Download pdf - PPG Industries Inc (PPG) Earnings Report: Q3 2015 ... · PPG Industries Inc (PPG) Earnings Report: Q3 2015 Conference Call Transcript The following PPG Industries Inc conference call

CompanyName:PPGIndustriesIncCompanyTicker:PPGSector:BasicMaterialsIndustry:Chemicals

EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.35BPriceasofEventDate:101.0

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

PPGIndustriesInc(PPG)EarningsReport:Q32015ConferenceCallTranscriptThefollowingPPGIndustriesIncconferencecalltookplaceonOctober15,2015,02:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

VinceMorales;PPGIndustriesInc.;VPIR&TreasurerMichaelMcGarry;PPGIndustriesInc.;President&CEOFrankSklarsky;PPGIndustriesInc.;EVP&CFO

OtherPart icipants

DavidBegleiter;DeutscheBank;AnalystChrisEvans;GoldmanSachs;AnalystDuffyFischer;BarclaysCapital;AnalystJohnRoberts;UBS;AnalystP.J.Juvekar;Citigroup;AnalystJeffZekauskas;JPMorgan;AnalystFrankMitsch;WellsFargoSecurities;AnalystArunViswanathan;RBCCapitalMarkets;AnalystNilsWallin;CLSA;AnalystGhanshamPanjabi;RobertW.Baird;AnalystMattGingrich;MorganStanley;AnalystDonCarson;SusquehannaFinancialGroup;AnalystJimSheehan;SunTrustRobinsonHumphrey;AnalystKevinHocevar;NorthcoastResearch;AnalystDmitrySilversteyn;LongbowResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometothethirdquarterPPGIndustriesearningsconferencecall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecordedforreplaypurposes.IwouldnowliketoturntheconferenceovertoyourhostfortodayMr.VinceMorales.Pleaseproceed.

VinceMorales (VPIR&Treasurer):

Thankyou.Welcome,everybody.

ThisisVinceMorales,PPG'sVicePresidentofInvestorRelationsandTreasurer.WeappreciateyourcontinuedinterestinPPGandwelcomeyoutothisteleconferencetoreviewourthirdquarter2015financialresults.

JoiningmeonthecalltodayfromPPGisMichaelMcGarry,PresidentandChiefExecutiveOfficer,andFrankSklarsky,ExecutiveVicePresidentandChiefFinancialOfficer.




OurcommentsrelatetothefinancialinformationreleasedonThursday,October15,2015.Iwillremindeverybodythatweposteddetailedcommentaryandaccompanyingpresentationslidesonourinvestorcenteratppg.com.TheslidesarealsoavailableonthewebcastsiteforthiscallandtheyprovideadditionalsupporttotheopeningcommentsMichaelwillmakemomentarily.

FollowingMichael'sperspectiveontheCompany'sresultsforthequarterwewillmovetoaQ&Asession.

BoththepreparedcommentaryandthediscussionontheQ&Amaycontainforward-lookingstatementsreflectingtheCompany'scurrentviewoffutureeventsandtheirpotentialeffectonPPG'soperatingandfinancialperformance.Thesestatementsmayinvolveuncertaintiesandriskswhichmaycauseactualresultstodiffer.TheCompanyisundernoobligationtoprovidesubsequentupdatestotheseforward-lookingstatements.

Thispresentationalsocontainscertainnon-GAAPfinancialmeasures.TheCompanyhasprovidedintheappendixofthepresentationmaterialswhichagainareavailableonourwebsitereconciliationsofthesenon-GAAPfinancialmeasurestothemostdirectlycomparableGAAPfinancialmeasures.ForanyadditionalinformationpleaserefertoPPG'sfilingswiththeSEC.

AndnowletmeintroducePPG'sPresidentandChiefExecutiveOfficerMichaelMcGarry.

MichaelMcGarry(President&CEO):

Thankyou,Vince,andgoodafternooneveryone.IwanttothankyouforyourcontinuedinterestinPPG.

Todaywereportedourthirdquarter2015financialresults.Ourresultsincludedthirdquarternetsalesof$3.8billionandthirdquarterrecordadjustedearningsperdilutedsharefromcontinuingoperationsof$1.61.

Ouradjustedearningspershareinthethirdquarterwereup$0.20,or14%versusthepriorrecordquarter.Ourcontinuedstrongperformancewasachieveddespiteunfavorableforeigncurrencytranslationimpactswhichwerelargerthanoriginallyanticipatedduetofurtherweakeningofemergingregioncurrenciesduringthequarter.

WemorethanoffsetthecurrencyheadwindwithcontinuedbenefitsfromouracquisitionsincludingconsistentlystrongperformanceofComex,ongoingandaggressiveactionstofurtherreduceouroverallcostandcontinuedcashdeployment.Overallweperformedwellthisquarteragainstamoredynamicanduneveneconomicbackdrop.WehavecontinuedtodeliversolidcompoundedadjustedEPSgrowthasaCompanyincludingover20%inthelastthreeyears.

Thisconsistentperformanceisatangiblemeasurementofourglobalcoatingsbusinessplatform,ourabilitytoinnovateandcommercializecustomerdrivenproductsandtechnologiesandourcontinuedaggressivecostmanagement.Additionallywecontinuetobenefitfromdisciplinedearningsaccretivecashdeployment.

Ourthirdquartersalesvolumedeclinedbylessthan1%yearoveryeardownslightlyversusoursecondquarterperformance.Thelowerresultsreflectoverallmoderationofglobaleconomicgrowthduringthequarterandtransitorycustomerinventorymanagement.

OurIndustrialCoatingssegmentgrewvolumesupportedbycontinuedautomotiveOEMvolumegrowthinallmajorregions.WedeliveredhighervolumesinAsiadespitelowerindustryproductioninChina.AlsogrowthcontinuedinEuropeandNorthAmericasupportedbygrowingdemandintheseregions.

Additionallywecontinuetobenefitfrominitialindustryadoptionofournewcancoatingtechnologies




andourpackagingcoatingsbusiness.Weareinearlystagesofanindustry-widetechnologyconversionandwehavedemonstratedexcellentprogressinsecuringaninitialleadershippositionduringthisonceinamulti-decadeindustryconversion.

WithintheIndustrialsegmentgrowthwaspartiallyoffsetbyslightvolumedeclinesinourIndustrialCoatingsandspecialtycoatingandmaterialsbusiness,aresultsimilartopriorsequentialquarterasoverallgeneralindustrialdemandremainstepidinallmajorregions.PerformanceCoatingssalesdeclined,volumesdeclinedduetolowerarchitecturalcoatingsdemandstemmingfromaweakerCanadianeconomycoupledwithinventorymanagementbymostofourUSandCanadiannationalretailcustomersapproachingthetailendofamodestpaintingseason.Overallarchitecturalcoatingsindustrydemandwasmodestinthethirdquarterfollowingaweakerthananticipatedsecondquarterduetopoorpaintingweatherconditions.

Essentiallywedidnotexperiencealarge-scalesnapbackinthequarter.Thisleftmostofourlargenationalretailcustomersandindependentdistributorswithhighinventoriesaswebegantowinddownthepaintseason.Sotheirlatethirdquarterorderpatternswerereducedcommensurately.

