then the other businesses that Tim mentioned, I would agree with that I would also add that we do. We are picking up share in our refinished business, you know, based on some of the technologies that we talked about in May.

Reducing friction on the hull of ships and we're getting tremendous pull and we expect we expect that to grow significantly at 24 and beyond chance or I'm sorry.

Vince mentioned and chance the aggregate business some of the digital innovations that that we've invested in and continue to invest in are really starting to gain not only momentum with our existing customers, but share winning momentum by the end of this year, we'll have 2000 moonwalk in place about one <unk>.

Christopher Parkinson: Your next question comes from the line of Christopher Parkinson with Maduho. Christopher, please go ahead, your line is now open. Thank you so much.

Third of those are share gain.

Youll recall back in May chancy, and his team demonstrated the broader PPG link digital ecosystem to help body shops be more productive even though we're only nine months in we've got 7000 shops lined up for PPG link pay.

Tim Knavish: Good morning. Tim, you've spoken a lot about kind of refocusing on R&D and just further positioning PPG to outgrow some of its respective end markets. You know, new products, new technologies been literally just mentioned one. You know, once we're through this macro mayhem or however you want to characterize it, you know, what's your level and degree of confidence that you will in fact be able to outgrow certain end markets. And where are you ultimately the most enthusiastic?

Paying their subscriptions and starting to improve their own shops, and we're still very early days and share gain momentum on PPG link starting starting to pick up.

Tim Knavish: Thank you. Yeah, Chris, thanks for the question. I like how you described the macro. The way I'm thinking about the broader kind of sequential what you should expect to see from us. You know, most of 23 you heard me say many times laser focused on market recovery. We've made progress there. I think the next phase I would call mostly focused on recovery growth in some of our trauma report, folio segments, but while all of that is happening, we have been shifting those focus and investment areas that you alluded to in.

<unk>.

25% every car produced in China now is EV, we are winning share with EV producers and we are growing content per vehicle on evs. So a lot of the things we talked about are starting they're moving from incubation phase two implementation and execution phase So I am highly confident Chris that.

The things that we've picked as needle moving investments for our future.

Going to do just that and move that needle in a positive direction.

Your next question comes from the line of Michael.

Tim Knavish: I would say innovation areas, not just classic R&D because some of that innovation is inside the camp and some of that innovation is outside the camp. And we're starting to see progress in a number of those areas, which is some of the green shoots and confidence that I have on go forward. You know, from a sustainability standpoint, I look at our marine M&R business. We're up 20% this year and a lot of that is driven by sustainable products for reducing friction on the hall of ships.

Michael. Please go ahead. Your line is now open.

Great. Thanks, Good morning, guys.

Question for Vince on cash flow.

Strong this year given talked a bit about deployment.

Deployment opportunities.

The early read for the best opportunities to deploy cash in 2004.

How should we think about it picks back up essentially in buybacks sort of factoring into the growth algorithm next year.

Yes. Thanks.

Thanks, Mike Good morning, Yeah, again, just to reiterate again record Q3 year to year to date cash flow about $1 five.

Tim Knavish: And we're getting tremendous pull. And we expect that to grow significantly in 24 and beyond. I'm sorry Vince mentioned in Chancey Haggerty's business, some of the digital innovations that we've invested in and continue to invest in are really starting to gain not only momentum with our existing customers, but share winning momentum. By the end of this year, we have 2,000 moon walks in place, about a third of those are share gain.

If you look at our net debt were down $7 million to $800 million.

Year over year versus the end of the year Tim.

Tim mentioned that we have some debt coming due in 2024, we're going to pay some of that early to get the interest.

Interest rate carry.

And our EPS, but we have 600 million of debt coming due over the next 12 years 12 months excuse me.

And again some of that we have we can prepay early which will take advantage of and we're going to do some level of share repo in Q4, and we're not going to itemize that in terms of size, but we will look at our cash position and we will look at the cash flow and typically our strongest quarter.

Tim Knavish: You'll recall back in May, Chancey and his team demonstrated the broader PPG link digital ecosystem to help body shops be more productive. Even though we're only 9 months in, we've got 7,000 shops lined up for PPG link. Paying their subscriptions and starting to improve their own shops and we're still very early days. And share gain momentum on PPG link is starting to pick up EVs. 25% every car produced in China now is EV.

A quarter of the year, we'll give more guidance on 2024 in January .

Again, we do expect again continued strong cash flow in 2020 for.

Earnings growth supporting that as well as we're still carrying <unk>.

Several hundred million dollars of excess inventory that.

As we continue to make good progress on working that down.

Tim Knavish: We are winning share with the EV producers and we're growing content per vehicle on EVs. So a lot of the things we talked about are starting, they're moving from incubation phase to implementation and execution phase. So I'm highly confident Chris that things that we've picked as needle moving investments for our future are going to do just that and move the needle in a positive direction.

In Q2, and Q3, but we still have a couple of hundred million dollars and we want to work down over the next six months or so so that will help our cash flow next year, but we will get more cash and financial guidance in January .

Your next question comes from the line of Vincent Andrews with Morgan Stanley . Vincent. Please go ahead. Your line is now open.

Thank you good morning, everyone.

Some comments in the prepared remarks, and U S. Refinish about some negative volume, it's a function of <unk>.

Michael Lighthack: Your next question comes from the line of Michael Lighthack at Barclays. Michael, please go ahead, your line is now open. Great, thanks, good morning, guys. Question for Vincent Cash, well, it's been quite strong this year. He has talked a bit about 4Q deployment opportunities, but just with the early read for the best opportunities to deploy Cash in 24, and just how should we think about a pickback up potentially and buyback sort of factoring into the EPS?

Customer issues could you just give a little more detail on those and whether they're going to persist into the fourth quarter was just unique to the third quarter.

Yes, Tim.

Thanks for the question so.

