PPG Industries, Earnings Call INSIGHTS: Raw Material Cost Trends, A Rundown of Asian Growth Rates

On Thursday, PPG Industries, Inc. (NYSE:PPG) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Raw Material Cost Trends

Kevin McCarthy – Bank of America Merrill Lynch: I was wondering if you could amplify your thoughts on raw material cost trends in the back half of the year. Is it the case that the rate of inflation is decelerating or do you expect costs to actually come down sequentially in the back half and then related to that Chuck, if you could provide an update on the TiO2 pigment cost trends please?

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Charles E. Bunch – Chairman and CEO: What we expect in the second half of this year, we have absorbed higher raw material costs in the first and second quarters. In the second half, we expect this trend to now stabilize with some declines in raw material prices by region and by commodity that will offset some of the price increases that we received in raw materials in the first half. In regards to TiO2 pricing, we continue to see more favorable supply/demand environment and depending on the region, some changes in the pricing for TiO2 in Asia as we’ve commented in earlier call, we’ve actually seen price declines in Asia in TiO2 pricing that’s versus not only the first half but also in 2011. In Europe, we are seeing now not only stability, but some declines in the second half that we are anticipating even though we may be paying more in the second half of this year than we paid in the second half of 2011. In North America we’re seeing stability around price trends going forward into the second half, albeit we are paying more today than we were in the second half of 2011. Prices for the second half in North America are still under discussion with our suppliers.

Kevin McCarthy – Bank of America Merrill Lynch: As a second question, Chuck, if I may, with regard to cash deployment you’ve indicated that repurchases will be on hold pending completion of the Georgia Gulf deal, can you speak so to M&A and what prospects you would see for acquisitions perhaps in the architectural or Industrial Coatings arenas around the world?

Charles E. Bunch – Chairman and CEO: We’re still pursuing acquisitions in all regions and in all segments of business, and we think that there is a more fertile opportunity for us in these changing economic conditions but at this point we do not have any imminent announcements for transactions but we are continuing to pursue those across the board in our businesses.

A Rundown of Asian Growth Rates

Robert Koort – Goldman Sachs: Chuck, I think you talked a little bit about some uneven growth rates in Asia. I am wondering if you can give us a little more granularity around that. What businesses there are still growing nicely and which ones may be falling off a bit from where you entered the year?

Charles E. Bunch – Chairman and CEO: If you look at Asia but in particularly our biggest market there is China. The strongest growth rates that we’ve seen have been in the automotive OEM coatings, auto refinish has also been strong, as has packaging coatings. We’re still seeing growth in our Industrial Coatings segment. Although there are some end use markets in Industrial Coatings that are not as strong and in particular I think the weakness that we have seen in China, but we’ve also seen it elsewhere in Asia. The construction markets have slowed down there and so both in Architectural, but also Industrial and our other segments sub segments that are tied to the construction businesses we have seen a slowdown in volume in China, and more broadly in Asia.

Robert Koort – Goldman Sachs: Then on transitions, you talked a little bit about some customer inventory management. Is that something that can have a duration of more than a couple of months and does this speak to general anxiety about consumer spend or what do you attribute the weakness there to?

Charles E. Bunch – Chairman and CEO: We think in part there was a strong re-stocking trend in the first quarter that we talked about that really boosted our results there. I think what we are seeing now in the second quarter and it could have a little longer duration is a weakness in some of the consumer markets, especially in Europe, especially in markets in Southern Europe and I think some caution on the part of our customers in Optical business to carry inventories with their concern over economic conditions over the next few quarters.

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