VolumesinourotherPerformanceCoatingsbusinesseswereupslightly.RegionallyfortheCompany,highervolumeswereachievedinEuropewithgrowthtrendslightlyaheadofthepreviousquarteraswecontinuetoseebroaderbutstillmodestlyincrementalimprovementintheregion.

Year-over-yearvolumesgrewINAsiaaswell.Chinavolumesweresoftearlyinthequarter,includingcustomerinventorymanagementbutstabilizedwithdemandimprovementlaterinthequarter.VolumesintheUSandCanadianmarketswereloweryearoveryearprimarilyduetoarchitecturalcoatingscustomerinventorymanagement.

Mexicanvolumesexcludingacquisition-relatedbenefitsremainedverysolidwhileSouthAmericandemandweakenedincomparisontoprevioussequentialquarterandyearoveryear.

AsImentionedweincurrednotableunfavorablecurrencytranslationimpactstosalesandearningsstemmingfromweakenedforeigncurrencies.Thesecurrencies,primarilytheeuro,unfavorablyimpactedoursalesbyabout$310millionorabout8%andreducedourpretaxearningsbyabout$45millionor$0.12pershare.Absenttheforeigncurrencyimpactsouradjustedearningspersharewouldhavebeenupover20%yearoveryear.

Basedoncurrentforeigncurrencyexchangeratesweexpecttheunfavorableforeigncurrencytranslationimpactstomoderatesomewhatinthefourthquarterasforeigncurrenciesbegantoweakeninthesecondhalfof2014andduetotheseasonalityofourbusinesses.Giventhesefactorswenowexpectcurrencytranslationtoreduceourfull-yearsalesbyabout$1.1billionandpretaxearningsbyabout$120millionto$130million.Thisrangeisslightlyunfavorabletotheforecastthatweprovidedduringoursecondquarterearningsconferencecallwithmostofthechangealreadyrecognizedinourthirdquarterresults.

AsyouwouldexpectfromPPGwehavemaintainedouraggressiveoperationalandcostfocusasweachievedlowermanufacturingandSG&Acostsincomparisontolastyear.Ouryear-over-yearSG&Acostsasapercentageofsalesweredownabout100basispointsduringthethirdquarter.

Wecontinuedtoexecuteonourpreviouslyannouncedrestructuringplanandanticipatefull-yearsavingsfromthisprogramof$100millionto$105millionwhenfullyimplementedin2017with$15millionto$20millionofthesesavingsexpectedin2015.Castemploymentwasalsoasignificantfactorofsegmentincomegrowthinthethirdquarter.ThisincludedsalesandearningsfromourrecentacquisitionsincludingComexandseveralsmallercompanies.




SincetheendofthesecondquarterweclosedonCumingMicrowave,ChemfilCanada,IVCIndustrialCoatingsandLeJointFrancaisorabbreviatedLJF.Wewillbenefitfromthesetransactionsinthefourthquarter.

Inadditiontoacquisitionspendingwedeployed$150millioncashinthequarterforthepurchaseof1.5millionsharesofPPGstockandourrepurchasepaceyeartodateisaheadoflastyear.Weremaincommittedtoaccretive,earningsaccretivecashdeploymentandyeartodatewehavespent$900millioninthisregard,includingsixbusinessacquisitionswithanaggregatepurchasepriceofover$400millioncoupledwith$500millionofstockrepurchases.

Wehadpreviouslyannouncedacashdeploymenttargetof$1.5billionto$2.5billionfocusedonacquisitionsandsharerepurchasesforthecombinedcalendaryearsof2015and2016.Wehavenownarrowedtherangeandaretargetingatleast$2billionto$2.5billionoverthattimeperiod.

LookingaheadweanticipatearesumptionofPPGvolumegrowthinthefourthquartersupportedbyglobaleconomicgrowth,theabsenceofcustomerinventorymanagementandthebenefitofincludingComexinourorganicfiguresfollowingtheacquisition'sanniversaryinNovember.

LastlywecontinuetohaveavarietyofPPG'sspecificearningsdriversthatarenotdirectlytiedtothepaceoftheeconomy,mostofwhichI'vealreadyspokenabout.Insummary,theseincludethebenefitsofcompletingourrestructuringactions,attainmentofremainingsynergiesfromtheongoingintegrationofouracquisitions,theongoingeffectsofcontinuedcashdeploymentandourproactivecostmanagement.

BeforeweconcludeourpreparedremarksIwanttoprovidesomecontextaroundafewofthekeyinitiativesIwillbeworkingoninmynewroleasCEO.TheseinitiativesaresummarizedontheslidetitledPPGpathforwardinthepresentationmaterialssupportingtoday'steleconference.

Firstandforemostwearecommittedtomaintaininganunwaveringfocusonourcustomers.Todosowewillcontinuetoinvestincustomer-driveninnovationandtechnology.TechnologydevelopmenthasbeenthebackboneofPPGformany,manyyearsandwe'vebeenabletogainvaluableshareofourcustomers'walletastechnologyinourindustryhascontinuedtoshiftandsupportedchangingcustomerandenvironmentaldemands.

RecentexamplesincludeourcompactprocessandautomotiveOEM,anewarrayofcoatingsandsealanttechnologieswedevelopedtoservetoday'scompositeaerospacemarket,ourindustry-leadingwater-basedrefinishcoatingsandnewcoatingsfortheinsideoffoodandbeveragecansjusttonameafew.Weaimtousethesetechnologyshiftstoexpandourinnovationleadershipinmarketsinwhichweparticipate.AlsoweintendtomaximizethetransferofthesetechnologiesacrossallofPPG'sbusinessesfaster.

Additionallyweneedtoincreaseourcustomerintimacyandservicecapabilitiessothatweareabletodeliverhigherorganicgrowth.ThisrequiresustomakeiteasierforcustomerstodobusinesswithPPG.Thisincludesfromthetimetheyorwedevelopapotentialconceptinvolvingeithercoatingstechnologyorapplicationallthewaythroughthepurchaseordertoourfinalproductshipmentandprovidingtechnicalsupporttoserviceourcustomersandlaunchthenewtechnologyandtheirfacilitiesflawlessly.

Thisisanend-to-endcustomerapproachthatisfocusedonbuildinglong-lastingmutualbeneficialrelationshipsandisaimedatdrivingahigherorganicgrowthrate.

PPGhasbeenverygoodoperationally.Asa34-yearveteranoftheCompanythisisoneofthedisciplinesthatwasinstilledinmeandcontinuestobeimpartedwithallassociatesfromdayoneonthejobanditremainswithustoday.Nostonegoesunturnedinlookingforwaystoreducecostandwe'llmaintainthisaggressivecostmanagementapproach.




Inadditionwe'llmakeitevenmoredynamicsothatwewillcontinuetorapidlyadjustourcoststructuretoconstantlymatchregionalandend-usemarketdemandbyfurthervariablizingourcoststructure.Thiswillincludemoresharedservicecostcentersofexcellencethatwillcentralizecostsallowingustotakeadvantageofefficienciesintechnologiesandispossibleduetoourglobalscale.Thiswillimproveourcoststructureinthevariousregionsandfieldlocationsaroundtheworld.

Strategicallywehavemadesignificantstridesintransformingourportfoliointhepastseveralyears.Wearenowinapositiontooptimizeandextractthefullscaleadvantagesofourglobalcoatingsplatform.Thisincludesimprovementsinnearlyeveryfacetofourbusinessincludingfurtherdistributionandsupplychainadvantagesduetoourbreadthanddepthofproductsandserviceswebuy,makeandsell.