To the earlier point, we are winning share in U S refinish, where you're winning share largely driven by our digital ecosystem technology. So.

Michael Lighthack: Growth algorithm next year. Thank you. Thanks, Mike, good morning. Yeah, again, just to reiterate, again, record Q3 year to your day, Cash, about a billion five. If you look at our net debt, we're down, you know, $7,800 million a year over a year or versus the end of the year. Tim mentioned that we have some more debt coming due in 2024. We're going to pay some of that early to get the interest, interest rate carry into the end of the EPS, but we have 600 million of debt coming due as the next 12 months, excuse me.

We're laser focused on the body shop level, because thats ultimately the end customer, that's where our products get get consumed because of the two step distribution in this business. The actual sales we book.

To the distributors and they especially.

Especially in a high interest rate environment, they fluctuate their inventories up and down so we look at it over a multi year multi quarter basis, but we're confident based on our net body shop wins.

That.

The volume and growth in this business will be a good story for us and then just.

Michael Lighthack: And again, some of that we have we prepare early, which will take advantage of. We are going to do some level share repo and Q4. We're not going to itemize that in terms of size, but we'll look at our cash position and we'll look at the cash flow and typically our strongest quarter of the year.

At the market level the body shops are still very active they still have a backlog they're working through that backlog. So sell in certainly matters for us, but the ultimate judge of how the business and how the market's performing or the body shop.

Vincent Morales: We'll give more guidance on 2024 January. Again, we do expect to again continue strong cash flow in 2024 earnings growth supporting that as well as we're still carrying several hundred million dollars of excess inventory as we continue to make good progress and working that down in Q2 and Q3, but we still have a couple hundred million dollars we want to work down over the next six months or so. So that'll help our cash flow next year, but we'll give more cash and financial guidance on January.

The body shop metrics and the body shop.

<unk> remains very solid.

As we sit here today, and we don't see that.

Changing in the near term.

Your next question comes from the line of Stephen <unk>.

With Bank of America Merrill Lynch. Steve. Please go ahead your line is open.

Thanks, Tim I would like to ask you about your view on among all of your growth potential where would you rank cross selling you.

Vincent Andrews: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent, please go ahead. Your line is now open. Thank you. Good morning, everyone. I believe there was some comments that prepared remarks in us refinish about some negative volume as a function of some customer issues. Could you just give a little more detail on those and whether they're going to persist into the fourth quarter.

Highlighted opportunities businesses, but.

You highlighted comex is an opportunity to drive a few other businesses, but do you see potential to do that in other regions.

Which of your businesses do you think you have the most potential to drive geographic share gain.

Tim Knavish: It was just unique. So the third quarter. Yeah, Vincent, Tim, thanks for the question. So to the earlier point, we are winning share in US refinish where you winning share largely driven by our digital ecosystem technology. So we're laser focused on the body shop level because that's ultimately the end customer. That's where our products get get consumed. Because of the two-step distribution in this business, the actual sales we book are to the distributors and they, especially in a high interest rate environment, they fluctuate their inventories up and down.

Yes, Hey, Steve Thanks for the question Comex.

As one example.

Two areas that are top of mind, we talk about often as far as cross selling if you look at protective coatings.

We are as part of our PMC business, we sell protective coatings today across the distribution networks that are kind of owned and operated by our architectural business.

We look at from.

From a customer standpoint, the near shoring the construction of.

Battery plants for example, or the near shoring of factories into Mexico.

Tim Knavish: So we look at it over a multi-quarter basis, but we're confident based on our net body shop wins that the volume and growth in this business will be a good story for us. Yeah, Vincent, just at the market level, the body shops are still very active. They still have a backlog. They're working through that backlog.

Vietnam and other places, but those are cross business selling opportunities, where we would be selling protective coatings architectural architectural coatings and light industrial coatings. So we have those cross selling opportunities around the world and we leverage those and see good opportunities for further growth.

Tim Knavish: So selling certainly matters for us, but the ultimate judge of how the business and how the market's performing or the body shop or the body shop metrics and the body shop business remains very solid as we sit here today and we don't see that changing in the near term.

Going forward PPG, Mexico, I point out because I would argue it's the strongest distribution network in the coating space globally.

But we have we have similar opportunities to different scales around the world.

Yes, Steve I, just wanted to expand on the battery factory comment Tim made so if you look at the battery factory construction, we typically have multiple angles to prosecute that we may go in first with protective coatings as they're building building building.

Stephen Byrne: Your next question comes from the line of Stephen V. Byrne with Bank of America Merrill Lynch. Stephen, please go ahead, your line is open. Thanks, Tim. I'd like to ask you about your view on among all of your growth potential. Where would you rank cross-selling? You know, you highlighted growth opportunities in businesses, but you highlighted COMEX as an opportunity to drive a few other businesses. But do you see potential to do that in other regions and which of your businesses do you think you have the most potential to drive geographic share gain?

Building the infrastructure for the factory, we certainly can do architectural coatings.

And then have an entre into the actual products being made in those factories, both both on our light industrial or heavy industrial coatings as well as an OEM basis. So that's I think battery factories are prime examples of where we were able to cross cross pollinate with the customers.

Your next question comes from the line of Jeff Zekauskas with J P. Morgan Jeff. Please go ahead. Your line is now open.

Stephen Byrne: Yeah, Steve. Thanks for the question. COMEX is one example. Two areas that top of mind we talk about often as far as cross-selling. You look at protective coatings. We are part of our PMC business. We sell protective coatings today across the distribution networks that are going to own an operative market. We look at, from a customer standpoint, the near-shoring, the construction of battery plants, for example, or the near-shoring of factories into Mexico or Vietnam and other places, those are cross-business selling opportunities where we would be selling protective coatings, architectural coatings, and light industrial coatings. So we have those cross-selling opportunities around the world and we leverage those and see good opportunities for further growth going forward.

