PPG Industries, Inc.

simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star then two. To allow everyone an opportunity to ask a question, the company requests that each analyst ask only one question. Thank you. I would now like to turn the call over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Rika. And good morning, everyone. This is Alex Lopez, Director, Investor Relations. We appreciate your continued interest in PPE and welcome you to our fourth quarter and full year 2024 earnings conference call. Joining me today from PPE are Tim Kanavich, 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 Thursday, January 30th, 2025. We have posted detailed commentary and the accompanying presentation slides, which are being shown on this webcast, on the investor center of our website, ppg.com. Following management perspective on the company's results, 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 future events and their potential effect on PPE'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 updates to 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 filing with the SEC. Now, let me introduce PPG Chairman and CEO, Tim Kanavish.

Thanks, Alex, and good morning, everyone. Welcome to our fourth quarter and full year 2024 earnings call. Before I start, I'd like to offer prayers and condolences to those who lost their lives in yesterday's terrible air collision in Washington, D.C. Our prayers are with their family, friends, loved ones. Terrible tragedy, and I hope and pray that none of you had any loved ones affected. Now I'll begin by providing a few highlights of our full year 2024 and fourth quarter financial performance, and then I'll move to our outlook. And on behalf of PBG, I'd also like to apologize for the volume of changes, recasting of financials, the new segmentation, the guide structure, but this is a positive and critical inflection point for our company. And we wanted to structure the reporting on a go forward basis to reflect this. As a result of the architectural coding's U.S. and Canada divestiture, all financial information provided in the earnings material has been recast to reflect this business as a discontinued operation consistent with U.S. GAAP requirements. In 2024, the team demonstrated resilience in a challenging macro. by driving growth in adjusted EPS from continuing operations and aggregate segment EBITDA, led by sales of our technology-advantaged products, structural cost actions, and moderated input costs. We delivered record results in several of our businesses, including aerospace coatings, automotive refinish coatings, and architectural coatings Latin America. Despite strong share gains in certain businesses, organic sales declined a low single-digit percentage year-over-year, driven by overall weak macros. However, we delivered growth in Mexico and China, as well as growth in aerospace, protective and marine, packaging, traffic solution businesses, offset by industry declines in auto OEM, industrial, and our architectural AMEA coatings business. For the full year, adjusted EPS was $7.87, which grew 6% year-over-year, and excludes 27 cents of EPS that has been reclassified to discontinued operations. It reflected results of the divestiture of the U.S. and Canada architectural business, with the exception of certain allocated costs. Strategically, during the fourth quarter, we further optimized our portfolio as we completed the divestitures of our silica products and architectural coatings U.S. and Canada businesses. This is a significant step forward for our company as these divestitures improve our financial profile, including higher operating margins, and results in a more focused organization which positions the company to deliver sustainable organic growth. As we've said, our portfolio moves this past year have strengthened the company's financial profile. When you combine the impact of these transactions with the organic improvement in margins we delivered on our remaining businesses, you will note that we have now achieved top-tier EBITDA margins. This performance reflects the value our customers assign to our technology-advantaged products and services, our solutions, our well-trusted brands, our strong global positions across the coding's verticals, and the cross-synergies of our business portfolio. We believe that both this margin profile and our enterprise growth actions are great catalysts for the future value creation of PPG. Given the revised portfolio, we have expanded our segment reporting structure and will now report all of our architectural coatings businesses as a separate segment, global architectural coatings. The reporting of the remainder of the businesses within performance codings and the industrial coding segment will remain the same. This expanded segmentation provides investors with enhanced visibility as we drive the company's growth and performance. Our global architectural codings and performance codings segments both now have full-year EBITDA margins at or above 20%. reflecting the differential technologies and strong brand positions of our various businesses. Our industrial coating segment delivered 16% EBITDA margin, despite operating a weak global industrial macro environment. Each of our segments has unique characteristics that allow us to deliver exceptional value to our customers. By leveraging the distinct strengths of our businesses, we are positioned to drive innovations, increase demand for our technology-advantaged products, and deliver sustainable and profitable growth while increasing returns to our shareholders. In our global architectural coding segment, we have excellent and well-recognized brands with world-class distribution and a strong number one or number two position in more than 15 countries. Our performance coding segment is focused on various aftermarkets that traditionally are more stable and have a more fragmented customer base. Within this segment, we offer differentiated and highly specified product and digital solutions that enable our customers' productivity. Our industrial coding segment delivers highly technical products and services for our global B2B customers. We operate field service teams in our customers' facilities, which allows us to develop strong relationships and deep understanding of their productivity needs. Also, we typically grow with our customers as they expand around the world. In the fourth quarter, despite the choppy environment, our adjusted EPS grew by 6% year over year, excluding the impact of unfavorable foreign currency translation. We delivered strong organic sales growth in aerospace coatings, protective and marine coatings, and traffic solutions. This was our ninth consecutive quarter of aggregate segment margin improvement, and we have delivered cumulative margin improvement of approximately 400 basis points since 2022. In the global architectural coding segment, fourth quarter net sales were significantly impacted by unfavorable foreign currency