Naturallygivenalltheeffortwe'veputintotransformingourbusinessportfoliowewillmaintainourrigoronourbusinessportfoliotoensurecontinuedshareholdervaluecreation.Alsowewillremainfiscallyprudentandshareholderfriendly,twoothertraitsthathavelongbeenembeddedinPPG'sDNA.

Fromabalancesheetperspectivewewanttoremaininvestment-gradeandmaintainadequatefinancialflexibilitywhichhasservedussowellovertheyears.Wewillcertainlyinvestorganicallytokeepourexistingbusinesseshealthyandkeepourdisciplinewithrespecttoacquisitionvaluation.

AdditionallyweintendtorewardourshareholdersandwillrecommendsustainabledividendincreasestoourBoardofDirectors.Weintendtobeefficientwithallourassetsincludingcashandwe'llreturnexcesscashtoourshareholders.Lastly,I'mhonoredandexcitedtobeCEOandIlookforwardtothecomingweeksandmonthsofspendingmoretimewithourshareholdersandcontinuingthisdialogueonthepathforward.

ThankyouforyourtimeandonceagainweappreciateyourinterestinPPG.NowJasminewouldyoupleaseopenthelineforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)DavidBegleiter,DeutscheBank.

DavidBegleiter (Analyst-DeutscheBank):

Thankyou.Michael,youhighlightinthereleasemoderatingglobaleconomicgrowth.Canyoutalktowhatregionsandwhatendmarketsyou'reseeingthatmoderatinggrowth?


Sure.Wecanstartwithautomotiveasyouknow,yousawthatinChina.ThegoodnewsisinSeptemberyousawalittlebitofanimprovementthereandtheorderbookforAugustcontinuestolookmodestlybetter.

Youwouldalsoseesomeheavydutyequipmentbeinganotherareathatcontinuestobealittlebitweak.FromaregionalsperspectiveweseealittlebitofuptickinEuropeandobviouslyLatinAmericaparticularlyBrazilseemstobegettingweakerinsteadofbetter.SooverallIthinkthosewouldbesomeofmyinitialcomments,David.


Verygood.Michael,justonrawsinyourgrossmargin,niceexpansioninQ3.WheredowestandontherealizationofsomeofthelowerrawmaterialcoststhroughyourCOGS?





David,we'vebeenveryconsistent.Wetoldyouthroughouttheyearthataboutathirdofourrawmaterialsaretiedtooil.Wegetsavingsquickeronitemsclosertotheoilwelllikesolvents.

Wegetthosein30to60days.Transportationtypically60to90days.Wetypicallyworkwithoursupplierstopullthroughthepropyleneandethylenederivativesavings,andthoselagalittlebitmoresixtoninemonths.

We'veseenmorerawmaterialdeflationin3Qthanin2Q.Andwewillcontinuetoworkwithoursupplierstogetfurthersavingsin4Qandgoingforward.


Thankyouverymuch.

Operator :

BobKoort,GoldmanSachs.

ChrisEvans (Analyst-GoldmanSachs):

Goodafternoon,gentlementhisisChrisEvansonforBob.IwashopingyoucouldprovidesomeadditionalgranularityontheNorthAmericanarchitecturalvolumedecline.Areyouguysseeinganytrendsoutsideofthedestockingthere?


Chris,whatIwouldtellyouisthatwehadawetJuneandpeoplewereanticipatingastrongerpaintseason.We'vebeenveryconsistentinsayingthatweexpectedthepaintseasontobeinthatlowsingle-digitrange.Ithinkourassessmenthasbeenrelativelyontarget.

SowesawthemajorretailfolksbothintheUSandCanadastarttodestocklateinthethirdquarter.ThegoodnewsisIwilltellyouwethinkit'stransitorybecauseasIlookatoursalesforthefirst14daysofOctober,thesalesareveryconsistentwithwhatwesawinthefourthquarteroflastyear.Sothatleadsmetobelievethatthisisatransitoryeffect.

Operator :

DuffyFischer,Barclays.

Duf f yFischer (Analyst-BarclaysCapital):

Yes,goodafternoonfolks.Questionjustifyoutakeastepbackonyourvolumes,thechartthatyouprovideopticallyobviouslydoesn'tlookgood,thewholeindustryisstrugglingalittlebit.Butwhenyoulookacrossyourbusinesses,wouldyousayyou'remygainingorlosingmarketshare,sothequestionisareyourvolumesworsethanthemarketorinlinewiththemarket,wouldyouguess?


WellIguess,Duffy,Iwouldfirstsaythatit'sadifficultquestiontoanswergiventhatthere'snotalotofindustrydatathatyoucanrelyon.SoIwouldsayit'sconceivablethatintheUSstoresbusinesswemighthavetickeddownafractionbutcertainlyIdon'tfeelthatwayinCanadaandwe'regainingshareinotherplaceslikeMexico.We'regainingshareinEurope,we'regainingshare,soIwouldtellyouthatsincewerunaglobalarchitecturalbusinessoverallnet-netwe'redoingprettywell.




FrankSklarsky(EVP&CFO):

AndDuffyifyougotosomeothermarketsoutsideofarchitecturalyou'llseeautoisupversustheindustry.Packagingwebelieveisupversustheindustryandwethinkourprotectivebusinessisupversustheindustryalthoughtheothersideofthatpointismarine.Andmarinefortheindustryisdownandwe'rematchingthedeclineswiththeindustry.


Okay.Andthenoneareathatlookslikeyouhaveaexcitingnewproduct,youcallitcompact,Ithinktheindustrywillcallitwetonwet,butitseemslikeyou'vegottentwobigwinsinthatspacerecently.One,howbigdoesthatmarketbecomeoverthenexttwoorthreeyearsandthenisitconceivablethatthiscouldbelikeE-Coatwhereyouwouldgetastrongermajorityofthewinsgoingforward?


Duffy,Iwouldtellyouthatthishasn'tbeenarecenttrend.We'vebeenoutperformingtheindustryforquitesomeperiodoftimenow.Sotheindustrywasup1%inQ3,wewereup5%inQ3.

Soagainwehavesignificantlyoutpaced.Wehavetoldpeoplethatit'snotprobablethatwewouldoutpacetheindustryforanextendedperiodoftime.Atsomepointyouhavetoreverttothemeanbutourtechnologywethinkisthebest.

Ourtechnicalservicehascertainlybeenoutstanding.Andwe'vebeenwinningmorethanourfairshareofnewplants,sothat'sgood.

Andthenultimatelywhentheystarttorefurbishsomeoftheseolderfacilitiesandtheywanttosavemoneyandreducethefootprintsizethiscompactprocesswillalsobeanotherwinner.Sowethinkthisisalong-termsustainablewinforusgoingforwardthankstotheoutstandingworkofourR&Dteam.


Great.Thanks,fellas.

Operator :

JohnRoberts,UBS.

JohnRoberts (Analyst-UBS):

Goodafternoon.WasComexuphighsingledigitsinthequarter?Iknowitwasuphighsinglethroughthefirsthalf,soI'mjustwonderingwhetheritsloweddownandstillmaintainedhighsinglefortheninemonthsbutwasdeceleratinginthequartermaybe?


