Q3 2024 PPG Industries Inc Earnings Call
Alex: Good morning, my name is Alex and I'll be your conference operator today. At this time I would like to welcome everyone to the third quarter PPG, a name's conference call.
Alex: or once having placed on mute, prevent any background noise after the speaker's remarks. It will be a question and answer session.
Alex: If you would like to ask a question during this time, simply press star full of by the number one on your telephone keypad. If you'd like to withdraw your question, please press star full of by the number two.
Alex: to allow everyone an opportunity to ask a question company requests that each analyst and they ask one question.
Speaker Change: Thank you, our knowledge, technical, over to Alex Lopez, Director of Investor Relations, please go ahead, sir.
Speaker Change: Thank you, Elliot, and good morning, everyone. This is Alex Lopez, the director in better relations.
Speaker Change: We appreciate your continuous interest in PPE and welcome you to our third quarter 2020 Fourth Financial Resource Conference School.
Speaker Change: Joining me on the call from PPE, our team Knavish, Chairman and Chief Executive Officer, and Dean Florales, Senior Vice President and Chief Financial Officer.
Speaker Change: Our comments relate to the financial information released after U.S. equity markets closed on Wednesday, October 16, 2024.
Speaker Change: We have posted the tale commentary and accompanying presentation slides on the investor center of our website, ppg.com This slides are also available on the webcast side for this call and provide additional support to the opening comments. Thank you for watching.
Speaker Change: Following management perspective on the company's results for the quarter, we will move to Q&A to a Q&A session.
Speaker Change: Both the prepare commentary and discussion during this call may contain overlooking statements, reflecting the company's current view of future events and their potential effects on PPE operating and financial performance.
Speaker Change: This is statement involved on certain decent risks, which may cause actual results to differ. The company is on their no obligation to provide the sequence of things to this forward-looking statements.
Speaker Change: The presentation also contains certain known gap financial measures.
Speaker Change: The company has provided in the appendix of the presentation materials which are available on our website. The consideration of these non-gap financial measures to the most directly comparable in Gap financials.
Speaker Change: Financial Methods.
Speaker Change: For additional information, please refer to PPG's Filing with the SEC. Now, let me introduce you PPG Chairman and CEO Tim Knavish.
Tim Knavish: Thank you, Alex, and good morning, everyone. Welcome to our third quarter, 2020-24 earnings call. I'd like to start by providing a few highlights on our third quarter, 2024 financial performance.
Tim Knavish: Make a few comments on our press release this morning and then I'll move to our outlook.
Tim Knavish: The PPG team delivered sales of $4.6 billion and our eighth consecutive quarter of year of year segment margin improvement.
Tim Knavish: This culminated in records, third quarter adjusted earnings for diluted share of $2.13. Which represents 3% year over year growth.
Tim Knavish: Despite an unfavorable impact from a higher year over-year tax rate, which reduced the EPS comparison by 8 cents or 4%.
Tim Knavish: Our segment margin improvement was driven by favorable business mix due to our sales of our advantage products and a continued focus to deliver productivity and lower costs.
Tim Knavish: Our growth broadened as seven out of ten businesses delivered organic growth in the quarter. And another business, specifically our architectural coding business in Europe, was flat.
Tim Knavish: We delivered year by year sales, volume growth of plus 2% in the performance coding segment, driven by above market volume performance and automotive refinish, including high single digit percentage increases in U.S. collision-related products.
Tim Knavish: the Subite, Louvre, overall industry collision claims.
Tim Knavish: Additionally, our aerospace coatings business delivered record quarterly sales.
Tim Knavish: stemming from double digit percentage, organic sales growth, and despite improving our production capacity this year through deep bottlenecking and other productivity gains, we still end to the quarter with an order backlog of approximately $290 million.
Tim Knavish: This backlog demonstrates the strong demand for our technology advantage products and excellent industry dynamics.
Tim Knavish: We had to stay in growth in architectural coatings, Americas and Asia Pacific, driven by the Professional Contractor Channel in the U.S. and Canada.
Tim Knavish: Also our concessionaire network in Mexico continues to perform well.
Tim Knavish: Additionally, our protective and marine business benefited from strong global demand and our recent share gains.
Tim Knavish: Yerber-Year Organic Sales for Architectural Coatings in Europe, we're flat.
Tim Knavish: And while, of course, we aspire for growth in this business, the flat results are positive trend after several quarters of sales declines.
Tim Knavish: This result was supported by growth in Central and Eastern Europe, offset by lower sales volumes across Western Europe.
Tim Knavish: The solid growth in our performance coding segment in a difficult environment reflects the strength of our key technologies, brands and services.
Tim Knavish: However, this growth was offset by increasingly challenged global auto-OEM and industrial production which constrained demand in the industrial coding segment.
Tim Knavish: As has been well-publicized, the automotive OEM industry, particularly in U.S. and Europe, has taken unscheduled prolonged downtime that was not considered in our July financial guidance.