Alright, thanks very much.

You said that you are on FIFO.

And that your raw materials on that basis, we're down at a high single digit rate. If you were on LIFO how.

How much would they be down no I know that they would be down more but my question is by what percentage.

Secondly, it seems that your volumes and your domestic.

Architectural paint stores business.

Increase in the third quarter.

True.

Do you think they are capable of increasing in the fourth quarter.

Jeff This is Vince great to hear from Neil Let me take the first question on inventory and Tim will take the architectural question.

I think the best way, we can describe that it's a complicated question as you pointed out but a great question I think the best way we have been describing that is if you look on a realized basis. We're realizing.

Mid to high single digit deflation in our financial in our P&L in Q2 Q3.

Tim Knavish: PPG Mexico, I point out because I would argue it's the strongest distribution network in a coating space globally. But we have similar opportunities to different scales around the world. Steve, I just want to expand on the battery factory. If you look at battery factory construction, we typically have multiple angles to prosecute that. We may go in first with protective coatings as they are building the infrastructure for the factory. We certainly could do our architectural coatings.

We think that would be high single digit.

Or even low double digit depending on the commodity.

If we were able to.

To move to a LIFO for the 80% of our business. That's on FIFO. So that gap is probably two to 300 basis points of deflation capture.

Tim Knavish: We then have an entree into the actual products being made in those factories, both on a light industrial or heavy industrial coatings as well as an OEM basis. So I think battery factories are prime examples of where we are able to cross-pollinate with the customers.

So I hope that's a hope thats understood Tim.

<unk> on your architectural U S question the way, we look at it with our new business model.

Our stores are part of our professional Omnichannel, which is company owned stores plus the pro at home depot, plus our independent dealers.

That business despite.

Despite all the challenges macro wise that omnichannel delivered low single digit growth in Q3, and we would expect that or better as we move forward.

Jeffrey Zekauskas: Your next question comes from the line of Jeff the Caucus with JP Morgan. Jeff, please go ahead. Your line is now open. Thanks very much. You said that you're on FIFO and that your raw materials on that basis were down at a high single digit rate. If you were on LIFO, how much would they be down? No, no, I know that they would be down more, but my question is, but by what percentage? And secondly, it seems that your volumes in your domestic... Architectural Painstores Business, Increase in the third quarter, is that true? And do you think they're capable of increasing in the fourth quarter?

So yes, I think the Omnichannel is.

Is delivering what we expected some help from macros would make that even better.

Jeff. This is John just one other point to Tim's feedback that growth was driven more by volume and price in the third quarter.

Your next question comes from the line of Josh Spector with UBS.

Josh. Please go ahead. Your line is now open.

Yes, hi, thanks for taking my question.

So I wanted to ask on margins and I'll ask it on industrial but I think the same market volume performance. If you remove some of that seasonality. So.

If we look at where margins are now in industrial you are in the high 13% range.

John Bruno: Jeff, this is Vance Cate to hear from you. Let me take the first question, I'm inventory and Tim will take the architectural question. I think the best way we could describe that, it's complicated question as you pointed out, but a great question. I think the best way we've been describing that is, if you look on a realized basis, we're realizing, you know, mid-high single digit deflation in our financial, in our P&L, in Q2, Q3, we think that would be high single digit or even low double digit depending on the commodity, if we were able to move to a LIFO for the 80% of our business that's on FIFO.

Were there in the first quarter of this year when you weren't getting benefits in raw materials, you're there now where you are getting benefit.

There was a roughly a similar so I guess first it.

Why aren't we seeing the flow through on margin is there something on cost.

Any price hitting back impacting that and then second when we look at next year.

Volumes are say flattish or maybe slightly up.

Is there anything in your control to get margins up higher than where they are today be it cost or otherwise or is this the level, we kind of normalize that it's more volume growth. Thanks.

Hey, Josh.

John Bruno: So that gap is probably two to three-hundred basis points of deflation capture. So I hope that's understood Tim. Hey Jeff, on your architectural U.S, question, the way we look at it with our new business model is, our stores are part of our professional omnichannel, which is company-owned stores plus the pro at Home Depot plus our independent dealers. That business, despite all the challenges macro wise, that omnichannel delivered low single digit growth in Q3, and we would expect that or better as we move forward.

So industrial segment 39, as you said that is 300 basis points up from last year.

In Q3, and the real driver, it's not probably we have not seen any significant if any price give back to your question on on the impact there in industrial the big impact is <unk>.

<unk>.

That is that as volume recovers moving forward Youll see margin in industrial coatings improve so within our control the operational improvements that we've talked about and we said in our prepared remarks that we're starting to see those.

John Bruno: So yeah, I think the omnichannel is delivering what we've expected, some help from macros would make that even better. And Jeff, this is John, just one other point to Tim's feedback, that growth was driven more by volume than price in a third quarter.

<unk> come through on a productivity basis, that's another big driver to industrial segment margin continued improvement.

Your next question comes from the line of David Begleiter with Deutsche Bank. David. Please go ahead. Your line is now open.

Joshua Spector: Your next question comes from the line of Josh Specter with EBS. Josh, please go ahead, your line is now open. Yeah, hi. Thanks for taking my question. So I wanted to ask on margins, and I'll ask it on industrial, but I think the same logic would apply a performance to remove some of the seasonality. So if we look at where margins are now in industrial, you know, you're in the high 13% range, you were there in the first quarter of this year, when you weren't getting benefits of raw materials, you're there now where you are getting benefits.

Good morning.

And Vince just on the Q4 guidance can you give a little more color on your assumptions for the auto strike how long it continues and does it expand.