No,John,Comexhasperformedverywellallyear,veryconsistentatmarketsales.WhatwedoseewithComexisthepesodevalued20%-plusandsothat'sbeentakingawaysomeofthetopline.We'vemadeupforthatwithgrowthinbothatmarketaswellasnewconcessionairestoreopenings.


Okay.CouldyoucommentalittlebitabouttheM&Apipelineandwhethervaluationexpectationshavecomedownwithmultiplesonthepubliclytradedpaintcompanies?





Yes,John,thewayIwouldanswerthatisit'stooearlyforthemultipleshavecomedownbecausethelast30,60dayswesawthestockmarketcomedown.Ourpipelineitstillcontinuestolookverygood.We'reactivelookingatanumberofpropertiesandIseenodifferenceinthatregardversuswhatwe'vehadinthepast.


Thankyou.

Operator :

P.J.Juvekar,Citi.

P.J.Juvekar (Analyst-Citigroup):

Yes,hiMichael.Ihaveaquestiononthisinventorymanagementbyretailers.Yousawthatinthirdquarter.

What'syourconfidencelevelthatyouthinkit'sbehindus?Yousaidthefirstcoupleofweeksitlooksgood.

Andthensecondlyonthatwasitaparticularretailerorwasitacrosstheboardforeveryonethatdestockingtookplace?Wasthereanyimpactonpricingbecauseofthat?


P.J.,wehadalittlehardtimehearingyou.Letmetrytorepeatthequestion.YouaskedIthinkwhat'sourconfidenceaboutQ4,nocarryoverintoQ4thedestock,andhowbroadwasthedestocking,isthatcorrect,P.J.?


Yes,that'scorrect.Wasthereanyimpactonpricingofpaintbecauseofthedestocking?


Thethirdpartwouldbeokay.


Right.Sowe'lltakethepricingonefirst.Asyouknowwe'vebeentellingyouconsistentlythatpricing,ourmodelshowspricingflatfortheyear.

Westillseethathappeningandifyouarethinkingaboutnextyearweseepricingflattoprettymuchintonextyearaswell.Asfaraswhywethinkit'satransitoryeffectoninventorynotonlyhavewelookedatourowninventoriesbutwehavealsoobviouslytalkedtoourcustomersandtheyarealsoofthatsameopinion.SoIthinkthat'sawaytothinkaboutitbesidesjustthebackthatwe'relookingatourorderbook.

Anditwasbroad.Iwon'tsayallbutIwillsayitwasverybroad.


AndP.J.youmayhavemissedearlierbutMichaelmentionedthatthefirsttwoweeksofOctoberourorderpatternsareconsistentwiththatsametimeperiodlastyear.





Okay,thankyou.ThenjustonCanadayoumentionedthatvolumesweredown.CanyoujustgivesomeorderofmagnitudehowmuchwerevolumesdowninCanada?Thankyou.


Soforusjusttoframethisforeverybodywepurchased,whenwepurchasedtheAkzoNobelNorthAmericanbusinessin2013weacquiredthenumberonepositioninthecountryofCanada.Atthattimewesaidthebusinesswasroughly$500millionandveryconcentratedpaintseasonjustfromaweatherperspectiveandthatbusinesswasdownsimilartowhatyou'reseeingthetotalsegmentortotalarchitecturalbusinessbedownsohighsingle-,lowdouble-digitrange.

Andthat'smorestructural,P.J.WedoseeweakeningintheCanadianeconomy.


We'vehadtwoquartersinarowofGDPdowninCanada.


Thankyou.

Operator :

JeffZekauskas,JPMorgan.

Jef f Zekauskas (Analyst-JPMorgan):

Thanksverymuch.Inyourcommentaryyousaidthatyourcost-cuttingprogramisloweringcostsannuallybyabout$20million.Solet'scallit$5millionaquarter.

ButyourSG&AandR&Dcostsinthequarterweredown$52million.SoIassumethat,Idon'tknow,$47millionofthatiscurrencybutyouroverall--thatisyouhada$47millioncurrencybenefitinSG&A,butyousaidthatyourcurrencynethitwas$40million.Sodoesthatmeanthatthegrossmarginwaspenalizedbyabout$87millionor$90millioninthequarterduetocurrencies?


Firstofalllet'stakeavariouscategories.Andifyoulookatcorporatecostit'scorrecttosaycorporatecostswentdownbyabout$20million.

Andthemajorityofthatwasstock-basedcompensationobviouslyreflectingtheequitymarketsandthatwillincludeboththeQ3effectandacatch-upfromthefirsthalf.Thatwon'treallyrepeatinthefourthquarterandIwouldsuspectthatthatcorporatecostlinewouldbebackupinthe$50millionto$55millionrangeversusthelowof$35millionthatyousawinthequarter.

Whatyouarecorrectinsayingthatthereisacurrencybenefittoourconstructsareintotal.ThatappliestobothCOGSandSG&Aaroundtheworld.

Sowhatwesaidwascurrencyimpactedthetoplineby$310millioninthequarterandimpactedthebottomlinebyabout,theoperatingincomelikebyabout$45millioninthequarter,weexpectthatoverallcurrencyimpactinthefourthquarterwillbelessthanthatbutattoday'sratesabout$250millioninthetoplineandabout10%ofthatontheoperatingincomelike.Butintermsofwecan'treallygiveyoudetailrightnowonthespecificcurrencyimpactoneveryportionoftheincomestatementbutthat'showIwouldframeitforQ3andwhatweexpectforQ4aswellasthecorporatedetails.





Andthensecondly,manycompanieswhentheyreportearningsprovideafullbalancesheetandafullfundsplusstatement.Aretherereasonswhyyouinthegatheringofyourinformationthatisdifficultforyoutoputthattogetherandwhatwasoperatingcashflowforthequarter?


So,Jeff,asyouknowweareaveryearlyreporter.Wedothinkthatprovidesveryquicktransparencytoourshareholders.

WedofileourQwithinaweekorsowherewehaveallthosedetails.SoIthinkthereasonwhyiswe'dliketogetalltheEBITinformation,salesandEBITinformationoutasquickaspossible.


AndallIwouldaddtothatisthefactthatifyoulookatwherewestartedthequarterandwhereweendedthequarterwehaveobviouslypickedupacouplehundredmilliondollars,over$200millionincashbalance.Andthat'sacombinationoftheearningsandthentakeoffofthatobviouslyCapEx,ouracquisitionspendingbutalsoagoodperformanceonworkingcapitalaswecontinuetoworkoncollectingpast-duereceivablesaswellassomeinitiativeswehavearoundbringinginventoriesdown.SostillverydiligentoverthemanagingthecashflowandasaresultwehadaprettydecentQ3inthatrespect.


Sowhatwastheoperatingcashflownumberinthequarter?


Well,you'llseethatwhenwefileourQveryshortlyyou'llseeallthedetailsaroundthat.We'dratherwaituntilyougetthewholestatementbeforewedissectthat.


Okay,great.Thankyouverymuch.

Operator :

FrankMitsch,WellsFargo.

FrankMitsch (Analyst-WellsFargoSecurities):

Hey,goodafternoongentlemenandcongratsonarecordquarter.IwasthinkingmaybeIshouldwaituntilIseetheQtogetsuperexcitedbutI'lltakeyourwordforit.