Tim Knavish: This rapid decline in industry production negatively impacted our top line and while we reacted quickly with cost mitigation efforts, we were not able to fully offset the earnings impact late in the quarter.
Tim Knavish: We were able to partially offset decline with PPG share gains that resulted in double-digit percentage volume growth in Latin America and single-digit percentage volume growth in China.
Tim Knavish: Similar to prior quarters, general industrial activity in the U.S. and Europe was lackluster and mixed by end use and our volume performance mirrored bad backdrop.
Tim Knavish: Despite delivering solid volume growth in China and India, our aggregate industrial coatings business organic sales declined by a mid-singled digit percentage.
Tim Knavish: We delivered strong top line performance in the packaging coatings business, achieving our third consecutive quarter of volume growth driven by incremental share gains.
Tim Knavish: During the third quarter, Robert Tirocos were flat year over year, and we expect this will continue in the fourth quarter.
Tim Knavish: We are just now starting preliminary discussions with our suppliers for 2025 and there is ample capacity in our supply chain.
Tim Knavish: We ended a third quarter with cash of about $1.3 billion. During the quarter we completed $200 million in share, repurchases and paid $160 million in dividends.
Tim Knavish: On a year-to-date fit basis, we have returned approximately $1 billion of cash to share orders through dividends and share repurchases.
Tim Knavish: This is supported by our consistent cash flow generation. Our strong balance sheet provides us with financial flexibility to create shareholder value going forward.
Speaker Change: I wanted to take this opportunity to provide you with an update from our previously announced strategic reviews of the Global Syllicus product business and the architectural coatings U.S. and Canada Business.
Speaker Change: As previously announced, we reached a definitive agreement to sell our silica's products business for approximately $310 million in pre-tax proceeds.
Speaker Change: We expect to close this transaction in the fourth quarter.
Speaker Change: Regarding the architectural coatings U.S. and Canada's strategic review, per this morning's announcement, I am pleased to share that we have reached a definitive agreement to sell 100% of this business for a transaction value of $550 million.
Speaker Change: We are very pleased to be working with a quality buyer, like American Industrial Partners, a growth-focused company with a strong track record.
Speaker Change: These two divestatures further optimize our portfolio by improving our organic growth and financial return profiles and will result in increased capability to channel our growth resources.
Speaker Change: to areas where we have the strongest growth, and strongest margin profiles, and a demonstrated right to win.
Speaker Change: As we stated when we announced this review on a three-year pro-form of basis.
Speaker Change: PPGs, overall company sales volume results, would have been proved, cumulatively by over 200 basis points, excluding architectural coatings US and Canada business.
Speaker Change: Also, the company's performance coatings segment operating EBIT, excluding the U.S. and Canada Architectural coatings, would have resulted in approximately 300 basis point improvement in segment margins in 2023.
Speaker Change: These actions clearly demonstrate the act of management of our portfolio, focused on value creating shareholder value by management and by our board.
Speaker Change: We expect to close on the syllabus transaction in Q4 and the architectural coatings U.S. and Canada transaction late in Q4 for early 2025.
Speaker Change: Let me reiterate that our other architectural coatings businesses in Latin America, Europe, and Asia-Pacific remain important and core businesses for PPG.
Speaker Change: On top of these portfolio actions, we have announced a comprehensive restructuring program to eliminate associated stranded costs from these transactions and separately to enable footprint rationalization specifically in Europe and a few other global coding businesses.
Speaker Change: This program will deliver approximately $175 million once fully implemented, including savings of $60 million in 2025.
Speaker Change: The self-help actions reflect our ongoing commitment to aggressively manage our controllables.
Speaker Change: As we execute and delivering Q4, we start to execute on our self-help initiatives. I'm excited about entering 2025.
Speaker Change: We'll have a sharper, more focused future facing portfolio and our building, a higher growth and higher margin profile company.
Speaker Change: For our customers, we are both delivering solutions today that ensure their success and innovating for tomorrow to improve both their productivity and sustainability. The result will be profitable, organic growth for PPG, and shareholder value for our owners.
Speaker Change: Finally, we remain committed to our heritage of strong cost management and improved productivity that reinforces the ability to maintain our momentum and driving higher margins and earnings growth.
Speaker Change: The strong performance would not be possible without dedication of our employees to deliver growth for PPG.
Speaker Change: Thank you to our PPG team around the world who make it happen and deliver on our purpose every day.
Speaker Change: Thank you for your continued confidence in P.B.G. This concludes our prepared remarks in Elliott. Would you please open line for questions?
Speaker Change: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then a number one on your telephone keypad. Reports were just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from John Roberts with Miss Uho, your line is open, please go ahead.
John Roberts: Thank you. Tim, could you give us the valuation multiple on the architectural deal? And is the exit completely clean or is there anything left behind a PPG deal with the site's the stranded cost of corporate?
Tim Knavish: Yeah, thanks John.
Tim Knavish: So the sales of that business are approximately 2 billion. The EFET dot margin is a low single digits, and when you do the math, the multiple comes out to a 14 multiple.