Tim Knavish: It builds a roughly similar, so I guess first, why aren't we seeing the flow through a margin? Is there something on cost or any price shitting back impacting that? And then second, when we look at next year, if volumes are, say, flatish or maybe slightly up, is there anything in your control to get margins up higher than where they are today, be it cost or otherwise, or is this the level we kind of normalize that it's more volume growth. Thanks.

So what are you seeing in terms of professional contracted backlogs heading into our into Q4 here. Thank you.

Hey, David on UAW I said in my prepared remarks, <unk> I'll be a little more specific we've assumed <unk>.

For Q4.

It was a much less than that in Q3 almost negligible because.

The mix of where the where the strikes hit from the UAW, but we have made made some assumptions that.

This will go on and we'll likely spread to a couple of plants, but as you know David we're trying to guess as much as anybody.

What tactics are going to be are going to be deployed but we've got about <unk> built into our Q4 Q4 guide.

Tim Knavish: Hey, Josh. So industrial segment, 13.9, as you said, that is 300 basis points up from last year in Q3. And the real driver, it's not probably, we have not seen any significant, if any price give back to your question on the impact there in industrial.

And the second question again was.

The backlogs in the U S architectural side, yes, thanks, sorry, sorry, I forgot the second question backlogs in architectural from AR.

From a DIY standpoint of course no backlogs.

Down-low.

From an overall sales and volume standpoint, but the pro backlogs are actually holding up pretty well despite everything that's happening out there on housing.

Tim Knavish: The big impact is volume. That is, that as volume recovers moving forward, you'll see margin in industrial coatings improved. So within our control, the operational improvements that we've talked about, and we said in our prepare remarks that we're starting to see those impacts come through on a productivity basis. That's another big driver to industrial segment, margin, continue to improve.

Youll recall that a lot of our pro business is commercial and maintenance and that's holding up well despite the macros and some of it is based on our backlog of jobs still coming out of prior quarters and prior years and some of that backlog is holding up because of.

Skilled labor availability that our customers are seeing so backlogs remain strong I think the average backlog for us and our customers only dropped by about a week from average of 14 weeks to 13 weeks, so still it's still pretty solid there.

David Begleiter: Your next question comes from the line of David Begleiter with Deutsche Bank.

David Begleiter: David Keefe, go ahead, your line is now open. Thank you, good morning. Tim and Vincent, just on the Q4 guidance, can you give a little more color on your assumptions for the autostrike, how long continues and does it expand? And also, what are you seeing in terms of professional, contracted backlogs heading into Q4 here? Thank you. Hey David, on UAW, I said in my prepare remarks a few cents, I'll be a little more specific, we've assumed three cents for Q4.

Your next question comes from the line of Kevin Mccarthy with CRP. Kevin. Please go ahead. Your line is now open.

Yes, good morning.

Portfolio a question for you Tim you've done a fair amount of pruning, including most recently the Australia New Zealand portion of transit solutions can you just put that into context, where are you in that process, how much more might there be to go and then on the flip side of the coin I'd appreciate any updated thoughts on potential for.

David Begleiter: It was much less than that in Q3, almost negligible because just the mix of where the strikes hit from the UAW. But we have made some assumptions that this will go on and will likely spread to a couple of weeks. But as you know, David, we're trying to guess as much as anybody to what tactics are going to be deployed. But we've got about three cents built into our Q4 guide. And the second question again was.

An increase in bolt on acquisitions with interest rates, having increased are you starting to see asking prices come down in the private market and how would you characterize that versus say repurchases youre just ongoing deleveraging for next year.

Yeah, Hey, Kevin good morning.

To your pruning question I would say we're in we're in early innings frankly.

We've done so far is I would say some of the more obvious ones around the edges, but.

Businesses businesses are on notice my team knows that.

Tim Knavish: The backlogs in the US architectural side. Yeah, thanks. Sorry, sorry, forgot the second question. Backlogs in architectural from a DIY standpoint, of course, no backlogs down low from an overall sales and volume standpoint. But the pro backlogs are actually holding up pretty well despite everything that's happening out there on housing. You'll recall that a lot of our pro business is commercial and maintenance. And that's holding up well despite the macros. And some of it is based on a backlog of jobs still coming out of prior quarters and prior years.

Every business has to earn their right to stay in the portfolio.

Thats small or medium or large event, but.

We did the obvious ones first and we're working through a number of other things.

A bit early to give any specifics but.

Early days there.

Let me just add there I think this goes back to the main CEO briefing the focus for US is to make sure that we're spending our energy as our bandwidth on organic growth and if a business is not.

Tim Knavish: And some of that backlog is holding up because of skilled labor availability that our customers are seeing. And so backlogs remain strong. I think the average backlog for us are not customers only dropped by about a week from average of 14 weeks to 13 weeks. So still still pretty solid there.

Performing are too small to contribute meaningfully.

And then we're going to shift that bandwidth.

Growth initiatives, so that's again.

One of them one of the critical focuses here as well as the financial returns, obviously and the word is focus.

Said that many times back in May and I would say daily within the company, we're going to focus on the areas that we have the best right to win for the future and that are going to drive the best financial and growth performance for the future to your second question.

Kevin Mccarthy: Your next question comes from the line of Kevin McCarty with PRP. Kevin, please go ahead. Your line is now open. Yes, good morning. Portfolio question for you, Tim. You've done a fair amount of pruning, including most recently, the Australian New Zealand portion of traffic solutions. Can you just put that into context? Where are you in that process? How much more might there be to go? And then on the flip side of the coin, I'd appreciate any updated thoughts on potential for an increase in bolt on acquisition.

Still still core part of our strategy is value creation shareholder value accretive acquisitions, because we still see many opportunities out there in the coatings space.

But it's been a little slower than historical just given the financing costs and.

Also performance of some companies during these macro challenged environment sellers or sellers want to sell at the peak EBITDA. So I think theres, a little bit of a pause in closing deals.