Michael,IthinkyoumentionedthatNorthAmericanorderpatternsormaybeVinceforthefirstcoupleofweeksofOctoberweresimilartowhatyouwereseeinglastyear,sothatgivesyouconfidencethatwe'renotseeingadestock.AndobviouslyAsiawasabigconcernforfolksandyousaidthatitstartedoutsoftinQ3butthengotbetter.CanyoutalkaboutthepaceofbusinesssofarinOctoberinthatpartoftheworld?


SoFrank,letmegiveyouacoupleofthingstothinkabouthere.AndI'llstartwiththeautomotiveside




becausethereseemstobealotofconcernabouttheautomotivepieces.

Youknowthey'vereducedthetaxonsmallenginesinChinaandtheyannouncedthattaxlateinSeptemberandthattookeffectOctober1.Andsoitwouldnotbeinconceivablethatpeopledeferredpurchasesofsmallcarsbecauseyouknowthatthetaxratewasgoingtodropfrom10%to5%onOctober1.

SowesawSeptembersalesinChinawereactuallyupaboutIthink3%ifIrememberrightandinOctoberwehaveaprettygoodviewofwhat'shappeningwithourcustomers.Ourorderbookwe'reprettymuchjustintimedeliveryandwe'reseeingmoderatelyimproveddeliveriestoourcustomers.

Ofcoursewe'reperformingbetterthantheindustrysowearestillexpectingautomotivesalesinChinatobeupmodestlyinthat1%to3%range.IfyoulookatourotherbusinessestherewassomeinitialdestockingaftertheTianjinexplosionportexplosion.

Mostofthathasworkeditswaythroughthesystemnowbecauseofwhathappenedpeoplewereconcernedaboutholdinginventoryforthingslikemarinecoatings,someofourrefinishcoatings.Allthathasbeenmoderatedandweseethoseorderbookscontinuingtogetbetter.

SoIwouldtellyouthatstartingmid-Septemberwestartedtoseethatimprovement.AndithascontinuedintheearlypartofOctober.


Allright.That'sveryhelpful.AndIdoappreciatetheraisingoftheamountthatyouaregoingtospendoneitherM&Aorsharebuyback.

YouraisedthelowerendthereandIthinkinresponsetoMr.Roberts'questionyousaidthatyou'renotreallyseeingthemultiplescomedownontheM&Afront.Sowouldthatsuggestthatwemightpreferentiallygotowardsthesharebuybackroute?Andhavingsaidthatandinaskingthequestionobviouslythestockismateriallybelowthe52-weekhighoreventhelastyearlyaverage,howareyourthoughtsaboutsplittingbetweenthosetwousesofcash?


Well,Frank,letmeclarify.Isaidyetthedaytheacquisitionshadn'tyetreflectedthat.Solet'sbeclearonthat.

Secondlywe'vealwayssaidthatacquisitionsarealwayspreferred.Theyaremoreaccretivethanbuyingbackourstocksothat'salwaysourfirstpreference.

Butwe'regoingtoprotecttheshareholders'valueandifwedon'tseetheacquisitionscomingthroughthenwewilltakethatmoneyandbuybackthestock.Sowewanttocontinuetodobothandourfirstpreferenceisalwaysacquisitions.


AndFrankIthinkit'sitsafetoassumethataswegothroughthefourthquarteryoucanexpectthatwewillcontinuetodeploycashinthequartertoeitheroneorbothofthoseinitiativesaswedid900throughthethirdquarter.Sowe'realreadyonpacetoexceedhalfthemidpointbytheendofthisyear.Soallthemorereasontoraisethatrangebutwewillcontinuetodeploycashinthequarter.


Thankyouverymuch.




Operator :

ArunViswanathan,RBCCapitalMarkets.

ArunViswanathan (Analyst-RBCCapitalMarkets):

Thanksguys.SoIguessIjustwantedtoaskyouyourconfidencelevelonacoupleofthings.

SogoingforwardQ4and2016youhavealotoforganicgrowthinitiatives.DoyouexpectthatthatwouldpotentiallydriveapositivevolumegrowthpictureingeneralindustrialorautoOEMorarethosekindofmoredependentonmarketdevelopment?


Iwouldtellyouthatwe'reexpectingcontinuedorganicgrowth.Letmegiveyousomereasonswhywebelievethat.

Firstofallasyouknowwesoldouroneglassfacilityandthatwasintheendofthethirdquarterlastyear,soyou'llstarttoseethatasapositive.Comexwillthenflipfromanacquisitiontoorganicgrowthinthefourthquarter.

WecloseonthatinNovember.Wecontinuetoseepositivegrowthinourautomotivebusiness.Packagingcontinuestodowell.

Ourrefinishbusinesswiththewater-basedtechnologycontinuestogrow.That'saslowergrowthgiventhefactthatit'savolumechallengedmarketwiththenewtechnologyoutthere.

Butwe'recontinuingtogrowinthatregard.AndtheoneareathatIwouldsayisstillaquestionmarkiswhereweareinthecycleisheavy-dutyequipment.It'sbeendown.

Iwouldexpectthattoatsomepointreachabottom.Andthenthatwillstarttoturn.Andwetalkedaboutpackagingbeverygoodaswell.

SoIthinkoverallyou'regoingtoseeareturntomoreorganicgrowth.


Andtheotherthinggoinginourfavorquitehonestlyisthefactthatinventoriesinthesystemareatveryreasonablelevels,whetherit'stheUSautomotivebusinesswellunder60daysatcurrentsalesrates,packagingasMichaelsaidwecontinuetopickupnewbusinessfromourtechnology-basedofferingsthere.AndtheninChinabecausetherecentproductionrateshavebeenbelowrecentsalesratesthoseinventoriesarecomingbackinlineinthefieldtoo.Sowedon'treallyhavetogothroughanymorerationalizationofinventoriesifthingsstayreasonablyhealthyintheendmarketsandthatincludesUSarchitectural.


Okaygreat.Andyes,justlookingattheslidesitlookslikeobviouslyNorthAmericawaschallengedinQ4,alotofdestockingtherebutyousoundedslightlymorepositiveonEurope.Canyoujusthopeusunderstandalittlebitmoredetailonwhatyou'reseeinginEurope?


Yes,sowe'llstartfirstofallwiththeautomotivebusiness.Asyouknowsaleshavebeenbetterthanbuildsandthat'sobviouslyagoodthinggoingforward.We'realsoseeingapickupinanumberofthecountries.




SouthernEuropeisobviouslycomingoffaverylowbasebutit'sgettingbetteraswell.AndthenwesawapickupinourarchitecturalbusinessintheBenelux.Andofcoursewe'vealwaysseengoodgrowthinGermanyaswellastheUKandalthoughtheEasternEuropeanregionhasbeenalittlechoppymostlyup,that'sbeengood.

Theonlyonethat'sreallydownofcourseisRussia.Russiacontinuestobedownnearly30%inanumberofsegments,sothateconomyisclearlychallengedandthenwehavebeengainingshareintheprotectedmarketinEuropeaswell.Sothat'sbeenapositiveforceallalong.

AndthenthelastthingIwouldsayisthatwe'rebuildinganewsilicaplantinEurope.Andthatfacilitywillbestartingupandwehaveaverygooddemandforthenewproductsindustryleadingnewtechnologycomingoutofthatfacility.


Andtheoneareawehaven'ttalkedaboutpreviouslyonthecallisSouthAmerica.Forusit'sabout3%ofoursales.