Tim Knavish: and as far as, you know, it's a clean cut, a clean break, well, of course, we'll be some transitionary service agreements.
Tim Knavish: But it does include ongoing exclusive supply agreements with AAP for them to distribute our protective and light industrial coatings.
Speaker Change: Thank you John. This is Vince John, just a reminder, the manufacturing and the distribution facilities associated with this business were primarily stand alone. So there's no issues in terms of separation there as well.
Speaker Change: Your next question comes from the line of Michael Season with Wells Fargo. Your line is open.
Speaker Change: and the Architectial Antilicus, Kathy Patti sort of see the volume growth potential for PPG going forward and I know it's a little bit early to give an EPS lock, but just any framework on.
Speaker Change: you know how EPS, so I could go next year and hopefully you know we're in a never covering economy.
Speaker Change: Yeah, thanks, that's thanks.
Speaker Change: Micah.
Speaker Change: and you can write a little word to give any numbers, but the way we're thinking about it is we have momentum in a number of areas, you know, we're very pleased with the trend in performance coatings.
Speaker Change: If you look at Auto, despite what's happened here in Q3, IHS is projecting marginally positive builds next year and marginally positive would be a luck better than this year.
Speaker Change: Europe, while it's taking a while to get here is finally flattened.
Speaker Change: which is a positive story for us as we had in the 25th, you know we're gaining traction on a number of the growth initiatives that we've been talking about all year.
Speaker Change: Oh, and then, you know, I'd say the self-help that we announced today, we'll start to kick in so that, that will help us in 25 as well. So, you know, overall,
Speaker Change: We'll continue that. We're assuming we'll continue to have some challenging macros.
Speaker Change: But when you combine with the portfolio move that we just announced this morning, we're optimistic and excited that a sharper, more focused PPG, a PPG with higher growth in a higher margin profile will be the result in 2025.
Speaker Change: We have a strong balance here today. We expect to end the year with a strong balance sheet, so that gives us that flexibility to use that balance sheet in the subsequent quarters and years to our shareholders benefit.
Speaker Change: Your next question comes from Michael Lighthead with Barclays. Your line is open.
Michael Lighthead: Great, thanks for the morning, guys. You can just speak a little bit more about the outlook and trajectory for industrial margins. And when you think about this quarter was the week, this driven more as a function of the price decline, or volume came in below four cast, and we got caught off sides a little bit at the end of the quarter.
Speaker Change: Yeah, so I'd say it was largely driven by the volume, particularly as we progress through the quarter.
Speaker Change: Predominantly in Ottawa, we am, but also in general industrial coatings. You know, there was some, as you saw in the documents, there was some price impact as well. But, you know, we expected that that was all index pricing.
Speaker Change: The next question comes from Samsung on Jovey with bad New Online is open.
Speaker Change: Thank you, operator, good morning, everybody. You know, Tim, as it relates to the 550 million in gross proceeds, you know, is that number within the range of outcomes that you anticipated as you contemplated the sale of the assets additionally? And then also related to that, how should we think about proceeds allocations and also any synergies from global procurement that we should keep in mind?
Tim Knavish: Yeah, he got him, you know, the 550 and certainly the, you know, the 14 multiple is, you know, is consistent with what we were expecting to get.
Tim Knavish: You know, Goldman did a tremendous amount of work with us during this process. We literally had over...
Tim Knavish: Over 100 interested parties to begin with, you know, got 30 initial bids and so we had a very...
Tim Knavish: You know, very broad group of interest that gave us a lot of optionality and gave us a lot of insight into what the true value of the assets were. We're pleased with the 14 multiple.
Tim Knavish: You know, proceeds, you know, I would just point to our track record over the last four quarters, we've said multiple times.
Tim Knavish: we're not going to let cash just grow on the balance sheet. So, you know, if there's nothing out there that delivers better shareholder value, you know, we've been buying back shares in the last four quarters and, you know, we stick by our deployment plans there as far as,
Speaker Change: The third part of your question, I think, was on any potential viscenergies of Romaterial. We don't really see any there, because if you think about, as you know, Romaterials are generally procured on a regional basis.
Speaker Change: and within North America, particularly with the growth of P.P.G. Comax over the years, even without this business, we are a large producer of coatings, raw materials.
Speaker Change: Your next question comes from Duffy Fisher with Goldman Sachs, your line is open.
Speaker Change: F*** me.
Duffy Fisher: Yes, good morning. Question just around the cost programmer couple, so of the 250 in the charge, how is the cash from that going to flow out? How do we model that? Then on the 60 million that you get next year, will that be netted against any kind of stranded cost from the sale of the two businesses, where the net of that ends up being smaller? And then to get to the rest of the 175, how does that flow in in the subsequent years?
Speaker Change: So, I'll let how I've been, you know, the 250 house it look from a cash outflow standpoint and then you're your additional questions. I've been, again, Duffy, so, again, programming us today, it's 250 charts.
Speaker Change: Immediately, that cash will be spread over a three-year period. I'd say, front loaded in the first 15 months or so, 15, 18 months.
Speaker Change: Lidia.