Kevin Mccarthy: You know, with interest rates having increased, are you starting to see asking prices come down in the private market? And, you know, how would you characterize that versus say, repurchases are just ongoing, delivering for next year? Yeah, thank you. Good morning.

But we have a number in our pipeline, we're talking to potential sellers daily weekly monthly so it's still a core part of our strategy is frankly.

Tim Knavish: To your pruning question, I would say we're in early innings, frankly, what we've done so far is I'd say some of the more obvious ones around the edges. But, you know, businesses, businesses are on notice. My team knows that every business has to earn their right to stay in the portfolio. And that's small or medium or large even, but we did the obvious ones first and we're working through a number of other things that are a bit early to give any specifics, but early days there.

These acquisitions add long term earnings and long term cash generation. It is still our preferred.

One of our preferred deployment opportunities, but as you heard us in our opening remarks, if those don't happen.

We'll put that.

Put that surplus cash to work in other ways, including repo.

Your next question comes from Alexia <unk> with Keycorp.

Please go ahead. Your line is now open.

Thanks, and good morning, everyone did you outperform in the pro paint market in the U S. This year and if so by what magnitude and how do you think you can do relative to the market in this segment next year.

Tim Knavish: Let me just out there. I think this goes back to the main CEO briefing. You know, the focus for us is to make sure that we're spending our energies, our bandwidth on organic growth. And if a business is not performing or too small to contribute meaningfully, then we're going to shift that bandwidth to organic growth initiatives. So that's, again, one of the critical focuses here as well as the financial returns, obviously.

Well.

Again in architectural we really run three very different architectural businesses, depending on where you are in the world right. So.

We talk a lot about our strength in Mexico and Europe .

Tim Knavish: Yeah, and the word is focus. I said that many times back in May and I'd say daily within the company, we're going to focus on the areas that we have the best right to win for the future and that are going to drive the best financial and growth performance for the future. It's your second question. You know, we are still, still a core part of our strategy is... Value, creation, shareholder value, accretive acquisitions because we still see many opportunities out there in the coding space, but it's been a little slower than historical just given the financing costs and also performance of some companies during these macro-challenged environment sellers, or sellers want to sell as a piggy, but it does, so I think there's a little bit of a pause in closing deals, but we have a number in our pipeline, we're talking to potential sellers daily, weekly, monthly, so it's still a core part of our strategy, and frankly because these acquisitions add long-term earnings and long-term cash generation, it's still our preferred, one of our preferred deployment opportunities, but as you heard us in our opening remarks, if those don't happen, we will put that surplus cash to work in other ways including repo.

Number one in 10 countries with a very strong position with the existing business model.

And.

That business, we are actually starting to see flat volumes. Despite everything that's happening in Europe . So we see that the flat volumes, we see as a positive given what's happened over the last couple of years with the potential that Europe has stabilized in the U S. Specifically.

It's a very different.

Our business model, where we are actually in the.

The mode of building a business model for the future.

So it's early days in that journey, where we're we're building a model thats brick in brick and mortar light omni.

The channel model across across our three channels and we're converting paint customers one by one by one.

You heard me say in the past that for that model to prove success at <unk>.

Needs to grow high.

High single digits low double digits every quarter and it will take many quarters to get significant scale. There Q3, you heard the earlier question, we did grow both volume and.

And sales by low single digits, a little lower than where I would like but given the macros in housing I would say that was two expected how we're doing versus versus the market appears well see as other people release released their results, but our.

Aleksey Yefremov: Your next question comes from Alexi Yiframov with Key Corp. Alexi, please go ahead, your line is now open. Thanks and good morning everyone.

<unk> U S business, we are building a business model for the future and it's a marathon not a sprint. So we're looking at it on a long term business model Foundation.

Tim Knavish: Did you outperform in the pro-paint market in the US this year, and if so, by what magnitude, and how do you think you could do relative to the market in the segment next year? Well, again, in architectural, we really run three very different architectural businesses, depending on where you are in the world, right? So, we talk a lot about our strengths in Mexico, in Europe, we're number one in 10 countries with a very strong position with the existing business model, and that business we're actually starting to see flat volumes display everything that's happening in Europe, so we see that, the flat volumes we see as a positive given what's happened over the last couple years with the potential that Europe has stabilized.

Your next question comes from the line of Michael <unk> with Wells Fargo. Michael. Please go ahead. Your line is now open.

Hey, guys nice quarter.

Terms of the fourth quarter. Your outlook is for plus low single digit sales growth to minus I guess that implies some pricing right. So the outlook for volume would be kind of like flattish to down mid single digits sounds like can you maybe talk about what.

Drive sort of a flattish or drive some of the down and then given where the interest rate environment is do you think U S architectural demand next year could.

Could be up down flat.

Yes.

Mike This is John let me start that Timna.

Tim and Vince add on here. So in terms of the fourth quarter outlook in volume the performance segment, we expect volumes to be positive.

Tim Knavish: In the US specifically, it's a very different business model where we are actually in the mode of building a business model for the future. And so, it's early days in that journey where we're building a model that's brick and mortar light, omnichannel model across our three channels, and we're converting paint customers one by one by one. You heard me saying the past that for that model to prove success, it needs to grow, you know, high single digits, low double digits every quarter, and it'll take many quarters to get significant scale there.

Still going to see good growth in aerospace and Comex is two key drivers there.

The industrial segment, we are expecting volumes to be lower and that includes the assumption that that Tim made earlier about the UAW impact. So if you. If we didn't have a UAW impact we must be much closer to being flat in volume in the industrial coating segment.

Yes, Brock architectural coatings U S next year I feel I feel good about the pro based on two things Mike.

The continued growth and acceleration of the omni channel that we're building.

Tim Knavish: Q3, you heard the earlier question, we did grow both volume and sales by low single digits a little lower than where I'd like, but given the macros and housing, I'd say that was to expect it. How we're doing versus versus the market appears, you know, we'll see as other people release their results, but our architectural US business, we are building a business model for the future.