WedoseechallengesinSouthAmericaasMichaelalludedtoinhispreparedremarks.Wedon'tseethatreturningtogrowthcertainlyinthenearterm.


Okay.Andjusttoclarifyyousaidinthepastrecentlythataround10%orsoofyourbusinessesaretheonesthatareinthatchallengedarea.Isthatstillafaircharacterizationoristhereanykindofsensitivityaroundthat?


AgainI'dsaySouthAmericaabout3%ofoursales.We'veframedarchitecturalCanadaforyouatabout$500million.

Thosewouldbethetwoverysensitive.IfyoucombinedRussia,Ukraine,Africayoumaybegetanother2%or3%max.


AndofcoursetheComexbusinessisdoingextremelywellandthatwillalltranslateintoorganicgrowthfor2016.Theycontinuetoopenstoresataveryhealthypace,sothatwillalsohelpusoutintheorganicgrowthrate.


AndIguess,ArunthisisMichael,theonethingI'daddattheendisFrance.Franceisstillachallengedmarketforus.Butatsomepointwedofeelconfidentthat'sgoingtohavetoturnaroundandsoIwouldtellyouthat'sprobablywhywe'remoreoptimisticwhenyouputallthesethingstogether.


Okay,thanks.

Operator :

NilsWallin,CLSA.

NilsWallin (Analyst-CLSA):




Goodafternoonandthanksfortakingmyquestion.BackonNorthAmericanarchitecturalyoudidn'tmentionperformanceatthestoressowhatdidvolumedoinyourcompany-ownedstores?


Yes,same-storesalesweremodestlynegative.We'vecomeoffofIdon'tknowsevenoreightpositivecompsinarowincludingQ1andQ2ofthisyear.MostofthatwasCanada.

Wetalkedaboutthemodestpaintseason.AndthenIwouldremindyouthatourPMC,mostofourPMCinNorthAmericarunsthroughourstores.Asyouknowtheoilbusinesshasbeencertainlyunderalotofpressureandsothat'sthewayIwouldcharacterizethat.


AndPMC,justforeverybody,isprotectivememoryandcoatings.


SoifweremovethestorenumbersfromtheotherchannelsinNorthAmericaandarchitecturaldoesthatmeanthatthoseotherchannelswereactuallydownmorethanhighsingledigits?


Slightlymorebecausethestoreswerejustslightlynegative.


Okay.Thanks.AndthenonCanadaImeanobviouslyweunderstandGDPissuestherebuthousingstillcontinuestobestrong,sowhatisitsomeotherchannelthat'saffectingthedemandforarchitecturalpaint?


No,we'vesaidformany,manyyearsthatarchitecturaltypicallytracksclosertoGDPthananythingandthereisahousebuildmarketandahouserepaintmarket.Therepaintmarketistypicallyfivetosixtimeslargerthanthehousebuildmarkets,sotherepaintmarketisnottrackedIguessinnewhomesalesandthat'stheonethatdrivesthevolumeattheendoftheday.


WewouldsaythepaintinCanadais80%repaint.


Understood.That'shelpful.Andthenjustfinally,Michael,youdidspeakaboutleveragingyourassetbase.

Obviouslyyou'vegotsomeprettysignificantsizeinyourassetsacrosstheglobeanddoingthatthroughdistributionandsupplychain.Whatwouldthattranslateintermsofmarginaccretionoverathree-tofive-yearperiod?


Ithinkit'salittleearlytoanswerthatquestion.IthinkthewaytothinkaboutitiswehavemajorsharedservicefacilityinEuropeandAsia,nowwiththeComexonewewillbeabletoaddadditionaloneinLatinAmerica.




Wearestartingupwe'veputinanewpresentfacilityinBrazil.WehaveanewfacilitythatweexpandedactuallyinChina.

Sothatwilldrivethelowercostinourautomotiveandindustrialbusinessesthere.AndthenwearealsomovingmoreofourproductioninEuropefromwesttoeast,sothatwilladdadditionalbenefits.SoIthinkthat'sthewayIwouldgetyoutoframeyourquestion.


Thanksverymuch.

Operator :

GhanshamPanjabi,Baird.

GhanshamPanjabi(Analyst-RobertW.Baird):

Heyguys,goodafternoon.MichaelIknowit'searlybutlookingoutto2016canyoujustgiveussomeofthevariousputsandtakesrelatedtosomeofthebiggerbusinessesinyourportfoliojustfromafundamentalstandpoint,maybestartingwithNorthAmericanarchitecturalandthenalsoautoOEM?


Okay.NorthAmericanarchitecturalIwouldsaythatwe'reprobablygoingtohavethesameopinionwehadthisyearwhichislowsingle-digitsgrowthforthatbusiness.Sowe'regoingtocontinuetostaythere.

Automotive,itcontinuestobeaverystrongmarketforus.That'sbeenagoodone.OurrefinishbusinessinNorthAmericawe'regainingsharewithourwater-basedtechnology.

That'sapositive.Aerospacehasbeenmoderatinggrowthbutcontinues--wecontinuetogetnewcontentontheplanesandwiththeacquisitionsthatwe'veadded,thatCumingsMicrowavewouldbeone.Thatwouldbeanotherpositive.

WhenyoumovetoEuropeIwouldtellyouthatagainIwouldsaythatit'sprobablygoingtobemodestinthatlowsingle-digitsrange.Wecontinuetodowellinourautomotivespacethere.Ourpackagingspacecontinuestopickupbusiness,sothat'sgoodforus.

Whenyoulookatsomeoftheotherbusinessesprobablythebrightspotisourprotectivebusiness.Wehaveanewindustry-leadingtechnologyonfireprotectionthathasreallydoneverywell.

OnthenegativesideobviouslyyouarestillgoingtohavethechallengesinRussia.Wedon'tseethatgoingawaymovingtoSouthAmerica.

AsVincementionedearlier,weseethatprobablybottomingout.Sowe'renotrealexcitedaboutwhatweseedowninBrazilbutweareaggressivelytakingcostoutinBrazil,soit'snotgoingtobeanegativefromthatkindofstandpoint.

AndthenmovingovertoAsia,SoutheastAsiahasperformedokay.Indiahasbeenreallysolid.Iwouldsaytheyareinthat6%,soifyouaskwhathasthehighestgrowthinAsiarightnowit'sIndia.

AndwestillremainbecauseourbusinessinChinaispredominantlyforconsumer-orientedstuffwhatwemakeinChinastaysinChina.It'snotfortheexportmarket.Sowe'reoptimisticthatChinawillcontinuetoresumeitsgrowth.

WeknowtheChinesegovernmentisveryinterestedintheeconomygrowing.Theyaretakingalotofrightmovestohavetheeconomygrow.Andwehavebenefited,thathasbeenoneofourbestmarkets




andweexpectthattocontinuetodowellgoingforward.


That'shelpful.Thenspecifictopackaging,canyoujustparseoutthestronggrowththatyou'reseeingtheregeographically?Itseemslikeyou'veseenafairamountofsuccesswithBPAnon-intent.Isthatspreadinggloballyanddidthatstarttomaterializeand3Q?


Well,theBPAnon-intentwinstartedinEurope.They'vecontinuedintotheUS.AsyouknoworyoumayknowCaliforniahasthisProposition65outthere.