translation, primarily from Mexican peso. Sales volume declined due to weak consumer confidence in the European architectural codings market. However, we benefited from our strong concessionary network in Mexico, where demand is robust for our products and services. For the full year, segment EBITDA margin improved by 70 basis points as lower volumes were offset by our cost control actions and net price impact during the year. In the performance coding segment, fourth quarter organic sales grew 4% with both price and sales volume improvements. Within the segment, aerospace coatings demonstrated continued strong performance with record fourth-quarter sales and double-digit percentage organic sales growth. Despite improved production capacity and other productivity gains, the order backlog increased to approximately $300 million, demonstrating the strong demand for our technology-advantaged products as well as excellent industry dynamics. In auto-refinish, sales volumes declined in the U.S. benefits from share gains more than offset by lower industry collision claims. These share gains are a product of the demand for our technology-advantaged products and services. In 2024, the company grew the number of linked services subscriptions and added more than 600 additional moonwalk installations that now total more than 2,500 around the world, adding to our subscription revenue. Protective and marine coatings demonstrated strong growth in the fourth quarter, supported by increasing global demand of our technologies and our recent share gains. This was the seventh consecutive quarter with positive year-over-year sales volume growth, and we expect the positive momentum to continue. Segment EBITDA margin improved in both the fourth quarter and full year due to positive volume and strong net price impact. In the industrial coding segment, demand was constrained by soft global industrial production and weak automotive OEM industry production. As expected and forecasted by industry consultants, auto OEM industry production was lower year over year in the U.S. and Europe. Our results followed that lower demand trend, and we were able to partially offset the decline in sales volumes with share gains in Latin America and China. Industrial production was also sluggish in Europe and the US, which resulted in lower year-over-year sales volume in the industrial coatings business. Sales volume declines in those regions were partially offset by strong growth in Latin America. Prices in the industrial coating segments declined due to lower index-based selling prices as raw material costs declined in the latter part of 2024. This impact is expected to moderate in 2025 as most have reached their anniversaries and will be reset based on recent stability in raw material pricing. Segment EBITDA margin reduced 160 basis points for the quarter and was slightly lower on a full year basis as the lower volumes were partially offset by strong cost control actions. We ended the fourth quarter with cash of about $1.4 billion. During the quarter, we completed $250 million in share repurchases and paid approximately $160 million in dividends. On a year-to-date basis, we repurchased approximately $750 million of stock, which represented approximately 3% of our outstanding shares. We honored our pledge to return cash to shareholders, and combined with our dividend, we've returned $1.4 billion to our shareholders in 2024. Our balance sheet remains strong, which continues to provide us with financial flexibility, and we remain committed to driving shareholder value creation. Thus, we're deploying about $400 million towards share repurchases during the first quarter of 2025. Looking ahead, we anticipate a slow start to 2025 as demand in Europe and in global industrial end-use markets remains challenged. However, we expect stabilization on a full-year basis of some key economic indicators, like vehicle builds and global industrial production, as well as additional aircraft deliveries. In the first quarter of 2025, we'll begin to see the impacts of already enacted tariffs, which is expected to result in low single-digit percentage inflation in raw material costs, while raw material inflation was flat in the fourth quarter of 2024. Despite a challenging macro and economic landscape and a slow macro start for 2025, I'm genuinely optimistic about this year. We expect to deliver organic sales growth of low single-digit percentage for the year, with the first quarter organic growth flat to slightly down. Stronger results in the second half of the year, supported by the realization of more than $100 million in annual share gains in our industrial coatings segment. As we enter the next chapter for PPG with a new, sharper portfolio and focus, we're progressing further on the execution of our enterprise growth strategy with several elements that include building upon our organic growth capabilities on commercial excellence with the right processes, people, tools, and incentives, taking decisive self-help actions to further reduce costs, including global structural costs and European manufacturing consolidations. This program will deliver approximately $175 million once fully implemented, including savings of $60 million in 2025. Execution of our operational excellence programs will also deliver manufacturing productivity that will more than offset general inflation. We'll deploy cash in a disciplined manner, investing for growth, selective M&A if appropriate, and returning cash to shareholders. As a result of these actions, we expect to deliver adjusted earnings per share for the full year of 2025 in the range of $7.75 to $8.05, which at midpoint represents an EPS growth of 7%, excluding impact of foreign currency and higher taxes. Consistent with our sales growth, EPS growth will be weighted towards the second half of 2025 as global industrial demand weakened and the U.S. dollar strengthened in the second half of 2024. I'm excited about 2025 and beyond. We have a sharper, more focused, future-facing portfolio and a higher growth and margin profile company. For our customers, we're both delivering solutions that ensure their success today and innovating tomorrow to improve both their productivity and their success. We remain committed to our heritage of strong cost management and improved productivity that reinforces the ability to maintain our momentum in driving higher margins and earnings growth. The result will be profitable organic growth for PPG and shareholder returns for our owners. The successful divestitures and solid performance in 2024 would not have been possible without the dedication of our employees. We are now a much more focused organization dedicated to driving ongoing growth with strong margins. Thank you to our PPG teams around the world who make it happen and deliver on our purpose every day. Thank you for your continued confidence in PPG. And this concludes our prepared marks. And would you now please open the line for questions?