The backlogs that our customers continue to experience DIY.

It's a big part of the business and if it stays at the current low level that would actually be a positive for us as opposed to the declining further if there is just a little uptick in consumer spending and consumer remodeling and I will remind everybody that paint remodeling is.

Tim Knavish: And it's a marathon, not a sprint, so we're looking at it on a long term business model foundation.

The lowest cost home remodeling project you can do so it will be the first one to start to recover a little bit of volume recovery. There would really help the total business in aggregate so.

Michael Sison: Your next question comes from the line of Michael Sison with Wells Farge, Michael Pisco, ahead your line is now open. Hey guys, that's quarter, in terms of the fourth quarter, your outlook is for plus low single digit sales growth to minus. I guess that implies some pricing, right? So the outlook for volume would be kind of like, flat-ish to down the single digit. So like, can we talk about what drives through the flat-ish or drives through the down? And then, given where the interest rate of argument is, do you think US architectural demand next year could be up, down, flat? Thank you.

Net net I'm positive on the pro I am still questioning what's going to happen on DIY for next year and then Mike just one more thing on the DIY as we do know many of the large DIY retailers of Destocking in 2023.

We certainly haven't had detailed conversations about their plans for 2024, but there was there was a pretty aggressive destock in 2023, so the sellout.

It was much greater than the sell in in 2023, and if that if that just normalizes.

The year over year basis that will assist the paint producers.

John Bruno: Yeah, that like this is John, let me start and that Tim and Vince add on here. So in terms of the fourth quarter outlook and volume, the performance segment, we expect volume to be positive. We're still going to see good growth in aerospace and COMAX is two key drivers there. The industrial segment, we are expecting volumes to be lower, and that includes the assumption that Tim made earlier about the UAW impact.

Your next question comes from the line of Frank Mitsch with Fermium research.

Please go ahead your line is open.

Thank you and congrats John on the promotion of VP Finance reading a lot about.

Wage inflation and higher accruals at PPG, so assume it's because you've been doing double duty for the last two five months so congrats on that.

You commented that volumes in the fourth quarter. It seemed like we might finally get that to be positive if it wasn't for the UAW strike I'm curious as to.

John Bruno: So if we didn't have a UAW impact, we might be much closer to being flat in volume and industrial coding segment. Yeah, for architectural coding's US next year, I feel good about the probe based on two things. Mike, the continued growth and acceleration of the on the channel that we're building, plus the backlogs that our customers continue to experience. DIY, you know, it's a big part of the business and if it stays at the current low level, that would actually be a positive for us as opposed to declining further.

Given the nine quarters in a row of negative volumes, Tim what your expectations are as you have an early read into 2024 in terms of volume growth at PPG.

Yeah, Hey, Frank I do appreciate you congratulating John on his promotion very easy decision for us well deserved, but it didn't affect our wage inflation because John loves his job. So much he does it for free.

But going into next year.

I'm confident based on what we know today based on what we see today that we will swing to positive volume as a total enterprise in 2020 for Q4 will be close, but again UAW as a big a big unknown.

John Bruno: If there is just a little to uptick in consumer spending and consumer remodeling, and I will remind everybody that a paint remodeling is the lowest cost home remodeling project you can do. So it will be the first one to start to recover, a little bit of volume recovery there would really help the total business in aggregate. So in that net, I'm positive on the probe, I'm still questioning what's going to happen on DIY for next year.

Depending on how that goes and which which plants and which ones we supply customer mix wise, it's still a bit of an unknown, but I do feel positive that we will swing to positive volume in 2024.

We've got Europe , and China, two of our biggest regions that.

Sequentially.

John Bruno: And just one more thing on the DIY is we do know many of the large DIY retailers have de-stopped in 2023. So we certainly haven't had detailed conversations about their plans for 2024, but there was a pretty aggressive de-stopped in 2023, so the sellout was much greater than the sell-in in 2023. And if that just normalizes a year or a year basis, that will assist the paint producers.

Sequentially, we believe China is going to recover.

Slower speed than historical to a slower speed than what we thought a couple of quarters ago, but sequentially, we will see improvement in China Europe .

As I said earlier, we're actually pleased to see flat volume across some of our larger businesses.

Like like like Deco in Europe , because we really believe it is bouncing off the bottom. So we've got demand stability and any incremental increases in Europe will drive drive really good leverage for us.

Frank Mitsch: Your next question comes from the line of Frank Mitch with family and research. Frank, please go ahead, your line is open. Thank you, and congrats John on the promotion of VP finance, reading a lot about wage inflation and higher accruals at PPG, so assume it's because you've been doing double duty for the last two and a half months. So congrats on that. You commented that volumes in the fourth quarter seem like we might finally get that to be positive if it wasn't for the UAW strike.

I mentioned, the aerospace backlog the more we make the more we sell and that will go on for many quarters and we're focused very heavily on productivity and getting more out the door, which will drive growth for us automotive I believe we'll have sequential improvement sequential build increased.

Moving into into 2000 and.

Tim Knavish: I'm curious as to, given the nine quarters in a row of negative volumes, Tim, what your expectations are as you have an early read into 2024 in terms of buying growth at PPG. Yeah, Frank, I do appreciate you congratulating John on his promotion, very easy decision for us, well deserved, but it didn't affect our wage inflation, because John loves his job so much he does it for free. But going into next year, I'm confident based on what we know today, based on what we see today, that we will swing the positive volume as a total enterprise in 2024.

24, so when exactly which month that will have some macro dependency, but overall I'm confident in the swing to positive volume in 2024.

Your next question comes from the line of Laurence Alexander with Jefferies. Please go ahead. Your line is now open.

Good morning.

<unk> strong quarter, just wanted to pin down one point with respect to the incremental price actions and productivity.