They'venottakenafirmpositionyet.ButourguessisthatourfolksintheUSwillbemuchmoreinterestedintheBPAnon-intentcoatingsgoingforwardsothattrendwillaccelerate.

Andasyouknowweonlyhad3%marketshareinsidethecan.Andsosincethisisaonceinagenerationormulti-generationforsomeofthesethingsopportunitywe'regoingtobeatahigherpresenceinsidethecanthanwe'veeverbeeninthepast.Sothatwillbeapositiveforusoverall.


Okay,thenjustonefinaloneforFrankifIcould.Justonworkingcapital,Frankfor2015justgivenhowdynamictherawmaterialimpairmenthasbeenhowshouldwethinkaboutthatfor2015?Thankssomuch.


Ourgoalonworkingcapitalobviouslyistobringthatdownby100basispointsayear.We'veseenalittlebitofslowpayrecentlybutwe'llgetthatbackdownbytheendoftheyearandwedohavesomerelativelyaggressiveinventorygoalsfortheteams.

We'remakinggreatprogressonthat.Butthatwouldbeouroverallgoalistokeepbringingthatdownbyabout100basispointsandprobablythelargestopportunityininventoryfollowedbypeopleworkingonthereceivables.Payablesareinprettydecentshape.

IwasjustgoingtoaddonemorethingtowhatMichaelwassayingonthegrowthprospectsfor2016.Rememberalotoftheacquisitionsthatwehavedonethisyear,that$400millionworthofcashdeployedacquisitions,therevenueassociatedwiththatisonlyasmallportionofwhatthefull-yearimpactisorwillbefor2016.Sobetween$400millionand$500millionofrevenueassociatedwithacquisitionsexcludingthebaseComexbusiness.

That'soverandabovethebaseComexbusinesswillhitinfullstridenextyear.Andyoucanmakeanyestimatesyou'dlikeintermsoftheprofitabilityofthosebusinessesbutthat'salsogoingtobeaccretivetoourtoplinealongwiththeEBITDAthatgoeswiththat.


Okay,terrific.Thankssomuch.

Operator :

VincentAndrews,MorganStanley.

MattGingrich (Analyst-MorganStanley):

HeyguysthisisMattGingrichonforVincent.Iwaswonderingifyoucouldspeaktothephasingofsell




throughinUSarchitecturalthroughthequarteronamonth-by-monthbasis?


Onamonth-by-monthbasisIwouldtellyouthatwestartedtoseethedestockingstartinAugustandbythemiddletotheendofSeptemberitwasover.Sothat'sthewayIwouldthinkaboutthat.


Okay,great.Andthenintermsofhowsalestrendedinyourdedicatedpaintstores,whatdidyouseethere?


ActuallyinthededicatedpaintstoresitwasprettyIwouldsayconsistentthroughthequarter,althoughneartheendofSeptemberourcompsweremarginallybetterthanwhattheywereearlyinthequarter.AndthentheyhavestartedtobeinOctoberasImentionedvirtuallyidenticaltowhatwehadin4Qoflastyear.


Wouldthatbemidsingledigits?


No,it'slowsingledigitspositive.


Okay,thanksguys.

Operator :

DonCarson,Susquehanna.

DonCarson (Analyst-SusquehannaFinancialGroup):

Yes,aquestiongoingintonextyear,whatkindofgrossmarginmomentumdoyouthinkyouhavefromraws?Becauseobviouslyinthefirsthalfoftheyearyou'regoingtohavesomerelativelyeasycomps.Areyoustillexpectingsomegoodgrossmarginexpansioninthefirsthalfoftheyear?


Don,Iwouldtellyouthatwe'regoingtocontinuetoworkwithoursuppliersandpullthroughthesavingsandsoIwouldsayit'sgoingtobemodest.Ourgoalhereistocontinuetopullthosethrough.

WestillseeweaknessintheTiO2market.Westillthinkit'soversupplied.

Andthenclearlywehaven'ttalkedaboutHenanBillionsyet.Surprisinglywe'vemadeit55minutesinthecallandnotonequestionaboutit.SoI'llgoaheadsinceeverybody'sinterestedandtellyouthatthefirstsetofsampleswegotfromthemtheparticlesizewastoolarge.

Thesecondsetofsampleswegotfromthemweretoosmall,sonowtheyaredialingitin.WeexpecttobebuyingthecommercialquantitiesofTiO2fromHenanBillionssometimelateinthefourthquarter.

SooverallIwouldtellyouwe'restillfeelinglikethere'smoresavingstocome.PlusasyouknowwewillhaveincrementalrestructuringsavingsinpredominantlyEuropebutalsoBrazilandAustraliafromour




restructuringprogram.Thatincrementallythroughouttheyearwilladduptoabout$60millionto$75million.

Obviouslyitacceleratesasitgoesthroughouttheyearof2016.Butthatwillbeanotherpositive.

Operator :

JimSheehan,SunTrust.

JimSheehan (Analyst-SunTrustRobinsonHumphrey):

Thankyou.Couldyoutalkaboutyourexposuretocommercialconstructionandwhatyou'reseeinginbothyourcoatingsandyourglassbusinessesinthatmarket?


Yescommercialconstructionisobviouslymoreimportanttoourglassbusinessthanitistoourcoatingsbusiness.CommercialconstructionhasbeensteadyandgettingslightlybetterbutthechallengethereisactuallythefabricatorswhomakethefabricatedglasswindowunitsareIwouldcallthemfull.

Theirbacklogonfabricatedunitscontinuestobesix,eight,10weekssothat'sbeenachallengeforthemarket.Iwouldtellyouthatourglassbusinessasyoucanseehasdoneprettywell.

We'vegottenprice.We'vealreadyhadtwopriceincreasesinthatbusinessthisyear,sothat'sbeenapositive.Andwecontinuetoexpectimprovementagainnextyear.


Thankyou.AndinEMEAyouhadsomepositivevolumesthere.

IthinkautoOEMwasparticularlystrong.CouldyoujustcommentonwhatyourvolumegrowthwasinarchitecturalcoatingsinEurope?


ArchitecturalcoatingswereflatinEuropeandofcoursethatvaried,soupintheUK,upintheBenelux,downinFrance.MostlyupinEasternEuropebutnoteveryEasternEuropeancountrywasup.Sonet-netflatbecauseFranceisourlargestarchitecturalcoatingsmarket.


Thankyou.

Operator :

KevinHocevar,NorthcoastResearch.

KevinHocevar (Analyst-NorthcoastResearch):

Hey,goodafternooneverybody.Thequestionongoingbacktothecashdeploymentbumpedupthelowendoftherangeand$2billionto$2.5billionandyousayatleast$2billionto$2.5billionsoimplyingitcouldgoaboutthat.

Iguesswhatwouldittakeforyoutogoabovethatrange?WoulditnecessitateM&Aorifthestockpricewasattractiveenoughwouldyouconsiderrepurchasingabovethatlevel?





AsMichaelsaidthepaceofsharerepurchaseobviouslydependsuponnotonlythepipelineofM&Abutalsothetimingatwhichyoudeployandclosethedeals.Iguesswhatwe'resayingisthatwe'reconfidentenoughinthecash-generatingcapabilityofthebusinessthatwe'reverycomfortableuppingthemidpointofthatrangesothatwe'renowat$2billionto$2.5billion,andthefactthatwe'vealreadyexceededthepaceofthepriorrangebytheendofthethirdquarterandexpecttocontinuetodeploycashinthefourthquarter.