Speaker Change: A savings, as we said, or 60 million next year, and then pro-rata over the following two years, we are making some structural changes to our footprint, so that takes some time.
Speaker Change: as we look at facilities and have to move production around. We do have some short-term, quick-hitting items as well. But 60 million for next year, we'll certainly give.
Speaker Change: the subsequent years and we give our guidance in January. And I think get another question on give the total charges from 50, 175, savings total, 60 million next year.
Speaker Change: Oh, I'm sorry, one other comment. We do have another 70 million of costs that we are required to book as incurred as opposed to upfront. So over the next three years, I would just do right now, those are pro-rata. Over the next three years, as we move, equipment, et cetera, those costs have to be booked as incurred.
Speaker Change: Your next question comes from the line of Patrick Turningham with City Group. Your line is open.
Patrick Turningham: Yeah, hi, good morning. Just a follow up on some of the cash out there here. I'm just wondering, you know, how to emanate pipeline looks at it's dance today. Are there any specific regions or technology technologies you want to target?
Speaker Change: Yeah, Patrick, you know, the M&A pipeline over the last year and a half or so has been, I take thinner than normal. That's changed a little bit with some of our peers making a couple of announcements.
Speaker Change: as well as, you know, the obviously the two things that we did here.
Speaker Change: But you should not think that we would exclude architectural coatings anywhere. It's wherever we have the strongest right to win. I'm not going to take a lot of interest in buying a number 3 anywhere or number 4.
Speaker Change: You know, we'll look at, we have a fiduciary responsibility to look at, you know, anything that comes across our desk. It's all we'll look at at any opportunity, but, you know, as I've talked since since I took over last year.
Speaker Change: We're going to be very focused. We're building an organic growth machine and we will supplement that with an organic growth, you know, to the extent that it adds shareholder value, but we will be very targeted in how we do that and where we do it.
Speaker Change: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open.
Vincent Andrews: Thank you, Good morning, and congratulations on getting this deals done. A question on the store sale would be I'm assuming that all those stores had operating leases and I'm just wondering how you...
Vincent Andrews: Consider the transfer of those lease liabilities, were those considered debt, under our single recent accounting provision, ended up any change to your amortization or depreciation or anything like that.
Speaker Change: Yeah, Ben, there's been a call out in our 10-Q 10K on the quantity of those, those leases along with any almost all other obligations transfer with the business.
Speaker Change: So there will be no change to our debt profile as a result of that and certainly that footnote that details our least commitments will be updated accordingly.
Speaker Change: Your next question comes from the line of Josh Spectre with UBS, your line is open.
Josh Spectre: Yeah, hi, good morning. Tim, I was wondering if you'd talk about the confidence overall in the gross framework that you laid out a little bit more than a year ago, I think, you know, we understand this year the macro hasn't been cooperative, but you're coming in probably below the low end of that 8 to 12% DPS growth framework, and this is a year where you've had a good amount of help from lower raw materials.
Speaker Change: So, I guess if I look at everything together, I mean, our assumption is that investments are modestly dilutive, maybe, to EPS.
Speaker Change: you talked about a challenging macro you have cost savings. So, as we think about that 8 to 12% EPS growth framework, is that too high of a guard for next year as we sit today and if not, you know, what do you take to bridge that gap?
Speaker Change: and Josh Seroquake, you want to give our 25 guys a demo talk about macro moves, but we're not going to give 25 financial guidance.
Speaker Change: One other thing, if we just put the proceeds into a share repurchase, which we have made a decision on that yet.
Speaker Change: but if we just did that, this would not be the lose of the transaction, it would not be the lose of the PPG, it would be slightly increased. Yeah, John, I mean, I am confident in those...
Speaker Change: those goals that we set out last year, you know, over the course of the cycle.
Speaker Change: and there will be some puts and takes dependent on the macros outside of our control, but I'm still confident those that appropriate metrics for us going forward.
Speaker Change: And as I mentioned earlier, we feel good about the momentum that we have going into next year in a number of areas. You know, I know we focused on volume a lot here over this past year, so but every single quarter. I think it's seven or eight quarters in a row now. We have gotten better on year over year volume, comps.
Speaker Change: and a couple of our businesses, most notably Arrow Space and Refinish have been doing a great job and that of course helps from mixed standpoint. So I'm feeling good about the momentum that we have on the initiatives that we laid out last year.
Speaker Change: your next question comes from the line of David Beckler to with Deutsche Bank. Your line is open.
David Beckler: Thank you. Good morning. Tim Events, on-laws, given the access amount to supply and the marketplace from your producers and today's law oil price.
David Beckler: We're thinking about another low-syllidision decline in Rome and Trial Costs in 25 for you guys.
Speaker Change: Oh, hey David, you know, we're um
Speaker Change: We've said for Q4 that we should expect flat again, which would be consistent with Q3 and again that's because we're lapping.
Speaker Change: you know, the climes of prior years. As we looked at 25, frankly it's too early for us to give you a guide there, but we're just starting negotiations for 2025 contracts with our suppliers.