Do you think you'll be able to keep that ahead of wage inflation in Q4, and next year or how should we think about the bridge there.

Tim Knavish: Q4 will be close, but again, UAW is a big unknown, depending on how that goes and which plants and which ones we supply customer mix wise. It's still a bit of unknown, but I do feel positive that we will swing the positive volume in 2024. You know, we've got Europe and China, two of our biggest regions that sequentially, you know, sequentially we believe China is going to recover to a slower speed than historical to a slower speed than when we thought a couple of quarters ago, but sequentially we will see improvement in China.

Hey, Laurence.

Thanks for the question.

The short answer is yes, we will stay ahead of of wage inflation.

With a combination of price and productivity. We do expect if you look at let's call. It salary inflation in the established markets a little higher than normal call. It 3%.

Front line workers is very country specific so it will be higher than that in some countries, but we're also confident.

Given our pricing track record that through through a combination of price and productivity will be able to offset.

Tim Knavish: Europe, as I said earlier, we're actually pleased to see flat volume across some of our larger businesses, like Deco in Europe, because we really believe it is bouncing off the bottom. So we've got the man's stability and any incremental increases in Europe will drive a really good leverage for us. I mentioned the aerospace backlog, the more we make, the more we sell and that will go on for many quarters, and we're focused very heavily on productivity and getting more out the door, which will drive growth for us. Automotive, I believe, will have sequential improvements, sequential build increases moving into into 2000 and in 2024.

The wage inflation that we'll see and I'll also point out remember that with our mix of businesses with the exception of company owned stores, we have a very low people intensity structure.

Because most of our businesses are direct or direct to somebody else's distribution channel so with the exception of.

Of company owned stores, we have a pretty low.

Human capital intensity frontline business.

Okay.

Our next question comes from the line of Aaron Ceccarelli with Baird back.

Please go ahead, Sir your line is now open.

Tim Knavish: So when exactly which months we'll have some macro dependency, but overall I'm confident in the swing the positive volume in 2020.

Hi, good morning, Thanks for thanks for taking my question have one on pricing would.

It would be heavy lift on pricing initiatives now behind us and the supply of raw materials.

Lawrence Alexander: Your next question comes from the line of Lawrence Alexander with Jeffries. Please go ahead, your line is now open. Good morning. Congrats on a strong quarter of the just want to pin down one point with respect to the incremental price actions and productivity. Do you think you'll be able to keep that ahead of wage inflation in Q4 in next year or how should we think about the bridge there? Yep. Hey Lawrence, thanks for the question.

To normal condition, how should we be thinking about pricing across the two segments for 2020 full and how do you feel about the potential scenario, where pricing could turn negative for next year. Thank you.

Yes, Arun Thank you for the question.

Reising, we will in the performance segment, we will get incremental targeted price pricing as we move into 2024 because of the structure and the value add that we deliver relative to the total cost of production that our customers have.

Lawrence Alexander: The short answer is, yes, we'll stay ahead of wage inflation with a combination of price and productivity. You know, we do expect, if you look at, it's called salary inflation in the established markets a little higher than normals, call it 3%. Frontline workers is very country specific, so it'll be higher than that in some countries, but we're also confident, given our pricing track record that through combination of price and productivity, we'll be able to offset the wage inflation that we'll see.

So in other words.

The small amount of paint can soup consumption and small amount of price.

<unk>.

As more than offset by the total production cost that we impact and the value that we add to our customers from a productivity standpoint, So we will get more targeted price and performance next year.

Industrial segment, we have not seen price give back to this to this point.

We do have some structural contracts up about 30% of our industrial segment that is tied to some form of an index contract.

Lawrence Alexander: And I also point out, remember that with our mix of businesses, with the exception of company on stores, we have a very low people intensity structure, because most of our businesses are direct or direct to somebody else's distribution channel.

So depending on what happens to that total basket of raws.

There is a time lag built into where there would be some structural price changes, but again, that's less than half of our business beyond that led to the prior question, let's recall that there is a lot of other inflation out there. So the discussions we'll have with our customers and continue to have with our customers is that.

Tim Knavish: So, with the exception of company on stores, we have a pretty low human capital intensity frontline business.

That other inflation, we also need to talk about when it comes to the price of our products and services.

Aaron Chacarelli: Next question comes from the line of Aaron Chacarelli with Baronberg. Please go ahead. Aaron, your line is now open. Hi, good morning. Thanks for, thanks for taking my question. I have one on pricing. Would they have a lift on pricing initiatives now behind us and they supply for materials back to normal condition? How should we be thinking about pricing across the two segments for 2024? And how do you feel about the potential scenario we're pricing could turn negative next year? Thank you.

Your next question comes from the line of Mike Harrison with Seaport Research part Mike.

Mike. Please go ahead. Your line is now open.

Hi, Good morning wanted to ask a question about the growth that youre seeing in power powder coatings is this mostly share gain.

Youre seeing the growth or is there a lot of conversion happening with existing customers such that we should view it more as cannibalization.

Guess.

Tim Knavish: Yeah, Aaron, thank you for the question pricing. We will, in the performance segment, we will get incremental targeted price pricing as we move into 2024 because of the structure and the value add that we deliver relative to the total cost of production that our customers have. So, in other words, the small amount of paint consumption, small amount of price is more than offset by the total production cost that we impact in the value that we add to our customers for productivity standpoint. So, we will get more targeted price in performance next year.

What is the margin profile look like for powder coating compared to liquid.

Through similar application. Thank you.

Yes, Mike Great question. Thank you.

What you see in powder growth for PPG is share gain.

Very little if any conversion of existing PPG customers from liquid to powder, because there's two factors. There one frankly, we're starting at a fairly low market position in powder. So we're specifically targeting share gain.