Butaswelookoutin2016we'vegotagoodpipelineofM&A,sochancesarewe'llbedoingmoredealsnextyearandbesupplementingitwithsharerepurchasesbecausewe'restartingouttheyearwhereweendedthethirdquarterwith$1.4billionofcash.Q4isgenerallyagoodquarterforcashgeneration,sowehavetheconfidencethatwe'llcontinuetodeployandearnvaluefortheshareholdersandwe'lljustcontinuethatintonextyearandseewhereitgoes.

Butwecoulddomoresharerepurchase.OurpreferenceistodoM&A,thatwillbethefirstpriority.Butyou'llseebothofthataswegothroughthefourthquarterandmoreprimarilyM&Ainthe2016timeframe.


Okaygreat.AndjustalsoyoumentionedanexpectationtoresumeorganicgrowthinthefourthquarterandFXimpactstomitigatealittlebitandalsoyouclosedLJFaftertheendofthesecondquarter.Sodoyouthinkthatthetop-linedeclinethatwesawinthethirdquarterisitwillstopthereandwillresumetop-linegrowthinthefourthquarter?


Kevin,Idobelievethat'sgoingtohappen.WeclosedLJFonOctober1.

Wehavefouracquisitionsthatbasicallyclosedinthethirdquarter,pluswe'llhaveComexthatflipsintotheorganicside.SoIthinkthat'sallpositive.


Okaygood.Thanks,guys.

Operator :

DmitrySilversteyn,LongbowResearch.

DmitrySilversteyn (Analyst-LongbowResearch):

Goodafternoon.Thanksforfittingmeinhere.Coupleofquestions,alotofthemhavealreadybeenaddressed,butjustwanttounderstandontheChinaimpactfromtheautomotive,howlongdoyoutypicallyleadthesalesnumberinChina?Inotherwordswe'veseensalesdeclineinChineseauto,I'massumingproductionisdecliningthisquartertoadjustforthat.

Soisthefactthatyoudidn'tseemuchofadeclineinthethirdquarter,isthatjustadelayandyou'llseesomeofitinthefourth?Orareyoumorereal-timewiththesalesnumberattheretaillevel?


WellthesalestothecustomerdeclinedinJune,July,AugustandthenturnedbackpositiveinSeptember.Theywere3%.

Buildsinventorieswerecomingdowninthatsameperiod.Rightnowinventoryisbasicallyatthesame




levelitwaslastyear,sothey'reinverygoodshapefromthatstandpoint.Wethinkthey'realittlebitover40dayswhichistypicalforthem.

AndthenrightnowasImentionedearlieronthecalltheOctobersalesaretrendingup.Webasicallysupplyinrealtime.Wegetorderslet'scallthem28daysinadvanceofwhatI'dcallapre-lookandthentheyarefirmedup14daysinadvance.

SorightnowwehaveaprettygoodfeelforhowOctoberisgoingtoturnout.AndIthinkoverallwewouldtellyouthatitshouldbemarginallyup.


Gotit.Sowhatyou'vedescribeintermsofyoursalescadenceinJune,July,AugustandSeptemberwasprettymuchwhatwesawattheretaillevelinChina.Soisthatjustacoincidenceorareyouorthereisnolagbetweendemandforyourcoatingproductsforautomotiveandthesaleofautomotivetoaretailer?


No,Dmitry,we'reverycloselyalignedbecausetheydidtakeinventorydown.HadtheynottakeninventorydownIthinkyouwouldseethatlageffectbuttheindustrytookinventorydowncommensuratewiththesalesdeclineinrealtime.


Gotyou.Okay,sothat'sgoodtoknow.SecondquestionontherawmaterialbenefityoutalkedabouttakingsixtoninemonthstogetsomeofthesepropyleneethylenederivativeswhichI'massumingyou'remainlytalkingaboutresinsheredowninprice.

It'sbeenaboutthatlongsinceoilreallystartedtoselloffandsincepropyleneandethylenepricingstartedtotumble.Soareyoustartingtoseelowerpricesinresinsonayear-over-yearbasisthat'sgoingtohelpyouwiththedeclinesinTiO2toreallydriveyourmargincertainlyintothefirsthalfofnextyear?


Wellaswesaidweexpectedmodestbenefitwiththebenefittogrowthroughouttheyear.Weareseeingthatinournumbers.

Aswesaidinthepastthebenefitismutedinnon-USregionsimplybecauseoilistradedindollarsaroundtheworld.SowhenyougotoEuropeoryougotosomeoftheseemergingmarketsthecurrencydeltashaveeatenintomostoftherawmaterialimpacts.Soagainwe'repullingthisthroughourvaluechain.

Wefeelwe'redoingagoodjobatit.Wedohaveanotherquarterheretogoandwe'recertainlytalkingtooursuppliersonadailybasis.


SoasVinceissayinghereasyouseetherawmaterialbenefitscomethroughthepaceofthatmaynotchangesignificantlygoingfromQ3toQ4toQ1butitwillbemoreevidenttothebottomlinebecausetherewillnotbesomuchoffsetfromthecurrencyheadwindasthatmitigatesstartinginQ4versuswhatwe'veseenatveryhighlevelsrecently.


Soyou'renotsomuchlookingataccelerationofbenefitsasdiminishmentoftheheadwindsthatwill




makethosebenefitsmoreapparent?


TheotherthingthatwewouldmentionthoughisthatwhereyouseeabitofaheadwindonrawmaterialsbecauseoftheexchangerateinplaceslikeBrazilorreallyasmallpercentageofourrevenueinCanadabecausetheexchangedoescausesomeofthoseUSdollar-basedinputstobealittlebithigher.


Okayandthenonefinalquestiononpricing.ArchitecturalmarketinNorthAmericayoutalkedaboutpricingbeingessentiallyflatandsimilarexpectationsfor2016whichmakessense.

IntermsofthecoatingsideofthebusinessasopposedtothearchitecturalsideofthebusinessbothinNorthAmericaandgloballywhichtendstobedealingwithcustomersthatarelookingforsomepassthroughofrawmaterialprices,what'sthepricingenvironmentlikeinsomeofthegeneralindustrialcoatingsandperhapssomeoftheautomotiveaftermarketandsomeoftheseareaslet'ssayoutsideofhighvaluepropositionlikeautomotiveOEMcoatings?Areyoustartingtoseeeitherlowerpricesormorecustomerinsistenceonpricepassthroughoraretheystillhappywithgettingtheproductfromyouatthepricetheygotitlastyear?


DmitryIreallydon'twanttogetintoparsingeachofthedifferentbusinessesbecausewerolloutnewproductsandwehaveolderproducts.Whatwe'vebeenconsistentinsayingisthatthepricingenvironmentisflatandweexpectthattocontinue.


Notjustinpaintsbutencodingsaswell?


Correct.


Thankyouverymuch.

Operator :

Thatconcludesquestions.IwouldnowliketoturnthecallovertoMr.VinceMoralesforclosingremarks.


IwanttojustonceagainthankeverybodyfortheirtimeandinterestinPPG.BothScottMinderandmyselfwillbeavailabletotakequestionsafterthecall.Thankyou.

Operator :

Ladiesandgentlemen,thatconcludestoday'sconference.

Allrightsreserved(c)2014TheStreet,Inc.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.




THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.