Speaker Change: But you know, I guess if there are, if you think about things like China being a maybe a little slower than it.
Speaker Change: People would like those negative things from a demand standpoint and negative things from a macro standpoint actually help the story from a supply demand on our road. So, you know, we go into the year or year end here with, um,
Speaker Change: with, you know, ample supply upstream of us, so that's the position we're entering our 2025 negotiations with.
Speaker Change: in the past. We probably have six months of his ability here in Ross.
Speaker Change: So, when we say today, as of a negative could change in six months based on external dynamics.
Speaker Change: I do want to stress what James said, as we've negotiated, began to go jazin with our suppliers. Almost every one of them have access to supply and are willing to work with us and join man for the betterment of both parties.
Speaker Change: Thanks very much. What are the cash proceeds from the sale of the architectural business?
Speaker Change: In the quarter, if you excluded the architectural business, what would have been the volume growth in your performance coding business, and when the prices stop going down in auto-OEM.
Speaker Change: Yeah, let's, we'll tag team this one and ping pong at a little bit Jeff, the first one I'll take. We expect the, the proceeds.
Speaker Change: from the Architectural Uska transaction to be about the cash proceeds to be about 450 million.
Speaker Change: You know the price, I'll go to the third one and let Vince fill in the sandwich in the middle there. But on the price side, again the vast majority of the negative price you see is index contracts.
Speaker Change: and those are on time lags of anywhere from 6 to 12 months.
Speaker Change: So if you go back and look at our when the prices like in auto for example, started turn negative, knowing that that's all index pricing, it's you know, we have some that will stop and flatten out after six months and some that will flatten out after twelve months.
Speaker Change: Yeah, Jeff, and your question about what's the organic growth in the perfect.
Speaker Change: Performance, Surviving Growth and Performance.
Speaker Change: Your next question comes from the line of Stephen Bern with Angela America, your line is open.
Stephen Bern: Thank you. Your volumes reflect, and your rods reflect, your clocks were down 3.5% or 3%. What's driving the lower clocks? And you got more tailwind on that coming?
Stephen Bern: and then just to follow on to the end-expressing, what is the end-ex to 6, 12 months ago, energy was not that much dissimilar. So what's driving that? How can we anticipate that to change?
Speaker Change: Yeah, ACV, the Cogs, we have started to gain on our manufacturing productivity that we've been talking about for the last
Speaker Change: year-and-a-half, so that's helping us in addition to the items that you mentioned. Our index contracts are typically not based on energy other than our silica's business, which we're selling.
Speaker Change: Our coatings index contracts are based on a basket of raw materials that closely represents the formulation cost for any particular goods, so they're not directly linked to either oil or energy.
Speaker Change: That, if you remember Steven, at the beginning of an inflation cycle, we typically lag on price on the way up.
Speaker Change: Your next question comes from the line of Kevin McCarthy with the RP, your line is open, please go ahead.
Kevin Mccarthy: Thank you, and good morning, appreciate you, you don't want to give 2025 guidance holistically, but
Kevin Mccarthy: Perhaps you could comment narrowly with regards to the deal, if we take into account the various tax angles and stranded costs, do you think that this U.S. and Canada?
Kevin Mccarthy: Investitors likely to be slightly dilutive or slightly accretive or immaterial to your 2025 earnings trajectory. And then secondly, as a practical matter, will you move it to discontinued operations in the fourth quarter or just keep it in as normal course?
Vincent Andrews: Kevin, this is Vince, good to good series of questions there again. If you just assume a share-by-back in yesterday's share price.
Kevin: for the net proceeds that Tim just alluded to, we would be slightly net positive from an accretion perspective next year. We do have about 15 million of stranded cause. You saw the restructuring announcement this morning. That's the start to tackle those stranded costs.
Kevin: and that will certainly activate on fairly quickly.
Kevin: with respect to the accounting. Our intention is to move this to discontinue operations.
Kevin: It's over 10% of the company. We'll go through that. It was mechanics here over the next several weeks.
Kevin: and that that went upon.
Kevin: A close or here will hopefully be closed as we said in the video.
Speaker Change: Your next question comes from the line of Frank Mitch with Fermium Research, your line is open.
Speaker Change: Yes, hi, this is Devante Adam sitting in for Frank. Congrats on the transaction to that point, Vince about picking costs out.
Speaker Change: You guided 24 to 3 million in corporate costs, just curious as to where you think you're going to drive that corporate costs down to. And then secondly, you know, really good progress on refinish. You added a hundred more moonwalk units, just curious why the guidance for a 4Q is flying on refinish and what you think about the growth in 2025 for refinish. Thank you.
Speaker Change: Well, the one day, I think you may be.
Speaker Change: should be practicing for a likely loss against the Steelers this weekend, but I'll take your second second question and let Vince take your first. You know, we've finished, we've said multiple times.
Speaker Change: and you, I think you know Frank, understand that business with the two-step distribution. There's always a lot of noise in the chain. You're stocking, destocking, all the distributors manage their cash differently.
