PPG Industries(US:PPG)2022-07-22 13:18Financial Data and Key Metrics Changes - The company reported record net sales of $4.7 billion for Q2 2022, with adjusted earnings per diluted share from continuing operations at $1.81 [8][9] - Selling prices increased by approximately 12% year-over-year, marking the 21st consecutive quarter of higher selling prices [15][29] - Adjusted earnings performance was toward the upper end of the April financial guidance, despite negative impacts from foreign currency translation [14][30] Business Line Data and Key Metrics Changes - The global automotive refinish, traffic solutions, and U.S. packaging coatings businesses each set all-time quarterly sales records in Q2 [12][19] - The Traffic Solutions business achieved 15% sales growth in Q2, benefiting from anticipated increased infrastructure spending [19] - The aerospace business saw improvements in domestic travel leading to higher aftermarket demand, with expectations for further growth [13] Market Data and Key Metrics Changes - Consumer demand in Europe softened, and COVID-related disruptions in China were longer than anticipated, negatively impacting sales [10][25] - The company expects strong sequential growth in Asia due to higher industrial production compared to Q2, which was heavily impacted by COVID restrictions [25] - Economic conditions in Europe are expected to remain soft, with double-digit declines projected in certain markets [26][43] Company Strategy and Development Direction - The company is focused on cost mitigation initiatives in Europe due to slower demand and has contingency plans for a broader economic slowdown [18][23] - PPG is advancing its sustainability strategy, committing to near-term company-wide emission reductions in line with climate science [24] - The company plans to continue cash deployment in the most accretive manner for shareholders, including stock buybacks and debt reduction [22][74] Management's Comments on Operating Environment and Future Outlook - Management remains confident about future earnings capabilities, citing strong underlying demand for PPG products in most major regions [25][31] - The company anticipates that supply chain conditions will continue to improve, with better raw material and transportation availability [27][28] - Management expects sequential quarterly momentum on operating margin improvement to continue, despite significant unfavorable currency impacts [30][31] Other Important Information - The company repurchased $135 million of its stock during the quarter at attractive prices [22] - Corporate governance was enhanced with the necessary shareholder vote threshold for Board declassification and elimination of supermajority voting requirements [23] - The company is closely monitoring the COVID situation in China, expecting minimal impact on sales and operations from any further restrictions [25] Q&A Session Summary Question: Has the path to $9 of EPS in 2023 been pushed out due to the current economic backdrop? - Management acknowledged challenges but remains confident in the outlook due to strong demand in refinish and aerospace sectors, along with synergies and cash deployment options [36] Question: How do you view the current business cycle in a continued slowdown scenario, especially in Europe? - Management noted that full employment in the U.S. may sustain consumer spending, while they are less worried about gas rationing in Europe due to the importance of the automotive and chemical businesses [40][41] Question: Can you comment on the current raw material supply situation in Europe? - Management indicated that raw material supply is improving, with some rotation of raw materials from China to Europe anticipated [42] Question: What are the key highlights regarding margin outlook and pricing? - Management expects significant improvements in margins due to better manufacturing schedules and improved pricing dynamics, with a focus on maintaining pricing despite raw material declines [46][50] Question: How do you expect the European DIY market to perform in a recession? - Management reported a double-digit decline in DIY volumes in Europe, with expectations for continued weakness, while trade volumes remain stronger [67][68] Question: What is the outlook for M&A activity? - Management stated that the M&A pipeline remains steady, with ongoing evaluations of portfolio options, including potential acquisitions and divestitures [73][74] Question: How is the company managing raw material inventories and sourcing? - Management is being conservative with inventories in Europe while also planning to destock as raw material availability improves [78] Question: How resilient is the current portfolio in a potential recession? - Management believes the company has built a more resilient portfolio, with strong demand in traffic solutions and a significant deficit in automotive and aerospace sectors [95][99]