And conversion of an existing customer from liquid to powder takes a capital investment by that customer in their paint shop. So it's not an overnight overnight flip so what youre seeing is share gain now from a margin standpoint.

Tim Knavish: In industrial segment, we have not seen price give back to this point. We do have some structural contracts, about 30% of our industrial segment that is tied to some form of an index contract. So, depending on what happens to that total basket of draws, there is a time lag built in to where there would be some structural price changes. But again, that's less than half of our business.

You look at.

Our U S powder business for example.

On a net margin standpoint, it's one of our more profitable segments across general industrial.

The reason is we target specifically the higher end of the powder.

Portfolio.

There is.

Tim Knavish: Beyond that, let's recall that there's a lot of other inflation out there. So, the discussions we'll have with our customers and continue to have with our customers is that other inflation, we also need to talk about when it comes to the price of our products and service.

There's liquid like appearance there is metallic powders those types of things that.

That command a higher margin because there are more and more.

Technology advanced from a formulation standpoint, so we're specifically targeting the higher end of the segment longer term.

One of the reasons, we are investing in powder for the future is it is more it is a more sustainable solution for our customers. So you have got the short term focus.

Michael Harrison: Your next question comes from the line of Mike Harrison with seaport research partners. Mike, please go ahead, your line is now open. Hi, good morning. I wanted to ask you a question about the growth that you're seeing in powder coatings. Is this mostly share game where you're seeing the growth, or is there a lot of conversion happening with existing customers such that we should view it more as cannibalism? And I guess what does the margin profile look like for powder coating compared to liquid for a similar application? Thank you. Yeah, Mike, great question. Thank you. What you see in powder growth for PPG is share game.

Where we're driving share gain.

By targeting the higher end segments of margin.

For for powder longer term, you will see more and more customers converting from liquid to powder because of the sustainable solution that it provides.

Okay.

Our final question today comes from the line of Arun Viswanathan with RBC.

Please go ahead your line is open.

Great. Thanks for taking my question. So I just wanted to understand it sounds like you.

Tim Knavish: Okay, very little if any conversion of existing PPG customers from liquid to powder. Because there's two factors there. One, frankly, we're starting at a fairly low market position in powder. So we're specifically targeting share game and conversion of an existing customer from liquid to powder takes a capital investment by that customer in their paint shop. So it's not an overnight, overnight flip. So what you're seeing is share game. Now from a margin standpoint, you know, if you look at our US powder business, for example, on a net margin standpoint, it's one of our more profitable segments across general industrial.

You may be looking at consolidated positive volume growth for 2004.

Given that scenario.

And the operating leverage in the incremental margins that you kind of envision.

Do you expect to get to that $9 EPS level.

Or what's the path to getting back to that level that you put out a couple of years ago.

Yeah. Thanks, Arun for the question.

I've said, many times and I'll continue to say it that $9 for PPG is a question of when not if we will get there I just fully confident in our new enterprise growth strategy and leveraging the portfolio that we've got as well as.

Tim Knavish: And the reason is we target specifically the higher end of the powder portfolio. There's liquid like appearance, there's metallic powders, those types of things that command a higher margin because they're more technology advanced from formulation standpoint. So we're specifically targeting the higher end of the segment, you know, longer term. One of the reasons we are investing in powder for the future is it is more, it is a more sustainable solution for our customers.

Some selected pruning and some selected.

Targeting certain geographies and segments and being a lot more focus so $9 is a when not if what I'm confident in 2024 is that we will hit the 8% to 12% EPS growth a bit.

That we stated.

In.

When we're together in May and frankly, that's that 10% average EPS growth has been a target for our company for for many years and so I'm confident that as we move through 2024 combination of the swing to positive volume.

Tim Knavish: So you've got the short term focus that where we're driving share game by targeting the higher end segments of margin for for for powder longer term, you will see more and more customers converting from liquid to powder because of the sustainable solution that it provides.

Plus.

The capital deployment that we've talked about a few times here this morning plus.

Some of the key innovation initiatives that we're launching now and will gain momentum in 2024, I'm confident that that combination will get us to get us to what we've committed to.

Arun Viswanathan: I'll find a question today comes from the line of Arun with one of them with RBC. Arun, please go ahead. Your line is open. So I just wanted to understand that it sounds like you, you may be looking at consolidated positive volume growth for 24, you know, given that scenario and the operating leverage and the incremental margins that you kind of envision. Do you expect to get to that $9 ETF level or what's the path to getting back to that level that you put out a couple of years ago? Thanks. Yeah, thanks the room for the question.

Thank you for the questions. We have so I will turn the call back over to Mr. John Barry.

Thank you Emily great job appreciate that we appreciate all your interest and confidence in PPG and this concludes our third quarter earnings call.

Okay.

This concludes today's conference call you may now disconnect your lines.

Tim Knavish: I've said many times and I'll continue to say at the $9 for PPG is a question of when not, yes. Okay, we will get there. I just fully confident in our new enterprise growth strategy and leveraging the portfolio that we've got as well as some selected pruning and some selected targeting certain geographies and segments. Vincent being a lot more focused. So $9 is a win, not if. What I'm confident in 2024 is that we will hit the 8% to 12% EPS growth that we stated in when we're together in May.

Tim Knavish: And frankly, that 10% average EPS growth has been a target for our company for many years. And so I'm confident that as we move through 2024, combination of the swing deposit of volume plus the capital deployment that we've talked about a few times here this morning plus some of the key innovation initiatives that we're launching now. And we'll gain momentum in 2024. I'm confident that that combination will get us to get us to what we've committed to.

John Bruno: Those are all the questions we have so I'll turn the call back over to Mr. John Bruno. Thank you Emily. Great job. Appreciate that.

Emily: We appreciate all your interest in confidence and PPG and this concludes our third quarter earnings call.

Emily: This concludes today's conference call.

Emily: You may now disconnect your lives.