Speaker Change: and so yeah, we really try to look at that on a multi-quarter basis, so if you're taking refinish total year to date.
Speaker Change: Sales or Blast
Speaker Change: but insurance claims are significantly down.
Speaker Change: So we're picking up about 500 net shop winds per quarter and that's a pretty consistent run rate.
Speaker Change: So, we really watched the net winds and the multiple quarter sales and one other thing about Q4 last year, we did have a fairly significant pull forward relative to timing of price increases.
Speaker Change: You know, we're not anticipating that our distributors will do that as much this year. So all those things together give that, you know, lead to the table that shows a difference in organic sales growth between Q3 and Q4.
Speaker Change: Brack on your question on corporate costs.
Speaker Change: Again, we haven't finalized our 2025 profit plan yet. A lot of moving pieces in there, including things like pension.
Speaker Change: Medical Cost, et cetera, that we need to get the finalized. I'd say from a structural basis of the structural costs in corporate, we would expect with this cost program, those structural costs would be lower. But we'll have to see how some of these other items come out. And we'll certainly give that update in January with our 2025 guidance.
Speaker Change: your next question comes from the line of John McNulty with BMO. Your line is open.
John Mcnulty: Yeah, good morning. Thanks for taking my question and congratulations again on the asset sale.
John Mcnulty: So maybe we can speak to the autos outlook, so clearly things came in a bit worse than expected.
Speaker Change: You know, at least what the consultants are looking at is this kind of drags on for another quarter or so. And then we start to get to positive growth in the first quarter of next year. Is that what you're kind of expecting hearing from your customers as well? Or is there any reason to think this could either end earlier and later than that in terms of in terms of some of the pressures? I guess how are you thinking about that business? And then also just on the cost cutting program.
Speaker Change: How much of it's going to be tied into the auto and industrial segment as part of your European look versus kind of more broad cuts across your room.
Speaker Change: Hey, John, well first, the way you describe you answered.
Speaker Change: The question exactly how I would answer it. That is what we're hearing from our auto customers at this
Speaker Change: You know, this downturn in bills and increase in production, downtime, etc. Is going to continue into Q4. And honestly, it's something that we're watching very closely because, you know, there's one particular customer in the US where there's some strike talk and so...
Speaker Change: You know, and that's any strike there is not built into our guide. So we're watching auto very closely as we move into Q4. But as you said, we are expecting based on what we're hearing.
Speaker Change: and including, based on what we see from my chest, we are expecting an uptick in 2025. The cost may be Vince can give you the exact numbers, but there is a portion of that self-help.
Speaker Change: that is dedicated to the automotive business and in particular the automotive footprint in Europe.
Speaker Change: and elsewhere, but we've got some work to do with work councils and things like that before we get final decisions made in Europe, but certainly auto will be a part of the self-help.
John Roberts: John, I've just had a couple comments on the industry.
John Roberts: and what we do see what we see in the queue three here.
John Roberts: are the industry, healthily reacting to inventory levels.
John Roberts: The inventory levels are not out of control at this point
John Roberts: So we think the discipline there and stillings positive, secondarily what some of the carmakers are doing is taking early downtime to do change over his earlier.
John Roberts: We think coming out of those to the new models, we think we'll have a little bit of a benefit based on some of the particular plants we have, etc. So we could help the inventory or managing that inventory properly and the changeovers, as we think we'll give us some incremental benefit next year.
Speaker Change: New next question comes from the line of Lauren Fav with BMP Paraba, Joe Lines Open.
Lauren Fav: Good morning guys. The first question is on the Aero space. I think you're getting to some slowdown. I was wondering how you've packed it in, I guess, all the ongoing headlines that the main OEMs, even though your volumes are too. Also is possible in 2225.
Lauren Fav: wr
Speaker Change: We are not seeing a slowdown. There's one customer that's on strike currently, but the backlogs are so big in OE and...
Speaker Change: and Aftermarket, that all that does is we shift our production around a little bit and military is just just red hot. So we are not seeing a slowdown. In fact, we continue to see a strong demand across the board for our technology. We're projecting for fourth quarter, high single digit growth.
Speaker Change: Your next question comes from the line of Mike Harrison with C. Port Research Partners. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: I have another follow-up question, kind of on the aerospace business, it's something you've been capacity constrained there and the backlog or demand is still growing. Maybe faster than you can be bottled in that or add capacity. So what are your longer-term plans?
Speaker Change: for bringing on some additional capacity in that aerospace business. And is that kind of the top priority in terms of where you'd like to focus your organic growth initiatives, now that you are getting through this portfolio optimization effort with the U.S. Canada Architectural Business. Thank you.
Speaker Change: You know, get a perfect question because it's exactly spot on, you know, we,
Speaker Change: We love our team and products and customers in the architecture U.S. Canada business.
Speaker Change: But this gives us the opportunity to really focus our resources, not only our capital and capacity investment resources, but our human and management bandwidth resources on businesses like aerospace.
Speaker Change: and yes, we are looking at long-term capacity additions.
Speaker Change: Your next question comes from the line of Alexi Yafanov with KeyCorp. Your line is open, please go ahead.
Alexi Yafanov: Good morning, everyone. Inrefinish your sales were up in a single digits in 3Q, flat expectation in the fourth order. Could you just talk about these dynamics here? Is this cons? Or is this business just slowing down?
Speaker Change: Yeah, I answered a little bit of this on an earlier question, Alexie, but
Speaker Change: It's not slow down in body shop activity, it's not slow down and sell out if you will. It's really more a phenomenon of inventory management by the channel, particularly here in the United States.
Speaker Change: Combined with a cop issue related to pre-bying last year that we likely will not have this year, but now where?
Speaker Change: Again, this is, we look at this business, even though we reported quarterly on this chart, sometimes that gets a little frustrating because it's really a multi-quarter and sometimes even annual look that you have to take at our cell in to the channel.
Speaker Change: and just again, actually, on that pre-bi that Tim mentioned, that was ahead of a January 1 price increase, January 123.
Speaker Change: Your next question comes from the line of Aaron Viss, one of them with RBC. Your line is open.
Aaron Viss: Thanks for taking my question. So first up, on the architectural sale.
Aaron Viss: I think I guess I was under the impression that even though margins are more in the 4% range instead of 2%.
Aaron Viss: So I just want to clarify that it looks like the implied kind of if 40 million of you have a doubt.
Aaron Viss: And then secondly, when you think about volume growth, I guess going forward, it sounds like for maybe 25, 26, we're going to be mostly impacted by industrial and automotive. Obviously, you know, arrow can sometimes be at the upper end of industrial growth rates. And maybe some of your other verticals like protective marine or maybe even, you know, packaging maybe it's a lower end just on a structural basis. But in general, looks like you'd be, you know, very levered to industrial production and automotive production.
Speaker Change: Are those the kind of the main two factors that would kind of drive your volumes going forward or actually think about your top line of all sorts from here?
Speaker Change: Yeah, yeah, we're in this event. I'll take the question on the architectural business. And it's more the latter, what you said. So if you do the math and we gave all the numbers to do the math, you get certainly that we're selling you that 2% business, 2% EBITDA business.
Speaker Change: and again that includes all the assets, all the liabilities, basically a clean sale of the business and as Tim alluded to before we do have exclusive supply agreements.
Speaker Change: I'll tell you your basis, I go forward, basis that'll be in our organic numbers.
Speaker Change: Yeah, and relative to kind of the volume and growth, certainly auto OEM and general industrial have been the detractors in Q3 and that'll likely carry into Q4. But if we look at the broader enterprise, we're up to, we've been progressing every quarter with a number of businesses that have positive growth. Thank you very much.
Speaker Change: and we're up to...
Speaker Change: 7-Partitive
Speaker Change: 1 flat and 2 down.
Speaker Change: So yes, those two are down and any uptick there gives us a nice leverage. But we do expect the positive momentum in all those other businesses to continue. So I think that's more – it's really a combined story rather than just auto and industrial. Now those two specifically, as I mentioned, IHS and what we're hearing is that auto will have a modest uptick.
Speaker Change: of Bill's next year.
Speaker Change: Your next question comes from the 9th of Chris Parkinson with Wolf Research. Your line is open.
Chris Parkinson: Great, thank you so much. Tim, I don't think I have to tell you that you've had a pretty busy year, but when you take a step back and you look at the results of PCX, North American Architectural, how should investors be generally thinking about the growth rate of the last couple of years when volumes have been such a focus? And then probably more importantly, when we get into 25 and 26, how comfortable are you that you can actually outgrow your respective end markets based on whether it's content and aerospace new products, obviously across refinition, moonlock, and even down to marine. How should we be conceptualizing that now that ultimately that's pretty cleaned up? Thank you.
Speaker Change: Hey, Chris, let me start real quick. I've got a quick comment here, but if you look at the architectural US business, it has grown nicely this year on the top line. As we alluded to, since we talked in February on our call, and certainly as we talked to investors throughout the year, we made commensurate investments to get that growth on the top line. So the bottom line hasn't grown nearly as much as the top line this particular year because we've been investing in the
Speaker Change: So that helps you, I think, as you go through your algorithm on the PC. Yeah, I don't know, you know, to that point that's one, one of the reasons why we were able to successfully shell it to a good buyer is because of that momentum that we're gaining from the investments on the top line.
Speaker Change: But then also it just validates a bit the rationale for selling it in the first place in that we're investing in those growth initiatives in that business as opposed to shifting some of those resources elsewhere. So now, but longer term, you know, I'm absolutely convinced that the momentum that we're gaining and you mentioned 25, 26.
Speaker Change: Combine with the portfolio actions that we're taking. We will have a higher growth company and a higher margin company, and that's why I stand behind those.
Speaker Change: Your next question comes from the line of Lawrence Alexander with Jeffries. Your line is open.
Speaker Change: Good morning. This is Dan Rizzo on Florence. Thanks for squeezing me in. I just want to follow up on a comment you made about insurance claims being down in the year, but you're taking share. But I was wondering if insurance claims are down because of maybe collision avoidance technology is growing and that's kind of a secular change or is it something just with timing or just peculiar for this year.
Speaker Change: Yeah, I think there's a number of reasons I don't think it's heavily influenced by the anti-collision technologies, while those are great technologies.
Speaker Change: Frankly, they're offset by distracted.
Speaker Change: driving on forchently, particularly cell phone driven.
Speaker Change: The drop in insurance claims is more driven by one totals are higher and so there's less repair claims and more replace claims.
Speaker Change: It's also driven by the type of miles driven that we're getting compared to maybe historical.
Speaker Change: Also, just given the broader economy, and this is a transitory item I believe, the broader economy, some folks are not turning in in their insurance claims.
Speaker Change: Your next question comes from the line of Aaron Chakarale with Baron Bird. Your line is open, please go ahead.
Speaker Change: Hello, good morning and congratulations on the on the safe. Maybe can you talk a little bit about the outlook for protective and marine, the comparable wages for Q4 is not very different from Q3. You're talking a little bit about the slowdown. We'd like to understand what's changed in there and also if you can update. Thank you very much.
Speaker Change: on the changes strategy and in Marie-Hin would be great and how you see that.
Speaker Change: Sure.
Speaker Change: and you're glad to get a question about this business because it's been doing great for us.
Speaker Change: I think I'm accurate that it's our sixth straight quarter of volume growth and organic growth in protective and marine doing well. But when you go backwards on sixth, we're starting to comp the beginning of some really strong upticks, particularly late last year and beginning of this year. So we feel good about it. Thank you very much.
Speaker Change: You know, there's a lot of infrastructure spending, a lot of marine aftermarket spending, shipbuilding returning, you've got a lot of LNG spending, you've got near shore and spending, so we feel good about this business. And marine specifically it's your question, you know, we've been doing really well on marine aftermarket. We still participate in marine new build. We like that place, but we love marine aftermarket because we've got some really differentiated technologies, sigma glide in particular, which is frankly taking off because it's such a fuel savings for our customers and such a sustainability improvement for our customers.
Speaker Change: Bullish on the business, feel good, don't over-interpret the flat in Q4 that's more of a competition.
Speaker Change: Thanks a lot. First question I have is just on your deco strategy now that you're exiting North America. What about Europe ? I know you have highlighted that Europe is a very profitable business and you obviously acquired Ticurilla, but given now there is one of your close competitors also doing a strategic review of their deco business.
Speaker Change: Do you intend to potentially add to your deco business or are there any further steps?
Speaker Change: towards maybe reducing the decodes for her.
Speaker Change: in this regard. And then the second question, sorry to zoom in on packaging, but I think there has been some shareships around packaging in the last one year. You know, if the share goes back to one of your other U.F. competitors,
Speaker Change: from the ones that you've gained. Should we still expect growth? Because you've gained share, because some of your other competitors are a little bit more skeptical or negative about packaging than you guys. So just wanted to double check on that. And once again, well, I'm selling North America.
Speaker Change: Thank you, Judd. I'll take the first one, Vince, you want to take the packaging one, just to divide in conquer here. So very clear, our debt-go strategy in the rest of the world, now that this transaction, we haven't closed the head, obviously, but once it's completely behind us.
Speaker Change: Our deco strategy is...
Speaker Change: to focus on those countries where we're number one or a strong number two.
Speaker Change: That is where we have a proven track record of delivering good earnings.
Speaker Change: Good cash and good growth.
Speaker Change: and so Europe specifically, weird number one, I believe in 10 countries.
Speaker Change: and some of that coming from, uh, take a relis, some coming from other, other deals and we're strong number two in other countries.
Speaker Change: Some of the self-help that I mentioned earlier will apply to...
Speaker Change: To those businesses in Europe that will improve the profitability even further so we'll adjust.
Speaker Change: but we will stay in those businesses as long as we...
Speaker Change: Keep putting up good numbers, like we have been, and remain retained that strong number one and strong number two position. Mexico, for example, lights out, we have a strong number one position, and we're shooting lights out every quarter. And other places, Asia Pacific Australia, we've got a strong number two position. So, as I said in my opening remarks, those businesses are important to our portfolio, core to our portfolio, and we'll keep investing now. That said, you asked about M&A potential in Deco.
Speaker Change: 1. It would only be interested if it fit those criteria that I just described, probably not in Europe because we've already got a very well-established position in Europe . But we have the responsibility to our shareholders to look at things that come on the market and we'll assess them into little early yet for the ones that were just recently announced by our competitors. Thank you very much.
Speaker Change: Here are no further questions at this time. I'll now turn the call back over to Alex Lopez.
Speaker Change: P.O.C.
Alex Lopez: Thank you, Elliot. We appreciate your interest and confidence in PPE. This concludes our third quarter, Ernest Cole.
Speaker Change: This concludes today's conference call, you may now disconnect.
Speaker Change: and John Edwards.